Sampo: Opportunity in Shipping

Citigroup’s Giulia Raffo did a report on Sampo (SAXPY.PK), the Finnish insurance and financial group, which you have to be a specialist to read. My main reason for liking SAXPY.PK is that it is cash-rich, cash-generating, relatively transparent, and run by an opportunistic, dynamic, un-Scandinavianly capitalistic Swedish Finn. Ms. Raffo rates it a buy and a low risk. Her reasons include the 6.5% yield which I am also smart enough to figure out; the 80 eurocents payout was confirmed with the insurance-speak Sampo Q4 report.

Some problems cited by Ms. Raffo include a lower shareholder’s equity than Citi expected (Citi owns 1% of Sampo). This she attributes to a delay in the deferred tax elimination over Nordea, presumably going to push the increase into Q1 2009, and fine with me, and some forex losses, again presumably one-off events. More worrying to her, and to me, is that Sampo is increasing its stake in Nordea, the troubled Norwegian bank group and subscribing its capital increase. I presume this is not Sampo building empires, but the result of a calculation of the advantages of the position. While all these insurance metrics are unique to the industry, the fact that the stock trades at 1.4 times the embedded value per share sounds like a good thing.

The fact that Nordea has George Economou, CEO of Dry Ships (DRYS) over a barrel sounds like a good thing too. We gain whatever happens to the ultra-deep water drilling company bought in Norway, although to be frank I would rather that these two carnivorous operators managed to work together. Sampo via Nordea Finland plc is the largest shareholder of Nordea Bank of Norway which will be a beneficiary of the new Oslo government bank refinancing scheme. Norway will create two new funds with a combined 100 bn kroner ($15 bn) to finance banks and to buy corporate bonds, its Finance Ministry announced.

DRYS last week signed a preliminary agreement with Nordea Bank Finland, obtaining a covenant waiver over the $800 mn Loan to Primelead, the DRYS subsidiary which financed its buy of Norway’s Ocean Rig ASA. The outstanding loan amount under the facility is $650 mn, said DRYS. The waiver terms for DRYS require (i) that it pay a restructuring fee of 0.15% on the outstanding loan amount under the facility plus 1% per annum on the loan outstanding from January 9 to the Effective Date of the waiver agreement; (ii) that $75 mn of principal repayment due this month may be postponed to this May; (iii) that the margin on the facility will increase by 1% to 3.125% per annum; and (iv) that regular principal payments will resume as of August.

In addition, among other things (left presumably to the Finnish-Swedish imagination of Sampo CEO Wallrus), lender consent will be required for acquiring DrillShip Hulls 1837 and 1838, for new cash capital expenditures or commitments, and for new acquisitions for cash until the loan has been repaid to below $375 mn. The waiver agreement must become effective before August 12, 2009, at which time DRYS expects to be in compliance with the restructured loan covenants. The agreement is preliminary and is subject to formal approvals by DRYS and the syndicate banks (in addition to Nordea, DnB NOR Bank ASA and HSH Nordbank AG).

Disclosure: I own 600 DRYS and 200 Sampo.

Comments

[guliamo:]

Sounds to me like DRYS are all over the place.. shipping, drilling and not an ounce of profit to be seen.
Interesting article, thanks.

Feb 17 08:38 AM

[James Wilson:]

TOPS looks more stable

Feb 17 08:46 AM

[PeteK:]

Because of DRYS people lost confidence on other
good shipping companies.
When all dust settled, the good companies will stand out and do well.

Feb 19 04:17 AM