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Equity value of publicly traded shipping firms 'virtually zero', bankruptcies loom

Equity value of publicly traded shipping firms 'virtually zero', bankruptcies loom
The equity value of many publicly traded shipping stocks is “virtually zero”, particularly in the dry bulk space, and many will go bankrupt is the grim prediction of Paul Slater, chairman and ceo of First International Corporation.

Speaking to Seatrade Maritime News Slater says: “I think this is probably the worst of any of the previous market crashes even the 80’s, and the closure of the Suez Canal, its really very, very bad because you’ve got a combination of things.”

This combination is new money that poured into shipping during the boom years and a vast newbuilding book that resulted with the new vessels delivered between 2008 and 2012 increasing the available cargo capacity by 50%. Added to this is a dramatic drop in the volume of dry bulk cargoes, which is reflected in the historically low rates being seen today. And there is no recovery in sight.

“When somebody announced last week they fixed a ship at $4,000 a day, less commission, I wondered which bit of the ship they were going to run for $3,600 a day,” he quips.

In the meantime stock prices have plunged with the market cap for some listed shipping companies falling to just a few million dollars.

Slater believes that as result of this many companies will go bankrupt and out of business, with Chapter 11 type bankruptcy restructuring no longer an option.

An example of this is Mercator Ltd’s, Singapore-listed dry bulk subsidiary Mercator Lines (Singapore) (MLS), which went under judicial management in January. On Tuesday Mercator announced it had sold its 66.17% stake in the bankrupt firm for a mere SGD3 ($2.20) the sellers assuming MLS’ debt.

“What it is does signify is that the equity is gone, the equity values in the publicly traded stocks are virtually zero in my opinion. There’s no basis for them to having any real value if you mark the value of the ships to market, which you should do if they are not committed to long-term charters. That wipes out the equity and worse still triggers the loan-to-value issues at the banks, which is what is happening at Eagle (Bulk),” Slater explains.

This week Eagle Bulk extended a forebearance and standstill agreement with its creditors until 23 February as it seeks to find a solution to its financial woes.

“The banks that are still in this are very tough people, and that’s what they’re proving be at Eagle,” he adds.

Unlike three or four years ago Chapter 11 restructuring is not seen an option with the fees simply to high and the banks he believes will not accept such a situation either.

“I don’t see people being able to go to the bankruptcy court to try and save the business because if you then put the market value of the ships into play, you then deliver to a court a company that is clearly deficient in assets and therefore bankrupt. And the cashflow that is coming in doesn’t meet the expenses.”