Maritime IPO activity seen thin in 2007

CHICAGO (Reuters) - Initial public offerings from maritime shipping firms may be thin on the ground in 2007, not for a lack of investor interest but because many operators are flush with cash, according to analysts.

"Fleet operators have seen unprecedented earnings over the past five years," said David Frischkorn, a managing director at investment bank Dahlman Rose. "Those able to tap the market may not need to (issue IPOs)."

Even though some on Wall Street worry that shipping rates on the spot market may turn volatile due to a glut of vessels, analysts said maritime firms can offer the kind of stability that investors crave.

The spot market dictates daily shipping rates based on the supply of ships and the demand from customers, and prices can fluctuate rapidly. Fixed-term charters have set rates.

"The story right now is very much driven by a sense among investors that stability is better than volatility," said Loli Wu, an analyst at Citigroup.

The firms have long-term charter contracts not subject to the volatility of daily changes in the spot market and a fixed dividend -- likely ensuring a receptive audience from investors seeking stable investments, especially as concerns over slowing U.S. economic growth persist.

Analysts cite companies like Greek container shipping company Danaos Corp. (DAC.N), which had a $215 million IPO in October. Danaos focuses on long-term charters of up to 12 years and has a fixed quarterly dividend of 44 cents.

"We ... look to charter our vessels for long periods at fixed rates, a policy which allows hedging against market fluctuations and therefore mitigates overall risk," said Danaos Chief Financial Officer Dimitri Andritsoyiannis.

With the stock at $24.62 on Friday, Danaos was 17 percent above its IPO price of $21.

STRONG RATES

Maritime shippers are split into three main categories: Product tankers haul oil and related products; dry bulk ships haul commodities such as grain, coal or iron ore; and container ships haul containers full of consumer goods.

To varying degrees all three types have seen their normal shipping rate cycles turned upside down because of higher demand from China that reflects its rise to prominence as an importer of raw materials and an exporter of finished goods.

"We have seen rates remain strong for far longer than anyone expected," said one analyst, who declined to be identified. "China has been a significant factor in that phenomenon."

Rising Chinese demand for oil and related products, commodities like iron ore, plus the shifting trade balance between China and the United States, was matched by a jump in maritime IPOs.

While globally, there were just four maritime IPOs totaling $393 million in 2001, the number jumped to 27, worth $6.07 billion in 2005, with $3.05 billion in U.S. listings.

The total slid to 14 IPOs worth $2.8 billion in 2006, with $1.4 billion in U.S. listings, as uncertainty over shipping rates on the spot market rose.

Another factor adding to the uncertainty: Shipyard order books around the world have a backlog of up to three years, which could lead to the market being flooded with vessels and with rates falling.

"Some of those vessels will go to replace ones that will be retired from service," said Citigroup's Wu, "but additional capacity could heighten uncertainty in the volatile spot market."

STEADY AS SHE GOES

Despite the risks that could hit the spot market, the stock prices of maritime companies have risen steadily in the past few months.

Container ship company Seaspan Corp. (SSW.N) is trading nearly 28 percent higher, and dry bulk shipper Genco Shipping & Trading Ltd. GSTL.OQ stock has doubled in the past 12 months.

Both companies pay a regular dividend and have all of their vessels currently on time charters.

By comparison, shares in oil tanker operator Teekay Shipping Corp. (TK.N), which has around 100 of its 150 vessels on the spot market and 50 on fixed-term charters, has risen by a solid but less impressive 14 percent in the past 12 months.

"Investors are looking for predictable, steady returns right now," Citigroup's Wu said. "The majority of capital we saw going into this asset class in 2006 went to companies with time charters and dividends."

Five years ago, few investors knew anything about maritime shippers, said Jovi Tenev, a partner at law firm Holland & Knight LLP, which specializes in finance and capital markets.

"Now these companies have a track record on the markets, which makes for a more attractive circumstance for companies going public," he said. "It has also raised the overall level of quality that the market demands from such companies."

The trouble in 2007 will be finding private companies of a suitable size that need funds when business has been so good.

"The market is incredibly fragmented. So many companies are too small for an IPO," Dahlman Rose's Frischkorn said. "There are a good number of companies out there that are large enough for an IPO, but with cash flow so good right now, they don't need to raise more money."

"There will be some IPOs this year, but I expect more secondary offerings from maritime companies," seeking to acquire new vessels to expand their fleets, he added.