As we move into July there is very little sign of slow down in the market for shipping transactions either for the summer or the holiday this week in the U.S. One experienced lawyer told us he does not think he has ever seen so many shipping transactions at any one time. From our perspective a consolidation process is occurring across shipping sectors as K-SEA acquires Smith Maritime Ltd. and Sirius Maritime LLC for $205 million, Eitzen Maritime Services acquires Provimar for around $63 million, Inchcape Shipping Services acquires Oceania Maritime and broker Howe Robinson acquires Killick Martin.
At the same time institutional private equity continues to play a role in the markets, most recently with the acquisition by Montagu of Unifeeder for $320 million, a price some have called excessive but that has spurred others to wonder what this might mean for small to mid-size feeder and short-sea operations in Europe and elsewhere. Also on the private equity front it is understood that 3i and Allianz, together with Deutsche Bahn, are nearing an agreement on the acquisition of Scandlines. Continue Reading
By Ronny Bjørnådal, Head of Syndications, Nordea Bank
Editor’s Note: In 2004, Nordea was the largest arranger of syndicated loans to the maritime finance industry with a global volume of approximately $15.7 billion in financings compared with $9.7 billion in 2003. Nordea was instrumental in lead arranging very large transactions for the market leaders in this industry as well as to smaller and medium sized companies. The material in this article is taken from a speech given by Mr. Bjørnådal at Marine Money Week on June 16 at the Waldorf=Astoria in New York.
In order to provide you with a perspective on the prospects for shipping lenders and borrowers going forward, I would like to take a look at the current state of the marine finance market, provide you with some statistical data, analyze how we see the current market trends and let you in on how we see the outlook for marine finance going forward.
It has been great to be a ship owner recently! We have been witnessing an historic shipping rally in more or less all shipping segments over the last 12-18 months. If we look at the macro picture, we have seen a global economic recovery accompanied by better sentiment for industrial production, historically low interest levels, exceptional growth in Chinese GDP and a positive economic outlook. Continue Reading
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Marine Money | July 1st, 2005 |
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By Sean Huang
Underpinned by the recovery of western economies and China’s continuous strong performance, the maritime industry has been enjoying an unprecedented boom over the past two-plus years. For the 74 public maritime companies covered by Marine Money’s rankings, the unweighted average TRS, or total returns to shareholders, jumped up from 12.48% in 2002 to 137.72% in 2003 and 70.55% in 2004 (see Figure 16). No other industry achieved such stock performance in the comparable period. More impressively, almost all the players in the maritime industry are making money. It has been a feast for everyone. However, for the first half of 2005, the unweighted average TRS of Marine Money’s 74 maritime companies dropped from 70.55% in 2004 to 20.53%. This is not much of a surprise to anyone in the business and really still a dramatic return, especially considering that it has come over only six months.
The data is compiled based on 74 companies in six sectors: bulk, tanker, liner, offshore, cruise ferry and multiservice. All six categories show the same trend: TRS has declined compared with last year, which reflects an obvious deceleration in stock price appreciation. From 2002 to 2005, the maritime industry TRS has demonstrated a classic bell curve, reflecting the industry’s cyclical nature. We believe, however, that the indication of a slowdown of the maritime industry’s bullish development is reflective of a shift in investor sentiment rather more than market rate realities. Continue Reading
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Marine Money | July 1st, 2005 |
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By Tom R. Kjeldsberg, Vice President, Corporate Finance DnB NOR Markets
During the first half of 2005 we saw tremendous capital raising activity in Norway for shipping, offshore and energy related companies. According to our estimates, more than USD 2 billion of equity capital has been raised so far in 2005, which is up 160% compared to the full year 2004. As we can see from Figure 1, 13 shipping, offshore and energy related companies listed on the Oslo Stock Exchange (OSE) so far this year, and another seven should be listed by the end of 3Q 2005.
As illustrated by Figure 2 below, the OSE has greatly outperformed all the major stock exchanges so far this year. This has mainly been driven by the OSE’s heavy reliance on the energy sector. During the first half of 2005, the energy index increased by 52% compared to a 32% increase for the Oslo All Share index. Continue Reading
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Marine Money | July 1st, 2005 |
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By Matt McCleery
In a transaction both challenging and smoothly executed, DnB NOR Markets, Enskilda and Fearnley Fonds closed a $125 million private placement for Aker American Shipping ASA (AKAS) in early July. At the same time the Marinakis family Capital Maritime deal was struggling and subsequently withdrawn here in New York, sources in Oslo tell us the AKAS deal, which carries significant risk for investors, priced at the high point of the range and was five times oversubscribed. By our calculations, AKAS sold about 45% of its shares to investors in the recent equity offering for $125 million, leaving Aker with 55% of a company with an equity market capitalization of $275 million. AKAS initially had 143 shareholders, which will increase when the company issues another 350,000 shares to retail investors at NOK 65 shortly after trading begins on July 11th.
