Friday, May 15, 2009
Shipping Sector Goes to Market For Cash
Friday, 15 May 2009
The shipping industry needs cash and it's going to the equity markets to get it. DryShips, Nordic America, Diana Shipping and Navios Maritime Partners have all sold stock to the public over the last week, raising a combined $740 million .
The reasons behind the capital-raising binge are fairly clear: the financial crisis has hurt shippers perhaps more than any sector outside Wall Street itself. As the credit crisis developed, banks stopped writing commercial letters of credit, which shipping companies rely on for operations. Add in the gruesome recession-induced slowdown in world trade -- not to mention the resulting oversupply of idled and empty ships anchored off the shores of ports like Singapore, as well as half-built ones in shipyards -- and you have a recipe for some cash-strapped businesses. The move to sell stock comes as share prices among shippers have come off their bottoms and managements sense opportunity.
The latest company to issue new stock was Nordic American, which sold 4 million shares at $32 apiece. It expects to close on the sale by Monday, raising $128 million. The dilutive effect of the issuance has put pressure on Nordic stock, which has fallen sharply since hitting $37 last week. It was trading Thursday afternoon at $32.03, up modestly on the session. Jim Cramer, founder of this web site, said in his "Mad Money" broadcast Wednesday that he would stay away from Nordic above $35 a share.
Diana Shipping, meanwhile, priced 6 million shares last week at $16.85 a share, bringing in about $100 million, while Navios sold 3.5 million units for $10.32 each, equating to just over $36 million. Both stocks were trading Thursday beneath their offering prices. Diana was moving at $14.63 and Navios Maritime Partners at $9.11.
As for DryShips, the company is carrying something more than iron ore and coal (its specialties): debt, and lots of it -- more than $2.5 billion as of the end of 2008. The company's founder and chief executive, George Econumu, is raising cash so he can renegotiate loan covenants, pay some of that debt down, and fund about $300 million in planned capital expenditures later in the year.
For shareholders, that's a tough position. Over the last six months, DryShips has raised more than$1.1 billion in cash from these offerings and has more than doubled its number of shares outstanding from about 75.5 million to a probable 185 million after this latest issuance, which was announced Friday. The sale comes on the heels of a similar offering for $500 million in the first quarter and will likely end up diluting DryShips shareholders hugely -- by as much as 40%.
In response, analysts slashed their ratings, with Cantor Fitzgerald, Oppenheimer and Jeffrey & Co. all downgrading the stock.
Investors have responded predictably to this dilution by-a-thousand-stock-offerings. DryShips shares, which had a kind of cult following among certain market players before the bust, were trading Thursday afternoon at $6.22, up slightly on the session, but down 40% -- the exact degree of the offering's dilution -- since the company announced plans for the sale last week. The stock broke $10 on May 6.
Source: The Street
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