By Ole Mikkelsen
COPENHAGEN (Reuters) - Some shipping firms will likely go out of business and others will be forced to close routes in 2015 when environmental rules on fuel oil are tightened in parts of Europe, a senior executive told Reuters.
"Low-sulfur regulation can change the industry fundamentally," Niels Smedegaard, chief executive of Danish shipping group DFDS A/S, said.
"If the politicians maintain these plans, we'll see routes being shut ... and companies fail," said Smedegaard, interviewed in his office with views over Copenhagen Harbour and which is decorated with pictures of steam boats and sailing vessels.
Smedegaard, born in 1962, was relaxed in discussing the impact of International Maritime Organisation rules that will from 2015 dictate that shipping fuel sulfur content should be cut to 0.1 percent from 1.0 percent in coastal waters such as the North Sea, the Baltic and the English channel.
The European Union adopted the regulations last September.
DFDS, best known for its passenger ferries but whose main business is transporting trailers and trucks, has most of its 50 vessels deployed in these Emission Control Areas where the new rules will have a major impact, as cleaner replacement fuels are around 40 percent more expensive.
DFDS spends around 1.8 billion Danish crowns ($320 million) a year on fuel and has invested 400 million equipping eight of its ships with scrubbers - 70 ton devices that remove sulfur from exhaust gases.
The new regulations allow for such solutions as long as they have the same environmental effect as using low-sulfur fuel.
But not all ships are able to use a scrubber and some are just too old to be worth lavishing millions of crowns on. DFDS is therefore considering relocating some vessels to southern Europe, where the regulations come into effect only from 2020.
DFDS - which has a stock market value of just over $1 billion - has only one route in the Mediterranean, operating between Marseilles in southern France and Tunis in north Africa.
"The ships not equipped with a scrubber could be recycled to other areas, but we would need more routes," said Smedegaard, who was casually dressed in a light colored open-necked shirt and no jacket.
Oil and shipping group A.P. Moller-Maersk last week sold its 31.3 percent stake in DFDS to a group of institutional investors and to DFDS itself.
Despite buying shares worth 628 million crowns, DFDS says it still has a war chest which could be used for buying rivals. "If we find something that fits into our strategy and creates value for shareholders we are ready," Smedegaard said.
DFDS earlier this year made a bid for private equity- controlled ferry company Scandlines, which operates routes from Denmark to Sweden and Germany. Smedegaard said he had been ready to pay more than 1 billion euros, but owners 3i Group and Allianz Capital Partners turned down the offer.
"It could have been a considerable investment for DFDS," Smedegaard said. Scandlines and its owners are now set to strike a refinancing deal, several people familiar with the process said.
After buying 12 percent of its own share capital from Moller-Maersk, DFDS's ratio of net interest-bearing debt to operating profit increased to 2.4 from 1.8.
"Two to three is a good range to be in, but we can go up to four times operating profit ... without problems because we have a very strong cash flow," Smedegaard said. ($1 = 5.6281 Danish crowns)
(Editing by Geert De Clercq and David Holmes)