Also interesting is the equity execution evolution we have seen in Oslo. The Norwegian bankers, who missed much of the bull market for new shipping issues, have developed a clever way to control deal risk in today’s choppy market. As we saw with the recent B+H placement, issuers are now hiring underwriters to sell shares on a private placement basis with the understanding that such shares will subsequently obtain a public listing. Continue Reading
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Marine Money | July 1st, 2005 |
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On June 24, Nordic American Tanker Shipping, Ltd. (NAT) announced its decision to purchase a seventh modern suezmax tanker for $71.4 million. Justin Yagerman of Bear Stearns acted quickly to discuss the implications of this for the company he just recently initiated. The seller of the Korean built tanker is presumed to be Frontline (FRO). In January, NAT announced the purchase of the Nordic Fighter for $68.3 million, a sister ship to the most recent tanker purchase. The two tankers are among the four suezmax’s acquired by NAT since 2004. The newest tanker acquisition falls in line with NAT’s avowed policy of expanding through purchases with promising potential. Mr. Yagerman believes that this new vessel acquisition will provide for an increase in net voyage revenue, higher earnings, and share distributions.
After the recent purchase, NAT now has six of its seven ships trading in the spot market. However, Mr. Yagerman explains that although spot-rates usually outperform time charters, Bear Stearns would still like to see some additional long-term charters to add stability to NAT’s cash flow.
Mr. Yagerman believes that NAT will finance this deal with a combination of cash readily available as well as drawing from its currently untouched $300 million credit resource, though this purchase will increase NAT’s daily cash break-even hurdle. The analyst does not expect NAT to come back to the equity market to refinance this debt at any time in the near future.
However, given the fact that NAT’s dividends and earnings are so dependent on suezmax spot rates, Mr. Yagerman finds NAT’s risk/reward is less than convincing. NAT was down 1.1% on June 24 versus the S&P 500, which was down 0.7%; while the rest of the Tanker Universe was down 0.8%. Even though NAT has more than doubled its fleet in less than a year, there is still a significant amount of risk considering the company’s leverage to the suezmax spot market. The latest tanker acquisition follows suit with NAT’s precedent of purchasing vessels at peak prices, which Mr. Yagerman sees as a risk to NAT’s return profile in the current rate environment.
Another cause for concern is NAT’s decentralized vessel management. It is unclear as to who will control the commercial and technical management of the newly purchased vessel. Mr. Yagerman gave the company a rating of Peer Perform, meaning he projects that the stock will perform approximately in line with the analyst’s industry coverage over the next twelve months.
Evangelos Marinakis had the world of shipping and capital markets contemplating and strategizing after Capital Maritime’s decision to withdraw its 16.7 million share IPO during pricing on Monday night. Goldman led the deal, while Bear Stearns and Jefferies played supporting roles as co-managers. With deals for Genco, Quintana, Wexford, and others confidentially filed by foreign issuers in the process of coming to market, Capital’s decision to pull has been a reality check for both issuers and underwriters that valuations are coming under increasing pressure with every new deal that comes to market, irrespective of the quality of the fleet and corporate structure.
Dissecting the Deal – Lessons Learned
Ironically, the factors that most influenced the pulling of this deal were determined before the company jumped on the first private jet out of Teterboro: the price range and the corporate structure. As we understand it, a solid group of blue chip institutional investors liked the Capital deal, especially in light of the fundamentals for the product tankers that Capital has on order. However, they became very focused on the price relative to the range.
Set the Range High and Negotiate Down
Unlike Eagle, which went to market at about 180% of net asset value and therefore had a lot of room to negotiate with investors, Capital was boxed in from the start. Goldman advised the company to put a very reasonable price on the cover of the red herring at $14-$16 (5.3x-5.8x EBITDA), hoping that investors would place enough market orders (which do not specify the price) to push the stock to the high end of the range or above it.
Unfortunately, since investors recently had their way with Aries, TBS and Eagle, they put in limit orders (which state a firm price) at $13 – or $2 below the range. The problem was that with a net asset value of about $15/share, Capital had little room to be negotiated down. This inflexibility was compounded by the fact that Evangelos Marinakis put his entire family fleet and management company into the public vehicle, making the impact of a dilutive deal even greater.
Don’t Offer Newbuildings If You Won’t Get Valuation Credit
Yield deals like Diana, Aries and Eagle were able to tap an investor community that focuses on valuations such as Price/EBITDA and dividend yield. However, Capital had much of its net worth in newbuilding contracts (which produce negative cash flow until the ships deliver) and therefore put the company squarely into the world of value – net asset value in this case – which allowed investors to feel they possessed the upper hand. This is not a new phenomenon; TEN has also struggled to have its fantastic newbuilding program assigned a fair value.
