Bulker market consolidator Petros Pappas has struck again with his Star Bulk Carriers picking off 11 ships by acquiring Sophocles Zoullas-fronted Delphin Shipping.
New York-listed Star Bulk is paying $139.5m for the company, backed by major investor Kelso & Co, at what is the latest low point in the strangled recovery for freight rates in the bulker space.
"We consider this another victory for the poster child of private equity consolidation in the dry bulk market," said Ben Nolan of Stifel.
Pappas and Star Bulk have been regular players in dry bulk mergers and acquisitions, including deals with ER Capital Holding, Songa Bulk and Raffaele Zagari in 2018.
The Greek shipowner tends to make his moves in clusters, with 2014 seeing Star swallow the OceanBulk and Excel Maritime fleets.
The latest transaction, set to close next month, will grow Star Bulk's fleet to 120 ships by doubling its supramax tally to 21 with six 56,500-dwt vessels and four 56,600-dwt units.
The supras include Aquila, Cepheus, Columba, D Centaurus and Hercules (all built 2012) and Dorado, Hydrus, Leo, Pegasus and Pyxis (all built 2013).
Star Bulk will also pick up an ultramax — 63,100-dwt Apus (built 2014) — bringing its number of ships in that asset class to 18.
As with other transactions, Star is using a cocktail of cash and shares to buy the fleet. A total of 4.503 million new shares are to be issued along side an $80m cheque.
Sources noted that the valuation of the combined companies implies Star Bulk has a net asset value of $13.21 per share, a significant premium to the stock price that closed at $7.52 on Monday on the Nasdaq.
Crunching the numbers
Analysts at Clarksons Platou Securities described the deal as attractive, noting a the low acquisition price, the use of stock as currency and the fact the company has not reduced its liquidity with the transaction.
"Given last close, the real purchase price is $113m, or 33% below our generic fair valuation of the acquired fleet at $169m," said Joakim Hannisdahl of Cleaves Securities.
"That said, the purchase price do reflect the current large gap between secondhand Japanese and Chinese-built supramaxes (around $3m), where our generic valuation lies somewhere in between.
"Nevertheless, given the combination of cash plus part share payment far above NAV, the deal is highly accretive to current shareholders."
At the time of the deal the Baltic Dry Index stood at 1,066 points, up from 598 on 12 February but paling in comparison to 4,507 in November 2009 and 11,409 in June 2008.
World seaborne trade ticked up 2% since a year ago to 5.32 billion tonnes, according to brokers.
"Star Bulk is trading at a 45% discount to NAV, and its large, scrubber fitted fleet offers significant operating leverage once the dry bulk market recovers and the negative news flow turns more positive," analysts at Arctic Securities said.
The cash will come from a seven-year capital lease of up to $93.6m with China Merchants Bank Leasing, and an additional $15m tranche to pay for exhaust gas scrubbers for all 11 ships.
The funds will also provide about $9m in additional liquidity for Star Bulk, which will have scrubbers on another 102 ships in its current fleet by the time IMO 2020 arrives.
Technical management of the 11 vessels from Delphin Shipping will remain with George Youroukos-led Technomar for a period, while Star Bulk will assume commercial management.
Market sources indicate the majority of the Delphin fleet is trading spot.
Affiliates of privately held Kelso are expected to own about 4.6% of Star Bulk's outstanding shares as a result of the contemplated transaction.
Kelso is not previously known to have invested in Star Bulk, in which Oaktree Capital is the largest shareholder despite selling down a slice of its holding last summer.
Unlike in the Songa and Zagari deals, the company will not be represented on the board, which remains unchanged post-transaction.
Zoullas is best known for his time as chief executive of New York-listed Eagle Bulk Carriers, where his brother Alexis was chief operating officer. Both left their positions at Eagle Bulk in 2015.
