An activist investor has called into question some business moves made by Navios Maritime Partners chief executive Angeliki Frangou.
MRMP-Managers, which holds a 5.8% stake in the boxship owner, has sent a letter directly to Frangou criticising Navios Partners' decision to offer $200m-worth of undervalued shares "at the market" (ATM) while buying $185m-worth of ships at market value.
MRMP argued that the asset value of Navios Partners' fleet of 95 ships is probably worth much more than the New York-listed company's market capitalisation, backed by shares that are undervalued by at least 50%.
"In other words, if analysts are correct, buying a limited-partnership share of Navios Partners at the current market is like buying the underlying ships at half price," MRMP chief investment officer Ned Sherwood wrote in the 22 July letter.
'Imprudent'
"While management and the general partner might question the exact extent of undervaluation, the recent actions by Angeliki Frangou and management seem imprudent and illogical — in essence, counter to any sound business principles."
MRMP contended that the strong dry bulk and boxship markets and the company's merger with Navios Maritime Containers will result in significant free cash flow.
"Given Navios Partners' reduced debt levels and the improved earnings and cash flow that the company should experience, we believe that management and the general partner should endeavor (as always) to reward its limited-partnership holders," Sherwood added.
"Unfortunately, we question the recent actions undertaken by management and Angeliki Frangou as general partner."
Calls to Navios Partners were not immediately returned.
Sherwood likened Navios Partners' aforementioned transactions to selling ships valued at $0.50 on the dollar while buying others at full value.
"This is [the] exact opposite of what any responsible management team or general partner would do," he wrote.
MRMP also suggested that Navios Partners immediately stop issuing ATM shares at values less than 85% of a reasonable estimate of fleet value.
Repurchase some shares
"In fact, Navios Partners should begin limited-partnership share buy-backs in order to take advantage of the current discounted price," the letter said.
MRMP said that Navios Partners should sell ships closer to full market value and lower debt, buy back shares or give proceeds to shareholders if the stock keeps trading at 50% or less of market value.
Navios Partners should also distribute at least 75% of annual cash flow to its investors, MRMP added.
"MLPs [master limited partnerships] are supposed to distribute the bulk of their free cash flow to limited-partnership holders, and Angeliki Frangou’s erratic policies and reluctance to distribute cash lead to uncertainty and discounted equity valuations," Sherwood wrote.
MRMP also said that Navios Partners should be investigated for possible conflicts of interest with other related entities.
"The investigation also should review ship management contracts and compare rates against other ship management entities," Sherwood wrote.
Adopting these policies should give shareholders "a more certain and understandable construct" for a general partner's future actions and lead to a higher, more stable share value.
Sherwood encouraged other shareholders to contact Navios Partners and post their thoughts regarding Frangou's decisions on social media. "It is Angeliki Frangou’s responsibility as general partner to work solely in the best interests of Navios Partners shareholders — not to correct issues at her other holdings by making illogical and uneconomic decisions to the detriment of Navios Partners."
