So much for comments like ‘the rich will always be rich’ and ‘superyachts will never be out of fashion’. For the past few years the superyacht sector was viewed as recession-proof with the world awash with millionaires and billionaires looking for the ultimate lifestyle accessory, but no-one reckoned on the credit crunch and its impact on asset values and the supply of ready cash. The biggest casualties have been the Russians with their collapsing commodity empires and 60% fall in their domestic stockmarket – there may still be some extremely wealthy individuals in Moscow but they need all their spare cash to shore up their businesses and pay off their debts, so the volume of superyacht orders from east of the Urals will probably slow for a bit (read more here). Elsewhere wealthy owners of businesses are also being forced to dig deep into their own resources to keep their companies afloat as the banks seek to reduce credit lines and call in loans, all of which in theory reduces their appetite to spend on big ticket items – and they don’t come much bigger than a 30m + superyacht.
The trickle of news-flow from the yards doesn’t seem to be encouraging either, with the problems at Ferretti probably the most widely reported. Admittedly €1 billion in debt is quite a figure, but it does seem to be bad luck that their chief creditor is the Royal Bank of Scotland, currently frantically trying to reduce its loan book in an effort to restore its capital ratios. Elsewhere word is coming in on slow payments on work in progress, cancelled orders and new orders rarer than hen’s teeth. However, the long-term prospect may not be as gloomy as it appears at first sight.
Only last year many yards were reporting order books of up to five years of work. So with no new orders and, say, a pessimistic 30% cancellation rate, this would still give many of them several years’ of construction to be getting on with, surely more than enough to see them through the depression, sorry, recession. This alone should make the superyacht sector a good one to be involved with in these difficult times. That said, the big issue for these yards as for us all remains access to working capital – generally bank debt. Many a good company with a full order book has gone bust for lack of ready cash, and this must be the biggest hurdle facing these capital intensive enterprises. We’ll see. By some accounts bank lending is starting to get going again, and luxury spending is certainly not down and out as evidenced by recent good results from luxury brands Hermes and LVMH, and successful art auctions last week by Sotheby’s and Christie’s.
It looks like the rich probably will always be rich, thank goodness, just not quite so much as before.
