Let the Stakeholders Speak

During our conference in Hong Kong, the panel titled “Stakeholders Unite: Owners, Investors & Lenders on What Comes Next” generated a lively discussion on the many issues revolving around shipping today including the role of private equity in shipping, China’s increasing dominance in the global supply chain and the funding gap of the global orderbook. We bring you some of the highlights. Continue Reading

Written by: carisk | Categories: Asia, Conferences, Market Commentary | April 9th, 2009 | Add a Comment

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

Energy Infrastructure Shareholders to Opine on Vanship

Following quickly on the heels of Seanergy’s proposed special meeting to vote on its acquisition, Energy Infrastructure Acquisition Corp. (“EII”), another blank check company, set July 17 for its special shareholder meeting. As was done last week in the case of Seanergy, we will take a close look at what the shareholders are being asked to approve.

In July 2006, EII consummated its initial public offering of 20.25 million units, each unit consisting of one share of common stock and one warrant, raising $209.25 million in net proceeds (including a portion of the green shoe). Prior to the offering, George Sagredos, the President and COO, purchased through Energy Corporation 825,398 units at the offering price resulting in gross proceeds of approximately $8.25 million.
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Written by: carisk | Categories: Freshly Minted, The Week in Review | July 17th, 2008 | Add a Comment

Defensive Acquisition with Upside

On Tuesday, just a week after Quintana‘s press release announcing the termination of the sale process, Excel and Quintana jointly announced that Excel had, over the weekend, agreed to acquire Quintana pursuant to a definitive merger agreement whereby Quintana would become a wholly owned subsidiary of Excel. The purchase price will be approximately $2.2 billion (based upon Excel’s closing price of $33.00), including net debt of Quintana and other costs.

Under the terms of the agreement, Quintana shareholders will receive a combination of cash and stock. Each Quintana share will receive $13.00 in cash and 0.4084 shares of Class A common stock in Excel. Based upon Monday’s closing price, the offer represents a total value of $26.48 per share, representing a 57% premium to Quintana’s closing price on that day of $16.89 and a 34% premium to Quintana’s 30-day average price. The agreement provides for a cap of $31.38 based upon an Excel share price of $45.00 as well as price adjustments for dividend payments. Continue Reading

Written by: carisk | Categories: Freshly Minted, Mergers & Acquisitions | January 31st, 2008 | Add a Comment

Cosco Hits Choppy Seas in Hong Kong

The Hong Kong equity market has proved itself to be at least as choppy as the U.S. equity market with the pricing and ensuing disappointing share performance of Cosco. The shares priced at the low end of the HK$4.25-HK$5.75 per share range, but even so the company raised an amount approximately equivalent to U.S. $1.2 billion. While this is not as much as they had hoped, many have commented that China’s lack of sensitivity to market timing in its push towards privatization negatively impacts the performance of a number of companies. Keeping in mind this factor and recent U.S. equity results, a bottom-end price resulting in over one billion dollars raised is not bad, though the company’s 10% drop in the aftermarket could not have left a good taste in investors’ mouths.

Written by: carisk | Categories: Freshly Minted, The Week in Review | June 30th, 2005 | Add a Comment

IPO Market Remains Robust For Shipping Issuers

Don’t be misled by the trade press articles and the fact that recent shipping issuers have priced IPOs at the low end of already lowered price ranges; the fact remains that based on our valuations of these companies, issuers are continuing to do U.S. capital markets deals at very attractive valuations. Moreover, we are seeing deals with single hull tankers (Capital), older vessels (TBS) and secondary share sales (Eagle), as well as related party management companies (various). Despite claims to the contrary, the fact remains that the American equity markets are wide open for all kinds of shipping deals. As we see dry cargo rates begin to bounce in recent days, we would not be at all surprised to see this sector regain momentum and enjoy another run.

As one of the 150 investors at Marine Money Week said over coffee, “just because we aren’t paying the retail price that investment banks put on the prospectus doesn’t mean that sellers aren’t getting a premium.” We would concur with that. The message being telegraphed back to the industry from Wall Street and Main Street investors is that the market is open for shipping IPOs even though the heady days of 2x net asset value are gone – at least until rates begin to gather momentum in the coming months.

That said, we should acknowledge the two companies currently engaged in roadshows in the U.S. Capital Maritime & Trading Corp filed an F-1 today for the issuance of 16.67 million shares at $14-$16 per share on the NYSE. We will discuss this deal further next week, when it is expected to price. Cosco has also traveled a long way to bring its roadshow to New York this week.

Eagle Bulk – Don’t Believe What You See

But deals still in the market do little to demonstrate investor appetite. Let’s take Eagle Bulk as our first in-depth example of why the U.S. equity markets are still open, and yes even attractive, to shipowners. The U.S.-based handymax owner Eagle cut the estimated price of its initial public offering to $14-$15 a share from the planned $16-$18 a share, but the company increased the size of the IPO to 14.4 million shares from 13.25 million to make up for the shortfall. The deal priced at $14 per share, which we estimate to be around 1.6x a net asset value that is already high, especially in light of declining charter rates. This is a phenomenal execution that gives start-up Eagle a better valuation than Teekay or OSG. As mentioned above, despite the fact that investors have supposedly rejected issuer’s attempts to sell secondary shares, private equity fund Kelso, which is the financial sponsor behind the Eagle deal, was able to extract about $70 million through fees and debt repayment, which represents almost the fund’s entire investment in Eagle, even while it still retained about half of the equity.

