2 shippers preparing for IPOs may encounter rough seas as investors weigh getting on board

By Samantha Bomkamp, AP
Friday, March 5, 2010

Rough seas may be ahead for shipping IPOs

NEW YORK — Two bulk shipping companies will be competing for investors’ attention next week when they are expected to go public, but analysts are questioning their ability to nab much cash.

The first company, Baltic Trading Ltd., was formed by drybulk shipper Genco Shipping & Trading Ltd., based in New York. The second, Crude Carriers Corp., of Greece, is managed by Capital Maritime & Trading Corp. Crude Carriers plans to buy and operate a fleet of oil tankers, while Baltic Trading will ship dry goods.

It may not be the best time for a shipping company to ask investors to take the plunge. The industry has been hurt by sluggish global demand for commodities like oil, cement and iron ore and coal. Making matters worse, the IPO market has been difficult all year as concerns about the pace of the global economic recovery has dulled investors’ taste for new companies.

Both companies plan to direct their fleets to the spot market, meaning they won’t focus on getting into long-term shipping contracts. Crude Carriers said it will keep its options open for long-term charters, but will try to keep those contracts flexible, so it can jump on opportunities when they become available.

Francis Gaskins, president of IPOdesktop, said potential investors should be concerned about the companies’ focus on the spot market, which can vary greatly depending on global demand.

“People are thinking that the economy will show a little bit of growth, but that doesn’t give them a whole lot of security to base their business on,” he said. “The winds can swing against them right away.”

Baltic Trading plans to sell 16.3 million shares for $14 to $16 and raise $244.5 million. Crude Carriers hopes to raise $270 million by selling 13.5 million shares at $19 to $21. Both companies plan to use the proceeds to purchase vessels.

Crude Carriers has entered into a deal to buy three vessels, one that it plans to take delivery of when the initial public offering is complete. Another is expected to be delivered this month and the last is scheduled for delivery in June.

The shippers are entering the market at a tumultuous time — as the market is just starting to recover from record low demand during the recession. And things aren’t getting better fast.

Jefferies & Co. analyst Douglas Mavrinac believes that the outlook for crude oil tankers will remain challenging in the near future, because there are still too many ships on the market and business is still weak. Longer term, he thinks oil shipping will pick up as demand for crude returns.

The drybulk industry should pick up sooner as industrial activity improves around the globe, he predicts. For now, though, shipping companies’ stocks are still floating at record lows.

The Baltic Dry Index, which measures shipping activity across global trade routes, hit a bottom below 1,000 in late 2008, after reaching highs above 11,000 the year before. The index has recovered slightly since, but some analysts have said the increase is due more to a higher number of ships on the seas rather than an industry recovery.

“I question the wisdom in planning to have these two deals in the same week,” said Scott Sweet, who analyzes IPOs for IPOBoutique.com. “You don’t see that in the best of times, and right now the entire bulk shipping sector has been hammered and is already on sale at bargain basement prices.”

Market instability has pressured IPOs lately. Investors have steered away from IPOs with shaky financials. Many companies have settled for lower proceeds, postponed their offerings or canceled them altogether.

“It’s hard to find growth opportunities when the global economy has flatlined,” Gaskins said. “It’s hard to get excited when nothing’s happening.”

Baltic Trading is expected to begin trading Wednesday on the New York Stock Exchange under the symbol “BALT.” Crude Carriers is expected to start trading Friday under the symbol “CRU,” also on the New York Stock Exchange.

Baltic Trading’s offering is managed by Morgan Stanley and Dahlman Rose. Crude Carriers’ offering is managed by UBS, Bank of America Merrill Lynch, Wells Fargo Securities and six co-managers.

Both companies were incorporated in the Marshall Islands in October.


AP Business Writer Erin Conroy contributed to this report.

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