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Tanker 'window of opportunity' - still a little smudged

Tanker 'window of opportunity' - still a little smudged
Concerns over the attitudes of outside investors towards the shipping and offshore businesses loomed large at last week’s Capital Link International Shipping and Offshore event, a view underscored yesterday by Dryships scrapping its planned tanker initial public offering (IPO).

On the Capital Markets panel, well known shipping banker Jeff Pribor, from Jefferies, described the current environment as “fragile”, noting that “the current shipping recovery, which began in 2013, has not played out the way that many people had hoped”. He added that, “If we had gone straight up from 2013, to the midpoint in the cycle…you’d be seeing more mutual funds and mainstream investors,” holding shares in shipping companies.

On the same panel, Wells Fargo Securities’ managing director Eric Schless opined that the dichotomy between positive operational results, certainly in the tanker sector- which has seen firming hires since late 2014) and mainly lackluster stock market performance has frustrated some investors. But Pribor said that the group of investors on the sidelines “that has not piled in…is probably pretty happy that they haven’t.”

Schless characterised the population of current shipping investors as leaning heavily towards those “if not fully distressed, then heavily value oriented,” noting that “the momentum and growth investors are standing on the side.”

Panelist Christa Volpicelli, managing director and deal-maker at Citi, cautioned that investors can be nervous about cycles, and tend to favor larger companies with structures that can better cope with market vicissitudes- taking advantage of sectors trending upwards, and “enduring” where a sector lingers in a prolonged trough. She said: “Sentiment aside, I think that the companies that are thinking longer term are the ones that will be successful.”

Sentiment loomed large. Robert Lustrin, a partner at law firm Seward & Kissel offered an excellent presentation showing correlations of investor offerings at times and spot hires. He noted that around 2005, after years of only tanker offerings, “all of a sudden, the drybulk owners were really having their day”. He stressed the “Windows of Opportunity” - which can be in drybulk, tankers or containerships - involve a convergence of healthy conditions on Wall Street, in other words strong equity markets, occurring simultaneously with “a perceived upward move in freight rates.”

His observations have been borne out, as evidenced by the present buzz around offerings of tanker stocks - although they should be tempered given that Dryships is now set to drop its tanker IPO in an announcement made a week after the conference.

Capital Markets panelist Wiley Griffiths, managing director at Morgan Stanley, echoed Lustrin’s thought, but picked up the very cautious investor vibe, saying that “Relative to what we’ve seen, historically, it took awhile for the tanker stocks to ignite- relative to when the freight market improved.” He described this delayed (and muted) reaction as being symptomatic of investors not having made much money with either primary or secondary offerings over the past few years.

Adding further perspective here, DryShips’ decision to scrap its tanker shares offering, in favor of a deal with a private buyer, speaks volumes about investors’ very tentative views of the market.