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Distress times in dry bulk are over

Distress times in dry bulk are over
DISTRESSED times in dry bulk are over, and the surprisingly resilient rates earned today by all size categories will open up strategic ship buying opportunities for financially stronger owners.

Bullish Eagle Bulk boss declares the days of distress are over.

Sophocles Zoullas believes opportunities for financially stronger owners are on the way.

DISTRESSED times in dry bulk are over, and the surprisingly resilient rates earned today by all size categories will open up strategic ship buying opportunities for financially stronger owners, according to Eagle Bulk Shipping chief executive Sophocles Zoullas.

Mr Zoullas said Eagle Bulk was studying ship acquisition deals ?daily? and that sellers of so-called distressed tonnage always ran these opportunities past Eagle first.

However, he refused to tell Lloyd"s List whether any imminent purchases were on the cards, or if Eagle would exercise its options on eight newbuildings in China.

He said today"s dry bulk acquisition opportunities were not ?distressed? buys, and certainly not asset play-driven.

Rather, majors such as Eagle would consider new ship buys only if sustainable contracted revenues came attached, or the company could arrange cover on its own.

?In dry bulk, we are not in distress anymore,? Mr Zoullas said at a conference hosted by the Hellenic-American and Norwegian-American Chambers of Commerce last week.

?In fact, dry bulk is the shining market today, with respectable rates in the $20,000 range for supramaxes, high-$20,000s for panamaxes and $30,000 plus in capesizes.

?If contracted cash flows are assured [at these rates], great cash flow-driven ship purchase deals would open up.?

Evercore Partners head of shipping Mark Friedman said ?certain participants? in shipping, especially dry bulk, might be ?stressed?, but not all companies. This was creating opportunities for the non-stressed companies.

This list, at least in the publicly listed space, popularly is seen to contain Eagle, Angeliki Frangou"s Navios and Peter Georgiopoulos" Genco Shipping & Trading.

Of this list, Navios has already purchased seven, in effect foreclosed capesize newbuildings since the second half of 2009.

While Genco has remained quiet, its proposed spin-off, Baltic Trading, is in the initial public offering queue to raise cash for up to seven ships at cheap prices.

Eagle, by contrast, in late 2008 trimmed its massive orderbook, by demoting eight time charter-free supramax newbuildings on order at Yangzhou Dayang Shipbuilding in China back to options. Mr Zoullas said he had no regrets over this decision, but refused to be drawn on whether his renewed bullishness on cash flow would translate into Eagle returning to the yard to reactivate the orders.

?In late 2008, we saw the unprecedented spectacle of the Baltic Dry Index dropping 95% in 45 days,? he said.

?As the steward of shareholders" equity, my first job was to understand the playing field, and prepare for the worst. The worst never happened.?

Equity analysts following Eagle a year ago were predicating their studies on supramax rates remaining as low as $10,000 per day. However, with China propelling demand in the first half of 2009 and the rest of the world offering respectable volumes since then, dry bulk rates in general firmed along the lines of a sharp V-shaped recession.

Mr Zoullas said Eagle was particularly well placed because it specialised in supramaxes, a larger variety of handymaxes that was invented only 10 years ago.

Speaking at a BB&T Capital Markets conference in Miami last week, he said that while capesizes and panamaxes carried only iron ore and coal, and panamaxes able to carry grain in addition, handymaxes and supramaxes carry every conceivable dry bulk commodity.

Another advantage Eagle enjoyed because of its exclusive reliance on supramaxes was its ability to serve the Indian market.

With only a handful of Indian harbours deep and wide enough to berth capesizes and panamaxes, supramaxes had turned into India"s ?workhorse?, Mr Zoullas said.

With demand for coal expected to boom as India"s plans to boost electricity generation slowly come to life, imports are projected to rise dramatically.

This fact would help Eagle in particular, while China would continue to offer steadily increasing volumes despite talk of a slowdown, Mr Zoullas said.

While talk of looming tonnage oversupply was real, Mr Zoullas said the supramax sector was best placed. Based on Clarksons" data, 47.6% of handymax-supramax newbuildings scheduled for delivery in 2009 never materialised, compared with 41.1% for panamaxes and 33.7% for panamaxes.

In January 2010, the handymax-supramax ?slippage? was 82.7% of scheduled deliveries, versus 50% and 63.2% for the other categories respectively.

With seven newbuildings arriving since last autumn, including five this year, Eagle has a fleet of 32.

The company has 15 newbuildings scheduled to join its fleet ? eight more this year and seven in 2011. This year"s contract cover is 63%, according to latest figures available.


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