SOURCE: LLOYD’S LIST
• Friday 17 March 2017, 10:42
• by Lambros Papaeconomou
Owners wielding public money descend on New York, holding the market balance in their hands
AS shipping executives are travelling to New York for a series of high-profile trade shows and industry forums, a clear line of demarcation is drawn between the haves and the have-nots.
The haves enjoy full access to debt and equity markets; the have-nots, not so much. The haves are more likely to place newbuilding orders, the have-nots are more likely to scrap their older tonnage.
Their collective decisions will shape the market as much as demand for raw materials will.
A clear distinction is drawn between larger and typically publicly traded shipowners, which have ample access to capital and seem to use every opportunity to bolster their financial position, and their smaller counterparts, which are seeing traditional sources of funding, like bank debt, becoming stingier and more expensive.
For example, Golar (news, data), GasLog (news, data), Golden Ocean (news, data), Navios Maritime Partners, Seaspan (news, data) and Dryships have tapped debt and equity markets in New York and Oslo the last few weeks, collectively raising almost $1.5bn.
It doesn’t matter what the current state of a particular industry segment is — growing, about to break out, or receding — investors’ appetite remains voracious. Navios Maritime Partners is a case in point.
Navios Maritime Partners may be the sole shipping master limited partnership to have suspended its cash distributions, yet investors were willing to buy $100m of new common units in a private placement.
That was after it raised $405m in debt to refinance an existing loan facility. The partnership is ready to resume its growth trajectory, and perhaps reinstate its cash distributions, as it seeks vessel acquisitions. A company’s value, after all, is based on its future prospects and not its past performance.
It also doesn’t seem to matter what a company’s public record on corporate governance is — exemplary or sketchy. How else does one explain the placement of $0.5bn worth of Dryships shares since last November, mostly among retail investors.
George Economou may be the most astute reader of market sentiment, but his company has been rife in related-party transactions for so long that investors should have learned by now how to tread more carefully.
The success of Dryships in raising so much cash in so little time, and without relying on self-dealings or strong institutional support, renders the argument about capital markets being averse to shipping mute. Unless Mr Economou is the only shipowner with the Midas touch.
If lack of capital is a non-event for top-tier companies, then the real issue is how the newly found treasure trove will be applied. Will it be used wisely to refinance or pay down debt, to opportunistically acquire secondhand vessels, or even take over smaller competitors? Or will it be used foolishly to place speculative orders for newbuildings?
Much ink has been spilled over the shipyards’ struggles. Although these struggles are real and grave, shipyards are still in the shipbuilding business and presumably know how to make an offer that shipowners cannot refuse.
DHT recently announced an order for two very large crude carriers at what was hailed as record low price. The vessels will be ready for delivery in the second half of 2018, when VLCC owners are hoping that a sustained recovery will begin. Will the recovery have to wait if many more owners follow suit and order newbuildings at irresistibly low prices?
As New York is getting ready to welcome the international shipping community for a festive occasion, we remain hopeful that with the passing of each year our industry will become more mature, more transparent, more rational, and more profitable.