The shipping industry is being undervalued by the stock market, leading to fewer initial public offerings (IPOs) by large companies and more established companies going private. Additionally, microcap companies in the shipping industry are disregarding their stock prices and repeatedly selling discounted shares and warrants, even when they are not in financial distress. These simultaneous trends were discussed at the Marine Money Week conference in Manhattan, where there were heated discussions and the strong language used regarding the share offerings of microcap shipowners.
Serial dilutive offerings by shipowners
During the Marine Money Week capital markets panel, there were two speakers with similar first names: Hew Crooks, the CFO of Ridgebury Tankers, and Hugh Eden of Jefferies. The moderator addressed them by their first and last names, leading to a humorous exchange when the CFO interrupted with a quip about the word “crooks.” The audience, composed of shipping industry veterans, found this amusing.
Interestingly, Hew Crooks was seated next to Larry Glassberg, co-head of investment banking at Maxim Group, which is in the process of being acquired by a company controlled by billionaire Timur Turlov. Maxim Group has facilitated controversial and highly dilutive equity offerings by microcap shipowners in recent years.
In these deals, shipowners raise funds for vessel acquisitions, while Maxim earns fees. Investment fund intermediaries that purchase the shares and warrants and sell them to retail traders appear to profit from repeated deals. Retail traders, in turn, engage in high-risk trading due to the extreme volatility of these stocks, akin to casino-style bets.
Over time, the share prices of companies involved in these transactions decline as discounted offerings dilute existing shareholders. This disappoints stock owners who may have overlooked the risk disclosures in the securities filings. However, it’s worth noting that such dilutive share sales, when fully disclosed, are not illegal, as affirmed by the U.S. 2nd Circuit Court of Appeals in 2020.
Stock ‘down 97% in an all-time great market’
During the panel discussion, Hew Crooks, CFO of Ridgebury Tankers, highlighted that their privately held tankers experienced an exceptionally profitable market since March 2022, making significant returns for their investors. However, Crooks raised a question to Larry Glassberg of Maxim Group regarding the poor performance of Top Ships (NASDAQ: TOPS), a publicly traded company operating similar tankers, whose stock had declined by 97% despite the favourable market conditions. Crooks pointed out that other tanker companies like Torm (NASDAQ: TRMD), Scorpio (NYSE: STNG), Euronav (NYSE: EURN), and Frontline (NYSE: FRO) had seen their stock prices rise.
Crooks shared that he had been selling ships and investing in public stocks, resulting in substantial profits. The audience applauded Crooks in agreement. In response, Glassberg explained that Maxim acted as an agent, facilitating transactions between buyers and sellers in the market. He stated that the aftermarket performance of a stock is influenced by various factors beyond its control.
Glassberg emphasized that institutional investors participated in these offerings because they saw opportunities to make money. He mentioned several institutional investors involved in buying microcap shipping stocks, including Sabby, Hudson Bay, Empery, Intracoastal, CVI, and L1 Capital. Notably, the SEC accused Sabby of engaging in illegal practices in 2017-2019, using “naked” short sales to profit from multiple stock and warrant deals (although the specific stocks involved were not disclosed, and the timeframe predates most shipping offerings except for Top Ships’).
‘Never going to have a buy-and-hold investors’
During the discussion, Hew Crooks continued to challenge Larry Glassberg, expressing concern that if every offering in the market consistently loses 90% of its value, it discourages long-term buy-and-hold investors. In response, Glassberg revealed that there are very few if any, long-term fundamental shipping investors in the public markets. He explained that the owners of the shipping assets are the ones who hold long-term positions, while other market participants, referred to as momentum players, engage in shorter-term buying and selling strategies.
Crooks argued that the practices of Glassberg’s firm in the shipping industry were detrimental to everyone involved. He specifically mentioned Georg Whist, the CEO of Gram Car Carriers, who was also present at the event, suggesting that such practices were harming the industry as a whole. Whist added that he believed the poorly performing stocks were a result of being associated with subpar companies. He expressed frustration with the industry listing low-quality companies, emphasizing his disappointment and anger.
Overall, the conversation highlighted concerns about the impact of dilutive offerings and the absence of long-term investors in the shipping industry’s public markets, as well as frustration over the listing of underperforming companies.
‘Certainly not a help to our industry’
During the discussion, Larry Glassberg disagreed with the assertion that every deal handled by Maxim results in a 90% decline in value. He argued that it was factually incorrect to single out specific deals and that such a viewpoint was not representative of the overall market.
However, Hew Crooks countered by mentioning that it wasn’t just Top Ships that experienced significant declines but also other companies like Performance Shipping. He acknowledged that while it may not be tearing down the entire market, it certainly doesn’t help the industry’s reputation, which has struggled to establish a positive image.
Contrary to Glassberg’s claim, stock pricing data reveals that the stock prices of several Greek shipowners who have conducted offerings via Maxim, including Top Ships, Performance Shipping, Castor Maritime, Imperial Petroleum, Seanergy, Globus Maritime, and Ocean Pal, have experienced declines ranging from 95% to 99% over the past five years since their listing dates.
Crooks also highlighted that Seanergy, which had not conducted an offering since February 2021 and focused on increasing its stock price, had seen some positive developments with CEO and CFO buying shares. Another shipping company, United Maritime, which did an offering handled by Maxim, had bought back shares and paid dividends, leading to a 32% increase in its stock price from its first day of trading in July 2022.
Overall, the discussion pointed out the discrepancy between Glassberg’s assertion and the actual stock price performance of several shipping companies that have engaged in Maxim-managed offerings, revealing significant declines over the past few years.
Meanwhile, at the top of the market …
The shipping equity market is experiencing two simultaneous trends. At the bottom end, there is a concerning situation where several microcap shipping companies, involved in dilutive offerings handled by Maxim Group, have seen significant declines in their stock prices, ranging from 95% to 99% over the past five years. These offerings have raised cash for vessel acquisitions, with investment fund intermediaries and retail traders engaging in high-risk trading.
On the other hand, at the top end of the shipping equity market, there has been a notable exodus of larger-cap shipping names. Companies like Atlas Corp. (Seaspan), GasLog Partners, Triton, GasLog Ltd., Hoegh LNG Partners, CAI, Teekay LNG, Teekay Offshore, Seacor, and DryShips have chosen to go private in recent years. Infrastructure funds have been the primary buyers in these take-private transactions, with an aggregate market capitalization of $15.6 billion for the shipping companies going private.
Loli Wu, managing director of investment banking at Bank of America, highlighted the shift in focus from taking companies public to engaging with infrastructure investors. The public markets are currently mispricing various assets, including maritime assets. Wu emphasized that more than half of her time is spent working with infrastructure investors, and she rarely focuses on shipping IPOs. She sees the logical evolution of infrastructure funds acquiring public shipowners with long-term charter coverage as the public markets continue to misprice attractive cash flows. This trend aligns with the broader transportation sector, where assets such as toll roads, airports, ports, and now shipowners are increasingly going into private hands.
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Source: Freight Waves
