GNK - Genco Shipping and Trading Ltd

[kai99]

Genco Shipping & Trading Limited engages in the ocean transportation of drybulk cargoes through the ownership and operation of drybulk carrier vessels worldwide. It transports iron ore, coal, grain, steel products, and other drybulk cargoes. The company charters its vessels primarily to trading houses, which include commodities traders; producers; and government-owned entities.

 

Firms that specialize in distressed investing - Centerbridge Partners, Apollo Management and Solus Alternative Asset Management - would rank as the largest shareholders after the company reorganises.

 

Some highlights i'm looking at :

p/b - 0.09

cash/sh - 2.46

EPS next year - 52.20%

 

Anyone has any thoughts on catalysts for a rebound in shipping rates? Although long term US energy independence is one thing.

 

Anyone has any thoughts or anything to look out on this post bankruptcy case?

[kai99]

also wondering, wad kinda creditors GNK has and how will it affect in the future. Anyone has any comments?:)

[yadayada]

you want to find shipping comps that generate net cash even in years like 2012and 2013. these guys were losing. so not  low cost.

 

then take a possible upcycle in account. but since china is flooding the market with ships and things look shaky there, it doesnt look that good.

 

also their book value looks v questionable. they dont seem to write their ships down at all with crashing shipping rates. which is a bad sign, as they don't have to do this for the banks. so equity might be negative actually. if you want liquidation value now, look them up manually and see what they are worth . but i guarantee it is nowhere near 2.6 billion

[Valueguy134]

I spent sometime looking at dry bulk shipping a couple months ago and recall these guys.  I'll try to dig up some notes to see if its the same guys I'm thinking about .But if these are the guys I recall, essentially the corporate structure was set up for equity to take a fall, ships are over leveraged for the values and the company is very anti shareholder

[kai99]

write up on seeking alpha - http://seekingalpha.com/article/2127813-what-will-common-shareholders-of-genco-shipping-get-after-the-restructuring

 

What do you guys think of their cash on hand?

[yadayada]

So basicly you are buying warrants at the current price then? You buy warrants for 1.78$, with an exercise price of 1.75$ at a market cap of 1295$ million. They are 7 years, but this whole thing will take like 1  year? How does that play into it.

 

It seems like a long term bet on higher shipping rates.

 

The article assumes a fair value of the ships of about 1.3 billion from 2.6 billion. So this seems one thing to verify. It might be more or less.

 

Average age of their ships is 8 years. So let's say it takes 6 years for shipping rates to go up, their ships would be on average 14 years. And they would have less ships. So it might be a bit less.

 

So basicly it is a long term bet on higher shipping rates at almost bottom prices. So quite alot of downside protection. So a double or maybe a triple over up to 6 years. Doesn't look that attractive to me.

 

I assume the warrants will be publicly traded after this whole thing happens? Maybe they will sell for lower then 1.78$ if people will dump them?

 

 

So unless the warrants become alot cheaper, you might as well buy star bulk carriers. Trading a bit above book value now with a market cap of 380 million. You have oak tree capital in it, and a extremly competent shipping operator with a stellar track record. Ships have a younger average age. They also are always cash flow positive, and have lower break even operating costs. They generated 30 million$ in cash with a bit less then 400 million$ in ships.  And you know they will sell at the right time at least.

 

But betting shipping rates go higher will be dangerous with china just blindly pushing out ships. The amount of dry bulk carriers out tehre after 2008 is still huge. If China slows down you will have depressed shipping rates for a long time still to come.

[yadayada]

A quick way to check how much their vessels are worth is to look at total revenue of star bulk and total charter revenue of GNK. Or to look at DWT.

 

in 2012 that was 225 million for GNK, and about 85 million for STBLK.

 

I checked some of SBLK's vessels, and they do seem to update vessel value on their balance sheet according to their current market rates. I only checked this for a few ships tho, but I assume it will be the same for the rest of their ships.

 

SBLK had 300 million$ of vessels with a average age of 9 years vs 8 years for GNK. Given that vessel value follows charter rates with a slight lag, you can roughly calculate what GNK's ships are worth.

 

225/85 = 2.6. If you do 2.6x 300, you get only about 780 million of value here.

 

total DWT for SBLK is 1.6 milion and for GNK it is 3.8 million. Which is 2.3x as much. To get a value of 1.3 billion$, you would have to assume with 2.3x as much DWT of roughly the same age you get more then 4x as much value. I seriously doubt that. I think their current fleet is worth closer to 900 million at almost bottom market rates. So that is a 1.7 billion$ discount. And i think i am optimistic when i say 900 million.

 

So i think unless the warrants become alot cheaper, this doesnt look cheap. Hope that helps. :)