March 20 (Bloomberg) -- The shipping industry is offering fewer targets for investors betting on declining share prices after its 80 biggest listed companies lost $99 billion of market value in four years, hedge-fund managers said.
Naftilia Asset Management Ltd. stopped making so-called short sales in shipping stocks in the second half of last year because prices had dropped too far, said George Elliot, managing director of the fund overseeing $250 million of assets. Finding shares to borrow for such trades can be more difficult after a slump, said Andreas Vergottis, the research director of Tufton Oceanic Ltd., which manages about $1.4 billion.
The combined market value of the largest publicly traded shipping companies tumbled 44 percent in the past four years after a glut of capacity across container lines, oil tankers and dry bulk carriers drove charter rates lower. Vessels ordered before the rout are still leaving yards now, prolonging the surplus and hurting the value of owners’ existing fleets.
“Many shares are just penny stocks now,” Athens-based Elliot said by phone. “They’ll never return to the peaks we saw in 2007 and 2008.”
The combined value of the 80 largest shipping companies was $127 billion on March 16, compared with $226 billion on March 19, 2008, data compiled by Bloomberg show. China Cosco Holdings Co., controlled by the state and the nation’s biggest listed shipping company, led the declines with a 78 percent slump that erased about $28 billion of market capitalization.
“Facing the current downturn cycle of global shipping, our commitment to shareholders remains consistent, and we are dedicated to do our best to maximize China Cosco’s operating profit, corporate value, and shareholders’ return,” Cosco said in an e-mailed statement. It’s not the company’s policy to comment on its share-price performance, the statement said.
Short sellers seek to profit by selling borrowed shares and buying them back later at a lower price to return to the lender.
“When you are at the peak of the market, it makes more sense to short than after the market has fallen badly,” Hong Kong-based Vergottis said in an e-mail. “Finding stock to borrow can also become difficult.”
Overseas Shipholding Group Inc., the New York-based operator of a fleet of 117 tankers, had 51 percent of its stock that’s available to trade freely on loan as of March 19, according to figures from Data Explorers, a London-based research company. The cost of borrowing the shares rose to 7, compared with 2 in March, according to a Data Explorers scale that peaks at 10. Helen Harris, a spokeswoman for OSG in Tampa, Florida, declined to comment.
Short interest in Excel Maritime Carriers Ltd., which operates 47 ships hauling dry bulk commodities, was at 25 percent as of March 15, with borrowing costs assessed at 8 on the Data Explorers scale. An official speaking by phone from Excel’s headquarters in Athens declined to comment, asking not to be named in line with company policy.
Shares of OSG rallied 19 percent to $12.97 in New York trading this year, still 86 percent below the record $91.49 reached in July 2007. Excel jumped 54 percent to $2.24 since the start of January. The shares peaked at $81.99 in October 2007.
Shipping industry executives are meeting this week for the Connecticut Maritime Association’s annual conference in Stamford, Connecticut, which runs until March 21.
Thirteen of the 51 marine-transportation companies listed in the U.S. went public since the start of 2006, using equity markets to finance new ships, data compiled by Bloomberg show. The capacity of the global container fleet jumped 55 percent to a record since the end of 2006, according to data from Redhill, England-based IHS Fairplay. The combined capacity of oil tankers rose 26 percent and that of bulk carriers 64 percent.
Rates for Capesizes, carrying iron ore and coal, peaked at $234,000 a day in 2008 and were last at $5,188, according to the Baltic Exchange in London. Very large crude carriers, hauling 2 million barrels of oil, earned $229,000 a day in December 2007 and now get $47,068, estimates Clarkson Plc, the biggest shipbroker. Box rates from China to the U.S. West Coast, the biggest international trade route, fell to $1,992 from as much as $2,833 in July 2010, Clarkson data back to June 2010 show.
“Shipowners finally need to take some tough decisions,” Elliot said. “2012 is going to be a cleaning-up year.”
The collapse in freight rates triggered by the worst global recession since World War II spurred sales of new stock to raise capital. Companies increased the amount of shares outstanding in 2009 and 2010, Angeliki Frangou, the chief executive officer of Piraeus, Greece-based Navios Maritime Holdings Inc., said in an interview in November, citing an internal study.
Bankruptcies, vessel sales and financial reorganizations are poised to increase in 2012, said Harry Theochari, the London-based head of transportation at law firm Norton Rose LLP.
“There will be more blood on the table,” he said. “Companies have come to a point where there’s no money, and the market isn’t getting any better.”
Thirteen shipping companies sought U.S. bankruptcy protection in the past 18 months and they were “the tip of the iceberg,” according to Tony Rice, a London-based partner at law firm Holman Fenwick Willan LLP.
General Maritime Corp., the second-biggest U.S. oil-tanker owner, and Omega Navigation Enterprises Inc. were among those filing for bankruptcy in the U.S. last year. Frontline Ltd., once the world’s biggest operator of VLCCs, split in two in January after the company said in November it risked running out of cash. Eagle Bulk Shipping Inc. said March 15 it was in talks with banks to reorganize its finances.
The crisis in shipping “isn’t yet over,” said Wolfgang Driese, the Frankfurt-based chief executive officer of DVB Bank SE, which lends to the transportation industry. “2012 and a good part of 2013 will be challenging.”
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