Recent Moves in the Shipping Industry

This past week saw a few interesting moves in shipping; first Marinakis buys two Suezmaxes and already levered up, then Peter G goes on Cramer's Mad Money to defend himself.

First off Crude Carriers (CRU). We heard that CRU started negotiations for those two Suezmaxes the day the Alma IPO failed! It shows how fast some owners can move. These two vessels were indeed the Alma vessels from the prospectus and are for very prompt delivery and there are not many Suezmaxes to be had at the moment as many sellers have pulled back and want to see how the market develops this year.

This was a good buy for CRU, although since a company typically can't do a secondary offering (follow-on) for at least six months after an IPO, they had to use and increase their credit line for the purchase. This will mean the company won't have much dry powder going forward until they can do that follow-on they have already alerted the market to. The company used $20 per share as the price they would "hypothetically" do a follow on at, but since they have to repay 2/3 of the credit facility within nine months, and the remainder within one year, we would expect they will do something probably in September to raise the equity, as long as their share price is around current levels.

Based on the five vessels and its current delivery schedule, we would expect the company to have a dividend of between $0.95 to $1.15 per share for 2010 and around $1.85 to $2.00 per share in 2011. This was calculated using consensus analyst VLCC rates of $40k p/d and $45k p/d in 2010 and 2011, respectively, and Suezmax rates of $31k p/d and $35k p/d in 2010 and 2011, respectively. All other assumptions were taken from their prospectus and some guestimates on my part.

The most interesting aspect of this deal was how quickly CRU used its facility to purchase these vessels. I am sure the company wasn't expecting to use the facility this quickly but saw an opportunity and jumped on it.

As for Peter G, he did a good job defending himself against Cramer, although Cramer didn't really come after him. It was a good showing by Peter and a compelling story for BALT, although I would rather wait until all the vessels have been delivered before investing.

This is the problem with all the recent shipping IPOs. They won't have their entire fleets in the water until at least June, and for Scorpio it is unknown. Until they take delivery of these vessels we expect the stocks to continue to trade sideways.

First Quarter Rates versus Estimates

Now that the First Quarter is over, we can look at what Crude Tanker rates are and compare them to what the analyst expectations are in the industry.

VLCCs averaged around $55,000 p/d in the first quarter, which is about $5k more than expectations of most analysts. This is good for FRO as you will probably see their earnings estimates revised upwards this quarter. Also good for OSG, and TNP.

Suezmaxes averaged around $38,000 p/d in the first quarter, which is about $8k more than the expectations of most analysts. This is great for NAT, and good for FRO, GMR, TNP and TNK.

Aframaxes averaged around $19,100 p/d in the first quarter, which is about exactly in-line with analyst estimates. This is neutral for most Afra players, including TNP, OSG, TK, TNK, and GMR.