Sailing Winds on Wall Street

Shipping is an industry full of surprises. And, volatility. While until February this year the surprise mainly had been about the really terrible state of the freight market, the last few months have shown a tendency for the market to surprise on the positive side. Freight rates for the dry bulk market have moved to cash-flow positive levels in the last few months and tanker freight rates have been fair despite some relative weakness.

It’s a long way from saying that the market has recovered, no doubt. Many shipowners still remain in financial distress and several of the options available to shipping banks can only have adversarial impact on shipowners. But again, when shipping has been in a miserable stage for the last eight years, there are no overnight cures – short of a major macro or geopolitical event.

Besides freight rates, the overall mood for the market seems to be improving; we do not mean only shipowners, who by nature are always an optimistic bunch and they seem pre-conditioned to be looking to buy more ships – always. The capital market seem to have gotten a sense of euphoria too after the presidential elections in the US, whether on a sense of a perceived catalyst of definitely a new approach to governing or on the 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.

And, we are glad to see that market optimism getting tangible for shipping companies, especially for publicly listed companies. After several years of a bone-dry draught for IPOs and secondary offerings, the last month, just in time for the holidays, brought several successful fund raisings. Most recently, Seanergy of Greece (ticker: SHIP) raised $15 mil in a secondary offering and Safe Bulkers still of Greece (ticker: SB) raised $14 million the week prior; 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 mil in the containership markets and Höegh LNG of Norway (ticker HMLP) raised $106 mil in the LNG tanker market. A month ago, Saverys in Belgium raised $100 mil in the US for a blank check (SPAC) to acquire dry bulk vessels via their Hunter Maritime Acquisition Corp (ticker: HUNTU) investment vehicle.

The amounts involved are a small fraction of the golden days of the capital markets for shipping companies a decade ago; however, until recently it has been a very quiet market in the capital markets for IPOs and secondary offerings for all types of companies. However, this is a positive development under any light seen. All the offerings mentioned above took some serious effort and / or a serious management team and sponsor behind the companies to raise the money; and still, some of the raisings took place at a discount to the market. Thus, not all news is as rosy and sunny as they appear. However, again, we want to take the view that a successful raising today for shipping is a major accomplishment irrespective of the circumstances. These are five successful attempts for different amounts of money and circumstances and in three different industry segments, two of which (dry bulk and containerships) were left for dead four months ago. It shows in our opinion the resilience of the capital markets and the investor appetite for shipping overall. To that extent, we tend to take the view that the news is just fantastic!

Hopefully the momentum will continue and there will be more offerings in the new year. And, hopefully, any fund raisings will be utilized to build solid shipping companies or strengthen balance sheets of shipping companies and the capital markets will not serve as a fodder for speculative newbuilding orders as it happened a couple of years ago, a course of action that has been detrimental for both the instigators and innocent bystanders whereby the freight market crashed under the burden of huge tonnage oversupply. Hopefully there is a lesson to be learned here.

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Smooth seas… Image credit: Karatzas Images.

Another lesson to be learned too, hopefully, by the recent developments is that the capital markets, especially the US capital markets, 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 points. 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 ended as penny-stocks or and others soon will be delisted. One cannot blame the market for some of these companies falling into hard times, but there is plenty of blame to go around seeing the management of these companies aggrandizing for themselves by exorbitant executive compensation packages, usurious vessel management agreements and plain old-fashioned self-dealing. Hopefully the present success of shipping companies raising money will be a painful reminder to some of the ailing companies that greed is not always good as it can kill the goose that lays the golden eggs.

We long have taken the position – and have advised our firm’s clients accordingly, that shipping finance is facing structural changes; the old model of committing to lending in shipping based on a hand-shake 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 (capital markets, etc) whereby only few owners will be able to benefit from. 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.


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


The article was originally appeared on the Maritime Executive under the title “Setting Sail (Again) on Wall Street on December 13, 2016.


