There were high hopes in the 2000s and even the 2010s that shipping would evolve into something more than a niche trade and investment space on Wall Street.
The hope was that consolidation would reduce the crowded field to a few large-cap whales with business models that worked through the cycles and earned the respect of larger investment funds. The reality over the past half-decade: Consolidation coincides with the privatization of larger-cap ship stocks. And the field of shipping minnows – including penny stocks – continues to grow.
Another biting the dust…
The last planned departure: Atlas Corp. (NYSE: ATCO), owner of Seaspan, the largest container ship rental company in the world. It has 127 ships on the water with a total capacity of 1.16 million twenty-foot equivalent units and 67 more on order with a total capacity of 793,800 TEUs. Atlas has an equity valuation (market cap) of $3.5 billion.
Atlas received a privatization proposal on August 4 from the holders of 68% of its shares, as well as from the maritime carrier ONE. The stated rationale for the plan is that “the shipping industry will experience significant change over the next few years…and it will be critical for the business to make timely decisions, many of which could impact the bottom line. short term…decisions [that] cannot be done as efficiently as a public company.
It sounds like an argument that shipping companies shouldn’t be public in the first place. The industry has always faced significant changes in its markets, many of which are unforeseen. This has always forced public management to weigh short-term stock effects against long-term returns.
Loss of maritime stocks due to privatizations
The public liquefied natural gas (LNG) shipping sector, in particular, has been gutted by privatizations and fleet sales in recent years. “Unfortunately, there are very few ways to play LNG transport with public stocks,” Stifel analyst Ben Nolan noted in May.
Teekay LNG was acquired by private equity firm Stonepeak in January. GasLog Ltd. was acquired by BlackRock in June 2021.
Outside the LNG space, the container equipment lessor CAI was acquired by the Japanese Mitsubishi Capital in November. Seacor, which owned US-flagged vessels, was taken private by American Industrial Partners in April 2021.
Mixed-fleet owner DryShips was taken private by its controversial Greek sponsor George Economou in August 2019.
“You can’t paint all the privatizations with a wide brush,” a shipping finance source who declined to be identified told American Shipper. “DryShips had become uninvestable and would never get anything close to NAV [net asset value] Evaluation. Seacor was a conglomerate that frankly did not act like a public company.
“The only thematic you could come up with is that LNG transportation is based on long-term contracts, but because of the pool it was swimming in – shipping – it would never get the infrastructure-type valuations that he really deserved. So private equity and others have been lured in by low cash flow and entry points and starved them out.
Loss of inventory due to sales
Beyond the privatizations, the realm of US-listed shipping stocks has been reduced by sales to other public companies that are not primarily engaged in shipping or are outside US stock markets.
In January, Golar LNG Ltd. (NYSE: LNG) exited shipping with the sale of its LNG carrier fleet to a new entity, The Cool Co. (The Cool Co. is listed in Oslo.)
Golar LNG Partners was sold to New Fortress Energy (NYSE: ENF) in April 2021.
The company formerly known as Scorpio Bulkers announced its partial exit from bulk shipping in August 2020. It confirmed a full exit in December. It sold its last bulk carrier in the second quarter of 2021. The renamed company, Eneti (NYSE: NETI), now focuses on offshore wind farm installations.
Loss of inventory due to consolidation
A further reduction in shipping names is due to consolidation by larger US-listed players.
Navios Holdings (NYSE: NM) announced the sale of its entire dry bulk fleet to its subsidiary Navios Partners (NYSE: NMM) on July 27. Previously, Navios Acquisition purchased Navios Midstream in December 2018, and Navios Partners purchased Navios Acquisition and Navios Containers last year. There is now one Navios stock covering containers, dry bulk and tankers – Navios Partners – compared to five.
In tankers, Frontline (NYSE: FRO) plans to acquire Euronav (NYSE: EURN) and create a combined entity with a market cap of $4.2 billion. Euronav CEO Hugo De Stoop would lead the combined entity and current Euronav shareholders would own 55%.
