Shipping IPOs on the London Stock Exchange

Shipping is a highly fragmented and capital intensive sector that has traditionally been served by debt financing. Up to 1995, initial public offerings (IPOs) had been an alternative financing solution only for big shipping companies that were familiar with the concept of corporate structure and ownership. Family owned shipping companies used to see debt as the most efficient vehicle for vessel acquisition.

IPOs have been used an alternative way of financing for vessel acquisition or debt repayment. Their main advantage is that liquidity is increased without inflating balance sheet liabilities while diversifying ownership structure. From a credit perspective, IPOs also increase equity and lower the debt to capital ratio that is the main metric of a company’s financial leverage. An IPO is a solution for ambitious shipowners with confidence in their management skills. Management is transparent since the companies are audited and obliged to publish their financial statements.

The investors from their side are interested in companies with growth potential which either comes from market growth or the company’s expectations for performance. The role of the executives does not stop at managing the company; they also have to educate their investors, who are not always familiar with shipping. By the end of 2006, it was estimated that some 180 shipping companies had listed on 37 stock exchanges around the world, with a combined market capitalisation of about $209bn. Although the majority of shipping companies have listed on the US stock market (NYSE & Nasdaq), interesting deals have appeared on other exchanges around the world.

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