Wednesday, September 23, 2009

Things seem to be looking up for Navios Maritime Partners

The New York-listed company (NMM) announced recently that it would sell 2.8m units to help fund its fleet expansion. The sale of 2.8m units would bring in $34.18m at the offer price. The company has attracted a lot of attention for its opportunistic Capesize purchases of four units in June and two additional units with long term charters in August. Whilst the parent Navios Maritime Holdings reported recently a 56% decline in earnings, Navios Maritime Partners had a 34% increase in revenues.

Navios Maritime Partners (NMM) is a spin-off from Navios Maritime Holdings (NM) after it was acquired by a SPAC set up by Angeliki Frangou and sponsored by Sunrise Securities. It is part of a complicated corporate structure where a general partner company Navios GP L.L.C. owned 100% by Navios Maritime Holdings (NM) has holds a 2% interest in Navios Maritime Partners (NMM). Navios Maritime Holdings (NM) has a 44,7% limited partnership stake in the spinoff company, Navios Maritime Partners (NMM). The remaining share 53,3% limited partnership interest in this spin off company is held by 'common Unitholders', which are publicly traded common units of which 2% is held in a company controlled by Angeliki Frangou. Judging the participation of John Stratakis in the BoD, perhaps Poles, Tublin advised on this structure and played a role in the rationale.

There have recently been some intercompany transactions for vessels, where the spin off company struck a deal to escape a Capesize purchase from parent Navios Maritime Holdings and bought "all rights" to a Panamax with share exchanges. The new Capesize deals with reduced asset value have been channeled to the spin-off company. Already the parent balance sheet lacks transparency and the relations with this new spin-off company further complicate matters. Yet for the time-being in share performance, Angeliki Frangou seems to be managing better than most of her Greek peers in the dry cargo sector.

Whilst Navios Maritime Holding (NM) has made a good recovery from March lows and is outperforming most peer companies, Navios Maritime Partners (NMM) has been out performing its parent company. The parent company is an old established firm with a solid contract customer base providing far more intrinsic value than most publicly traded, Greek controlled dry cargo companies, which are nearly all vessel provider business models dependent on third-party charterers for vessel employment. Further Navios is a mature company, whereas its Greek peers are recent startups, which expanded their fleets rapidly in the boom years with large block acquisitions.

Navios Maritime Partners is more along the lines of its Greek peers. It is a new start up operation, but unlike its peers it is now expanding its fleet in present market conditions with marked down asset prices. It is concentrating on Capesize vessels, which have had the biggest revival this year in the dry bulk sector. The vessels have been conservatively chartered on long term contracts with profit sharing. The company holds options for further vessel acquisitions in 2010, 2012 and 2013 and additional growth through Navios Holding-controlled vessels.

Lately the Capesize market has been waning to lower levels. The tonnage supply on order in this category is substantial but the real question is the sustainability of the Chinese demand for iron ore and coal and the inventory restocking. The domestic stimulus plans have been centered on the construction industry and thus steel intensive, but China has a substantial overcapacity problem in both construction and industry. Export demand continues to be weak.

It is a reasonable play that Navios Maritime Partners (NMM) benefits from lower asset prices with the marked-down Capesize vessel acquisition transactions and better break even levels than most peer companies. The ultimate success of the venture depends on the fate of the dry bulk sector in the coming years and the major driver is Chinese supply chain needs for steel and iron ore.

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