Mis-Fortune Cookies?

“The wind of secrecy sweeping the container shipping world” has made it increasingly more difficult to get information on newbuilds because, according to AXS-Alphaliner, “contracts have become cloaked with privacy clauses”. That was one of the reasons.

Another reason is that investors will be reluctant to invest in shipping lines if it becomes known that those lines have failed to do their homework and have mistakenly committed billions of dollars “to more orders than reasonable, with at the end of the day difficult times to fill all the leviathans to come”. No one brags about a miscalculation.

A report from Hong Kong spoke of efforts by Chinese shipbuilders “to tap eager equity markets in coming years to ride a global trade boom,” but that same report advised investors to “be wary about risks of a worldwide capacity glut by 2010”.

It’s obvious that these shipbuilders hope that investors will be attracted to shipyard stocks because many players have locked in contracts at record prices for newbuilds which will take some years to complete.

“I don’t see any problems for major shipyards in the next one or two years, even though rising steel prices and the appreciation of the yuan could have some impact on earnings,” said Chen Baoyao, an analyst at Huatai Securities. Japan’s Kawasaki Heavy Industries, however, and even Chinese authorities have voiced concerns about overcapacity after 2010.

“Definitely, Chinese shipbuilding is a high growth market but there is some uncertainties whether there will be a capacity glut three, four years down the road,” said Mr. Raymond Cheng, manager of the $ 310 million Mirae Asset Asia Pacific Infrastructure Sector Fund.

That “wind of secrecy” makes it difficult for potential investors to arrive at an accurate assessment of a shipbuilder’s possible miscalculations. We know that much is true. On the other hand we know that if a company is making money hand-over-fist, the principals in that company are not likely to be inclined to share its windfalls with potential investors.

But if a predicted worldwide capacity glut threatens to eliminate airtight guarantees for these shipyards , and if outside funding (windfalls?) can be available from investors who are led to believe that handsome profits are forthcoming, then those principals might be “well-advised” to come up with a stock offering. “Chinese shipyards, especially those privately-owned, will need funding for expansion,” reasoned Geoffrey Cheng, an analyst with the Daiwa Institute of Research.

Is it possible that well-bathed but surviving U.S. investors will now forsake Wall Street and take heed of the glowing reports, but not the warnings, coming from overseas analysts?

Will Rogers would smirk and remark: “I only know what I read in the newspapers.”