The long, slow withdrawal of shipping’s most prominent private equity investor is continuing with another major sale of shares in a listed dry bulk owner.
This time it is Greece’s Star Bulk Carriers that is buying back 10m shares from Oaktree Capital Management at $18.50 each, for a total outlay of $185m, the owner announced on Friday.
The Star Bulk buyback comes three months after another New York-listed dry owner, Eagle Bulk Shipping of Connecticut, splashed out $219m to buy Oaktree’s entire 28% stake in the company.
That move sparked controversy over the price paid and whether Oaktree received preferential treatment compared with other investors.
In the case of Petros Pappas-led Star Bulk, Oaktree will for now remain its largest investor; the sale reduces its stake to 17.2% from 25.2%.
Howard Marks-led Oaktree has been a backer of both dry bulk owners for nearly a decade. Oaktree has been one of the most patient private equity investors in shipping amid an exodus of funds that Scorpio Group president Robert Bugbee dubbed “prexit”.
Star Bulk said it is paying for the transaction with proceeds from sales of vessels in a strong market over the past six months. It plans to retire the acquired stock.
Management also said it had paid below the company’s net asset value at the $18.50 figure.
Investment bank Jefferies had Star Bulk’s NAV around $20.90 per share before the buyback, while Deutsche Bank placed it at $24.
“The Purchased Shares were acquired at a discount to NAV, thus we believe creating significant value to the Company’s shareholders,” Star Bulk said in Friday’s statement.
As a result of the sale, Oaktree is required to reduce its presence on Star Bulk’s board from three directors to two within five days of the closing in October.
The price paid by Star Bulk does reflect a small premium from the most recent closing price on Thursday, which was $17.94.
Star Bulk shares shot up more than 4% towards the $18.50 price in early trading on Friday.
Initial reaction to Star Bulk’s purchase was positive.
“The deal is accretive on both [earnings per share] and NAV and highlights Star Bulk’s very strong balance sheet and overall financial flexibility,” said Jefferies lead shipping analyst Omar Nokta in a client note on Friday.
“While its leverage ratio will increase following the buyback, Star Bulk remains in strong financial shape. Its net debt/fleet value stood at 23.5% pre-deal, but that rose to 30% following the transaction.
“This is quite low, in our view, especially given the recent weakness in secondhand values and the likely significant upswing in vessel prices in a healthier dry bulk market.”
Nokta maintained a “buy” rating on the stock and set a new NAV of $21.30, with a target price of $22.
Jefferies is also increasing Star Bulk’s fourth-quarter earnings per share estimate to $0.74 from $0.70.