Soft Aftermarket Trading for Eagle

As we saw with Diana Shipping, Eagle has sagged in early aftermarket trading as the stock immediately sank to $13.50. As we understand it, Citigroup’s Smith Barney and UBS’s Paine Webber sold about 65% of the deal to retail investors while the joint bookrunners, which include the names above plus Bear Stearns, sold the balance of the deal to institutional investors. Although this type of sales technique resulted in solid pricing, as it did in the Diana deal, the aftermarket performance prevents “flippers” from immediately selling their stock for a gain. We do not know whether the underwriters exercised the green shoe or are willing to offer support by buying stock to stabilize the pricing. If they have already used their dry power to support the stock, however, we would not be surprised to see continued soft price performance, at least until we run into some sort of market upturn.

Are Dividends Losing Effectiveness?

One question we’ve been asked lately relates to yields. Specifically, how are investors looking at them? The answer, in our view anyway, is that yield can be used to increase valuation among certain fringe buyers of these stocks such as retail, but most experienced institutional investors clearly are looking at net asset value because issuers like Eagle do not have the long-term contracted cash flows required to meet the dividend in question over a sustained period.

In fact, investors that we spoke with at Marine Money Week seem to like growth stories and are discounting the real value of the dividend over the long-term. They are, however, looking at dividends as a way for them to lower their cost basis by receiving their deprecation and earnings in cash. As one Eagle investor said, “Do I think the 16% dividend is a guaranteed? No. But based on the company’s charters, I know I can get more than 30% of my money back over the first two years, meaning that I am really buying this company at closer to net asset value. That is the trade.”

This logic, although tempting, neglects to embrace the potential loss of principal that would result if rates and values return to historically normal levels. In our view, companies that seek to pay dividends and do not have long-term employment to back them up should just be careful to set them at realistic levels that do not stress the company’s liquidity and leave enough cash to take advantage of growth opportunities. It follows from this that Eagle priced at a quite respectable valuation, indicative more that investors have sobered a bit since January than that they have lost interest in dry cargo equity.

Written by: carisk | Categories: Equity, Freshly Minted | June 23rd, 2005 | Add a Comment

A Public Sinotrans

By Matt Flynn

Investors have embraced the listing of Sinotrans Ltd. as a proxy for the bonafide exuberance of mainland Chinese cargo growth, while in turn the mainland logistics firm sees the discipline of a stock market listing as an avenue to greater corporate efficiency. The China dream so very often embraced by fortune seekers has a tangible vehicle in trade growth, which has exceeded 30%. This rate across all cargoes will likely slow, but would still easily achieve 15%, or about twice the global average. The stock market reception from investors has been strong, but not exuberant and this may be exactly what Sinotrans Ltd needs. In the months before the listing, a senior Sinotrans executive in Hong Kong told this correspondent that the most important feature of getting the company hammered into shape for a stock market listing was the simple performance benchmark from the earnings statements. This would drive the restructuring into a more streamlined and profit oriented corporation ready to face the onslaught of competition unleashed by World Trade Organisation ascension.

The greatest challenge facing China’s large state owned enterprises is getting the far flung offices to use the regional resources to the best benefit of the head office. COSCO and China Shipping have both gone through this process and although much of Sinotrans’ less productive inland offices and warehousing has been stripped out, now it is Sinotrans’ turn to reverse the commercial devolution and fragmentation inherent in a matured socialist business structure.

In other words, the market gets what it wants in terms of a plausible China play, while Sinotrans enjoys the self-discipline demanded by Western style corporate accounting.

Written by: carisk | Categories: Marine Money | March 1st, 2003 | Add a Comment

Deal of the Year – 2002Public Debt

“It is the rare item that inspires a bargain hunter to pay a premium. That’s why when CP Ships, whose very identity is defined by buying out-of-favor companies on the cheap, marched up to the Wall Street counter and ordered $200m worth of bonds yielding 10.75%, the ship finance industry was momentarily in shock.”Marine Money, June 2002

Like all capital markets, the public debt market opens and closes as unpredictably and as inexplicably as the shipping markets rise and fall. As one bond underwriter in New York said, “the high yield bond market is only about twice a year, so companies need to be ready and execution needs to be perfect.”

Although slipping gracefully through an open window, as JP Morgan did for Stena and Morgan Stanley did for Seacor, is a pretty thought, the reality is that the capital needs of companies generally don’t coincide with the few and fleeting moments that the bond window is open. This scenario sometimes leaves issuers with an unfortunate task – jumping through a closed window, and hoping they don’t get too bloodied along the way. That’s exactly what happened in the case of thisyear’s award winner.

Written by: afarrison | Categories: Deal Of The Year Awards, Marine Money | January 1st, 2003 | Add a Comment