NEW YORK 04/08/10 (TheStreet) -- A blank-check company sponsored by the Greek shipping group Navios Holdings(NM) finally has a business to go along with its incorporation, after announcing an agreement on Thursday to purchase 13 tanker ships for nearly half a billion dollars.
Eleven of the ships are so-called "product" tankers, meaning they carry refined products such as gasoline or jet fuel. The other two are chemical tankers.
Called Navios Acquisition(NNA), the company is a SPAC (short for special-purpose acquisition company), which first floated shares to the public in June 2008, not long after the New York Stock Exchange allowed such vehicles to list. (SPACs have a dubious history, with many cases of shareholder fraud, and for years only the American Stock Exchange would allow them.)
Several years ago, before the crash and the recession, SPACs enjoyed a boom, with investors lining up to sponsor them. After raising money through a public offering, SPACs must then search for a business to acquire, often taking private companies public through the back door.
Navios Holdings itself -- and its CEO, Angeliki Frangou, one of the few women in corner offices in the shipping industry -- is no stranger to the special-purpose vehicle. A SPAC sponsored by Frangou in the early 2000s acquired Navios and brought it public. One of the oldest and most venerable names in dry bulk, Navios has existed since the 1950s, when it was the ocean-going shipping arm of U.S. Steel.
Generally, SPACs have about a two-year window within which to do a deal. If the sponsors don't meet this self-imposed deadline, the vehicles dissolve and shareholders theoretically get back their money.
Navios Acquistion was therefore running up against its own deal deadline. According to SEC documents, the SPAC's CEO, Angeliki Frangou, who also heads up Navios Holdings and its sister Navios Partners(NMM), was approached in February by a bank looking to help sell nine tankers then on order at shipyards. Most likely, the group or groups who had placed the orders for these ships had run into financial trouble, and could no longer afford them. Navios then bought four other ships, and an option to buy two more, from a series of other sources.
The sellers weren't identified. But in order to facilitate the deals and obtain better terms on its acquisition financing, Navios Holdings first acquired the ships. Under the terms of the deal announced Thursday, the ships will be transferred to the shell company for $457.7 million. The SPAC will pay $123.4 million of the total in cash -- funds raised in its IPO. The rest of the purchase price, $333.4 million, will come from loans. Navios Holdings owns 19% of the SPAC, but that percentage will grow to nearly 35% if the deal is completed and the units are converted to shares in the post-deal company.
In order to complete the deal, a majority of the SPAC's shareholders as of April 26 need to approve it. A date for the vote hasn't yet been scheduled.
The first two ships are scheduled for delivery in May (and await time charters already struck by Navios), and the next pair in September and November. The rest won't be finished until 2011 and 2012. All are being constructed at shipyards in South Korea.
Per ship, the prices range from $28.7 million to $43.5 million depending on size, which go from 50,000 to 75,000 deadweight tons. That would appear to be a bargain. "Vessel prices values are at pretty much historical lows," said Natasha Boyden, a shipping analyst at Cantor Fitzgerald, "which is a bonus for them."
"It's a quintessential buy low, sell high," said Urs Dur, who covers Navios Holdings and the shipping industry for Lazard Capital Markets.
Still, the product-tanker business has taken it on the chin since the recession, much more so than dry-bulk or even crude carriers, though not as badly as the container ship sector. Rates for the ocean transport of refined product cargoes have yet to recover. If it were taking delivery of all the ships today, it would be difficult for the company to turn a profit, said Urs Dur. But because the orders are spread out over the next two years, it won't matter.
Navios, of course, is betting on a recovery in tanker rates. Boyden noted that Asia and India are in the midst of a refinery-building binge, which would increase demand for product-tanker services.
Like all shipping sectors, the product tanker market faces a glut, with hundreds of new ships scheduled for delivery over the next two years. But, Lazard's Dur said, the depressed state of product-tanker rates likely means that many of the ship owners who ordered these vessels won't make good on the sales contracts. Thus, a large portion of the product-tanker orderbook, he believes, will likely be delayed or canceled.
Navios Holdings' stock ended trading Thursday at $6.76, up 15 cents, or 2.3%. Shares of Navios Acquisition, meanwhile, rose 6 cents to $9.90, on volume of 441,000, a huge number for a security with an average turnover of just 72,600 a day.
-- Written by Scott Eden in New York 04/08/10
