Bank egos blasted

Dry-bulk heavyweight Jinhui Shipping & Transportation has lambasted “irresponsible” and “egocentric” bankers for the collapse of the global economy and dry-bulk market.

The Hong Kong and Oslo-listed owner says some major economies are now stuck in a “vicious cycle” and warned many governmental stimulus packages may simply lead to rapid hyperinflation.

The tumble started with Lehman Brothers' collapse.

Jinhui also launched a thinly-veiled broadside at new entrants to the dry-bulk market and showed little mercy at the probable demise of “weaker players” in the market which could disappear just as fast as they came.

The owner was commenting from a position of strength as it unveiled an almost trebling of annual net profit although it did suspend dividends in light of market turmoil.

“The outbreak of Lehman Brothers’ bankruptcy in the US further exacerbated the disruption of the global banking markets, bringing the world’s full attention to the fragile fundamental[s] of some of the western economies due to irresponsible lending practices by some financial institutions which encouraged extreme over-leveraging, as well as exposure to senseless financial engineering products designed by egocentric bankers in some of the world’s largest and supposedly reputable, trustworthy and prestigious financial institutions,” Jinhui’s rant read.

“Bailouts announced in western economies failed to reverse the global economic slump and shipping activities of dry bulk commodities such as iron ore, coal, steel, grain became virtually stagnant mainly due to difficulties in obtaining banking finance.”

In fact Jinhui took issue with the rationale behind many of the bailouts themselves, arguing: “The effectiveness of such actions remains to be seen, but with money supply increasing at astonishing velocity under these credit easing plans, we see risks ahead that as the economic pendulum swings in the opposite direction, hyperinflation could kick in abruptly at speed and magnitude akin to the strike of the current economic crisis.”

Jinhui added: “The continuous decline in home prices, rapid decline in consumer spending and lackluster export volumes will further lead to a vicious cycle, given over-dependence on consumption or export of goods in [the US, European and Japanese] economies.

“Globalisation means that Asia is not immune despite the impact is in somewhat a lesser magnitude, due to higher savings rate and lower use of financial leverage in most Asian economies.”

The dry-bulk market was particularly hit by the economic downturn as China - which had been the market driver – virtually stopped importing raw materials such as iron ore and coal as the price of steel dropped on a demand slump.

“A free-fall of [Baltic Dry Index] was witnessed and charter rates of all kinds of vessels slumped in October 2008.”

As the bottom fell out of the charter market some charterers defaulted on contracts and owners saw asset values tumble which potentially and realistically put many in default of loan covenants.

“We expect to see increasing failures to honour legally binding contracts in coming months especially by weaker players, which are typically characterized by their short operating histories. Those remaining will become stronger and will command higher credibility in the market.”

The iron ore train was derailed in the fourth quarter.

Despite placing itself in the latter group, Jinhui had to admit: “The global economy remains to be in poor shape and the coming months remain to be unprecedentedly challenging. Overall, 2009 remains to be extremely tough even for the largest and strongest shipowners.”

Against this stark warning the owner unveiled a pristine set of annual results which showed net income rising from $85.63m to $238.83m.

Revenues climbed from $296.29m to $475.15m and gains on ship sales trebled to $62.79m

There were much higher operating costs due to more ships being chartered in which staff costs soared as more man hours were needed to keep the larger fleet on the water.

Although average daily time charter equivalent (TCE) rates across the diversified fleet of bulkers dropped in the fourth quarter, they were well ahead of last year: $43,093 as against $32,778.

The owner had no exposure to forward freight agreements or bunker hedges, it stressed.

Despite the improved result, however, Jinhui did axe dividends “in order to preserve cash and enhance liquidity in these extraordinary market conditions”.

(To read Jinhui's annual result in full click on the link in the related media section to the right of this article.)

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