Links
Survey of Shipping Industry Primary Equity Offerings in the U.S. Public Market in 2010
By Francois Janson & Frode Jensen, Holland & Knight New York
Shipping companies continued to access the U.S. public equity market to raise capital at a robust pace in 2010. Primary equity offerings by shipping companies in the U.S. public market totaled approximately $3 billion in 2010, a 13% increase over 2009, driven in part by four IPOs and a substantial increase in the number of offerings by tanker operators.
This survey reviews the registration documents filed with the U.S. Securities and Exchange Commission (SEC) in connection with capital-raising transactions in 2010 and the principal terms of the related offerings.1
Highlights of the Survey
• In 2010, there were 28 primary equity offerings by 20 issuers, including four IPOs and 24 follow-on offerings, compared to 21 follow-on offerings by 14 issuers for the same period in 2009.2
• 16 of the 20 issuers were foreign private issuers organized outside the United States; three issuers were foreign corporations with headquarters in the United States. Only one of the offerings was conducted by a U.S. corporation headquartered in the United States.
• 16 issuers were organized as corporations either in the Marshall Islands or in Bermuda; four were Marshall Islands limited partnerships.
• 17 issuers engaged in 24 follow-on transactions. Twenty were firm-commitment underwritings, one was a negotiated purchase transaction and three were at-the-market (ATM) offerings.
• Six issuers came to market more than once in 2010; two issuers completed three separate underwritten follow-on offerings and four issuers completed two offerings.
• All the transactions were primary offerings3 exclusively. None included secondary sales by existing shareholders.
• All of the follow-on offerings except for two were shelf offerings registered with the SEC on Form S-3 or F-3.
Proud Fans and Keen Observers…Recent IPOs Warrant Attention
By Jim Lawrence
In survey after survey, owners, financiers and industry professionals asked by Marine Money about the role of the public markets in shipping extol the benefits and opportunity afforded by having a public listing. We can be accused of bias as many of our readers are, in fact, public market players, but our universe of survey respondents is far broader and so the allure of the power of the capital markets can legitimately be considered global.
We interview private owners in Europe, family owners in China and Singapore and small shipping concerns, too small themselves to be immediate candidates. By a large majority, the global universe when asked if there would be more public companies in 5 years said yes. And 79% in a recent survey said they had considered it themselves.
The Wayback Machine – 2001 Rankings
In the 1960’s, there was a popular U.S. cartoon short about a time-traveling dog named Mr. Peabody and his pet boy, Sherman. The pair would take trips using something called the “wayback machine” through history, and the episodes always ended with an atrocious pun.
This year, we thought we would create our own wayback machine through the Marine Money archives (now available online by the way!) and take a look at the rankings from ten years ago (2001) and see how they compare to today. We will, however, spare our readers the atrocious pun at the end.
Top Picks: Making the Most in a Tough Market
By Ethan Ram
As an addition to this year’s Rankings Issue, we asked the community of sell side equity research analysts covering shipping stocks to tell us which of their many stock picks in 2010 was their top performer. We also asked them to opine on what sector they believe shows the most promise over the next 12 months. The results, summarized in the tables below, are impressive and insightful. In the process, we took the opportunity to conduct some research of our own, asking analysts to complete a short survey to describe both how they conduct their research, and what factors are important to investors when making an investment decision in a shipping company.
All of the analysts who responded to our survey reported that they use a “top down” approach in evaluating shipping companies to formulate an investment recommendation. To form a view on the demand for ships they start with a macro perspective, looking at the health of the global economy and the supply/demand dynamics for the key cargos moved by sea. Most analysts rely on their firm’s internally generated analysis for an outlook on both the world’s major economies and commodities. Since the demand for ships is largely driven by the geographical distance between commodity producers and consumers, analysts report that they devote considerable time looking at the health of the countries and companies which produce commodities to assess the future strength of the commodity trade. Often this compels the shipping analyst to seek insight from commodity-specific associations/agencies, such as the US Energy Information Agency. Next analysts typically research the supply of ships by reading reports prepared by ship brokers or independent research firms, collecting as much information as possible to form their own view. The final step in forming their recommendation on a stock is, of course, to analyze the company, and this involves reading the company’s public filings, meeting with management several times a year, and building a financial forecast. On average, respondents to our poll indicated that they spend approximately 30% of their time conducting research. Interestingly, on average, research analysts spend as much of their time speaking with investors about investing in shipping as they spend conducting research.
2010 – DIVERGING FORTUNES
In 2008, the first year of the financial and shipping crisis, shipping company profitability held up better than shareholder returns. In contrast, 2009 saw improved shareholder returns, while shipping profitability fell. 2010 was a year of both positive shareholder returns, but at a lower rate than 2009, and improved profitability. 2010 was also a year in which the profitability and returns varied greatly by sector in which some of the winners in 2009 became the laggards in 2010 and some of the laggards became winners.
