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Investors doubling down on Star Bulk while flowers bloom in New York

Investors doubling down on Star Bulk while flowers bloom in New York
Warm weather in New York brings flowers, and also, it would seem, offerings of shipping related equities. This week, we saw a “follow-on” offering from Star Bulk in the dry bulk sector, and news from Hafnia Tankers, in the product tanker space, that it could potentially be launching an Initial Public Offering (IPO).

Star Bulk, which trades on the NASDAQ, quickly priced its offering of 56.25m shares at $3.20 per share, so they raised $180m, with more than half coming from insiders (and possibly other investors) who have “doubled down”, increasing their stakes further in a position that is currently showing a loss. Six months ago, the “SBLK” shares were trading at around $8.00 per share, lower, in turn, than the $12.00 per share price of July, 2014, when the present company structure was put in place, with the old Excel having been previously subsumed into Star Bulk.

In the new offering, Oaktree Capital Management, Monarch Alternative Capital and holders tied to Petros Pappas would take more than half of the new shares, and after the dust clears, would beneficially own approximately 52.5 %, 5.2 % and 5.8 %, respectively, of the outstanding common shares.

The cover page of the prospectus suggests that savvy shipping investors are the targets, with Clarksons Platou and DVB Capital Markets running the books. Indeed, recent “buy side” analyst sentiment has shifted over to the camp of “it can only go up…”. The company’s strategy is one of positioning for the hoped-for upturn. With a fleet of 70 ships, ranging from supramaxes up through capesizes, of 7.2m dwt now on the water and 27 vessels of 4.1m dwt to be delivered in 2015 and 2016, the company explains : “Assuming that the charter market remains at current levels, we intend to operate our vessels in the spot (or voyage) and short-term time charter market….” Also, Star Bulk says that it intends to “…opportunistically acquire high-quality vessels at attractive prices.”

All of this takes money; at end April, the total cost of the 27 newbuilds was expected to be $1.2bn, of which nearly $260 million had already been paid. Star Bulk was working actively to line up additional debt finance, with $765 million already lined up.

Interestingly, there is a great emphasis on eco-vessels, at a time that fuel prices are now rebounding from their early 2015 lows and charterers take an interest in chartering “efficient” vessels. The company notes: “We believe that our investment in modern fuel efficient eco-type newbuilding vessels will help us generate a superior daily TCE, compared to standard Baltic description vessels. All of our Eco-type newbuildings have significant technological improvements over the operating dry bulk vessels in their respective size categories, such as electronically controlled engines and optimized hull and propeller designs that have reduced water resistance and helped decrease fuel consumption.”

In an otherwise commoditized business, there is also a Big Data branding angle, with the company mentioning that: “Each of our newbuilding vessels will be equipped with a vessel remote monitoring system that will provide data to a central location in order to monitor fuel and lubricant consumption and efficiency on a real-time basis. We expect to retrofit all of our operating vessels and Excel Vessels with a similar monitoring system. “

Hafnia’s offering, not yet in the public domain, will be worth watching, if it goes forward, because others in the sector have struggled to gain investors’ confidence, even though product tankers have been good performers lately.