Price Issue Resolved

OceanFreight announced this week that the previously announced reverse stock split was approved by shareholders last week and became effective as of the start of trading today. The 1-for-3 reverse split will automatically convert three current shares of the company’s common stock into one new share of common stock. The split will reduce the number of outstanding shares from approximately 238.1 million to 77.3 million shares with a commensurate increase in the share price.

Markets In Disarray

The equity markets can best be described as volatile, although that characterization may be kind, as they seem to be heading in one direction only. Two companies, Ridgebury Tankers and Navios Maritime Acquisition have braved the onslaught but we suspect would have preferred a better choice of timing. Unlike the preceding IPO offerings, Crude Carriers and Scorpio Tankers, that took place earlier this year, Ridgebury is not the master of its fate. Specifically, its vessels are on option from a third party seller, Teekay, as opposed to an affiliated party, which implies certain time limitations. Despite the switchover from the Gemini to Heidmar pool, they remain on the road for a second week. As a firm believer in no news is good news, we remain hopeful that Bob Burke and his team along with Jefferies will be successful.

Clearly, Ms. Angeliki Frangou leads a charmed life or is an extraordinary negotiator. Despite the uncertain markets and a preliminary vote that was largely against the acquisition of a tanker fleet of 11 product carriers and 2 chemical tankers, shareholders of Navios Maritime Acquisition approved the transaction on Tuesday thereby avoiding the necessity of Navios Maritime Holdings becoming the owner/operator of the tonnage. According to Chris Wetherbee of FBR Capital Markets, the company was able to secure a 60% plus one majority vote from shareholders, but expects Navios’ ownership stake will likely be higher than its 33% target, as it likely purchased shares from dissidents. With three public companies under her purview, Ms. Frangou is approaching Peter G’s record of four. We are in awe of the capacity of these two industry leaders to manage successfully these distinct companies in different sectors with distinctly different shareholders.
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OceanFreight Fix

Last week, to fix its share price issue with respect to the NASDAQ, OceanFreight announced that at its annual meeting it intended to propose a 3:1 reverse stock split in order to bring it in compliance with the $1 minimum bid requirement.
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Shareholder Activism

Last December, we wrote about MMI Investments L.P.’s investment in DHT Maritime. At that time this activist shareholder had purchased approximately 3.95 million shares, representing approximately 8.1% of the outstanding shares for $15.6 million.  At the conclusion of our article, we presciently suggested that the company should soon expect a call. This week, with its ownership stake increased to 4.325 million shares now representing 8.9%, MMI fired its broadside.

We have always believed that criticism should always welcome as long as it is given constructively and thoughtfully. Second-guessing from the cheap seats in our estimation is at best unproductive and at worst detrimental to the party it is directed at. In this light, we believe in the role played by shareholder activists, but often wish it were directed in a positive constructive manner in the long-term interests of the shareholders as opposed to an attempt to hike the share price for a quick and profitable exit. We cannot paint all activists with the same brush but do distinguish a Calpers from a Carl Icahn. And in the same vain, there is both good and bad management, necessitating a role for these activists. For the moment, we will withhold our judgment of MMI but their first run at DHT leaves us decidedly unimpressed.
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What’s a Ship Worth?

OceanFreight’s Demetris Nenes presented his company at the Oppenheimer Conference in an unusual fashion, by first asking the question on everyone’s mind with regards to asset prices – what is low? He then built upon this question to answer the inevitable why invest in shipping now.

His basic premise is that one must invest in and not trade shipping as the market is too volatile.
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Less Buzz, but…………More Business

On the outside, this year’s Jefferies Conference was subdued with less buzz than previously. However, it was a marked improvement to last year’s event, which coincided with the collapse of Lehman Brothers. Then the shipping markets were still good but all eyes were focused on the Bloomberg screens awaiting developments, while discussions revolved around whether or not to buy gold. Today was different. The economy seems to be improving while the shipping markets struggle. Shipping’s main source of capital, bank debt, is rationed while the equity markets are offering hope. Today was the day for public shipping companies to plead their case to investors. It was all about business.

We know that the presentations are the interlude and that the real action takes place behind the scenes during the one on one meetings as investors and companies engage in speed dating. Yet even in the public venue, we saw a clear dichotomy between the haves and have not’s. The rooms were packed for those companies with large market caps, liquidity and share volatility. For investors these days, slow and steady does not win the race. Nevertheless, the good news was that all the companies had meetings, although some had more than others. But all agreed the meetings were of high quality and now included a new class of investor – the opportunity fund.

As usual, our coverage will focus on points of interest to us. But as it was impossible to cover three tracks, our emphasis, for the most part, was on those unappreciated companies where interest may have waned, whether for lack of coverage or as a consequence of the market sector in which they participate.

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TOPS Share Sale

Last week, Top Ships Inc. (“TOPS”) entered into a shelf registration to sell up to $500 million of common shares, preferred shares and warrants, including the sale of 70,462,300 common shares by selling shareholders. Contemporaneously, the company also entered into a Standby Equity Distribution Agreement (“SEDA”) with YA Global Master SPV LTD (“YA Global”), an investment vehicle managed by Yorkville Advisors LLC, who previously utilized a similar structure with OceanFreight. Under the latter agreement, which is sometimes referred to as an equity line of credit arrangement, TOPS has the option, for a three year period from the effective date of a registration statement, to sell its common shares to YA Global for a total of up to $200 million, at the company’s sole discretion. YA Global intends to sell up to an estimated amount of 70,462,300 of these shares.

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Poor Uncle Needs Cash. What’s a Good Nephew to Do?

Our thanks to Oppenheimer’s Scott Burk for highlighting OceanFreight’s plan to issue up to $147.9 million of common shares as part of an Standby Equity Purchase Agreement with YA Global Master SPV (“YA Global”) arranged by DVB Capital Markets.

The transaction would be extremely dilutive to shareholders. If all $147.9 million of shares were sold at $3.83, the last reported price prior to the announcement, the company would have approximately 57.2 million shares outstanding which represents an increase of 208% in issued and outstanding shares.
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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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Not to Be Missed

Despite the difficult environment, a veritable who’s who of the shipping community descended on the Jefferies 5th Annual Shipping, Logistics & Offshore Services Conference on Tuesday and Wednesday.

We must confess that walking in at the uncivilized hour of 8 AM to a sparse crowd and seeing Jefferies Magic Eight Balls gave us pause. Was Hamish making a market statement or was he merely giving investors a new forecasting tool? Our conclusion was probably both.

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