Tokyo-based shipping company Sanko Steamship Company filed for bankruptcy in the Tokyo courts on July 2, as well as Chapter 15 protection in the US to prevent ship seizures.
Shinsaku Ito of Adocean Japan, a Japanese broker familiar with the company, estimates Sanko lost $2 billion in the last six months of which $900 million was in unpaid installments to ship building and repair yards, with the rest in operational market loss. Its remaining asset value is estimated as at most $300 to $500 million. This is the company's second application for bankruptcy protection, following one in 1985.
The company said it saw a sharp drop in the freight and charter revenue caused by a huge dip in demand for transportation as a result of the credit crisis. “[This] caused a growing gap between supply and demand, and also because it was too late for us to take drastic actions for high-cost charter contracts. As a result, our profitability had rapidly and seriously deteriorated.”
The president Takeshi Matsui and vice president G Morita have since resigned. Hisashi Asafuji, who was responsible for finance, accounting, and insurance, was appointed the new CEO and president on July 2.
Data from Reuters shows a one year loan of ¥10.9 billion from lead arranger Sumitomo Mitsui Banking Corporation, which was to be paid in full by June 30. It is unclear whether Sanko managed to meet its obligations to repay this loan. Additional data shows loans totalling ¥9 billion and ¥16.4 billion with Citigroup as the lead arranger on both, though the loans are not due to be paid in full until February 2016. Liabilities left by Sanko total about ¥155.8 billion, according to credit research firm Tokyo Shoko Research Ltd.
These loans, as well as legal claims from the ship owners the company chartered, put severe pressure on Sanko and forced it to seek the protection of bankruptcy courts, according to brokers familiar with the case. Though the company had been in negotiations to find a way to refinance and keep afloat, the freight markets had turned on them and their fundamental costs and revenues had simply become unsustainable.
“Sanko is totally unlike Torm [A Danish shipping company that has able to restructure its debts], which owns 50% of their ships. They were able to negotiate with the banks and rescheduled some payments. In Sanko’s case they didn’t own the ships. They had a fleet of around 180 vessels, but only owned around 20-25,” Ito says.
Ito estimates that Sanko had entered into a number of charters with ship owners for $40,000 to $50,000 a day. The market freight rate for those same ships today is closer to $5,000 a-day. With the market rate differing so widely from the charters they’d agreed to, Sanko became unable to cover their costs and pay their owners.
One of those owners, Knightsbridge Tankers backed by billionaire John Fredriksen, known as “Big Wolf” in the shipping industry, had the 51,000 dead weight ton (DWT) bulker Sanko Mineral physically taken charge of by a US Marshal in the port of Baltimore on May 19. According to Tradewinds, a shipping industry magazine, “Knightsbridge is seeking damages of more than $1.3 million in a dispute involving the 170,000 DWT bulker Battersea and a five-year fixture forged with Sanko back in May 2007 at a rate of $40,000 per day.”
Ship owners Liquimar Tankers and Cobelfret Freight Shipping had also been reported in disputes with Sanko.
“We had to give up the reorganisation through the out-of-court workout proceedings and had to file the petition for judicial proceedings because we have experienced a severe cash flow problem after some ship owners attached our vessels and hire claims, and withdrew their vessels as a response to our deferral payment,” Sanko said.
Conflicting trade winds
Though up from its monumental plunge of over 60% in early February, the Baltic Dry Index, which tracks the freight rate of dry bulk shipping is still down almost 30% from the beginning of the year, as of July 6.Despite these troubles reported in the shipping industry. Both HSBC and Barclay’s bank listed the sector as a strong source for trade growth in recent analyst reports. Ryota Himeno, Barclay’s Japan marine transport analyst did not respond to requests for comments.
“South Korea, Japan and China are key players in this sector, with China’s shipping export trade alone forecast to grow 14% annually to 2016. Asia’s shipping exports are forecast to grow over 10% will provide a substantial contribution to the region’s economy,” HSBC predicted in its recent global connections report.
Even if the future looks bright for shipping rates, it may come too late for Sanko. But for his part, new CEO Asafuji is positive he can turn the company around. “Returning expensive contracts will stabilise the business and allow us to realise profits in the future. I think we can definitely rebuild the company,” he said in an interview on July 6 with Kaiji Maritime press in Tokyo.