Full House in Athens – Part 2

By Kevin Oates

…in the longer term shipping should correct but quality, transparency and financial strength are key to survival.

Despite the tough market and the general lack of ship finance, Marine Money’s Greek Ship Finance Forum again filled the seats in Athens. With 310 delegates and speakers and some 40 more for the TEN Ltd lunch, there was plenty gossip and exchange of views at the 11th Annual conference held on the 8th of October 2009.

The event had started with a speaker’s dinner the previous night co-hosted by Navios Maritime Holdings and was to end in the early hours of the following morning at the Capital Party co-hosted by Capital Product Partners LP at a well-known Athens nightclub. Even if the market is tough, we still know how to enjoy ourselves.

Back at the conference, our day began with Guy Verberne, a leading economist at Fortis Bank (Nederland) telling us that the economic recovery has come and it may well be sustainable. China, he says, has plenty foreign reserves to prolong it’s stimulus package for as long as it needs and he sees no meaningful cutbacks from the stimulus packages of western governments, at least through 2010. A risk is a double dip in 2011 if we get too bogged down in debt.
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Written by: carisk | Categories: Freshly Minted, Market Commentary | October 15th, 2009 | Add a Comment

Argyropoulos Appears on Bloomberg

Shipping investment banker Anthony Argyropoulos of Cantor Fitzgerald appeared on a relatively lengthy interview on Bloomberg television on Wednesday. When asked if markets had topped and a flood of lower quality IPOs are coming to market, Argyropoulos replied with a confident “no.”

Written by: carisk | Categories: Freshly Minted, The Week in Review | March 31st, 2005 | Add a Comment

New York Conference Features Shipping Star Power

Last week’s Hellenic-/Norwegian-American Chambers of Commerce Joint Shipping Conference offered a plethora of luminaries from shipping’s universe. Between OSG’s Morten Arntzen, Teekay’s Sean Day, GenMar’s Peter Georgiopoulos, Tidewater’s Dean Taylor, NCL’s Colin Veitch, BP’s Bob Malone, Heidmar’s Per Heidenreich, Wilh. Wilhelmsen, Leif Hoegh, Navios’ Robert Shaw, Intrepid Shipping’s Richard du Moulin, Free Bulkers George Gourdomichalis, CR Weber’s Basil Mavroleon, Healy & Baillie’s Glen Oxton, and DNV’s Tor Svensen the bulk of the world’s tonnage was well represented.

The theme of the conference was “Shipping without Borders” which transcended from national identity to the impact of new technologies and landed squarely on the challenges of doing business in America. Or should we say the many challenges of doing business in the (50) States?

Per Heidenreich welcomed the assembled with the observation that “2004 was the most incredible shipping market in history, with Wall Street showing an alarming interest in shipping”. He reflected that the Norwegians are “awfully quiet” and urged them to learn what “makes the Greeks tick.”

The Greek contingent was happy to comply, with George Gourdomichalis offering the strengths of the Greek approach: Piraeus as a maritime cluster, a favorable tax climate, and the transition of Greek family-owned operations to corporations. As a counterpoint, Leif Hoegh underscored the decline in Norwegian shipping, both in the bulk and tanker trades as well as in the yard order book. He further advocated the Greek regard for shipping: “When you go to Piraeus, even the taxi drivers know about tankers. Piraeus is an exhilarating place!” When pressed as to whether the Leif Hoegh company would return to Norway, Mr. Hoegh’s one-word answer was a resounding “No”.

While acknowledging the decline of Norway’s shipping sector, Marianne Lie, Director General of the Norwegian Shipowners’ Association, presented the proposed tax and legislative changes within Norway designed to reinvigorate its maritime industry. The key word is “proposed”. Tor Svensen of DNV attempted to breach the gap by offering the concept of geographic co-location, while Anthony Argyropoulos, newly at Cantor Fitzgerald, adroitly attributed the Greek interest in the capital markets to their entrepreneurial spirit, without discouraging Norwegian interest.

After an overview of the freight futures market by Robert Shaw of Navios, technological advances in this field were covered by Basil Mavroleon of CR Weber, who helped transition the conference by eliminating borders entirely. In his call to action on FFA’s (Forward Freight Agreements), Basil reflected “If, as I believe it will, this market continues to strengthen, who, with underlying physical positions can continue to ignore participation in it – surely we must all find a way to engage with it, learn to utilize it to our benefit and play some part in the growth curve”. Implementation was discussed by Barry Bednar of J. Aron & Company and Tom Even Mortensen of IMAREX.

