Editor s Choice West - Marine Money by jianghongl


									     The Short Saga of Saga
     Tankers – Editor’s Choice
     Award (West)
     By George Weltman
          n April 2010, Arne Blystad     1995 built vessel was valued at      be sure of better than market        ings, then under new manage-
      I                                                                                                            ment, saw an opportunity. At
          went to market to raise        $49 million and is employed in       returns, they have, in fact,
     equity for a new pure play large    the spot market as well. The en      enlisted one of the big boys,        the end of May, DHT agreed to
     tanker IPO, Saga Tankers ASA,       bloc price is $187 million,          Frontline Ltd, to commercially       acquire Saga Tankers.
     which would acquire three           excluding the option vessel,         manage the spot vessels. There is    With pre- acceptances from
     VLCCs        from      companies    which is financed with the           also the possibility of upside       72.5% of the existing share-
     controlled by Blystad with the      proceeds of the offering, the        should asset values, down approx-    holders, including main share-
     fourth on subjects. The             existing bank debt and an in-        imately 45% from the peak,           holder Arne Blystad, already in
     company successfully sold, in a     kind payment from the seller.        recover.                             place, all DHT had left to do
     private placement, 59.2 million                                                                               was to put forward a voluntary
     shares at NOK 12/share raising      The sales pitch was straightfor-     Financing for both the fleet and     exchange offer. The company
     gross proceeds of NOK 710.4         ward, but must be considered         the acquisition of the fourth        offered 0.25 shares of DHT,
     million, which was immediately      in the context of that period.       vessel was fully underwritten by     equivalent to NOK 5.44 for
     swapped into approximately          We described it in Freshly           DnB NOR. Pareto Securities,          each Saga share. Based upon
     $120 million. There was no          Minted as follows:                   Arctic Securities, DnB NOR           DHT’s closing price on May
     struggle to fill the books or any                                        Markets and Fearnley Fonds           27th of $4.01 and applying the
     issue with respect to price, as     For investors, it is an attractive   served as joint lead managers        USD/NOK exchange rate on
     had been the case at the time.      story. The sponsor, Arne Blystad,    and joint bookrunners.               the same date of 5.43, the offer
     The moral to this tale,             a renowned long-term shipping                                             represented a premium of
     according to an insider, is that    investor, contributed $41 million    The rest, as they say, is history.   approximately 56% to Saga’s
     “when you have a clean story,       in equity-in-kind from ownership     The tanker market went into a        closing price on the last trading
     quality ships and quality people    in the existing fleet. The attrac-   steady decline and has yet to        day prior to the announcement.
F    behind it, you can rain equity      tive full payout dividend model is   recover. A weakened economy          The consideration offered
e    in today’s market.” The shares      supported by a low breakeven,        in the West and a slowdown in        valued Saga’s equity at NOK
     were subsequently listed on the     estimated to be $22,000/day,         the East led to reduced oil          472.4 million or $87 million.
u    Oslo Stock Exchange in June.        made possible by the purchase        consumption compounded by            Based upon these terms, Saga’s
a    This was the last tanker IPO        price, competitive operating costs   the uncertainty related to the       shareholders would own 25.2%
r    done to date.                       and favorable debt terms. This       European debt crisis. As oil         of the pro forma combined
y                                        will ensure dividends will be paid   movements slowed, more               company. The shipping analysts
     Constructed at Daewoo Ship-         even at low market levels and        capacity came on line, a sure        demurred stating that while
a    building, two of the VLCCs          could even provide returns of        recipe for disaster.                 there was a premium in terms
r    were built in 2000 with the         25% based upon current VLCC                                               of share price, the offer was at a
c    third in 1995. The two younger      rates of $60,000 per day. Like the   But before things looked             discount to the then current
h                                        big boys, the company plans to       horribly bleak, some saw             valuation, in terms of NAV.
     vessels were valued at $69
     million each, even though one       operate two of the three initial     opportunity. How low would it
0    is spot and the other is on time    vessels, as well as the fourth if    go? No one knew the answer to        The proposed acquisition of
1    charter through Q3 2012. The        acquired, in the spot market. To     that question, but DHT Hold-         Saga Tankers ASA by DHT

