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After successfully completing a follow-on offering in February, in which it sold 5.8 million units and raising $48.8 million, Capital Product Partners on Monday announced its intention to offer an additional 5.5 million units with a green shoe of 825 thousand units. Proceeds of the offering will be used to acquire the M/T Assos, an MR product tanker, for $43.5 million from its sponsor, Capital Maritime.
The M/T Assos is a 47,782 DWT chemical/product tanker built in Hyundai Mipo in South Korea in 2006. The vessel has been chartered through Arrendadora Ocean Mexicana to PEMEX under a time charter expected to expire in March 2014. The net base rate under the charter is $19,900 per day with operating expenses fixed through the charter period at $3,075 per day, exclusive of a management fee of $500/day payable to Capital Maritime.
Here Come the IPOs
This week two IPOs, one dry and one wet, hit the road with well-known sponsors. First was the Genco inspired BDI play, Baltic Trading Limited, which was followed by Mr. Marinakis’, of Capital Products Partners fame, large tanker vehicle, Crude Carriers Corp. These followed quickly on the heels of the recent Scorpio offering.
BDI Proxy
This was one of the first opportunities we had to watch a road show presentation on the great equalizer, “RetailRoadshow” (http://www.retailroadshow.com/index.asp), a website designed to put retail investors on a level playing field with the institutions. The presentation of Baltic Trading Limited was expertly handled, as one would expect, by Peter G. and John Wobensmith, who will respectively fill the positions of Chairman and President of the new company.
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Equity Appetite Remains Strong
On Monday, Capital Product Partners announced that it planned to offer 5.8 million common units in a public offering. The transaction was priced the next day at $8.85 per common unit ,a discount of 6.25% from the prior day’s closing price. Proceeds will be used to acquire the M/T Atrotos, a 48,000 DWT product carrier built in 2007 from its sponsor, Capital Maritime & Trading, for $43 million and for general corporate purposes. Chartered to Arrendadora Ocean Mexicana for $19,900 net per day, the vessel is sub-chartered to Petroleos Mexicana for five years. Operating costs for the period are fixed at $3,575 per day, which is a very competitive cost even for a modern ship.
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Capital Products Partners Feels Some Pain
The recent decision by OSG to buy back the remaining shares of its MLP spin-off, OSG America, highlighted the weak domestic tanker market as well the inability of the partnership to pay the distributions going forward as a result. U.S. Shipping L.P. was also unable to survive the current market as its vessels came off charter and it leveraged itself to meet its fleet replacement needs. And without an interested party, it filed for bankruptcy. These problems raised the question in our mind as to whether the MLP structure is best applied to shipping. Of course, there is no easy answer as the range of MLPs is across the board. What is certain however is that Teekay LNG, with its 25 year contracts most closely resembles the typical MLP, a gas pipeline. The majority of the others are based upon medium term contracts that have rollover risk.
While Capital Product Partners is operating in a poor tanker market, its fleet is fully contracted and it reported good but slightly lower earnings for the quarter as a consequence of a lack of profit sharing revenues and increased interest expense. It’s key measure Operating Surplus, which is net income adjusted for non-cash items less replacement capex, was also down.
Gleanings from Capital Link
Following the CMA, Capital Link held its 3rd Annual Invest in International Shipping Forum at the Metropolitan Club, which was overflowing for much of the day. There were general presentations, panels as well as company presentations. The following were our main takeaways from this forum.
The container sector has been the hardest hit and so we listened with great interest to that panel led by Ken Hoexter of Banc of America Securities-Merrill Lynch. The panelists included Gerry Wang of Seaspan, Aristides Pittas of Euroseas and Dimitiri Andritsoyiannis of Danaos. The collapse of the market is attributable to simple supply and demand. Overbuilding joined with reduced demand resulting from a slowdown in consumer buying. Mr. Wang believes this is a 12 to 18 month problem with 2012 to 2014 being good years. The lines will survive as they exercise self-help by utilizing alliances, like the airlines. Slot sharing is not as effective as filling a single ship instead of having two partially filled. Mr. Andritsoyiannis espoused the certainty that globalization will continue and that the containership is the only way to efficiently move finished goods. Mr. Pittas reminded everyone that it is a cyclical business and the good market will return. He plays the market more than his fellow panelists. He operates his smaller ships on shorter-term charters taking advantage of good markets and laying up vessels when the market is bad. He currently has three ships in lay-up and is relying on his solid balance sheet to get his company through the downturn.
Dividends Anyone?
With the recent collapse of both commodity prices and the BDI, share prices, particularly on the dry side, quickly followed suit. A decline in share price is never good news, but for the high paying dividend companies it was a double-edged sword. As yield and share price track inversely, the nominal dividends on these shares now equate to extraordinary yields. The whispered question on the street is whether the high dividend paying companies, given the poor market and lack of liquidity, will cut their dividends. Thus far two companies have answered this week with a resounding no. OceanFreight declared its 3rd quarter dividend at the current level. And demonstrating even greater confidence, Navios Maritime Partners increased its 3rd quarter dividend by 10% and announced that the 4th quarter dividend would also be increased by a further 4%.
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“Gimme Shelter”
These lyrics from the Rolling Stones may in fact be a forewarning of a storm brewing closer to home. At least for the moment, the shipping industry has been sheltered from the worldwide storm created by the credit crisis and the drying up of liquidity in the bank and public markets that began last August and culminated with the recent fire sale of Bear Stearns. Nonetheless, it is hard to fathom how shipping has apparently escaped this turmoil.
A simple explanation, according to industry pundits, may be that charter rates and asset values are at historic highs and, instead of the normal cyclical nature of the business, we have entered into a period of super cycles driven by a commodity boom, which, in turn, is the result of the insatiable demand for commodities in China and India among others. With risk thus pushed out, an ever-increasing demand seemingly overwhelms any oversupply risk, lending and investment become easier. Continue Reading
TMI?
What a week for investors! Starting with CMA’s annual event, continuing with JPMorgan’s Conference and concluding with the Capital Link Forum, it is conceivable that even the most interested observer of the industry may have suffered from information overload. Thankfully, with Good Friday, many of us had the opportunity to recover with a long-weekend.
Despite the early start, the Capital Link Forum played to a full house. There were company presentations galore interspersed with lively and informative panel discussions. With far too much information to distill, here is a highly selected compendium of our outtakes.
Banking on the Future
It’s starting as a trickle, but banks are again developing the comfort level to close new deals and owners are becoming accustomed to the necessary changes in pricing, terms and covenants. HSH Nordbank, our 2007 winner for Greatest Contribution to Ship Finance, has since the fall been fielding accusations that it had stopped its ship lending. Countering such concerns, HSH announced this week two loans it has closed for Greek shipping companies, both of which were arranged in 2008 – and so are not unfinished business from before the credit crunch.
Market Commentary
The confluence of a credit squeeze, fallen charter rates and ailing equity markets appears to have set off a wave of consolidation. While many have been enjoying the good times, there has been no shortage of market players looking forward to the day when vessel values would reach their peak and begin to descend. This makes vessel acquisitions more attractive, while stock prices that have fallen below NAV almost across the board are making public companies look like increasingly attractive targets.
Even brokers have been getting in on the game, as ICAP Hyde acquires Capital Shipbrokers, together with its 37 staff in London and representative and associated offices in Dubai and Beijing. Rumors also continue to swirl regarding the future of Stamford-based MJLF.
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