Wilhelm Wilhelmsen offered a global perspective as the conference’s luncheon keynote speaker. His answer to whether national identity has become irrelevant was a conditional “Yes”. Despite being Norway’s oldest and largest shipping enterprise, only 5% of the company’s employees have Norwegian as their mother tongue, and only a handful of ship calls handled by the company last year were in Norway. He feels that the shipping industry is “almost unwanted by the Norwegian authorities…many (companies) feel strongly that they are literally being kicked out.” Norway is the only major shipping nation that is in decline, with the government “destroying an industry which actually has everything required to ensure good and stable revenues for my country in the future.”

Turning the focus to doing business in the Americas, Sean Day of Teekay pointed to the industry’s image in the financial markets resulting in investor differentiation, and a greater scrutiny on quality of both fleets and management. Mr. Day declared Sarbanes-Oxley a “time sink” and expensive, while acknowledging that Teekay is a foreign filer that complies with US requirements.

Bob Malone of BP Shipping stated that his company’s strategy is to own ships in order to manage risk (against incidents). He felt the need to regain the public trust by managing the company, and pointed to the benefits gained through compliance with Sarbanes-Oxley.

Peter Georgiopoulos of GenMar struck a profoundly wistful note, reflecting that he used to think shipping connoted yachts, former US President’s wives and opera singers, but quickly learned that the world of shipping revolves around OPA, ISM and SARBOX. Regulation is making shipping increasingly expensive, and much less desirable.

OSG’s Morten Arntzen lifted everyone’s mood with his list of “Top Ten Challenges Facing Executives of American Shipping Companies Competing Internationally” (including finding an affordable Starbucks coffee in Europe, explaining why a suezmax built in the United States costs $240 million, and repeating “Foreign Corrupt Practices Act” 10 times). Mr. Arntzen demonstrated to the market doomsayers why the tanker industry of today is dramatically different from that of the early 70’s. He further went on to tout the merits of Sarbanes-Oxley as a significant management tool, and highlighted the benefits accruing to OSG from the recent Job Creation Act of 2004, with its attendant tonnage tax scheme for US-flag shipping.

Dean Taylor of Tidewater reiterated the challenges of doing business in the US amidst extensive and expensive regulation. Mr. Taylor’s remarks were surprisingly dour, considering the profitable condition of Tidewater and their enviable earnings multiple.

Norwegian Cruise Line’s Colin Veitch delivered an overview of how, and why, they decided to pursue a US-flag strategy despite the costs and challenges. Interestingly, it was Mr. Veitch who called upon industry to be proactive, rather than reactive, about regulation (such as environmental policies). With his extensive experience in the public sector, perhaps his suggestion to influence perception could inspire action leading to a positive image for shipping??

Last week’s Hellenic-/Norwegian-American Chambers of Commerce Joint Shipping Conference offered a plethora of luminaries from shipping’s universe. Between OSG’s Morten Arntzen, Teekay’s Sean Day, GenMar’s Peter Georgiopoulos, Tidewater’s Dean Taylor, NCL’s Colin Veitch, BP’s Bob Malone, Heidmar’s Per Heidenreich, Wilh. Wilhelmsen, Leif Hoegh, Navios’ Robert Shaw, Intrepid Shipping’s Richard du Moulin, Free Bulkers George Gourdomichalis, CR Weber’s Basil Mavroleon, Healy & Baillie’s Glen Oxton, and DNV’s Tor Svensen the bulk of the world’s tonnage was well represented.

Per Heidenreich welcomed the assembled with the observation that “2004 was the most incredible shipping market in history, with Wall Street showing an alarming interest in shipping”. He reflected that the Norwegians are “awfully quiet” and urged them to learn what “makes the Greeks tick.”

The Greek contingent was happy to comply, with George Gourdomichalis offering the strengths of the Greek approach: Piraeus as a maritime cluster, a favorable tax climate, and the transition of Greek family-owned operations to corporations. As a counterpoint, Leif Hoegh underscored the decline in Norwegian shipping, both in the bulk and tanker trades as well as in the yard order book. He further advocated the Greek regard for shipping: “When you go to Piraeus, even the taxi drivers know about tankers. Piraeus is an exhilarating place!” When pressed as to whether the Leif Hoegh company would return to Norway, Mr. Hoegh’s one-word answer was a resounding “No”.