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Holdings, Inc. made perfect         consideration based upon an          could only be concluded on           delivery of the three vessels was
sense for both parties. For         exchange of 0.25 shares of           terms that would be unattrac-        $21 million attributable to the
DHT, it clearly was a means to      DHT for each share of Saga,          tive to shareholders and the         Agnes, which loan will amortize
continue the growth trajectory      the investors’ interest certainly    resulting financial structure        by $1.2 million quarterly.
that began under the new            waned as shipping shares             would remain precarious based
management team and without         declined at an even faster rate      upon the market outlook and          The company decision to liqui-
additional leverage. For Saga       than the market in general. In       the revised loan terms dictated      date was a foregone conclusion
shareholders, it was viewed         fact, despite a number of exten-     by the banks, the company            as it faced a Hobson’s choice,
simplistically as a swift and       sions of the offering period,        declined and instead disposed        defined as a “free” choice in
timely exit. But, in fact, Saga     DHT had only received accept-        of the two remaining vessels in      which only one option is
shareholders would have a far       ances from approximately 84%         order to secure the remaining        offered. An equity issuance,
better platform to participate in   of the shareholders substantially    shareholders’      value.   The      given the circumstances, was
the tanker market. DHT’s            below the 95% acceptance             company sold the Saga Julia          impossible and liquidation the
management suggested: “(t)he        threshold.                           and Saga Agnes for $30.5             only real choice. The latest
combined company will have a                                             million each net, with the latter    balance sheet shows assets held
quality fleet and a strong          Could this be the best deal          to be delivered at the end of the    for sale are approximately $63.9
balance sheet with available        never done?                          current time charter which is        million, with 86.8 million
liquidity and access to capital                                          anticipated to be July/August        shares outstanding, a large
markets to support prudent and      With values in decline, the          2012.                                portion of which are controlled
profitable growth that is           breach of the bank’s minimum                                              by Mr. Blystad.
expected to benefit the share-      value clause loomed. The liqui-      As a result of these transactions,
holders of both companies.”         dation process began in order to     the company made an extraor-         Were there winners and losers?
The benefits to the Saga share-     repay the banks. Saga Tankers        dinary repayment under its           There is no clear answer. Mr.
holders are similar but             announced in August that it          loan facility of $13 million,        Blystad cashed out at the top of
different, according to Arne        had entered into an agreement        which cured the covenant             the market but lost his in-kind
Blystad. In lieu of the shares in   for the outright sale of its 1995-   breach. On the accounting side       equity and was a principal
a pure play, heavily dependent      built VLCC, Saga Chelsea for         of things, the company wrote-        purchaser of shares at the end.
on the spot market, Saga’s          $25 million net. For perspec-        down the book value of each of       DHT escaped a deal that would
shareholders now own shares in      tive, the original prospectus        the vessels by $27.5 million.        have sunk it. The banks
a company with a sound              valued the vessel, which was                                              appeared to get out whole, but
balance sheet, significant          acquired a year before, for $49      But what to do next? Possibili-      not the equity, which will
contract coverage and improved      million. The story repeated          ties included the development        collect the residual value, which
trading liquidity. But perhaps      itself in October when the           of a new strategy, changing the      we suspect is a better outcome
the more important driver for       company announced an agree-          focus of the business outside of     than if dilutive equity had been    F
the sale was Saga’s inability to    ment for the sale of its second      shipping or dissolution.             issued.                             e
grow the company in the short-      VLCC the 2000-built Saga
term due to the weak market         Unity for $29.4 million. At this     In its 3rd quarter report, Saga      It was a short saga but a large     u
and a depressed share price.        point, discussions with the          Tankers ASA wrote its own            lesson. No one, small or large,     a
                                    lenders had begun in earnest.        obituary.          Management        can afford to take market risk      r
Carnegie ASA served as the                                               submitted a proposal to share-       on large expensive ships with       y
advisor to DHT with Pareto          Finally, by the end of October,      holders to dissolve the company      the one exception being an
Securities ASA assuming the         the end was in sight. Both ship      and pay out the residual share-      unlevered company with near         a
same role on behalf of Saga.        values and the freight market        holder value as a dividend. The      infinite liquidity.                 r
                                    continued their hasty decline        company had sold all four of its                                         c
On August 5th, DHT Hold-            and the banks were pressing the      vessels. All necessary impair-       RIP.                                h
ings Inc. announced the with-       company to issue equity.             ment charges were taken and                                              2
drawal of its offer to acquire      Believing that in today’s market     the lenders repaid accordingly.                                          0
Saga Tankers ASA. With the          that the issuance of equity          Total outstanding debt, after                                            1

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