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On dry bulkers spinning off containership ventures

May 17, 2011 5:48 AM ETPSHG, TEU, SB2 Comments
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From the recent interview of Polys Hajioannou, CEO of Safe Bulkers, to Barry Parker with Capital Link (http://shipping.capitallink.com/interviews/2011/safebulkerInterview050911.pdf): 

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 (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 (DCIX) and recently floated vehicle Box Ships (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.


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