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Listed Ship Owners On Track For Worst Fund-Raising Year Ever

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U.S.-listed ocean shipping companies have started to raise money again in the capital markets after an extended lull, but fund-raising remains far below the levels seen in prior years.

From January to May, NYSE- and NASDAQ-listed ship owners conducted just five offerings, raising only $428.8 million in aggregate. Of that total, all but $5 million was raised in the month of May, and all but $14.3 million came from the sale of debt securities, not common equity.

With common equity often trading at a steep discount to net asset value (the value of assets minus liabilities), management teams remain highly resistant to sales of common shares. Instead, they are raising cash through the sale of debt securities or preferred shares, or through sources outside the U.S. capital markets – including sale-and-leaseback transactions with Chinese leasing houses.

Capital-raising trends are important to ocean freight markets for several reasons. In the near-term, lower proceeds and weaker investor sentiment can point to softening rate fundamentals. In the long-term, a shortfall of finance could reduce transport capacity, which could increase rates in the years ahead.

"There is no visible catalyst that is going to drive the shipping market higher," explained Basil Karatzas, founder of consultancy Karatzas Marine Advisors & Co, when asked by FreightWaves why conditions for listed shipping companies are so bad.

"There doesn't seem to be anything definite on the horizon in terms of supply and demand – certainly not for demand. We have problems with world trade and we saw [leading container line] Maersk lowering its projections for trade growth."

Karatzas continued, "The stock market is behaving like a yo-yo and all these things are going on with [U.S. President Donald] Trump, so people are not prepared to go long on the shipping industry. In the short-term, there is IMO 2020 [the fuel sulfur cap, which is effective January 1, 2020]. That should provide some excitement for the tanker market in the last few months of this year and the first few months of next year, but still, that doesn't help convince investors of a long-term structural recovery."

Frode Morkedal, shipping analyst at Clarksons Platou Securities, said in a recent client note, "The escalation of the trade war" has resulted in "another knock on shipping equities," and "the general investor is likely to focus on macro news, which has impacted sentiment for shipping negatively so far this year."

Year-to-date, the list of debt and equity offerings is very short indeed. Mixed-fleet owner Ship Finance International (NYSE: SFL) raised $80.5 million through the sale of unsecured bonds in the Norwegian market on May 24. GasLog Ltd (NYSE: GLOG), an owner of liquified natural gas (LNG) carriers, raised $75 million through the sale of senior notes on May 16. Tanker and LNG carrier owner Teekay Corporation (NYSE: TK) closed a private offering of $250 million in senior secured notes on May 13.

The only equity offering was conducted by dry bulk owner Seanergy (NASDAQ: SHIP) on May 9; it was a small offering and the company ended up paying a steep price. Seanergy grossed $14.3 million by selling 4.2 million common shares at $3.40 per share, with buyers receiving two warrants per common share, each giving them a six-month option to buy an additional common share for $3.74/share. The company's stock price plunged by 49 percent on the day the offering was announced, and has been falling ever since – it was trading at around $1/share on June 4.

The only capital raised by a U.S.-listed shipowner before May came from a $5 million private placement of convertible notes by dry bulk owner Globus Maritime (NASDAQ: GLBS), announced on March 13.

Full-year 2018 marked an annual low for U.S.-listed ocean shipping companies in terms of equity capital raising. Nevertheless, total proceeds raised in the first five months of 2018 were over quadruple this year's tally for the same period. According to an analysis of securities filings by FreightWaves, public owners raised almost $1.9 billion in January-May 2018 – $1.3 billion from the sale of debt securities, $345 million from preferred-share sales, and $233 million from common-share sales.

The downward trend is even more apparent when compared to earlier years. For offerings in the first five months of each year, gross proceeds from U.S.-listed company offerings totaled $4.01 billion in 2017, $660 million in 2016, $2.1 billion in 2015 and $4.15 billion in 2014.

To put the current nadir in context, proceeds in January-May 2014 were almost 10 times higher than in the first five months of this year. Furthermore, equity accounted for the majority of proceeds in earlier years, versus just a sliver in 2019.

Image sourced from Pixabay

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