Navios Maritime Holdings (NYSE:NM) is facing potential negative cash flow issues due to an all time low dry bulk market. Even though NM is the lowest cost operator among its peers, with average OPEX less than $4,000 per vessel per day, NM is feeling the pressure primarily due to its chartered-in fleet and high interest bonds. In particular, NM pays an average of $13,000 per vessel per day for its chartered-in vessels, which in turn charters them out for much less. Also, NM pays around 8% coupons on its bonds. On the positive side, the bonds have no loan to value covenants, which provides a cushion in today's low asset price environment.
The best way for NM to restore profitability is to acquire or merge with Navios Maritime Acquisition (NYSE:NNA). NM owns an economic interest in NNA of around 50% but has less than 50% voting interest. In addition, Mrs. Frangou has a 2.57% personal stake in NNA, which could facilitate a merger or acquisition.
NNA has authorized a $50m buyback program. So far, NNA has repurchased approximately $2.5m shares for approximately $10m, with $40m left to use under the existing program. NNA is producing record results with free cash flow in excess of $100m per year. As NNA continues its buyback program, NM's economic interest will increase. Since NM is facing a cash flow negative situation, acquiring or merging with NNA as one entity will solve all of NM's cash flow problems.
The new structure would transform Navios Holdings into a truly diversified shipping and logistics company, with the following:
- diverse core fleet consisting of bulkers and tankers
- 95% stake in Navios Europe 1 & 2
- 63.8% stake in Navios South American Logistics
- 20.1% stake in Navios Maritime Partners (NYSE:NMM), including the GP interest
- 60.9% stake in Navios Maritime Midstream Partners (NYSE:NAP), including the GP interest
In light of the current environment, the above structure is very attractive for NM as it provides flexibility and the opportunity to pursue distressed deals by deploying its free cash flow accretively as well as deleveraging.
Disclosure: I am/we are long NM.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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