A bit of financial and shipping crisis cycle perspective here: the dual crises in the financial and shipping markets did not become fully evident until September of 2008, giving most shipping companies close to three quarters of strong financial results in 2008. The dramatic fall in share prices and cuts in dividends did not occur until the fourth quarter of 2008, as the generally forward-looking financial markets began expecting a difficult 2009 for shipping companies, which, in fact, turned out to be the case in most sectors. During 2009, we saw a sharp improvement in total shareholder returns in almost all sectors except barges and, to a lesser degree, tankers. In 2010, we saw a marked pickup in total shareholder returns in the container lines and barge business and decent increases in the mutli-sector companies. In contrast, total shareholder returns were negative in bunkers and dry bulk. Tanker shareholder returns in 2010 were slightly positive, but this is only because our current definition of the tanker sector includes gas carriers. The fortunes of the gas versus crude and product subsectors are vastly divergent and without the inclusion of gas carriers, total shareholder returns for tankers would have been negative. Generally, in 2010, the directional trends for total shareholder returns and profitability on a sector-by-sector basis were somewhat similar, except for dry bulk where shareholder returns were negative while profitability actually increased – indicating either the market’s expectations overshot in 2009 or the market is looking for more bad times to come in 2011 for dry bulk.
Second Fiddle No More
By George Weltman
Looking at the results of the performance rankings, it is clear that there is a direct correlation with the results of the credit strength rankings. After all, four of the top ten finishers (U-Ming, OOIL, Kirby and Knightsbridge) also finished in the top ten in the credit strength rankings. The remainder, with the exception of Malaysian Bulk Carriers, have also made regular historical appearances at the top of those rankings as well. These include Courage Marine, D/S Norden, Diana Shipping, U-Sea Bulk Shipping and Precious Shipping.
Each has a different strategy which accounts for their high finish. D/S Norden and U-Sea Bulk utilize an asset light model while Courage just runs old assets with no debt. Diana and Precious tend to be debt adverse and have built up liquidity for the next opportunity.
When Times Are Tough, Victory Goes to Those Who Control their Destiny
By George Weltman
To appreciate the endgame, one has to look at the bigger picture. In 2010, it was not the economy stupid! The economic recovery was on track, with the OECD economies showing low but positive growth. As a proxy, in the U.S., real GDP growth was 2.8%, the stock market gained 13% and 1.1 million private sector jobs were added. And, most importantly consumer confidence was growing. In the emerging countries, growth continued on a remarkable pace with China leading the way. Growth however created inflation fears and China adopted monetary policies to slow the growth to a more reasonable level. The policies worked but the fallout from the slowdown was felt worldwide. After all, the world had become China-centric and shipping, as a leading indicator, felt the tremors first. So, if the economy was recovering, with demand growing, where was shipping headed? The results in each sector were mixed and the wounds largely self-inflicted.
In its macro view, The Platou Report 2011 first takes a look at overall utilization rates: “After underlying growth in total tonnage demand of 8% annually in the years 2002-08, demand fell by 3 percent in 2009, and the sound market balance through many years collapsed. The utilization rate fell from 90 percent in 2008 to only 82 percent in 2009. This indicates an overcapacity not seen since the 1980s. The very strong growth in tonnage demand in 2010, together with the somewhat moderated fleet growth, lifted the utilization rate from 82 to 85 percent. That puts us back to levels seen in 1992 and 2002, which are not regarded as successful years in the shipping industry.”
Congratulations To All
By Jim Lawrence
There is a great big world out there of financiers, professional advisors, with teams of market makers, analysts, investors, smart bankers, private equity, CFOs, accountants, auditors and exchanges who make the capital markets of shipping work. There are charterers and cargo interests, brokers, ports, stevedores, bunker suppliers, managers, naval architects and engineers. Suppliers, arbitrators, insurers, journalists, attorneys and regulators abound.
But shipowners are rare and the businesses they build are fascinating entities, full of often hidden value, massive complexity and dramatic stories. We are not romanticizing either the owners or their businesses, just pausing at the start of this year’s Rankings to give due credit to the men and women who help the CEO, Chairman or entrepreneur build huge assets and trade them around the world or up and down the world’s coast lines and rivers. It is not a one man job in the end, but frequently it is the responsibility of one person to make the enormous decisions which affect the fortunes of so many.
Bajwa Joins Emirates Investment Authority
Nanakjeet Bajwa has joined the United Arab Emirates’ (UAE) Sovereign Wealth Fund, Emirates Investment Authority (EIA), as its new Head of Transport, Logistics, and Transport Infrastructure. The EIA is the only fund which manages the wealth of the federal / central government of the UAE. EIA has identified Transportation as one of their core strategic sectors for growth.
Some thoughts on the Cape Market
By Donald Frost
London’s FINANCIAL TIMES (FT) ran a special report May 23, 2011 on the relationship between China and Brazil. The lead article is titled “Drawn into an ever closer embrace” and uses Vale’s first ChinaMax vessel the VALE BRASIL (about 400,000 DWT built 2011 – 362 M LOA/ 65 M Beam) as an example of the growing link between two of the most vibrant BRIC economies.
Much has been written in the maritime media about the impact of Vale’s plan to build and/or enter into contracts of affreightment involving 32 of these ships to service their iron ore sales to the Pacific Rim especially China. Concern has been expressed for the effect these ships will have on the demand and rates for the 120 vessels of 220,000+ DWT in today’s fleet, and the 65 or so on order (SSY figures less those attributable to the Vale order).
The Official Guide To Marine Finance Providers
Shipping Index
