New shipping companies lack ships
A handful of shipping companies surging into the U.S. and Brazilian stock markets are so eager for a stake in the global movement of goods they are arriving without the vessels they need to do business. The companies are betting on the rising price of oil and Chinese demand for commodities like iron ore and coal, but investors are proving skeptical.
So far the companies' businesses are name-only and their shares are taking on water. Of the three shipping companies that have gone public over the last two weeks, only one owns a ship. It leased that single ship to another company owned by the same controlling shareholder.
A fourth shipping company, which does not currently have any ships, is scheduled to raise money in an initial public offering in the United States this week. A fifth company, scheduled for an IPO next week, owns three ships.
"When you have what is mostly a business plan and you're raising money, there is a lot more risk in that than there would be in an existing business," said New York-based Deltec Asset Management's head of equities Greg Lesko, who helps manage $750 million.
"It's not surprising to me some of these deals haven't done well. It really is very early to be considering raising money for a business that doesn't really have its operations up and running in the public equity markets," he said.
Shares of drybulk shipper Baltic Trading Ltd began trading at their IPO price in their market debut but are now more than 4 percent lower. Shares of crude and fuel oil shipper Crude Carriers Corp also opened at their IPO price but have slipped more than 10 percent.
OSX Brasil SA, a shipbuilding and oil services start-up backed by Brazilian billionaire Eike Batista, slashed the number of shares and price range of its IPO and traded down 12.5 percent in its Monday debut.
"It's just a business plan," said Josef Schuster, founder of Chicago-based research house IPOX Schuster LLC. "In the short term you must expect a tremendous amount of volatility."
Schuster was formerly part of the Financial Markets Group at the London School of Economics and a member of the Chicago Mercantile Exchange.
NO SHIPS, TOO MANY SHIPS
When the new shipping companies finally do get their vessels they may find themselves in a crowded market.
Analysts warn that the shipping industry faces a surplus of ships. Ships ordered before the financial crisis are still being built and delivered.
The worldwide drybulk fleet, for example, could easily grow 14 percent, even if half of the orders are canceled, said Cantor Fitzgerald analyst Natasha Boyden.
"That's a pretty large number," she said.
Tankers used as floating storage are also being put back into the transport business as the spread between front month crude oil futures prices and further out futures has narrowed, making such storage unprofitable.
"Ships are ships. Industry cycles are going to be the main determinant of the return," said University of Florida finance professor Jay Ritter "Apparently a number of these companies are taking the view that there are opportunities for being contrarian and getting into the shipping business when prices are low."
The uncertainty is making it tough to value the new companies, analysts said.
If Alma Maritime Ltd and Scorpio Tankers price at the midpoint of their expected ranges this week and next, they will have a 9 percent and 17 percent premium to their respective tangible book values, IPOdesktop.com President Francis Gaskins said.
Based on Monday's closing prices, Baltic Trading had a 4 percent premium to its tangible book value, while Crude Carriers had slipped to only 90 percent of its tangible book value, he said.
Baltic Trading shortly after its IPO announced plans to sign charter contracts with Cargill Intl, a deal analysts said could be giving investors more assurance about revenue for a company that plans to operate in the volatile spot market.