While acknowledging the decline of Norway’s shipping sector, Marianne Lie, Director General of the Norwegian Shipowners’ Association, presented the proposed tax and legislative changes within Norway designed to reinvigorate its maritime industry. The key word is “proposed”. Tor Svensen of DNV attempted to breach the gap by offering the concept of geographic co-location, while Anthony Argyropoulos, newly at Cantor Fitzgerald, adroitly attributed the Greek interest in the capital markets to their entrepreneurial spirit, without discouraging Norwegian interest.

After an overview of the freight futures market by Robert Shaw of Navios, technological advances in this field were covered by Basil Mavroleon of CR Weber, who helped transition the conference by eliminating borders entirely. In his call to action on FFA’s (Forward Freight Agreements), Basil reflected “If, as I believe it will, this market continues to strengthen, who, with underlying physical positions can continue to ignore participation in it – surely we must all find a way to engage with it, learn to utilize it to our benefit and play some part in the growth curve”. Implementation was discussed by Barry Bednar of J. Aron & Company and Tom Even Mortensen of IMAREX.

Wilhelm Wilhelmsen offered a global perspective as the conference’s luncheon keynote speaker. His answer to whether national identity has become irrelevant was a conditional “Yes”. Despite being Norway’s oldest and largest shipping enterprise, only 5% of the company’s employees have Norwegian as their mother tongue, and only a handful of ship calls handled by the company last year were in Norway. He feels that the shipping industry is “almost unwanted by the Norwegian authorities…many (companies) feel strongly that they are literally being kicked out.” Norway is the only major shipping nation that is in decline, with the government “destroying an industry which actually has everything required to ensure good and stable revenues for my country in the future.”

Turning the focus to doing business in the Americas, Sean Day of Teekay pointed to the industry’s image in the financial markets resulting in investor differentiation, and a greater scrutiny on quality of both fleets and management. Mr. Day declared Sarbanes-Oxley a “time sink” and expensive, while acknowledging that Teekay is a foreign filer that complies with US requirements.

Bob Malone of BP Shipping stated that his company’s strategy is to own ships in order to manage risk (against incidents). He felt the need to regain the public trust by managing the company, and pointed to the benefits gained through compliance with Sarbanes-Oxley.

Peter Georgiopoulos of GenMar struck a profoundly wistful note, reflecting that he used to think shipping connoted yachts, former US President’s wives and opera singers, but quickly learned that the world of shipping revolves around OPA, ISM and SARBOX. Regulation is making shipping increasingly expensive, and much less desirable.

OSG’s Morten Arntzen lifted everyone’s mood with his list of “Top Ten Challenges Facing Executives of American Shipping Companies Competing Internationally” (including finding an affordable Starbucks coffee in Europe, explaining why a suezmax built in the United States costs $240 million, and repeating “Foreign Corrupt Practices Act” 10 times). Mr. Arntzen demonstrated to the market doomsayers why the tanker industry of today is dramatically different from that of the early 70’s. He further went on to tout the merits of Sarbanes-Oxley as a significant management tool, and highlighted the benefits accruing to OSG from the recent Job Creation Act of 2004, with its attendant tonnage tax scheme for US-flag shipping.

Dean Taylor of Tidewater reiterated the challenges of doing business in the US amidst extensive and expensive regulation. Mr. Taylor’s remarks were surprisingly dour, considering the profitable condition of Tidewater and their enviable earnings multiple.

Norwegian Cruise Line’s Colin Veitch delivered an overview of how, and why, they decided to pursue a US-flag strategy despite the costs and challenges. Interestingly, it was Mr. Veitch who called upon industry to be proactive, rather than reactive, about regulation (such as environmental policies). With his extensive experience in the public sector, perhaps his suggestion to influence perception could inspire action leading to a positive image for shipping??

Written by: carisk | Categories: Forums, Freshly Minted | February 17th, 2005 | Add a Comment

He’s Back!

