Shipowners are in an ideal position to de-lever balance sheets by buying back debt or support shares prices by repurchasing stock, but many hesitate to drain precious cash without greater visibility into the duration of the coronavirus crisis.
“We find people quite conservative,” said Nicolas Duran, partner at Fearnley Securities in Oslo, during an investment bankers panel at Capital Link’s online forum Tuesday.
“It’s very tempting, but they all get cold feet. They want to preserve whatever liquidity they have, maybe with the exception of some of the bigger tanker companies.
“I don’t think you’ll see [repurchases] happen in a big way until the dust settles.”
The panel had started with a different premise: are capital markets open to shipowners during the coronavirus crisis?
The answer was a quick and unequivocal “no.” And not surprisingly, as the markets were barely open to shipping before the outbreak began.
Christa Volpicelli, Citi’s managing director for global transportation, noted that shipowners wouldn’t be wise to approach the equity markets at their current trading levels anyway.
“Would shipping companies want to be raising capital? All of the US-listed shipping stocks are down 25% to 60%. If you’re not needing liquidity, this is not the time to try,” Volpicelli said.
“This is not a sector where you’ll see anyone try to issue equity anytime soon.”
High-yield bonds are an even worse option, noted DNB Markets chief executive Theodore Jadick, who called that market “bombed out.”
Jefferies global head of maritime Doug Mavrinac said a number of companies had authorised share-repurchase programmes in reaction to their anemic trading levels, hoping that buybacks could move them closer to net asset value.
But actually using the programmes is a different question, as other bankers noted.
The “elephant in the room,” as Volpicelli put it, is how long the economic recovery from virus-related shutdowns is going to take.
“We’re telling clients we just don’t know,” she said. “We could end up having more of a demand problem than people are forecasting.
“It is a good time to reduce leverage and make sure balance sheets are healthy by buying back equity and debt, and some companies may think about dividend policies a bit differently.
“But it’s very tricky. Liquidity planning is very important.”
For good reason, Jadick added.
“Owners must guard liquidity very carefully,” Jadick said.
“Shipping companies won’t have the capability to raise equity in public markets the way companies in other industries can. I’m not sure the banks are going to be really keen to see shipping clients use their liquidity for dividends or share buybacks.”
However, there is a bright side. Unlike at the world financial crisis of 2008-2009 or even the market downturn of 2016, most public shipowners have their balance sheets in relatively decent shape.
“Some companies have super strong balance sheets, especially in the tanker space,” said Erik Helberg, chief executive of Clarksons Platou Securities.
“It’s a healthy sign that we’re not seeing a lot of distressed selling. As opposed to 2016, balance sheets are in much better shape. Shipping is much more robust than it was the last time.”
