Shipping is a business often said to turn on relationships, and the recent $134m scoop of seven Scorpio Bulkers vessels by leading consolidator Star Bulk Carriers is a case in point.
In this case, it was a relationship the two shipowners had in common with the financial leasing arm of China Merchants Bank (CMB), which owned the Scorpio bulkers in a sale-and-leaseback arrangement.
This common bond was essential to the en-bloc deal coming together as quickly and smoothly as it did, according to sources familiar with the transaction.
While Star Bulk paid for the ultramax and kamsarmax bulkers with 3m of its common shares, it also agreed to take over Scorpio’s $102.3m lease payments with CMB.
The Chinese leasing outfit did not need to launch an investigation into Star Bulk’s creditworthiness.
It already had the information from two previous financings when the Greek owner purchased the fleets of Songa Bulk and Delphin Shipping in 2018 and 2019, respectively.
This allowed a deal whose terms were set in mid-December to be announced in fairly quick order on 2 February.
“The deal as structured probably could not have been done with a counterparty that did not already have a relationship with CMB,” a source familiar with the transaction said.
“If Scorpio wanted to do it with someone who did not already have credit approval, that’s just one more hurdle that would have had to be cleared to get it closed. The time it takes for someone with whom CMB are already doing business is just much shorter.”
Songa takeover
Petros Pappas-led Star Bulk worked with CMB after it acquired the 15-unit fleet of Songa Bulk in May 2018. This deal featured 13.7m Star Bulk shares and a cash payment of $145m.
Star Bulk has said in public filings that the cash portion was financed via a $180m sale-and-leaseback deal with CMB Leasing, which involved a five-year capital lease.
Then in May 2019, Star Bulk announced its acquisition of the 11-unit Delphin Shipping fleet, again with a cocktail of shares and cash.
Star Bulk issued 4.5m new shares beside $80m in cash. The latter came from another deal with CMB Leasing, this time a $93.6m financing on a seven-year capital lease, plus an additional $15m tranche to pay for exhaust-gas scrubbers on the Delphin ships.
Star Bulk has been dry bulk’s biggest consolidator, and now CMB has figured prominently in three different deals in less than three years.
While the CMB connection is one significant part of the deal’s back story, so is Star Bulk’s continued ability to use its shares as currency in such deals, even when they are trading below net asset value (NAV).
While Star Bulk shares were trading about $10.50 as the deal was announced, sources confirm the terms were set in mid-December when the stock was below $8.
The deal was done on an NAV-to-NAV basis. This means Scorpio was the latest seller to accept the Greek owner’s shares at a premium to their actual trading price.
“Scorpio agreed to take the shares at NAV and they were taking some gamble — but their gamble paid off,” the source said.
