There is a growing number of hedge funds moving into shipping debt, an asset class few have invested in before, looking to buy up loans and bonds as banks cut their exposure to the troubled sector, Reuters says.

World economy worries and cost pressures are dampening prospects for a proper recovery in many segments of the shipping sector that, as Reuters highlighted, has struggled with tough markets for a decade.

Meanwhile, European banks, particularly German lenders, are trying to offload distressed and performing loans to the industry which attracts high capital requirements.

And the European Central Bank’s banking supervisor has flagged troubled non-performing loans (NPL) in 2019 as «a concern for a significant number of euro area institutions».

Hedge funds clocked up hundreds of millions of dollars in losses from investments in mainly equities when the shipping industry first turned sour a decade ago – and have made limited forays for the most part since.

Last year some equity-focused funds bet on a recovery for the global shipping industry through the stock and futures markets, but many are now retrenching after heavy losses in the fourth quarter.

Debt-focused funds are hoping for more luck.

Hedge funds looking at distressed loans include York Capital Management and Cross Ocean Partners, the sources consulted by Reuters said.

One deal expected to generate hedge fund interest include a portfolio of distressed shipping loans that Greece’s Piraeus Bank is seeking to sell, finance sources said.

A source close to the Piraeus Bank deal said Reuters the portfolio of shipping loans, called Nemo, was made up of non-performing and performing loans with a nominal value of 500 million to 600 million euros. The source said a sale was expected to close in the second quarter of 2019, declining to provide any details on potential bidders.

Original Story: Reuters | Jonathan Saul, Maya Keidan
Photo: FreeImages.com/Magda S
Edition:Prime Yield