Italian banks ditch zombie shipping debt

  • 15 Mar 2018
  • David Osler
  • Cichen Shen

Unicredit and Intesa actively selling to US and Far East funds, say sources


Giuseppe Bottiglieri Shipping is among the beleaguered Italian owners.

ITALIAN banks are increasingly using the current rise in sale and purchase values to offload non-performing shipping loans, with Unicredit and Intesa leading the sellers and US and Far East funds heading the market for any bargains, according to ship finance sources.

As Lloyd’s List reported in late 2016, something like 90% of the top 50 Italian owners are either restructuring or technically insolvent, and since then, a number of individual companies have seen their woes hit the headlines.

Traditionally, Italian family shipping firms have been able to secure mortgage financing for up to 80% of vessel value. While that worked well in better times, it has left them heavily dependent on the continuing goodwill of their bankers.

Meanwhile, the problems facing Italy’s banking sector in recent years have been widely publicised, with the European Central Bank now demanding that it sets aside greater reserves to meet bad loans.

Various tactics are being used to overcome the situation, including maturity extensions and debt-for-equity swaps. But increasingly, NPLs are finding their way onto the market.

Soo-Cheon Lee, chief investment officer at SC Lowy, an international banking and finance group specialised in fixed income, confirmed that his company was now “in active talks with the banks” as opportunities have emerged in recent months to restructure the debts.

Mr Lee was the key figure behind the reorganisations that helped both Pan Ocean and Korea Line to emerge from bankruptcy and eventually be sold a few years ago.

Many Italian owners defaulted several years ago, but the banks have not been ready to engage in a clean-out until now, according to Mr Lee.

He declined to name specific entities, as the discussions are still at an early stage.

But he said most target companies involved were small private owners, primarily in the dry bulker and tanker sectors, each with 10-15 vessels and an outstanding loan worth between $200m and $300m.

According to Mr Lee, the restructuring process led by shipping creditors in Europe proceeds more slowly than the cases he experienced in South Korea.

A key factor at work is that banks need more time to make provisions for impairment losses on the loans and ship collaterals, incurred during the latest market trough.

But the increasing readiness of the Italian banks to dispose of shipping books suggests that provisions are now exceeded by underlying asset value, thanks to the recent recovery in ship prices, especially in the dry bulker sector.

“So basically they can now afford to sell,” Mr Lee said.

The price for a five-year panamax bulker carrier has rebounded to $18.5m at the last count, up from $13m two years ago, according to Clarksons data.

The tanker markets are in a different cycle, but value for secondhand tankers, excluding VLCCs, have also moved up in general since mid-2016, albeit at a tepid pace.

ECB regulation another factor for sale

Another motivation for sale comes as the ECB in October requested that eurozone banks from this year set aside more cash to cover newly classified bad loans.

Gennaro Mazzuoccolo, a partner in the Milan office of Norton Rose Fulbright, said that his law firm was working on a number of restructuring deals.

Among NRF’s clients is Deutsche Bank, which is known to have bought a number of positions in the Italian shipping market. Investments include a $90m NPL owed by Ravenna-based Gestioni Armatoriali, purchased from fellow Germans Commerzbank in 2015.

Earlier this year, Gestioni — which controls nine bulkers and three medium range oil and chemical tankers — saw New York’s Taconic Capital join its roster of creditors, after the latter picked up a $49m tranche from Ubi Banca.

Also on the record is that KKR bought into Premuda through its Italian unity, Pillarstone Italy, in 2016.

It is no secret that Italy’s most troubled bank is Monte dei Paschi di Siena, actually the oldest bank in the world. Despite needing a government bailout as recently as last year, MPS was able to return to the debt markets in January.

Rated CCC by both Moody’s and Fitch, its bonds are considered on the lowest rung of the junk ladder. But its ability to find takers underlines the fact that there is a market for such paper, largely on account of the implicit backing that comes from 70% state ownership.

MPS is currently in the process of shifting $26bn of NPLs. Historically, it has been a lender to all major Italian owners, so chances are high that shipping debt will be up for grabs as a result. It is, for instance, known to have involvement in the unfolding situation at Bottiglieri.

According to Mr Mazzuoccolo, the biggest Italian bank lender to shipping is Unicredit, followed by Intesa, with the latter some way behind.

“Unicredit has the biggest portfolio here in Italy. They are still doing some new financings, although not that many, and very few compared with the past,” he added.

On the other hand, Unicredit’s German acquisition, HypoVereinsbank, has been a seller of shipping debt for some time.

With perhaps fewer than half a dozen Italian shipowners left in good financial shape, Mr Mazzuoccolo expects the present sell-off trend to prevail for the time being.



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