Talking about the critical issue that Chinese private owners are having difficulties to secure financing at the Capital Link International Shipping Forum in Shanghai on Friday, Li Duozhu, president of fast expanding Chinese chemical tanker owner Dingheng Shipping, suggested many Chinese private owners do not deserve to get financing as they simply do not have the management capabilities to handle expansion.
“Assuming your company can achieve a rate of return of 10-12% per year, you could double your scale in five years. However, given the fact that the general management level of Chinese private shipping companies is low, your management quality is just about to keep up with the expansion scale during the time. If you double your scale in three years by adding more financial leverage, it would add substantial risk for the management of the company,” Li explains.
“And if your rate of return is lower than 10%, it would add significant financial risk to the company, which could eventually kill the company and leave bad debts to banks,” he continued, adding that he has seen many companies go bankrupt in similar cases.
Li reckons the private owners shouldn’t count on financing to expand their scale, but to focus on increasing operational quality.
“Sustainability is the key for operating a private shipping company,” Li claimed.