elliot_mllr

2009: Watch the Baltic Dry Index

For those interested in the BDI and therefore dry bulk ship owners, you might want to look at Safe Bulkers (SB), which became a public company about six months ago and is listed on the NYSE. The extraordinarily high dividend appears safe for this year but in 2010 SB has to finance newbuilds coming on stream. I believe that the high yield is aberrational and caused among other things by SB's recent entry onto the public market and lack of extensive coverage by analysts.
However, for my money (literally as well as figuratively) the highest caliber ship owner is not a dry bulker or a tanker company but a container ship owner, Sea Span Corporation (SSW). Sea Span's management ia class act and is shareholder friendly. The company has 35 vessels on the water with an average charter tenure outstanding of 7 years and the first expiration about 5 years away, . Moreover these are chartered at rates about 25% below the going TCE rates of about six months ago so the repricing on expiration should not be painful. The most recent ship, delivered in December, has a 12 year charter. In addition, Sea Span has 33 newbuilds under construction all of which are chartered for 11 or 12 years from delivery, which will occur over this year (its 2009 now) and the next two. Its charter parties are among the best lines. Two are controlled bu the Chinese government, one is a large and highly solvent Japanese line and two (Maersk and Happag-Lloyd) have each been around for 100 years or so,throughthe Great Depression and two world wars. A trust controlled by one of the insiders recently filed a 13-G indicating that it had acquired a 5.1% position in the company, which is both a vote of confidence and a smart buyer picking up shares at bargain prices. The distribution is $1.90, for a yield of about 20%, and about 80% of that is a tax deferred return of capital. The only concern is that between now and 2011 the company has to pay about $900 million for its already-chartered newbuilds, and Sea Span has said that it will not dilute the common shareholders by an equity raise this year or next. The $900 million can be raised by one or a combination of the following: borrowing against 15 vessels that are currently unencumbered, joint ventures, sales-leasebacks, funding from insiders based on shares the dividends of which are subordinate to the common shares publicly traded, etc.