Setting Sail (Again) on Wall Street

Shipping is an industry full of surprises. And volatility. Up until February of this year the surprise had been mainly about the terrible state of the freight markets. The last few months, however, have surprised on the upside. Freight rates for the dry bulk market have moved to cash-flow positive levels and tanker rates have been fair, despite some relative weakness.

That’s a long way from saying the market has recovered since many shipowners remain in financial distress and several of the options available to shipping banks can only have a negative impact on shipowners. But shipping has been in a miserable state for the last eight years, and there are no silver bullets - short of a major macro or geopolitical event.

Change in the Weather

Besides freight rates, the overall mood of the market also seems to be improving. We do not mean only for shipowners, who by nature are always an optimistic bunch and preconditioned to buy more ships. The capital markets seem to have gotten a sense of euphoria too after the presidential elections in the U.S., whether from the perceived benefits of a new approach to governing or on hopes of an infrastructure investment spree. 

The fact that capital markets didn't melt after the results of the Italian elections last week is a further sign of pervasive optimism.

We are glad to see the new optimism getting tangible for shipping companies, especially publicly listed ones. After several years of a bone-dry drought for IPOs and secondary offerings, the last month, just in time for the holidays, brought several successful fundraisings. Most recently, Seanergy of Greece (ticker: SHIP) raised $15 million in a secondary offering and Safe Bulkers of Greece (ticker: SB) raised $14 million the week before. Both companies are active in the dry bulk market and intend to finance vessel acquisitions with the proceeds. 

A couple of weeks ago, Costamare of Greece (ticker: CMRE) raised $72 million in the containership markets and Höegh LNG of Norway (ticker: HMLP) $106 million in the LNG tanker market. A month ago, Belgium’s Saverys raised $100 million in the U.S. for a blank check (SPAC) to acquire dry bulk vessels via its Hunter Maritime Acquisition Corp. (ticker: HUNTU).  

The amounts involved are a small fraction of the golden days of the capital markets for shipping companies a decade ago. Until recently, however, it has been a very quiet market for IPOs and secondary offerings of all types of companies. So this is a positive development no matter how you look at it. 

All the offerings mentioned above took some serious effort and a serious management team and sponsor behind the companies involved. Still, some of the raises took place at a discount to the market. Thus, not all news is as rosy and sunny as it appears. But we take the view that a successful funding today for shipping is a major accomplishment irrespective of the circumstances. These are five successful examples in three different industry segments, two of which (dry bulk and containerships) were left for dead four months ago. It shows the resilience of the capital markets and investors’ appetite for shipping overall. To that extent, we believe the news is just fantastic!

Lessons Learned?

Hopefully the momentum will continue and there will be more offerings in the New Year. And hopefully any fundraisings will be utilized to build solid shipping companies or strengthen company balance sheets rather than as fodder for speculative newbuilding orders as happened a couple of years ago. That course of action proved detrimental to both the instigators and innocent bystanders as the freight market crashed under the burden of huge tonnage oversupply. Hopefully there is a lesson to be learned here.

Another lesson to be learned from recent developments is that the capital markets, especially in the U.S., are deep and substantial and can be depended upon for shipowners to keep raising money as long as they have solid management teams and transparent corporate governance and decent business plans. All the companies mentioned above successfully check almost all of these boxes. 

Taking a broader historical view of the capital markets and shipping, there has been a wide and diverse populace of shipping companies that opportunistically went public in the last decade, and now a few of them have ended up as penny stocks and others will soon be delisted. One cannot blame the market for some of these failures, but there is plenty of blame to go around, especially in the case of those companies whose managements aggrandized themselves through exorbitant executive compensation packages, usurious vessel management agreements, and plain old-fashioned self-dealing. Hopefully the present success of shipping companies in raising money will be a painful reminder that greed is not always good as it can kill the goose that lays the golden eggs.

Brave New World

We long have taken the position – and have advised our firm’s clients accordingly – that ship finance is facing structural changes. The old model of committing to lending in shipping based on a handshake is extinct. Raising money from shipping banks is and will be getting tougher and more expensive. Capital will be coming to shipping in different ways (through the capital markets, etc.), in which only a few owners will be able to benefit. The work for shipowners adjusting to the new market circumstances is not done yet. 

As we said earlier, we are a long way from a market recovery! – MarEx 

Disclaimer: Karatzas Marine Advisors & Co. has advised or otherwise been involved with some of the market transactions referenced above. This article is strictly intended for information purposes.