'At the market' offerings (ATM's) are a means to raise capital in bad markets. Ailing publicly listed shipping companies are using this technique to raise capital to recapitalize their impaired balance sheets. These offering when used to pay down debt and recapitalize are highly dilutive. Investors should scrutinize carefully the longer term prospects of these companies. At best they may end up owning half their original share of the company with an eventual recovery. At worst, they may lose everything if recovery is slow to come to the shipping markets.
ATM share offerings are the latest technique in financial engineering to raise capital in bad markets. When trying sell a large chunk of shares in current market conditions, the investment market is selective. Many institutional investors are looking for opportunities to buy into companies at substantial discounts to prevailing share price. ATM offerings allows publicly listed companies to "dribble out" shares into the market.
Because the trading process is blind, investors have no idea whether they are buying existing shares or new shares being marketed by an underwriter. With no pressure to complete an issue within a day or a week, companies can proceed at their own pace and - ideally - have some control over what price the shares are sold at over weeks or months. Recent increased trading volume in a number of listed shipping ompanies like Navios (NM), Oceanfreight (OCNF) , Ship Finance International (SFI) and DryShips (DRYS) may be due to ATM share offerings rather than increased trading volume.
Since many publicly listed companies especially in the dry bulk sector are under pressure from their senior lenders to pay down debt in conformance to their debt/ asset coverage covenants, investors need to vet carefully these companies before taking large positions. Raising additional capital to pay down debt is a form of bailout in these cases.
Some companies will recover and this will prove an attractive placement. In other cases, companies will fail. All this depends on the length and depth of the current shipping recession.
After several months, the dry bulk sector has showed recently some activity. There was some demand for Capesize tonnage from resumed imports of iron ore to China. Capesize units have been badly hit with a large number of semi laid-up units. Panamax and handysize units remain at previous levels. It remains to be seen whether this is just a bear market rally or it will lead to a longer term recovery. The changing balance in Chinese macroeconomics from their current hard landing makes the near term difficult to predict. There still a large order book overhang despite cancelations.
ATM share offerings are the latest technique in financial engineering to raise capital in bad markets. When trying sell a large chunk of shares in current market conditions, the investment market is selective. Many institutional investors are looking for opportunities to buy into companies at substantial discounts to prevailing share price. ATM offerings allows publicly listed companies to "dribble out" shares into the market.
Because the trading process is blind, investors have no idea whether they are buying existing shares or new shares being marketed by an underwriter. With no pressure to complete an issue within a day or a week, companies can proceed at their own pace and - ideally - have some control over what price the shares are sold at over weeks or months. Recent increased trading volume in a number of listed shipping ompanies like Navios (NM), Oceanfreight (OCNF) , Ship Finance International (SFI) and DryShips (DRYS) may be due to ATM share offerings rather than increased trading volume.
Since many publicly listed companies especially in the dry bulk sector are under pressure from their senior lenders to pay down debt in conformance to their debt/ asset coverage covenants, investors need to vet carefully these companies before taking large positions. Raising additional capital to pay down debt is a form of bailout in these cases.
Some companies will recover and this will prove an attractive placement. In other cases, companies will fail. All this depends on the length and depth of the current shipping recession.
After several months, the dry bulk sector has showed recently some activity. There was some demand for Capesize tonnage from resumed imports of iron ore to China. Capesize units have been badly hit with a large number of semi laid-up units. Panamax and handysize units remain at previous levels. It remains to be seen whether this is just a bear market rally or it will lead to a longer term recovery. The changing balance in Chinese macroeconomics from their current hard landing makes the near term difficult to predict. There still a large order book overhang despite cancelations.
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