Oil tanker company General Maritime Corp filed for bankruptcy protection and Denmark's Torm said it was in talks with creditors on Thursday as both fell victim to a glut of ships in the world fleet and gathering global economic gloom.
Bankers expect more bankruptcies and restructuring in the sector as companies struggle with a worsening world economic crisis and lower earnings driven by a build-up of ships ordered when times were good.
In a related sign of sector stress, a second major Chinese shipping firm has halted payments to foreign ship owners because of the downturn in the freight market.
Our operations are strong, but continued macroeconomic weakness and reduced tanker rates have diminished our cash flow and our ability to comply with certain covenants..., Chief Financial Officer Jeffrey Pribor said in a statement.
Earlier this month, China's transportation minister said the global shipping sector was in a downturn worse than that during the 2008 financial crisis, with the outlook for the industry made increasingly uncertain by euro zone debt turmoil.
The head of the world's largest independent oil tanker company, Frontline
Prospects for dry shipping -- the transport of commodities like coal and iron ore -- are also bleak and set to remain poor for 2-3 years as the sector struggles with a glut of vessels.
Danish firm Torm
The company said freight rates -- the cost at which cargo is delivered from one point to another -- had come under massive pressure and were likely to remain subdued.
It is now evident that the current low cyclical freight rate levels may continue longer than anyone had expected, chairman Niels Erik Nielsen said. This calls for extraordinary actions and Torm is exploring all possible levers.
Shares in Torm, one of the the world's top oil products tanker operators and which issued a profit warning at the end of October, were down 11.5 percent at 4.20 crowns at 1510 GMT, having hit a record low at 4.00 crowns earlier.
Chief executive Jacob Meldgaard said the third quarter had proved to be a particularly challenging quarter, as the uncertainty on the global economy continued.
Torm reported a $70.1 million third-quarter pretax loss, compared with a forecast for a $53.1 million loss in a Reuters poll, and stood by a previous forecast for a full-year 2011 pretax loss of $175-$195 million.
Its stock has lost nearly 90 percent of its value this year, reducing its market capitalisation to about 298.5 million Danish crowns (34.3 million pounds).
Torm's biggest problem is a huge debt, piled up from paying out quite high dividends in the years when things went well -- 2004 to 2007, Sydbank equity analyst Jacob Pedersen said.
In June, the company said it had agreed an amendment of its $900 million revolving credit facility with Danske Bank
That deal postponed most of a repayment of $630 million due in 2013 to 2015 on condition that it raise $100 million in new capital from shareholders by mid-December.
If the debt extension is not carried out as agreed in June, payments of $510 million due in 2015 and $60 million due in 2014 would fall due in 2013 instead, Chief Financial Officer Roland Andersen said in a conference call.
($1 = 5.501 Danish crowns)
(Additional reporting by Vaishnavi Bala in Bangalore and Jonathan Saul in London; Writing by Jodie Ginsberg; Editing by David Cowell)