Publicly-listed Shipping Companies May Deserve Better Valuations

Updated: Feb 8, 2020

According to a recent study by E&Y, there have been 1,000 Initial Public Offerings (IPOs) globally in the first three quarters of 2018, a drop of 18% over the same period of the prior year; however, 9% more capital was raised ($145.1 billion) over the same period of the prior year, implying that current investor appetite is for larger companies. Interestingly and despite the down trend globally, during the same period, the number of IPO transactions in the Americas was up by 27% at 195 offerings with $50.1 billion in proceeds (up 41% from same period in prior year); 157 of these IPOs took place in the US capital markets (up 31% over prior year) with effectively a commanding market share of the capital raised in the Americas ($43.8 billion, up 58% over prior year).

Unfortunately, none of these IPOs were in the shipping industry; as a matter of fact, there have been a couple of instances whereby shipping companies of high expectations saw their IPO offerings withdrawn as they faced limited investor interest; most notably, in the US, Goodbulk Ltd had their $140 million offering withdrawn in early summer 2018, and a few months later, Navios Maritime Containers LP (an MLP structure) received minimal investor interest for their $100 mil IPO.

In the last five years, there have been no IPOs with mainstream shipping companies in the US capital markets, whether their investment thesis was for yield, for a market recovery, for an asset play, for a proxy to the Chinese economy, for commodities pricing, for market consolidation, etc There have been several efforts, for sure, but never institutional investors offered “fair pricing” or valuations for shipping companies that exceeded by much the “steel value” of the fleet of those shipping companies. And, quite frankly, publicly listed companies not only have failed to command a valuation premium for their “franchise” value or the quality of their corporate management or for “alpha”, but they habitually have been valued at a discount to their Net Asset Value (NAV). Historically, the discount to NAV can range from minimal to more than 40% under extenuating circumstances. In other words, there is money to be made in them darned ships, by buying cheaply the shares of the shipping companies on Wall Street, take over the ships, turn around and sell them in the open market, and pocket the difference between the discount to share price and the market value of the ships.

Of course, there are practical considerations with liquidating companies, and harvesting asset pricing arbitrage is more complicated than it sounds, but, the main theme is that publicly listed companies, overall, get little respect from investors as they are valued even below their “hardware”.

However, publicly listed shipping companies, despite their weak valuations for now as listed companies, enjoy strategic advantages that are not available to the privately held companies. There are benefits to be a publicly listed company, and hereby we briefly outline three of these advantages: