Reed Smith's new US shipping lawyer Robert Lustrin agrees with those expecting a return of initial public offerings in healthier New York capital markets.
Cash flow is strong, equity prices are rising and dividends are increasing, the law firm believes.
Lustrin told TradeWinds: "We are observing that there is a renewed interest in IPOs."
"The notion over the last several years has been that a transaction needs to be very sizeable in order to attract interest among IPO investors, but I think that it will of course depend upon the price of the transaction," he said.
The lawyer explained that there have been cycles and windows of opportunities where smaller IPOs were able to be carried out in certain pricing environments.
Calculations to be made
"Shipping companies seeking to raise capital in the US capital markets will of course have to measure the cost of that capital, whether it's the cost of the equity in terms of dilution or debt in terms of coupon, and figure out what fits best into their capital structure," Lustrin added.
The lawyer joined in June to bolster the firm's US capital markets and securities expertise.
He was previously a partner at New York’s Seward & Kissel for two decades, and more recently an independent practitioner.
Lustrin argues that IPOs have been very successful in the past at helping to build the balance sheet and allow owners to engage in fleet acquisition activities.
Zim stands alone in the last six years
"Some of this will link into a strategic plan that a company may have," he explained.
There has been only one mainstream shipping IPO in New York since the summer of 2015, that being Israeli liner operator Zim in January.
Zim became the first conventional IPO to float since Peter Georgiopoulos' Gener8 Maritime eked out a listing in June 2015.
"I do think we are observing a greater interest in the US capital markets and in the equity markets that we have seen in the last several years," Lustrin added.
"The expectation here in New York is that ... the strength of the equity market generally is supportive of the notion that the shipping industry would be looking at IPOs as a way to grow their fleet [or] re-tonnage their fleet," he said.
Lustrin believes it is too simple to blame the lack of IPOs in recent years on wariness about shipping among investors.
The past is no guide to the future
He argues there is a distinction between long-term and short-term investors and traders. The latter thrive on volatility and cyclicality.
"That's how they profit from trading in and out of stocks," the lawyer said.
"I don't think you can look at the past necessarily and extrapolate it to a conclusion about how investors today sitting at their desks are viewing shipping investments," Lustrin added.
The lawyer believes there has been greater stability among stocks, particularly for the listed dry bulk companies and containership owners, which could be conducive to floats.
More IPOs could be coming in 2022, according to investment banker Larry Glassberg of the Maxim Group, who told TradeWinds in October he is working with several private players ready to test the Big Apple market.
Reed Smith partner Greg Chase, leader of the US shipping team, sees Lustrin as a "lynchpin" who ties together a number of things that have been successful for the law firm.
Busy times ahead for US lawyers
And he says there is more work to do to address the funding gap in shipping.
"We've been very active on working with new kinds of investors who have been putting capital to work in shipping," Chase added.
He said Reed Smith is also working with a number of clients who are considering fleet renewals against a background of decarbonisation efforts.
Chase said: "Everybody wants to know they're backing the right technology. This extends to the equity investing and lending community — there's an opportunity but people are cautious."
"Lenders are watching this space very carefully," he added.
