Small companies also do interesting deals and, despite a rumored illiquid credit market, the deal we highlight below was done with bank financing together with an interesting twist. The company renewed their fleet both through the simultaneous acquisition of assets and the sale of an older inefficient vessel. And, it is clearly evident from the press release that for this company transparency is the order of the day.
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carisk | Categories:
Freshly Minted,
The Week in Review | March 18th, 2010 |
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Last Wednesday, Aries Maritime announced that it had entered into a letter of intent with Grandunion Inc, a company controlled by Michael Zolotas and Nicholas Fistes, that contemplates the acquisition by Aries of 3 Capesize vessels, with an approximate net asset value of $36 million, in exchange for ~16 million newly issued shares and a change in control of Aries’ board. Based upon a share count of 29 million shares, the new owners will control ~35.5% while the ownership interest of the company, affiliated with Messrs Bolin and Petridis, will have it’s interest diluted to ~ 33.1%.
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Summer is upon us and, while not as busy as last year, there is still quite a lot going on. This week Global Oceanic Carriers decided to call it a day for its public listing in London while Svithoid Tankers announced a rights issue in Sweden. Aries Maritime meanwhile concluded its review of strategic alternatives and chose to maintain its independent public listing. Bocimar announced a joint venture with Conti7 for six handysize newbuildings while the Shipping Corp of India entered into a JV with the state run Steel Authority of India. Double Hull Tankers rebranded itself and broadened its mandate with a name change to DHT Maritime, reflecting both the impending phase-out of any tankers that are not double hull and the company’s interest in timely and selective acquisitions that include vessels other than tankers. Speculation continues to flutter about the potential acquisition of Hapag-Lloyd by NOL from TUI for somewhere in the realm of $6 to $8 billion plus. Last but not least Bank of America signaled a recommitment to the shipping sector with the initiation of coverage on four shipping companies.
Last week it was dry bulk. This week, all the fuss seems to be revolving around the tanker market. A Wall Street Journal “Money & Investing” section cover story on the popularity of shorting tanker stocks drew some attention. As did a bearish report from R.S. Platou, a much-talked-about, products-focused IPO from Aries Maritime, positive reports form Jefferies and Banc of America and tanker stock coverage initiations from First Albany. So what, exactly, are the arguments going around, and of what should tanker market players and their financiers be aware? It’s still impossible to predict the future, but we can tell you what some of the competing arguments are.
R.S. Platou analyst Erik Andersen drew a lot of attention with his bearish report on shipping, particularly tankers. According to Mr. Andersen, the seasonality justification for low spot rates – which brokers say have dropped into the upper teens for VLCCs on some routes – is badly overblown. He notes that from 1997-2004, the average second quarter rate was about 37.5% lower than the average fourth quarter rate, completely out of order with the drop in rates from $147,000 in the fourth quarter of 2004 to $41,000 so far in the second quarter of 2005. However, this is still above the 8-year average second quarter rate of $35,000 – albeit with higher bunker prices – suggesting that perhaps the $147,000 was more of an anomaly than the $41,000 is a sign of a crash. Still, tanker fleet annualized growth figures of 6-7% compared to a comparable rate of 1% annually over the decade from 1993-2003 are somewhat ominous. Citigroup Smith Barney analyst Charles de Trenck noted how the current weak rates are making the tanker market the first among the shipping sectors to experience the pricing pressures derived from growing capacity. But on the bright side, Mr. Andersen did write that he does not believe tanker markets will weaken so much as to create a weak year for owners.
Analysts Magnus Fyhr and Douglas Mavrinac at Jefferies & Company have a much different take on the current market situation. They said in a report issued to reiterate their buy rating on Ship Finance International that they expect tanker demand to be firm on increasing OPEC production. Importantly, the analysts believe that incremental fleet growth of 21 MMdwt scheduled through the end of the year is likely to be absorbed by increased tanker demand.
Evincing similarly positive sentiments, analysts Daniel Barcelo, Philippe Lanier and Pierre Sargeant of Banc of America Securities issued a report on oil tankers optimistically titled “Hold On for the Summer Heat.” They note that a 5% tanker stock pullback over the past two weeks has been related more to Arabian Gulf VLCC market conditions than to the tanker industry as a whole, much of which has remained fairly strong. Additionally, they point out that the 450 vessel global VLCC fleet has grown by only two vessels so far in 2005, implying that softened rates could not be explained by supply buildup, but rather are a product of a reduction in Arabian Gulf export volume and a temporary buildup of available tonnage in the gulf. Analyst Craig Irwin of First Albany appears to agree, having this week initiated coverage on General Maritime, OMI and Arlington Tankers with a Buy rating. And a group of Asian investors that market sources say recently put their money into a very expensive $140 million VLCC newbuilding have put their money where their mouth is when it comes to predicting a strong VLCC market for years to come.
Much of Wall Street, however, seems to have sided with R.S. Platou on the more bearish side of the debate, as a widely disseminated article titled “Shorts Expect Tankers to Take On More Water” strongly suggests. Teekay, OMI, Knightsbridge and General Maritime are all being subjected to this phenomenon, with Frontline leading the pack. Investors are brazenly betting that tanker stocks will keep falling. Whether or not this will happen is hard to tell, though the practice certainly is not encouraging for those hoping to see their tanker investments appreciate.
