If the stock market undervalues an industry like shipping for too long, fewer large corporations do IPOs and more large-cap corporations which are already public go private. On the opposite end of the dimensions spectrum, some microcap corporations effectively disregard their stock price, raising money by repeatedly selling discounted shares and warrants even once they’re not in distress.
These simultaneous trends for shipping on Wall Street — one hitting the highest tier and the opposite hitting the underside — were highlighted on the Marine Money Week conference in Manhattan.
The talk got heated on microcap shipowner share offerings. Accusations were made and expletives uttered throughout the staid confines of the Pierre Hotel.
Serial dilutive offerings by shipowners
There have been two speakers with the primary 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 make use of the word ‘unicorn’ within the shipping industry all that much, but at Ridgebury …” — at which point the CFO interrupted: “But you do get to make use of the word ‘crooks’ so much.” An audience stuffed with 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 within the strategy of being acquired by an organization 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 normally 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 seem like making a living — because they do repeated deals — and retail traders get a stock with extreme volatility that enables them to position casino-style bets.
The share price of corporations 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 chance disclosures within the securities filings. (There may be nothing illegal about dilutive share sales which are fully disclosed, affirmed the U.S. 2nd Circuit Court of Appeals in 2020.)
Stock ‘down 97% in an all-time great market’
Crooks identified that Ridgebury’s privately held tankers saw “an all-time great market” since March 2022 “and we made a lot money for our investors,” yet the stock of a public company doing offerings handled by Maxim that operates the identical sort 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, however the market was good. So how does that occur?” Crooks asked Glassberg.
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“We’ve been selling ships and I’ve been buying public stocks and I’ve made tons of cash,” said Crooks. “All of those 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 because the agent. We fulfill a bid and an ask at any given time out there. So, if an issuer wants to come back out out there and lift capital and we expect there’s a possibility to exit and do it, we’ll find the buyers and sellers.
“How a stock goes to trade within the aftermarket, there’s a whole lot of things that play into that.”
Referring to the institutional funds that buy the shares and warrants initially, Glassberg said, “The fact is that investors wouldn’t be coming back to do the deals in the event that they didn’t see the chance to generate income. The fact is a whole lot of people made a whole lot of money on these deals.”
In line with securities filings, institutional investors which have bought microcap shipping stocks in offerings handled by Maxim, after which sold them to other buyers, include Sabby (which has been particularly lively), Hudson Bay, Empery, Intracoastal, CVI and L1 Capital, amongst others. (On June 12, the SEC accused Sabby of using “naked” short sales to illegally make the most of multiple stock and warrant deals in 2017-2019. The names of the stocks weren’t disclosed; the date range is prior to the entire shipping offerings aside from Top Ships’.)
‘Never going to have a buy-and-hold investors’
Crooks continued to press Glassberg, stating: “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 actually have just a little little bit of a secret, so shhh, don’t tell anyone: There are only a few if any long-term fundamental shipping investors in the general public markets.
“The long-term fundamental shipping investors are the owners of the assets. [Beyond them] you have got momentum players which are coming into the market which have a three-month, six-month, perhaps one-month process where they’re going to purchase and sell.”
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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 Automobile Carriers, who was sitting on the rostrum on the opposite side of Glassberg.
Whist said, “I believe the explanation why a few of these stocks are trading really poorly is that they’re shit corporations, to be blunt.
“The industry shouldn’t be doing itself any good by listing a whole lot of shit. It’s very frustrating. I get indignant as well.”
‘Actually not a help to our industry’
In line with Glassberg, “Not every deal that’s being done is taking place 90%. That’s factually incorrect. To select one or two deals is a disservice to what’s actually happening out there.”
Crooks countered, “It’s not only Top Ships. It may very well be Performance Shipping [NASDAQ: PSHG]. It may very well be any of those guys that only go down even in good markets. I don’t think it’s tearing down the entire market, but I do think it’s actually not a help to our industry, which has struggled for a very long time to have a greater name for itself.”
Regarding Glassberg’s assertion that only just a few shipping names doing Maxim-managed offerings are down 90%, stock pricing data shows otherwise.
Over the past five years (or for the reason that listing date), the stock prices of seven of the eight Greek shipowners which have done offerings managed by Maxim — 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.
Seanergy has not done an offering using Maxim since February 2021, the corporate has bought back a portion of outstanding warrants and Seanergy’s CEO and CFO have purchased company shares within the open market.
Meanwhile, at the highest of the market …
That’s what’s happening at the underside of the shipping equity market. At the highest end, there was an ongoing exodus of larger-cap shipping names.
Atlas Corp., owner of Seaspan, the world’s largest container-ship lessor, was the newest departure, delisting in March. LNG carrier owner GasLog Partners (NYSE: GLOP) and container-equipment lessor Triton (NYSE: TRTN) shall be the following. They’re within the strategy of going private. Other take-private transactions in recent times include GasLog Ltd., Hoegh LNG Partners, CAI, Teekay LNG, Teekay Offshore, Seacor and DryShips.
The combination market cap of shipping corporations going private, as of the day prior to the take-private announcement, was $15.6 billion. Most of the buyers have been infrastructure funds.
Loli Wu, managing director of investment banking at Bank of America, said in the course of the Marine Money Week conference, “There was a time period once we took a whole lot of corporations public and the general public markets were pricing maritime assets well. [Currently] the general public markets are mispricing a whole lot of assets — not only maritime assets.
“As an investment banker, I now spend greater than half of my time across the table or alongside an infrastructure investor. I can’t remember the last time I frolicked on a [shipping] IPO.”
On infrastructure funds buying public shipowners with long-term charter coverage, Wu said, “I believe it’s a really logical evolution, particularly as the general public markets proceed to misprice some very attractive money flows. When you have a look at the evolution across the transportation sector of increasingly assets going into private hands, from toll roads to airports to ports [to shipowners], I believe it’s just going to grow.”