Sayings of Captain Wei

At his press conference at CMA last week, Captain Wei, the President of COSCO, reminded us that while cash may be king, generally, in shipping, cargo is king. He is an unabashed spokesman for China and for globalization. The latter is essential to keep world trade growing, with his greatest fear being the reversion to protectionism. The world benefits when manufacturing is located at the nexus of the lowest cost of production. Based upon his discussion it is clear that the Chinese Government is carefully managing its economy and that COSCO, as you would expect, plays a key role. He told the story of being at a meeting with the Chinese Premier Wen Jiabao, who asked him about the omnipresent BDI and how COSCO was faring.

Captain Wei remains optimistic about the markets noting that for the first time in months, electric consumption in China increased 1.44%, which he suggests heralds the recovery of the bulk markets by the end of the year. He is not as hopeful with respect to containers, which are dependent on global trade.

We congratulate CMA on the selection of a great and worthy Commodore to enter its pantheon of shipping leaders. We enjoyed his inauguration as much as he did.

Written by: carisk | Categories: Freshly Minted, The Week in Review | April 2nd, 2009 | Add a Comment

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.

Written by: carisk | Categories: Freshly Minted, Market Commentary | March 27th, 2008 | Add a Comment

CMA’s Irish Feis

CMA’s 2008 Shipping Conference got off to a brilliant start on St. Patrick’s Day. It was not only bigger, 2,000 attendees by latest count, but if possible was one of the best ever in terms of content. Understanding that everyone is Irish on St. Patrick’s Day, the organizers brought Ireland to the conference much to the chagrin of the local pubs, Tiernan’s and Tigin. Bob Kunkel of Seacoast Electronics was serving Guinness and Harps at the Seacoast booth and then brought in the pipes and drums from the Rockland County Emerald Society for entertainment.

It is grossly unfair to gloss over the program, which is dedicated to every part of shipping, but it would also be impossible to describe it all. So instead we will exhibit our prejudice and focus on the market sessions.

Written by: carisk | Categories: Conferences, Freshly Minted, Market Commentary | March 20th, 2008 | Add a Comment

Seacor Buys Seabulk: A Perfect Match

Since the transaction was announced last Friday, and particularly at the CMA show held in Stamford this week, quite a few people asked us what we think of Seacor’s acquisition of Seabulk. Our conclusions up front: we think it’s a perfect fit.

From a market standpoint, the timing of this business combination couldn’t be better. After several years of depressed rates in the U.S. Gulf, it appears that the market is coming back, as OPV day rates come up in the North Sea and West Africa. The driver of this increased demand appears to be strength in the jackup rig and floating rig markets, particularly in deep water. The North Sea has seen rates not witnessed since 1998. As a result, the deal gives Seacor increased financial and operating leverage at a time when the key offshore markets are strengthening and look to remain strong through 2006. Moreover, the acquisition diversifies sources of the company’s EBITDA by even further broadening Seacor’s portfolio of businesses across different cyclical drivers and behavior.

But more compelling than the market fundamentals is the fact that Seacor and Seabulk have very complementary businesses and capital structures – critical components in a successful corporate combination. From a financial standpoint, it is very clear from the valuation data shown in the accompanying charts that Seacor is the stronger company. The company is larger, has more cash, more market cap and a lower debt to cap ratio. Moreover, Seabulk pays hundreds of basis points more for its bank debt than Seacor does, excluding the Title XI bonds on Seabulk’s U.S. flag tankers.

Seacor’s acquisition of Seabulk will also raise the gearing from 33%, bringing it closer to the industry average of 51%. At the same time, Seacor will be able to sharply reduce the cost of much of that financing. What is interesting to note is that although Seabulk is much smaller and more highly leveraged, the company actually produced more EBITDA and earnings per share in 2004 than Seacor did thanks to the strong tanker market.

From a valuation standpoint, the transaction will be dilutive to Seacor on a price to book ratio with the company using stock valued at 1.4x book value to buy a company at 2.6x book value, but it is important to remember that the Seabulk U.S. flag tankers are likely carried at book values that are substantially below their market value. Although we generally provide a Price/NAV metric for M&A transactions, the vast and diverse amount of equipment owned by both of these companies makes the exercise less meaningful than for more traditional shipowning companies.