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Private equity-funded vessel splurge fuels risk to shipping sector

Published on May 12, 2014 11:18 AM
 

SINGAPORE (Reuters) - The shipping industry faces a looming capacity glut as billions of dollars pumped into it by private equity have stoked a vessel-buying spree, threatening its prospects just as the sector is emerging from its worst downturn in three decades.

Backed by private equity and hedge fund financing, shipping companies have placed orders for thousands of new ships over the past two years, reminiscent of the ship-ordering binge of the mid-2000s that eventually led to overcapacity after the global financial crisis severely hit cargo demand.

The demand-supply equilibrium could tilt into overcapacity again from 2016, straining shipping companies' finances. It may also make private equity's exit from shipping less profitable, shipping experts said.

"Shipping is not a get-rich-quick business. By virtue of the capital that the private equity funds are pumping into shipping, they are in effect destroying the very prospects that they are chasing," said Jan Engelhardtsen, chief financial officer at Olso-listed tanker and terminals company Stolt Nielsen.

 
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