Determining the cost of equity

By Geoff Uttmark

Exxon Valdez and Erika may bracket the decade it took for even the semblance of a two-tier tanker market to evolve. At this speed, shipping, along with manufacturing, construction, retail and virtually everything else pre-dating Yahoo, Netscape and the like is unquestionably “Old Economy”, as opposed to “New Economy” companies concentrated in telecommunications, information management and globalization of business. Adjective opposites like old and new imply two distinct economies with little in common. False. There is but one economy and no where is this more evident than in the quest for capital. As a well-aired TV advertisement proclaims, “Money is indifferent.” That pits ship owners’ needs for capital against abundant and formidable competition on a global basis. To make matters worse, along with expected returns, the rules for raising money also seem to have changed. A shipping banker recently left this writer gulping for air with her pronouncement on capital formation. “We call it the elevator pitch,” she said. “How so?” asked I. “Because it should take no more than eleven seconds.” “Eleven seconds to sell the story, and get an indication on funding?” “Right,” she said. So much for the dignified, two-pound business plan placed neatly around a conference table surrounded by somber, blue-suited males. “Given just eleven seconds, I might use them differently,” I retorted. Add the new breed (and gender) of banker to changed rules and expected returns in the unceasing battle for capital.

This is only an excerpt of Determining the cost of equity

Content is restricted to subscribers. To continue reading please Log-In or view our subscription options.