BDI Hits 468 Points, Operators Offload More Bulkers

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By MarEx 2016-01-11 12:31:33

On Tuesday, the benchmark Baltic Dry Index hit a new all-time low of 468 points, in what analysts at Deutche Bank described as a “perfect storm” for bulker operators. The index exceeded 10,000 points only five years ago.

The Caixin PMI, an indicator of Chinese industrial activity, showed a contraction in December – suggesting low near-term demand for bulk transport materials including coal and iron ore – and a persistent oversupply of bulker capacity has also helped to drag down the BDI.

Given the tough environment, some operators are working to reduce their exposure by selling ships. On January 5, Star Bulk Carriers announced the sale of an additional four newbuild Capesize bulkers for a total of $150 million. The ships are under construction in South Korean yards for delivery in the first half of 2016, and media have linked John Angelicoussis to the sale. Star Bulk has not confirmed the buyer. The firm lost $150 million in 2015 and its stock has plummeted, but its share price rose on the announcement, to $0.63. Star Bulk is said to be considering a reverse share split.

The firm has been steadily offloading its fleet for months amid persistently weak BDI rates. In November, the firm sold two Capesizes for $80 million; in December, it sold two Capesizes and two Kamsarmaxes for $122 million, then three additional Capesizes for $110 million.

Star Bulk now operates a total of 66 ships, with 19 more newbuilds on the way.

Separately, carrier operator Scorpio Bulkers has sold five Capesizes – three second-hand and two newbuildings – for $167 million. The sales represent the last of Scorpio's ships in the vessel class. Media reports have listed shipping magnates John Fredriksen and John Angelicoussis as involved parties, but Scorpio has not confirmed the names of the buyers.

The sale reduces Scorpio's fleet to 25 smaller vessels, with 24 newbuilds on the way.

Like Star Bulk, Scorpio is said to be considering a reverse share split.

In a report Tuesday, Deutsche Bank had a warning regarding vessel sales in the current weak market, suggesting that offloading ships could force some operators into bankruptcy as large asset reductions would violate their loan covenants.

“We believe a number of dry bulk companies are contemplating asset sales to raise liquidity, lower daily cash burn, and reduce capital commitments . . . [But] the majority of publically listed dry bulk companies are already near max allowable loan-to-value levels. The move to sell assets in unison can lead to a downward spiral, where the decline in values leads to an immediate need for additional equity to cure LTV breaches,” the bank said.  

Bankruptcy proceedings and forced sales are becoming almost commonplace among bulker companies overseas, and analysts predict many more for 2016. In China, Zhenghe Shipping recently lost two bulkers to court sales in actions brought by unpaid crew, and Fu Lai Deng Shipping lost one ship in September under similar circumstances. The assets of collapsed bulk operator Guangdong Lanhai Shipping, including 28 vessels, were progressively auctioned off thoroughout 2015 at low prices and with few bidders. Japanese firm Daiichi Chuo filed for bankruptcy in September, following closely after Global Maritime Investments Cyprus. Danish operator Copenship also filed earlier in the year.