Wednesday, September 23, 2009

FAIRPLAY : Long Term Asset Value

22 Sep 2009

GERMAN shipping banks and shipowners may be able to avoid crippling asset writedowns following approval of the new Hamburg Ship Evaluation Standard by PricewaterhouseCoopers. The formula for the calculation of a ship’s long-term asset value (LTAV), which takes into account charter employment, market prospects and historical asset prices, represents an alternative approach to value assessments. As a discounted cash flow method, it arrives at more conservative values than the extreme highs and lows recorded in the sale & purchase markets during booms and slumps. The deviation from traditional spot value assessments tends to be within a 15% corridor, the Hamburg Shipbrokers Association said. Banks and owners can use the scheme to back up higher ship value estimates than seen in recent ‘fire sales’ concluded under abnormal market conditions. Loan-to-value ratios on well-performing vessels can be kept under control under, averting covenant breaches. A survey by PricewaterhouseCoopers presented in Hamburg today found that the LTAV formula is a plausible and appropriate tool. Details of the standard, including forward interest rate curves and forecast periods, have been revised since its first introduction in February, to comply with German accounting standards. Both HSH Nordbank and Deutsche Schiffsbank have declared their intent to apply the formula for fleet valuations.

No comments: