Dry Bulk Mega-Merger Binge on the Way?

Dry bulk players have reported generally dismal results for the financial year 2015 and now rumours about potential acquisitions and mergers are popping up

The past year was one of the worst in history for dry bulk; financial results are making that clear, dry bulk vessels are being idled and scrapped, while companies flirt with bankruptcy.

The end of the Chinese commodities boom has crippled global consumption, and an industry overbuilt in terms of capacity is now dealing with the realities of current and actual supply and demand.

With players looking to find a way to survive, or exit, the market, rumours reported by the global shipping media Friday are the latest signs that a wave of mega-mergers could be on the way. 

One report Friday suggested Scorpio Bulkers is in "advanced talks to sell its entire fleet" to Greek shipowner John Angelicoussis.

According to subsequent reports, officials at Scorpio Bulkers "strenuously" denied the bid, said to be $720 million.

"The information is totally wrong. We have no negotiations with Angelicoussis at the moment and we are not interested in selling all the fleet," a senior source at Scorpio Bulkers was quoted as saying.

Nevertheless, the very fact the rumour even spread is suggestive of current conditions.

Also reported in global shipping media Friday was that South Korea's Hyundai Merchant Marine (HMM) could end up in merger talk with Hanjin Shipping (Hanjin).

Shipping consultant Drewry downgraded HMM last week to "high risk" and suggested a tie up with Hanjin would allow HMM to "survive."

The report noted that merger talks between Hanjin and HMM was put off by the Korean government last year, but the severe debt situation in both companies could be causing a rethink of that policy; a report quoted a government finance official hinting that financial support to the companies may be cut off.

The Baltic Dry Index (BDI) has put on some gains over the past couple of weeks, rising to 327 as of Friday, suggesting a recovery of sorts could be in sight.

But players should also not lose sight of the fact that the BDI made headlines last November when it fell below the 500 point mark for the first time ever, and the index stood at 1,222 on August 5, 2015.

So there is no doubt the industry still has a way to go to get healthy.

The Shanghai International Shipping Institute issued a report last month claiming that more than 60 percent of the firms it polled were struggling with long-term losses, 40 percent faced liquidity problems and that a "wave" of bankruptcies is coming.

A separate report suggested some 690 dry-bulk ships, seven percent of the global fleet, is currently sitting idle as the "perfect storm" of lowered Chinese demand and over capacity rages.

Expect rumours of tie-ups to continue.