The dog days of summer are traditionally a slow time for shipping equity deals, with both investors and bankers more focused on the beach.
All the more so when the popularity of such deals has waned and fears of a global recession have tamped down enthusiasm in the broader markets.
But lest things become too dull, there are always the shipping clients of investment bank the Maxim Group to keep things entertaining.
This week it was Performance Shipping, the Greek owner of six aframax tankers, in the spotlight.
Price too low, sell more shares
Performance announced on Monday that it had received a de-listing warning from the Nasdaq exchange in New York over its shares’ failure to trade above the minimum $1 benchmark for the past 30 days.
Having essentially placed itself in this pickle through dilutive shares sales led by Maxim, Performance then announced it was doing yet another Maxim deal: raising less than $6m by selling stock at $0.35 per share in a private placement with certain select investors.
Performance shares quickly cratered to $0.25 each.
As TradeWinds has reported, Performance is one of several small, mostly Greek owners who have contracted with Maxim to do highly dilutive offerings that typically package a common share with a warrant to buy additional stock.
There has been at least one notable success story. Castor Maritime of Cyprus went from one vessel to a fleet of 29 largely on the back of Maxim deals, although a share that once traded above $50 is about $1.50 today. Still, there are more cases like Performance with shares prices languishing and investors left holding the bag.
Performance has been remaking itself since rebranding from the name Diana Containerships, which had been spun off from dry bulk owner Diana Shipping.
Diana Containerships was one of three Greek owners sued in 2017 for securities fraud in US courts by shareholders angry over dealings with Kalani Investments, a British Virgin Islands financier backed by a Canada-based hedge fund manager.
Diana Containerships has filed for the case to be dismissed, but it remains pending in federal court for the Eastern District of New York, according to court records.
A similar suit against Top Ships was thrown out — first by a trial court and then an appeals court — largely on the grounds that any dealings between the shipowner and Kalani were fully disclosed beforehand in publicly filed documents.
Diana Containerships is likely to prevail on the same grounds.
And these days its successor, Performance Shipping, has done much to disclose all the risks of investing in its stock in filings related to the Maxim sales.
Words to the wise
Here are a few examples:
“We may issue additional common shares or other equity securities without shareholder approval, which would dilute our existing shareholders’ ownership interests and may depress the market price of our common shares.”
“Our issuance of additional common shares upon the exercise of such warrants, options and convertible securities would cause the proportionate ownership interest in us of our existing shareholders, other than the exercising warrant, option or security holders, to decrease; the relative voting strength of each previously outstanding common share held by our existing shareholders to decrease; and, depending on our share price when and if these warrants or notes are exercised, may result in dilution to our shareholders.”
“We have issued a significant number of our common shares and may do so in the future. Shares to be issued pursuant to the exercise of our outstanding warrants, including the warrants being issued in the concurrent private placement, could cause the market price of our common shares to decline, and could have an adverse effect on our earnings per share.”
Disgruntled investors of another Maxim client — StealthGas spinoff Imperial Petroleum — publicly lambasted principal Harry Vafias on a recent earnings call, demanding that he stop selling stock.
There is a growing perception that while the deals may benefit the shipowner and the select group of hedge funds or trading shops buying into them, they are effective traps for the unsuspecting retail investor.
One shipowner executive who supports the deals told Streetwise he has limited tolerance for this argument. Investors are attracted by the intrinsic volatility of the stocks, seeking outsized rewards, and shouldn't be whining when they lose.
“These are not normal shipping companies, and someone looking for a 400% return on his investment has to know it comes with high risk,” he said.
And with a little research, they can read about the risk from the company itself.
