Thursday, October 22, 2009

Georgiopoulos gives thumbs up to dry bulk in an opportunistic play

Peter Georgiopoulos is aiming for an opportunistic asset acquisition play thorough Genco's (GNK) new Baltic Trading, which could seek US$ 230 mio in its initial public offering (IPO) with a plan to purchase five to seven vessels by the end of 2010. He is betting on recovery in this sector, carefully sheltering his existing dry cargo company Genco and he is demanding top dollar for his participation and management in the new venture.

Georgiopoulos's concept is to set up a new company "Baltic Trading" with a symbol BDI as a speculative play in the dry cargo sector using equity capital to purchase vessels, avoiding senior debt and operating the vessels in the spot market at least initially. His NYSE-listed Genco (GNK, an owner of 34 bulkers, plans to contribute US$ 75 mio to the company in exchange for Class B stock, giving the parent 50% of the voting power.

It will be a full-payout company, paying dividends that amount to all net income minus cash expenses. The fleet will likely be made up of Capesize, Panamax and Supramax bulkers through timely and selective acquisitions. Baltic pledges to grow through follow-on equity issues that require little debt financing but says it may use a revolving credit line for bridge loans.

This will be the first initial public offering (IPO) in New York since the ill-fated Britannia Bulk in June 2008. Morgan Stanley and Dahlman Rose, who both have strong connections with hedge funds, will be the underwriters.

Genco chairman and founder Peter Georgiopoulos will also serve as chairman of Baltic Trading. Genco finance chief John Wobensmith will play the same role at the new outfit. Genco board member Basil Mavroleon will also hold a Baltic seat, but there will also be a significant number of independent directors.

Genco also is to receive management fees of up to 1.25% of gross charter revenues for commercial services, US$ 750 per vessel per day for technical management and up to 1% of gross purchase price in sale-and-purchase (S&P) transactions. Genco farms out technical management to Wallem and Anglo Eastern. Charter-oriented Genco is to have first rights to charter opportunities, while spot-focused Baltic gets first look at voyage deals.

Georgiopoulos is making heavy use of investor equity capital in this venture, yet he retains considerable control over the operation though Class B voting power. Further Genco will benefit in fees and commissions both on vessel sale and purchase and chartering. Peter Georgiopoulos has a strong track record with investors and he is demanding his price for involvement and participation.  He is taking a conservative position in sheltering his existing dry cargo business and limiting his risks.

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