Funding the Equity Shortfall

New York-listed Navios Maritime recently announced a series of transaction that are very interesting but mostly the territory of our western sister publication, Freshly Minted. However among this series of transactions was one very important one that bears discussion here, namely a USD 52.82 million reduction in cash requirements for three existing newbuild capesize vessels. This reduction will be effected with part of the issuance of USD 165.22 million of mandatorily convertible preferred stock. Reports indicate the vessels in question are being constructed at Sungdong Shipyard in South Korea.

What is interesting is that the stock of a Greek shipping company listed in New York is being used in lieu of cash to fund the equity portion of a newbuilding commitment in South Korea, all the more so because of all the yards the Koreans have thus far been reputed as the least flexible in amending newbuilding orders for the benefit of their clients. It should be noted that Navios is also acquiring other vessels understood to be under construction at the same yards from entities currently being controlled by Commerzbank, so such flexibility should work to the benefit of all parties involved. Still, the deal highlights how equity investments and even M&A deals will come into play where cash is scarce. It also brings forward the question of whether publicly-listed companies, with their liquid and transparently valued stock, will be at an advantage as newbuilding acquisition candidates in situations such as these.

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