Greek Shipping News Cuts
Week 09 - 2008


Greek Owners & The Nature of Equity

Here we will take a brief look at exactly how Greek shipping companies evolved their corporate structure to fit the needs ofpublic equity investors. This is not only intended for the benefit of shipping companies now entertaining the idea of a public listing, but also to provide some insight into the nature of the American public equity market.
Consider that shipowners make money over time by properly timing the market, but so do good investors, many of whom prefer to make their own call on timing. This makes a public shipping company a truly different business from a private one, not just on the outside but on the inside, with different return determinants and expectations.
Management must walk a fine line between managing long-term market risk and providing immediate gratification to investors rather than simply executing an internal growth plan and developing their business on their terms.
This lens is an important one to look through for any shipping company who is or may eventually be public. It affects everything from how their company should be structured to what exchange they should list on. In this article, however, we will use it to view a common and sometimes controversial phenomenon in Greek shipping.
While it is still a sensitive subject for the management of many companies, Anthony Kandylidis, founder and CEO of Oceanfreight (Nasdaq: OCNF), was willing to explain the dynamics of the publicprivate company relationship and how it can work to the benefit of shareholders. Mr. Kandylidis has also provided consultant services to companies affiliated with his uncle George Economou, CEO of DryShips (DRYS) and founder of Cardiff Marine and so has an in-depth understanding of the dynamics of public/private company relationships. Mr. Kandylidis argues that, far from being harmed, DryShips benefits substantially from its close relationship with Cardiff Marine. This is due in great part to the larger shipping market footprint of Cardiff, with over 100 ships, leading to economies of scale in operating costs. Advantages come in various forms, from the cost of lubricants to the ability to secure seafarers and better access to commercial information.
There are also steps that are taken to minimize conflicts of interest. For example, any transaction done with a related party must be put before an independent board for approval, with any conflicted board members recusing themselves from the vote.
publicly listed company, partic-ularly given DryShips small initial fleet of six ships. But there is another element to the equation that is equally as important and has to do with the way investors view shipping companies. Mr. Kandylidis points out that public shipping companies in general are very small relative to the rest of Wall Street and are very transparent, with the ability to project earnings, operating expenses and timecharter rates. Investors grow accustomed to this relatively simple looking equation and value shipping companies accordingly. In many cases they prefer the simplicity of predetermined operating expenses to the overhead associated with keeping the operators on staff.
Another important consideration for a public company is the time frame for cash flow realization. Public investors like modern assets, but as a general rule they do not like assets under construction except under particular circumstances.
These examples, as well as others we were asked not to display here, support certain conclusions including:
* Public companies tend to be focused on one, possibly two, specific sector(s)
* Private companies tend to diversify their assets
* Public companies tend to have modern (under 10 yrs) ships but not large newbuilding programs
* Private companies may have modern or older ships, and substantial newbuilding programs
* Private fleets are frequently larger than their public counterparts.
These trends have been developing for some time but after talking to several owners in Greece we thought they were worth discussing. As reflected in another article in this issue, The Toroise Or the Hare?, there is a decided change taking place in the nature of the public company. Rather than shares in a larger entity with a profitable track record, Wall Street is seeking more and more neatly packaged assets with good fundamentals that can either be used as a proxy for a relevant index or have forward cash flows fixed and high payout ratios. Not surprisingly considering their adaptive nature, Greek shipowners have been quick to comply, creating a wide variety of investor vehicles while often maintaining the staying power of the company in private hands.
Source: By Nora Huvane, Marine Money Magazine

Angelicoussis drives rates up
----Double-hulled VLCC rates spiked in the Persian Gulf on Wednesday, as March fixing reduced the tonnage pool available to charterers.
Single-hulls edged up another WS2.5 to WS102.5 for Asian discharges.
By contrast, three cross-Med suezmaxes were fixed from Sidi Kerir at WS107.5, confirming lower rates this week.
Cross-Med aframaxes were down again, after a brief rally this week. Rates were reported as low as WS125 for the first week in March, down at least WS10 from Tuesday.
By Gary Dixon in London, published: 11:42 GMT, 27 February 2008 | last updated: 11:42 GMT, 27 February 2008

Voulgarakis has told Prime minister Costas Karamanlis that the bill to ensure the rights of commercial port employees in the country's two largest ports, Piraeus and Thessaloniki, will be submitted to parliament "within the next few weeks". As port staff and workers pushed ahead with plans to escalate their industrial action in opposition to privatisation plans, Voulgarakis said February 25: "We are within our original plans and targets. We can therefore develop our project for the Greek port industry as the process is advancing very well."
A few days earlier Voulgarakis told parliament in addition to the one-off payment, Piraeus and the contractor will also split annual profits if the operator's return-on-assets ratio exceeds 15%.
The government is determined to privatise container services in the country's two biggest ports, Piraeus and Thessaloniki, in a bid to improve cargo handling capacity.
"There has been huge interest, particularly from all the great global operators," said Voulgarakis. Bids are due on March 18.
State-controlled Piraeus port has invited bids to run Piers 2 and 3 for 30 years with an option to extend the contract for another five years.
Meanwhile, a top Turkish court has suspended a privatisation tender for Izmir port, won by a consortium of Hong Kong's Hutchison and Global Investment Holding. Metin Bayyar, lawyer for the Liman-Is workers union which had appealed for last year's tender to be cancelled, told Reuters the court had suspended the deal, not cancelled it as earlier reported. Legal battles over privatisations are not uncommon in Turkey.
The Hutchison consortium, which also includes Turkish port operator EIB, made the winning bid of $1.28bn last May for the operating rights for 49 years to the Aegean port, a major rival of Piraeus and Thessaloniki.
Source: Issue 8 (29 February 2008) of Newsfront Greek Shipping Intelligence newsletter.