The Other Side of the Capital Markets

Last week we discussed how Paragon and Hellenic Carriers were fine-tuning their respective strategies, the former through diversification while the latter through fleet renewal. This week’s transactions, a merger, a divestiture and a joint venture, evidence shipping’s evolution from simple asset trader to corporate strategist.

Fulfilling the theory that two is bigger and better than one, Eidsiva Rederi ASA and Dyvi Shipping AS agreed last month to enter into a business combination in which Eidsiva would acquire Dyvi to form Norwegian Car Carriers ASA (“NCC”).

The combined company will be the 4th largest car carrier tonnage provider with a total of 16 ships (13 car carriers and 3 Ro-Ro vessels) and the world’s only listed pure-play car carrier tonnage provider. The car carrier market is currently dominated by a few large operators, including NYK, Wilh. Wilhelmsen, Eukor, MOL, K-Line Hoegh and Grimaldi. These companies provide complete logistics services incorporating terminals, inland transport and IT services to meet their customers needs.   These operators control 80-90% of the deep-sea fleet in capacity terms and depend on the tonnage providers for capacity. Intending to gradually exit all of its pure Ro-Ro investments, the new company will focus on the most standardized and liquid PCTCs, the mid-size 4,000-5,500 CEU and the large size 6,000 to 7,000 CEU vessels, which are the backbone of the fleets of all the major operators.
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Condition Met

Eitzen Chemical announced on Tuesday that the book building for the private placement to raise a minimum of $100 million in new equity was successfully concluded with ABG Sundal Collier Norge and Carnegie ASA, as joint lead managers, receiving orders in excess of the amount required. As you may recall this equity offering was a pre-condition for the waiver agreements with the banks.
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Constructing & Destructing Balance Sheets

With earning’s season reporting upon us, companies are disclosing the steps they are taking to bolster their balance sheets as well as recording the destructive efforts of the accountants. Companies are trying to strengthen their balance sheets in light of macro events, weak markets, leverage as well as future capex obligations. On the other hand, investments by shipping tycoons have also proved unsuccessful leading to mark to market write downs proscribed by accountants which diminish equity although they are non-cash charges. In no specific order, we highlight the following:

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Deleveraging

With the assistance of ABG Sundal Collier Norge, Fairstar Heavy Transport this week successfully launched an underwritten equity issue of up to NOK 75 million, which will be used to retire the company’s secured bond issue.

The transaction structure combines a share capital increase in the form of a rights issue of up to 10 million new shares, with pre-emption rights for shareholders (i.e. approx. 0.3 new shares per ordinary share) at a subscription price of NOK 5.0 (“Tranche A”) and a share issue of up to 4,166,667 new shares directed towards the Bondholders of the Fairstar Heavy Transport Secured Bond Issue 2008/2009 (the “Bond Loan”) at a subscription price of NOK 6.0 (“Tranche B”) (collectively the “Offering”).

A syndicate of the Company’s current shareholders has underwritten 5.3 million new shares in Tranche A and a syndicate of the Company’s current Bondholders has underwritten 3.8 million new shares in Tranche B. NOK 51 million of the Offering is fully underwritten.

The proceeds from the Offering together with the cash flows generated from current contracts and the Company’s banking facilities, provide Fairstar with sufficient liquidity to redeem all of its outstanding Bonds no later than October 11, 2009, the Bond Loan redemption date.

Commenting on the transaction, Philip Adkins, CEO of Fairstar noted: “Capital markets today are extremely unstable. Access to liquidity is key to corporate survival. As long as there is reason to believe Fairstar will not be able to redeem its outstanding bond obligation it is extremely difficult to demonstrate to the market the true value of our Company…. By issuing equity and redeeming our outstanding bonds, Fairstar will be able to direct this future cash flow away from debt service and back to our shareholders, resulting in a more accurate valuation of our Company’s shares by the market.”

Even in times of crisis, valuation is not forgotten. Certainly, a sound balance sheet is a factor in that calculation.