A Chinese sovereign wealth fund whose partnership with US Commerce Secretary Wilbur Ross caused political fallout is to remain a significant investor in the newly public Diamond S Shipping, filings show.
A subsidiary of China Investment Corp (CIC) will hold about 2.59 million shares (6.5%) when Diamond begins trading on the New York Stock Exchange, slotting in as its fourth-largest shareholder.
That puts it ahead of Evangelos Marinakis, the Greek shipowner who founded Diamond’s merger cohort, Capital Product Partners.
Marinakis is to hold about 2.4 million shares or 6%.
Introducing CIC
Ross, who made his name as a billionaire investor in distressed industries, brought in CIC within an investment group led by his namesake WL Ross & Co in 2011.
WL Ross will remain the largest investor in the new Diamond with 9.7 million shares (24.3%).
Ross, the former Diamond chairman, is now long gone, however, having “fully divested” his holding in November 2017 after taking heat for potential conflicts in his government role.
Some of that pressure came over CIC’s stake in Diamond, given Ross’ responsibility for setting trade policy in relations with the Asian power.
Yet Ross has been a general in President Donald Trump’s trade war with the Chinese, likely diluting the notion even among harshest political foes that a “soft on China” stance is part of his agenda.
CIC’s stake is held by fully owned subsidiary Chendong Investment. Its holding is down only fractionally from the stake it reported in 2014, when Diamond attempted to list its product tanker fleet through a New York IPO.
Ross has been a general in President Donald Trump’s trade war with the Chinese, likely diluting the notion even among harshest political foes that a 'soft on China' stance is part of his agenda
CIC held 2.8 million shares at that time and was the fourth largest holder.
WL Ross stake
In comparison, WL Ross’ shares have dropped to 9.7 million from 10.7 million in 2014, and fallen on a percentage basis to 24.3% from 32.2%. The percentage stake is impacted by Capital Product shareholders taking a 33% share in the combined company.
Diamond’s foundational investor, US-based First Reserve Management, will be the second-largest holder in the new company with about 8.2 million shares (20.5%). Its 2014 total was 9.06 million (27.2%).
A third stakeholder, CarVal Investors, appears to have done the most to sell down its Diamond stake in the past five years. It will now hold 2.6 million shares (6.5%), compared with 6.1 million (18.3%) in 2014.
The larger publicly listed company in theory gives existing Diamond holders a better chance to eventually sell down their holdings after the expiry of a 180-day “lockup” period that prevents sales.
Yet even the merged owner is heavily controlled by private equity, with the top four investors holding nearly 58% of the company.
While those holders now have a clearer path to an exit, Diamond remains a stock with an “overhang” — the term applied in finance circles to a listing full of prospective private equity sellers.
Wary investors
As TradeWinds has reported, investors can be wary of taking new positions in such structures because of a perceived cap on the upside of the stock and downward pressure when core investors come to sell.
Capital Product’s board acknowledges in public filings that it also had such worries before approving the deal, although they were outweighed by the many positives identified.
This story has been amended since publication to reflect that Diamond S trades on the New York Stock Exchange.
