If you're an owner in ocean shipping, you can hear the crickets on Wall Street. The pullback of activity in the U.S. capital markets this year has been staggering.
Many of the equity analysts that covered ocean shipping at U.S. investment banks are no longer at those jobs. The question-and-answer periods at the end of quarterly conference calls have become very short because few analysts are left to pose questions.
Shipping executives are compensating by spending more time filling out their conference calls by reading lengthy scripts about market conditions. The ultimate embarrassment, which is no longer particularly uncommon for public ocean shipping companies, is when the chief executive officer finally opens the call to questions – and there aren't any. Just crickets.
Proceeds raised by U.S.-listed shipping companies from equity and debt offerings are at historic lows as the third quarter of 2019 draws to a close.
Capital-raising activity is so low in New York that Norway – a far smaller market in terms of average deal size – could conceivably overtake the U.S. in terms of gross shipping proceeds by year-end. Before 2019, Norway has never been even close.
How bad is 2019?
According to an analysis of public securities filings by FreightWaves, U.S.-listed ship owners have raised an aggregate of $598.9 million in gross proceeds since the beginning of this year, putting 2019 on pace to be the worst year ever for shipping proceeds since the industry came to Wall Street in the early 2000s.
U.S.-listed companies raised almost $3.5 billion in proceeds in the first nine months of 2018, almost six times more than this year's take. To put this into further perspective, 2018 was actually a bad year for ocean shipping capital-raising. Full-year proceeds for U.S.-listed owners in 2018 totaled $3.98 billion, less than half the $8.17 billion raised in 2014.
The situation is particularly abysmal for sales of common equity, given sentiment headwinds from trade tensions and recessionary fears. In 2019, there have been just two very small offerings totaling a mere $24.3 million, done by micro-cap Greek-sponsored companies: bulker owner Seanergy (NASDAQ: SHIP), which grossed $14.3 million in May, and product-tanker owner Top Ships (NASDAQ: TOPS), which has priced and is closing a $10 million deal now. In both cases, equity was sold with warrants attached and the offerings have been highly damaging to the stock price.
By this time last year, U.S.-listed ship owners had raised $348.2 million from common-equity sales, over 14 times the current year-to-date total. U.S.-listed shipping companies raised $648.2 million from common-equity sales in full-year 2018, their worst full-year performance since the sector started to go public in the early 2000s.
Shipping direct-listers year-to-date include tanker owner Diamond S Shipping (NYSE: DSSI), liquefied natural gas (LNG) carrier owner Flex LNG (NYSE: FLNG) and dry bulk micro-cap Castor Maritime (NASDAQ: CTRM). At least one more direct listing, a spin-off of Golar LNG (NASDAQ: GLNG), is expected by the end of this year.
The majority of Wall Street shipping deals in 2019 – as was the case last year – have been sales of debt securities or hybrid securities, not equity.
Bulker owner Globus Maritime (NASDAQ: GLBS) raised $5 million in March through a convertible note. In May, tanker owner Teekay Corp (NYSE: TK) raised $250 million through a private placement of senior secured notes; mixed-fleet owner Ship Financial International (NYSE: SFL) raised $80.5 million through the sale of Norwegian bonds; and LNG carrier owner GasLog Ltd (NYSE: GLOG) grossed $75 million via the sale of senior notes.
Tanker owner Euronav (NYSE: EURN) raised $50 million in June through the sale of unsecured senior notes, and in July, dry bulk owner Eagle Bulk (NASDAQ: EGLE) raised 4.1 million from the sale of convertible bonds.
Norwegian capital markets
Oslo, Norway has traditionally been the quieter, less charismatic little brother to Manhattan in terms of shipping capital-market finance – but it's growing up fast.
There have been roughly the same number of shipping capital-market deals in Oslo year-to-date as in New York, although aggregate proceeds are still lower because Norwegian deals are done in smaller chunks.
Klaveness Combined Carriers has raised $40 million, the Navig8 Group $100 million, the Hunter Group $79 million, 2020 Bulkers $70 million, Epic Gas $60 million, Western Bulk $15 million, Belships $8.8 million and Okeanis Eco Tankers $15 million.
Capital-markets proceeds of Oslo-listed or Norwegian-over-the-counter-traded companies year-to-date (excluding ferry, offshore and investment-company deals) total $398 million. If you switch the Norwegian bonds of U.S.-listed Ship Finance International onto the Norwegian side of the ledger, Norway is within just $40 million – or a deal or two – of overtaking the U.S. market by year-end, which is not inconceivable given how terrible sentiment is toward shipping in New York.
During an interview with FreightWaves in August, Epic Gas chief executive officer Charles Maltby commented on capital-market dynamics in general and the specific appeal of the Oslo market.
"The capital markets are correctly punishing shipping in a brutal way and you can't blame them because it's difficult to find a beacon of profitability in the entire shipping sector," he said. "There was hyper-investment in the sector as a whole in 2012-14, and it'll probably take 10 years to unwind."
Regarding the appeal of Oslo, he explained, "We've found investors here to be very knowledgeable on the shipping space and there's an underlying interest in shipping in Norway and a legacy of banks, lawyers and investment advisors who are familiar with shipping."
Asked by FreightWaves about the theory that some issuers favor Oslo capital-raising because it is cheaper and more efficient than in New York, at least for smaller sums, he replied, "I think that's spot on. We find the costs here very manageable. When you raise equity here, the transaction costs are in the hundreds of thousands, not the millions." More FreightWaves/American Shipper articles by Greg Miller