This megadeal is conditional on the contribution of shares of more than 50% of Euronav shareholders to Frontline in the fourth quarter of 2022 – a tender that could fail given the opposition of the Saverys family, which owns 20 % of Euronav shares.
Other consolidations in the US public market over the past five years include the acquisition of Diamond S Shipping by International Seaways (NYSE: INSW) in July 2021, the merger of Global Ship Lease (NYSE: GSL) and the private shipowner Poseidon Containers in November 2018, the sale of the Gener8 Maritime fleet to Euronav and International Seaways in June 2018, and the sale of the Navig8 Product Tankers fleet to Scorpio Tankers (NYSE: TNG) and the BW Group supertanker fleet at DHT (NYSE: DHT) in 2017.
Additions from spin-offs, IPOs and direct listings
The loss in overall market capitalization in the US-listed shipping space due to privatizations and fleet sales would have been severe without a major arrival: Israeli container shipping operator Zim (NYSE: ZIM), which made an initial public offering in January 2021. Zim currently has a market capitalization of $6 billion and is by far the largest shipping stock listed in the United States.
There have been three other significant newcomers to Wall Street in recent years: LNG carrier owner Flex LNG (NYSE: FLNG) debuted via direct listing in June 2019. Torm (NASDAQ: TRMD) dual-listed on the Nasdaq in January 2018. And dry bulk owner Grindrod (NASDAQ: SMILE) dual-listed on Nasdaq in June 2018.
Beyond that, newcomers have been dominated by Nasdaq-listed microcaps that frequently dip in and out of penny stock territory and have extremely low market caps. The prices of these names, sponsored by Greek shipowners, are highly volatile, supposedly attractive to retail traders who buy stocks as if they were betting in a casino.
The latest entrant is the owner of the bulk carrier United Maritime (NASDAQ: USE A), a Seanergy spin-off (NASDAQ: BOAT). United shares have lost 73% of their value since listing on July 6. Its current market capitalization is less than $20 million.
Shares of tanker owner Imperial Petroleum (NASDAQ: IMPP) — a spin-off from StealthGas (NASDAQ: GAS) – were listed on December 3. Its shares were trading at 37 cents on Monday, down 95% from its public debut.
Owner of mixed fleet Castor Maritime (NASDAQ: CTRM) began trading on the Nasdaq in early 2019. Its price has fallen 91% since then.
More microcaps in the works
United, Imperial Petroleum, OceanPal and Castor have all made offers for shares managed by the Maxim group. At the Marine Money conference in New York on June 23, Lawrence Glassberg, executive general manager, predicted more attendees to come.
“You will see small companies going public. One of the great things you see: new companies going public through spin-outs. I would venture to say that you will probably see three to five more by the end of this year — new public companies.
“From our perspective, on the Maxim side, we have at least one company on file for an IPO that is on the smaller side and we are moving with another company to a public transaction. There is appetite. It’s a matter of volatility, volatility, volatility. There is the possibility of selling shares to investors,” Glassberg said.
Thanks to Zim, the combined current market capitalization of new maritime designations that have debuted in the last five years is roughly in line with the market capitalizations announced before maritime designations that have been privatized or sold.
The big difference is in the size of the companies. The median market capitalization of new entrants is about half of the median of departures.
Will more privatization plans follow Atlas’ latest proposal, resulting in the loss of more big names?
What the LNG companies had in common with Atlas was a preponderance of multi-year contracts. Public dry bulk and tanker owners do not have this long-term coverage. Even in booms, public dry bulk and tanker owners maintain significant point exposure, and time charter durations are shorter than in LNG or container shipping.
For that reason, the finance source speaking to American Shipper said, “I don’t think it’s the privatization angle that threatens the future scale of public transportation space.”
He does, however, see two other threats at scale. First, the “hypercyclic volatility within microcaps”. And second, the very nature of tankers and bulk carriers, which is to carry fossil fuel cargoes. Assuming global decarbonization efforts progress, “over time there will be less oil and coal to transport. Not immediately, of course, but over the next 10 to 15 years.