Keep It Simple
As superficial and shallow as it sounds, valuing the Capital fleet may have been more time consuming for investors than expected. As of June 3, 2005, the company’s existing fleet was comprised of 39 vessels of which twenty-six are product tankers, four are OBOs and nine are bulk carriers. In addition, Capital currently has 16 Ice Class 1A MR product tanker newbuildings on firm order, which are scheduled for delivery in January 2006 through November 2007. These tanker newbuildings have an aggregate carrying capacity of 665,500 deadweight tons and currently comprise the largest fleet of this type and size on order in the world. As sad as it sounds, valuing Capital’s fleet, which has a wide range of ages and types, may have required more of a commitment than the average value investor wanted to make.
Like many good deals, the sellers didn’t need the money, and indeed may have been disgusted by the way future partners valued the company after the efforts made to construct a first class investment opportunity. All in all, this was a good deal and it is a disappointment that it didn’t get completed. In the end, we think it is the investors who have lost out here. Although every deal seems to influence the next one, we do not think the pulling of this deal will have a major impact on future shipping IPOs – so long as issuers go into the market with reasonable expectations. The fact remains that at today’s high net asset values, issuing a minority interest in equity at even a slight premium is a very attractive proposition.
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Equity,
Freshly Minted | June 30th, 2005 |
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Cantor Fitzgerald Analyst Natasha Boyden, in a recent report, provides important and interesting information regarding Top Tankers, INC (TOPT). As a review, headquartered in Athens, Greece, TOPT transports crude oil and refined petroleum products on its fleet of 23 tankers, comprised of nine suezmaxes and fourteen handymaxes.
Ms. Boyden comments on TOPT’s “balanced charter strategy” which allows the company to manage a constant flow of revenue. Of the nine suezmaxes, three operate under time charter contracts with profit sharing arrangements and one trades under a straight time charter contract. The fourteen handymaxes are all set up under long-term time charters with profit-sharing arrangements. These, of course, help insulate the company from any dramatic fall in tanker spot rates in the future.
To ease the burden of the present high oil prices, OPEC is increasing production by 500,000 barrels per day (bpd). Because tanker spot rates depend on the supply of oil as opposed to the actual price, it is predicted that the spot rate environment will remain above the average level for the next twelve months. In addition to the increase made by OPEC, global demand for oil and economic development in China should positively affect the spot rates. The current orderbook for tankers, which as of March 2005 included 85 million dwt, “is more than sufficient to meet projected oil demand growth…” according to Ms. Boyden, though the concern for tanker investors is probably the other way around.
Ms. Boyden believes that TOPT is in a favorable position for continuous growth. During the first quarter of 2005, TOPT’s long-term debt-to-total resource ratio was roughly 50%. It is predicted that TOPT’s long-tem debt-to-total resource ratio will rise slightly to 51% towards the end of 2005 as a result of recent vessel purchases. However, this increase should not raise concern as the ratio is still in concordance with peer long-term debt-to-total capital average of 50%. Ms. Boyden estimates that TOPT will post free cash flow (net operating cash minus capital expenditure minus dividend) in 2005 of $76 million, or $2.72 per share, and in 2006 of $70 million, or $2.52 per share.
Along with her colleagues, Ms. Boyden believes TOPT’s stock is undervalued. As we go to press, TOPT’s share price stands at $15.87 per share. In addition to it’s strong charter The company is in an ideal position to benefit from increases in the spot rate environment and due to its time charter contracts enjoys a steady flow of visible revenue. Ms. Boyden gives TOPT a STRONG BUY rating with a price target of $23 a share.
International Shipholding announced this week the election of veteran employee Manuel (Manny) Estrada to Vice President and Chief Financial Officer. Mr. Estrada is to succeed Gary Ferguson, who has retired. The company also elected Sheila Dean-Rosenbohm to VP of Planning & Administration, Ada Pratt Bouchard to VP and Controller and Jennifer C. Delcambre to Director of Internal Audit. Roger K. Franz and Eduardo Seoane have newly joined the company, bringing with them 50 years in combined experience.
General Maritime Management has hired Teekay Shipping MD Peter Bell to take over as Senior Vice President and Head of Commercial in a bid to boost charter rate performance. Peter Georgiopoulos commented, “The depth of Peter’s experience in the shipping industry, extensive relationships with major oil companies and his proven chartering leadership greatly enhances the company’s commercial position. The combination of Peter’s leadership with our quality fleet positions General Maritime to continue meeting the exacting requirements of our customers while delivering value to both the company and shareholders.”
