Diana Shipping is ecstatic about its $330m fleet purchase from Sea Trade Holdings and incredulous at analysis that it has paid too much for the ships.
That was the take on Friday from veteran Diana executive Ioannis Zafirakis, who was otherwise still in a celebratory mood after the New York-listed owner announced its entry to the ultramax sector with the nine-unit buy.
“We think it’s a great deal and we’re very happy about it,” said Zafirakis, who is chief financial officer and chief strategy officer.
Still, he was smarting a bit from criticism that Diana had paid too much — particularly at an analysis that it had issued more than 18m shares at $5.95 each when the company’s net asset value (NAV) is much higher.
Price criticism ‘ridiculous’
Stifel equity analyst Ben Nolan said in a client note on the deal that he had Diana’s NAV at $9.15 prior to the deal.
“It’s ridiculous what they’re saying,” Zafirakis said.
He called Stifel’s NAV figure “just factually wrong”, but declined to comment directly when asked for Diana’s estimate of the correct figure.
“We don’t ever give that — I’ll just say that I’ve seen other people with a number that’s below $7,” he said.
Asked about Diana’s response on Friday, Nolan said: “I double-checked a few things. I might be a little high, but any way you slice it, the NAV is going to be well in excess of the price they gave out shares.”
Nolan’s counterpart at Jefferies, Omar Nokta, initiated coverage on Diana in July with an $8.40 NAV estimate.
It is generally considered best practice to issue shares trading at NAV or above in vessel acquisitions, because they are currency that is equal to or greater than the steel value, in effect creating a discount when they are above NAV.
This has been the strategy of fellow Greek owner Star Bulk Carriers in a series of fleet acquisitions in recent years that have built its roster to 128 vessels, the largest in the market.
However, Zafirakis insisted that the kind of critique levelled at Diana misses the big picture because it fails to acknowledge that the owner acted responsibly in lower markets when peers did not.
Buying back at bottom
“We purchased 35m of our own shares at $3 and now we’re giving back 18m at $5.95. Those who issued shares at the bottom of the market are the ones who had done things wrong. They sold stock cheaply,” he said.
“Meanwhile, we were buying back our stock at 30% to 40% discounts to NAV, which is like buying vessels at a 30% to 40% discount. We are the only owner who didn’t dilute our shareholders when the stock was trading low.”
Diana shares have been among the best-performing in the dry bulk sector during 2022, rising nearly 50% year to date to just under $6.
Diana is paying an average of $36.67m for each of the Japanese-built ultramaxes, all built between 2015 and 2018. They have an average age of 5.4 years.
VesselsValue had the ships priced at $31.3m each, and an independent shipbroker offered a figure between $31m and $32m each. Nolan valued the fleet at $300m.
That premium paid could be considered effectively larger to the extent that Diana’s NAV exceeds the $5.95 issue price, which accounted for $110m or one-third of the purchase price.
“There is always a premium paid when a seller accepts shares,” Zafirakis said. “But can you imagine what kind of price we might have achieved if we tried to do a straight offering into the market, with underwriting fees and execution risk and pricing discounts? What we did is 100% justified.”
The deal with the Stamford-based Sea Trade, which is led by operating partners Robert Shaw and Anthony Whitworth, is Diana’s first major transaction in some time. It makes the fleet younger, grows it by one-quarter and gives the company its first exposure to the ultramax sector.
“This is a new sector for us and it also has a lot of volatility. Not as much volatility as the panamaxes, but close. We like the volatility in the right sector and our ability to play with the volatility,” Zafirakis said.
“We waited patiently to do the right thing. It’s exactly according to our strategy dating back to 2005 [the year of Diana's initial public offering]. We buy our shares in the lower part of the cycle and issue them at nice prices at a good time in the cycle.”
