If the stock market undervalues an industry like shipping for too long, fewer large companies do IPOs and more large-cap companies that are already public go private. On the other end of the size spectrum, some microcap companies effectively disregard their stock price, raising cash by repeatedly selling discounted shares and warrants even when they’re not in distress.
These simultaneous trends for shipping on Wall Street — one hitting the top tier and the other hitting the bottom — were highlighted at the Marine Money Week conference in Manhattan.
The talk got heated on microcap shipowner share offerings. Accusations were made and expletives uttered within the staid confines of the Pierre Hotel.
Serial dilutive offerings by shipowners
There were two speakers with the first name “Hugh” on the Marine Money Week capital markets panel on Thursday — Ridgebury Tankers CFO Hugh Crooks and Hugh Eden of Jefferies — so the moderator addressed them by their first and last names.
To Ridgebury Tankers’ CFO, the moderator said: “Hugh Crooks, we don’t get to use the word ‘unicorn’ in the shipping industry all that much, but at Ridgebury …” — at which point the CFO interrupted: “But you do get to use the word ‘crooks’ a lot.” An audience full of shipping industry veterans erupted in laughter.
Crooks happened to be seated on the panel directly next to Larry Glassberg, co-head of investment banking and executive managing director of the Maxim Group, which is in the process of being acquired by a company controlled by Russian-born billionaire Timur Turlov.
Maxim has facilitated a wave of controversial and highly dilutive equity offerings by microcap shipowners over recent years.
The shipowners in these deals usually raise proceeds for vessel acquisitions, Maxim earns fees, the investment fund intermediaries that buy the shares and warrants and flip the stock to retail traders appear to be making money — because they do repeated deals — and retail traders get a stock with extreme volatility that allows them to place casino-style bets.
The share price of companies involved in these transactions ultimately falls over time as discounted offerings dilute existing shareholders, much to the dismay of stock owners who fail to read the risk disclosures in the securities filings. (There is nothing illegal about dilutive share sales that are fully disclosed, affirmed the U.S. 2nd Circuit Court of Appeals in 2020.)
Stock ‘down 97% in an all-time great market’
Crooks pointed out that Ridgebury’s privately held tankers saw “an all-time great market” since March 2022 “and we made so much money for our investors,” yet the stock of a public company doing offerings handled by Maxim that operates the same type of tankers as Ridgebury, Top Ships (NASDAQ: TOPS), “is down 97% in an all-time great market. If the market were bad, I’d get it, but the market was good. So how does that happen?” Crooks asked Glassberg.
“We’ve been selling ships and I’ve been buying public stocks and I’ve made tons of money,” said Crooks. “All of these other stocks [tanker companies not doing offerings via Maxim] have gone up. Torm [NASDAQ: TRMD] has gone up. Scorpio [NYSE: STNG] has gone up. Euronav [NYSE: EURN] has gone up. Frontline [NYSE: FRO] has gone up. They’ve all gone up.”
The audience began to clap in appreciation of Crooks, egging him on.
Glassberg responded that Maxim, as an investment banker, “acts as the agent. We fulfill a bid and an ask at any given time in the market. So, if an issuer wants to come out in the market and raise capital and we think there’s an opportunity to go out and do it, we will find the buyers and sellers.
“How a stock is going to trade in the aftermarket, there’s a lot of things that play into that.”
Referring to the institutional funds that buy the shares and warrants initially, Glassberg said, “The reality is that investors wouldn’t be coming back to do the deals if they didn’t see the opportunity to make money. The reality is a lot of people made a lot of money on these deals.”
According to securities filings, institutional investors that have bought microcap shipping stocks in offerings handled by Maxim, and then sold them to other buyers, include Sabby (which has been particularly active), Hudson Bay, Empery, Intracoastal, CVI and L1 Capital, among others. (On June 12, the SEC accused Sabby of using “naked” short sales to illegally profit from multiple stock and warrant deals in 2017-2019. The names of the stocks were not disclosed; the date range is prior to all of the shipping offerings except for Top Ships’.)
‘Never going to have a buy-and-hold investors’
Crooks continued to press Glassberg, pointing out: “If every offering that gets done loses 90% of its value, you’re never going to have a buy-and-hold investor.”
Glassberg said, “I have a little bit of a secret, so shhh, don’t tell anyone: There are very few if any long-term fundamental shipping investors in the public markets.
“The long-term fundamental shipping investors are the owners of the assets. [Beyond them] you have momentum players that are coming into the market that have a three-month, six-month, maybe one-month process where they’re going to buy and sell.”
Crooks argued: “What’s being done by your firm in shipping is damaging everybody. It damages Georg,” he said, referring to Georg Whist, the CEO of Oslo-listed Gram Car Carriers, who was sitting on the podium on the other side of Glassberg.
Whist said, “I think the reason why some of these stocks are trading really poorly is that they’re shit companies, to be blunt.
“The industry is not doing itself any good by listing a lot of shit. It’s very frustrating. I get angry as well.”
‘Certainly not a help to our industry’
According to Glassberg, “Not every deal that’s being done is going down 90%. That’s factually incorrect. To pick out one or two deals is a disservice to what’s actually happening in the market.”
Crooks countered, “It’s not just Top Ships. It could be Performance Shipping [NASDAQ: PSHG]. It could be any of these guys that only go down even in good markets. I don’t think it’s tearing down the whole market, but I do think it’s certainly not a help to our industry, which has struggled for a long time to have a better name for itself.”
Regarding Glassberg’s assertion that only a few shipping names doing Maxim-managed offerings are down 90%, stock pricing data shows otherwise.
Over the past five years (or since the listing date), the stock prices of seven of the eight Greek shipowners that have done such offerings — Top Ships, Performance Shipping, Castor Maritime (NASDAQ: CTRM), Imperial Petroleum (NASDAQ: IMPP), Seanergy (NASDAQ: SHIP), Globus Maritime (NASDAQ: GLBS) and Ocean Pal (NASDAQ: OP) — are down 91% to 99%. Shares of Seanergy spinoff United Maritime (NASDAQ: USEA) are down 64% since listing in July 2022.
Meanwhile, at the top of the market …
That’s what’s happening at the bottom of the shipping equity market. At the top end, there has been an ongoing exodus of larger-cap shipping names.
Atlas Corp., owner of Seaspan, the world’s largest container-ship lessor, was the latest departure, delisting in March. LNG carrier owner GasLog Partners (NYSE: GLOP) and container-equipment lessor Triton (NYSE: TRTN) will be the next. They are in the process of going private. Other take-private transactions in recent years include GasLog Ltd., Hoegh LNG Partners, CAI, Teekay LNG, Teekay Offshore, Seacor and DryShips.
The aggregate market cap of shipping companies going private, as of the day prior to the take-private announcement, was $15.6 billion. Many of the buyers have been infrastructure funds.
Loli Wu, managing director of investment banking at Bank of America, said during the Marine Money Week conference, “There was a period of time when we took a lot of companies public and the public markets were pricing maritime assets well. [Currently] the public markets are mispricing a lot of assets — not just maritime assets.
“As an investment banker, I now spend more than half of my time across the table or alongside an infrastructure investor. I can’t remember the last time I spent time on a [shipping] IPO.”
On infrastructure funds buying public shipowners with long-term charter coverage, Wu said, “I think it’s a very logical evolution, particularly as the public markets continue to misprice some very attractive cash flows. If you look at the evolution across the transportation sector of more and more assets going into private hands, from toll roads to airports to ports [to shipowners], I think it’s just going to grow.”
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