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SBLK, two capes and a surprisingly good deal

|Includes: DSX, Star Bulk Carriers Corp. (SBLK)

 SBLK have announced an acquisition of two 15-year old capesize vessels with above market charters attached, at a total current market discount of 10m or so (according to management). Why is that?

Well, it may be that SBLK major shareholder P. Pappas, who has a stake in these vessels through private interests, is now focusing on increasing the value of its erstwhile dumping ground. That's the kind way to see the deal.

SBLK started with relatively good intentions. Nobu Su of TMT and Pappas, former pals, decided to cash in on the sky-high dry market and chose former CEO Tsirigakis, Pappas' employee at his private company, to lead the effort. In typical fashion, some of the expensive ships sold to SBLK by Nobu Su were chartered back to TMT at high rates, only for TMT to back out afterwards. SBLK was left with claims, huge book values, high depreciation and a high share count. Pappas and Nobu Su don't want to see each other and go to court over other issues, SBLK is left to hang out and dry.

Pappas continued to use SBLK for strange deals. For example, very few analysts wondered why SBLK would charter-in DSX's newbuild capesize Houston ex-yard in late 2009 for 4-6 months as a relet from Shagang (the deal that sunk the SBLK 2010 Q1) to service an SBLK COA commitment instead of juggling one of their own capes or chartering a third party's old one. Well, perhaps because Pappas had taken in through his Augustea venture one of DSX's vessels for almost nothing during the early 2009 slump; perhaps, he wanted to return a favor, helping in turn DSX to shave 6 months off the very expensive 5-year Houston charter for DSX's Chinese charterers (that's a 10% discount up front in favor of Shagang). 

Tsirigakis, a well-intentioned person, is now out, the feisty CFO stays, and Pappas got the ex-CEO of Athens Stock Exchange to lead the vehicle. Pappas made a promise to "assist", probably because the new CEO is not exactly a shipping expert.

And there it is. Unless Pappas thinks capes will remain at $6000 for the next 10 years (could be) and the only value is in the charters, he is apparently now throwing a bone back to SBLK.

has good Japanese supramaxes, is not afraid to indicate market values in its presentations, appears not in danger of defaulting on its covenants and apparently now has some support from an actually good shipowner (who is grooming his daughter, also on the Board). Assuming the intentions are good, an encouraging sign. But still a vehicle with strawmen in charge.