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Where the winds are strong… Image credit: Karatzas Images

IMPORTANT DISCLAIMER:  Access to this blog signifies the reader’s irrevocable acceptance of this disclaimer. No part of this blog can be reproduced by any means and under any circumstances, whatsoever, in whole or in part, without proper attribution or the consent of the copyright and trademark holders of this website. Whilst every effort has been made to ensure that information here within has been received from sources believed to be reliable and such information is believed to be accurate at the time of publishing, no warranties or assurances whatsoever are made in reference to accuracy or completeness of said information, and no liability whatsoever will be accepted for taking or failing to take any action upon any information contained in any part of this website.  Thank you for the consideration.

Shipping Finance Elements and Concepts

Following Presentations on Shipping Financing have been found on the internet. They are reproduced here as a matter of convenience for readers interested in the subject of how ships have been financed under different structures and different business models, at present and over time.

MV NEPTUNE THALASSA 13 BMK_5610 @There is debt (senior or first preferred ship mortgage, second lien, junior loans) and equity (owners’ equity or sweat equity, friends-and-family money) for the archetypal structure available to independent (individual) shipowner. Shipping banks over time had been the prime financiers of the shipping industry mostly in  the form of asset-backed financing (mortgage). There is leasing whether operating or financial leases, sale and leaseback, or uniquely structured Japanese Operating Leases (JOL), and financing earned via long-term charters (time charters and long-term bareboat demise charters). Independent shipowners have been dealing with shipping banks and often financed vessels via project finance, and when circumstances fertile, dealt with private equity as well. For owners who sought public equity and underwent an IPO process, the capital markets for equities and for bond (shipping bonds) have offered more alternatives. Shipping finance has been experiencing tectonic changes since 2008 and has moved from relatively self-explanatory terms of vessel valuations and Loan-to-Value (LTV) to terminology to accommodate Basel III with its Tier 1 Capital (CET1) to Risk-Weighted Assets (RAW) and the Capital Adequacy Ratio.

Copyright to the presentations and articles listed herebelow belongs to their perspective owners, and hereby duly acknowledged. Presentations have been found posted freely on the world wide web, and reproduced here as a matter of convenience.


Elements of Ship Finance
Zan Yang and Jian Chen
Department of management, Dalian Maritime University                                                  Last accessed on the internet on July 26, 2016.                              http://www.paper.edu.cn/scholar/downpaper/yangzan-2.html


Risk vs Return for Lenders and the Economics for Borrowers
by R. Philip Bailey, June 2015
Last accessed on the internet on July 26, 2016.

By Allan D. Reiss, Morgan Lewis & Bockius LLP, 2014

Last accessed on the internet on July 26, 2016.

Deloitte, 2011
Last accessed on the internet on July 26, 2016.

Irish Maritime Development Office, 2015
Last accessed on the internet on July 26, 2016.

Shipping Finance: A New Model for a New Market                                                  Citi, 2015                                                                                                                       Last accessed on the internet on July 26, 2016.                                    https://www.citibank.com/tts/trade_finance/financing/docs/citi_ss_v2.pdf


The Impact of the Basel III Capital Accord of Asset Finance
by Angelo L Rosa, 2012
Last accessed on the internet on July 26, 2016.

by Basil M Karatzas, 2010
Journal of Equipment Lease Finance
Last accessed on the internet on July 26, 2016.

Dissertation by Alex Orfanidis, 20014
Last accessed on the internet on July 26, 2016.

Ariff Kamarudin, 2012
Lehigh University
Last accessed on the internet on July 26, 2016.

© 2013 – present Basil M Karatzas & Karatzas Marine Advisors & Co.  All Rights Reserved.

IMPORTANT DISCLAIMER:  Access to this blog signifies the reader’s irrevocable acceptance of this disclaimer. No part of this blog can be reproduced by any means and under any circumstances, whatsoever, in whole or in part, without proper attribution or the consent of the copyright and trademark holders of this website. Whilst every effort has been made to ensure that information here within has been received from sources believed to be reliable and such information is believed to be accurate at the time of publishing, no warranties or assurances whatsoever are made in reference to accuracy or completeness of said information, and no liability whatsoever will be accepted for taking or failing to take any action upon any information contained in any part of this website.  Thank you for the consideration.

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