With Wednesday’s extraordinarily successful DryShips Inc. floatation, George Economou has stunned the ship finance community and silenced even his harshest critics. The final deal nearly doubled from its original size, going from 7.1 million shares in the initial prospectus to an astonishing 13.0 million shares (before underwriters’ over-allotments). The $18.00 price per share compared favorably with the red herring price of $17.00 but was significantly higher than the $14.00-$16.00 range initially put out by the company. In total, DryShips raised a gross $234 million (again before the shoe and underwriters’ commissions) against an initial target of $120.7 million (same basis). Market sources tell us the deal was 9x oversubscribed, and as we go to press, the stock is up 10% in heavy trading. This transaction was a huge success for George, Mark Blazer, Anthony Argyropoulos and Cantor Fitzgerald, which is proving to be a formidable force in shipping finance.

Let’s take a quick look at the deal from both sides of the ball. First, when John Sinders of Jefferies told more than 100 shipowners, in attendance at the Marine Money/Jefferies seminar at the Piraeus Yacht Club two weeks ago, that the pool of U.S. investment capital available for shipping equities was unlimited, the owners hooted – but Sinders was absolutely spot on. As we have said in these pages for more than two years, U.S. investors are clamoring to invest in dry cargo shipping deals, and DryShips has been the first to come to market with scale. Although we have not seen the roadshow slides yet, we suspect that the word “China” in six-inch red letters was superimposed on the background of each one. Sometimes as shipping professionals, we tend to over think and complicate things. Conversely, investors in this space look to simplify (perhaps oversimplify) things.

With Wednesday’s extraordinarily successful DryShips Inc. floatation, George Economou has stunned the ship finance community and silenced even his harshest critics. The final deal nearly doubled from its original size, going from 7.1 million shares in the initial prospectus to an astonishing 13.0 million shares (before underwriters’ over-allotments). The $18.00 price per share compared favorably with the red herring price of $17.00 but was significantly higher than the $14.00-$16.00 range initially put out by the company. In total, DryShips raised a gross $234 million (again before the shoe and underwriters’ commissions) against an initial target of $120.7 million (same basis). Market sources tell us the deal was 9x oversubscribed, and as we go to press, the stock is up 10% in heavy trading. This transaction was a huge success for George, Mark Blazer, Anthony Argyropoulos and Cantor Fitzgerald, which is proving to be a formidable force in shipping finance.

Let’s take a quick look at the deal from both sides of the ball. First, when John Sinders of Jefferies told more than 100 shipowners, in attendance at the Marine Money/Jefferies seminar at the Piraeus Yacht Club two weeks ago, that the pool of U.S. investment capital available for shipping equities was unlimited, the owners hooted – but Sinders was absolutely spot on. As we have said in these pages for more than two years, U.S. investors are clamoring to invest in dry cargo shipping deals, and DryShips has been the first to come to market with scale. Although we have not seen the roadshow slides yet, we suspect that the word “China” in six-inch red letters was superimposed on the background of each one. Sometimes as shipping professionals, we tend to over think and complicate things. Conversely, investors in this space look to simplify (perhaps oversimplify) things.

The Valuation: 1.8x NAV; 4.1x EBITDA

The key to making an IPO attractive to both issuers and investors is valuation. The company needs to feel as though it is getting an attractive enough valuation on its assets to make it worth selling, and investors need to feel that there is still some upside in the future. It is always a delicate balance, but this deal, thanks to the composition of the fleet and the outlook for the markets, has done just that. Here’s what we mean:

As you can see from the charts that accompany this analysis, DryShips was valued at about 1.8x net asset value. This was clearly attractive to George, especially in light of where asset values currently are when looked at in an historical perspective and the fact that many of the ships are coming into the company from the open market. The net asset valuation is pretty much in line with comparables in both the tanker and dry bulk industries (Excel), if not a bit higher.

What is interesting, though, is to look at the company’s value from a cashflow, or EBITDA, standpoint. As the charts illustrate, the DryShips deal was priced at about 4.1x 2005 cash flow. We arrived at these figures using 2005 estimates for capesize, panamax and handysize vessels that comprise the fleet. While this figure may appear low in absolute terms, it is important to recognize that the vessels in the DryShips fleet have an average age of 10 years – 10 years less cashflow generation power than a newbuilding, which would clearly have a high EBITDA multiple because new ships cost more than their marginal earning ability. In addition, the DryShips fleet will trade mostly on the spot market, so the EBITDA multiple will not be a static number – for better or for worse.

For companies thinking of entering the U.S. capital markets during this extraordinary moment in time, the DryShips deal should provide encouragement. The deal was done on very favorable terms for a company that restructured a bond after making just one coupon payment and a fleet that consists of spot trading vessels that are of middle age.