Shipping debt side attractive, equity not so much

With some major shipping markets seeming to have passed worst the question of what opportunities there were for financiers and investors were in focus at the Capital Link New York Maritime Forum this week.

Opportunities exist for bargain hunters, or “value investors”, to climb aboard markets set to turn upward tankers and offshore come to mind, while “momentum investors” may want to run quickly and try to gain a foothold in sectors that have seemingly bottomed out – dry bulk and container ships are mentioned here.

Missing in this taxonomy are opportunities for “growth investors”, who ideally would latch on to dividend paying entities. Indeed, one panelist suggested that paying of dividends is usually not practical, nor is it compatible with the needs of shipping companies to husband their capital for the inevitable rainy days.

The de rigeur panel on commercial banking exposed a sharp divide on the question of whether retrenchment of shipping banks is temporary, a consequence of the market cycles, or more permanent. Francis Birkeland, ABN Amro’s man in New York, told the audience that he’s spoken to banks that exited the shipping fray and are now “reconsidering” whether to come back in- as margins are healthier and leverage is more reasonable than in the pre-2008 days.

DVB’s Martin van Tuijl was also in the cyclical camp, saying that “memories are short.” Citigroup’s Michael Parker held the opposite view, telling the group that “bank regulators have taken a great interest in this industry” and that a market uptick might bring with it “a weakening of credit standards” and increased concern by regulators. Parker also saw consolidation of vessel owning companies as making them more attractive for capital markets transactions rather than bank finance - a theme reiterated on panels throughout the day.

Michael Kirk, from RMK Capital, on the Alternative Finance panel, discussed the attraction of shipping to debt providers, saying “Given the yield compression in other sectors….shipping is the obvious ‘next’ [sector for debt providers],” and pointing out that “the risk adjusted returns on shipping, right [now, are fantastic].” This was in contrast to a panel on equity (shipping shares) , where panelists lamented the continuing dry spell where Initial Public Offerings (IPOs) of shipping shares were concerned.

Another gem came from Bob Burke, who captains Ridgebury Tankers backed by Private Equity interests. Burke, a regular on the conference circuit, offered a fresh juxtaposition of the tanker trades, where the talk was about an upturn “sometime in the future, with the financial side”.

Burke explained that Ridgebury offers fund investors in funds a way for them to benefit from the upside potential of the older tankers, which would respond sharply when the turn comes, which typically shunned by non-shipping financial investors.

Capital Link events generally feature “standing room only” in the main room; this year- dry bulk, on an apparent upward trajectory, drew the largest number of attendees standing in the back.

Posted 06 October 2017

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Barry Parker

New York correspondent, Seatrade Maritime