When Scorpio Bulkers announced a $100m equity investment in sister company Scorpio Tankers on 10 October, group president Robert Bugbee advised to watch how the dry-bulk owner’s shares traded not in a couple days, but in a fortnight.
“I’d look at where the stock is two weeks from now,” he said. “By that time, the more cognisant people will have been buying.”
The two-week mark expired on Tuesday, and on the simplest level, Bugbee’s prophecy looks a little wide of the mark.
From a closing of $7.19 per share before the deal on 9 October, Scorpio Bulkers closed at $6.53 on Tuesday — a 9.18% loss.
By that single metric, apparently not enough of those cognisant people were buying.
But there is more to the story.
Amid a global stock selloff that has wiped trillions of dollars from portfolios over world geopolitical tensions and trade fears, Scorpio Bulkers actually traded better than four leading dry-bulk peers.
Over the same two weeks, only Connecticut-based Eagle Bulk was even close. Its fall to $5.02 from $5.55 represents a 9.55% loss.
Others saw red in double digits. Greece’s Star Bulk bled 13.93% to $12.17 from $14.14. Norway’s Golden Ocean Group dropped 15.14% to $7.79 from $9.18. And New York-based Genco Shipping & Trading fell 15.24% to $11.79 from $13.91.
So perhaps Bugbee was wrong and right at the same time.
At issue is the propriety of Scorpio Bulkers taking $100m off its balance sheet and investing it in the related company, which has been struggling along with a sagging clean-products market and looking for liquidity ahead of a presumed market recovery in 2020.
Corporate-governance purists quickly blasted the move, which was part of a larger $300m equity raise by Scorpio Tankers that caught many in the market by surprise.
However, Bugbee and Scorpio chief operating officer Cameron Mackey defended the decision, saying it was initiated by Scorpio Bulkers and carried out through a third-party investment advisor. Major shareholders were consulted and not only supported the buy, but were excited about potential returns, they said.
Bugbee declined any further comment on Scorpio Bulkers’ trading performance since his initial comments.
But in an exchange with equity analysts on Scorpio Bulkers’ quarterly earnings call earlier this week, he suggested the time horizon for evaluating the investment should be expanded.
“Sure, but it’s not a daily mark,” Bugbee said of the initial loss.
“Scorpio Bulkers is not making a daily mark on the position. We’ll look and see what happens in three months, six months," he said.
All of the dry bulk peers have continued their losses since Tuesday.
Scorpio Bulkers was at $6.20 earlier today, down about 0.5%. Eagle was at $4.74, off more than 3%. Star Bulk was at $11.47, down 2.7%. Genco was at $2.86, a $2.25% drop. And Golden Ocean hit $7.59, off 1.5%.
Scorpio Bulkers also has been trading better than Scorpio Tankers.
The products company was trading at $1.61 today down from $2.11 before it issued the equity — down nearly 24%. It also has fallen some 13% from the $1.85 deal price for the $300m stock issue.
