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Market observer with legal background and interest in financial services, physical commodities trading, shipping and irrational exuberance. Values entrepreneurship and good governance, may also use some behavioral investment/contrarian criteria.
  • On dry bulkers spinning off containership ventures 2 comments
    May 17, 2011 5:48 AM | about stocks: DCIX, TEU, SB

    From the recent interview of Polys Hajioannou, CEO of Safe Bulkers, to Barry Parker with Capital Link ( 

    Q) BP: [..] In your case do you see deals outside of the dry bulk space and consider of setting a separate company and possibly spin it off later on?
    A) PH: We see some deals that have been offered to us in other sectors, like containers, but we prefer to leave these sectors and markets to the experts. As a new-comer company with no experience in other sectors is not right to concentrate on them, and there too many experts in these sectors. Also most of them are listed companies with about 30-40 years of experience in the container business.  So why should we compete with them? [...] And we leave the Costamare and Danaos of this world to do their container business, which they do better than anybody else.

    This stance contrasts with many large containership orders recently placed by traditional private dry bulk Greek shipping companies as speculation on future box ship appreciation. Two US-listed dry bulk companies, Diana (NYSE:DSX) and Paragon (PRGN) have also offered the chance to the average investor to see a piece of such action through spin-off Diana Containerships (NASDAQ:DCIX) and recently floated vehicle Box Ships (NYSE:TEU) respectively. Their main argument is that they are taking advantage of low cycle prices and are not burdened by previous purchase commitments and high book values/covenant restrictions. (Such as those having crippled Danaos and Global Ship Lease.)

    Is Hajioannou's view sour grapes? It is unfair to read anything there, he simply talks about his company and what he, as shipowner, feels comfortable doing.
    But reputation, history and size arguments besides, another point could be made. Despite promoting themselves as asset plays, DCIX and TEU also promise extraordinarily high dividends, having adopted a full or almost full operating cash payout policy. At the same time, their compensation, management and/or finance costs appear abnormally high. So growth is dependent on additional equity raises while management is taking a large cut anyway. That only should steer the investor elsewhere.

    Stocks: DCIX, TEU, SB
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  • Adjusted Return
    , contributor
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    Author’s reply » DCIX just sold about 14m new shares at $7.5 (or around $7 to the company) with insiders committing to more than 10% of the offering. It is unclear whether DSX will also pick up $20m in additional shares. Underwriters may absorb another 2.5m or so shares. Not a great pricing, was it.


    The use of proceeds? Pay for the recent acquisitions and fully repay the recently incurred, bridge, as it transpired, debt. The model going forward? Pay high dividends, acquire new ships through a new bridge facility and refinance with equity. Is it a buy? If investors think that issuing new equity at 8%-10% beats keeping some debt on the balance sheet at the current low swap rates, then go ahead. First ones aboard on this purely finance scheme may be well rewarded, even though the pricing shows that institutional investors need some very large comfort margin.
    10 Jun 2011, 09:02 AM Reply Like
  • Adjusted Return
    , contributor
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    Author’s reply » Today Diran Majarian offered an uncharacteristically severe, for his style, commentary on DCIX and its follow-on offering at I'm not sure about his views on Seaspan and of course, from a trading angle the DCIX vehicle has now some room to run after the abysmal pricing of the follow-on. But his general doubts about the rationale for floating and touting such companies should be well heeded.
    22 Jun 2011, 10:35 AM Reply Like
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