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Oaktree's Howard Marks Increases Stake in Star Bulk Carrier to 21.9%

October 09, 2013 | About:
On Monday, Oaktree Capital investor Howard Marks increased his stake in a company that ships commodities globally, Star Bulk Carrier Corp. (SBLK), to 21.9%. The company is incorporated in the Marshall Islands, an island country in the northern Pacific Ocean that is part of Micronesia and uses U.S. currency, and has headquarters in Athens, Greece.

Star Bulk held a public stock offering from Oct. 1 through Oct. 7, issuing 8.05 million new common shares priced at $8.80 per share. If Marks purchased his shares as part of the offering, then the total cost for his additional 6,137,888 shares was approximately $54 million.

The company raised roughly $70.8 million in proceeds from the offering, which it plans to use to buy nine newbuilding drybulk vessels, for future acquisitions and general corporate purchases.

Star Bulk’s new ships will join their current fleet of 13 vessels which have an average age of 10.7 years and combined carrying capacity of approximately 1.3 deadweight tons. The company has already entered into agreements to purchase the nine new vessels, which have expected delivery dates ranging from the fourth quarter of 2015 to the first half of 2016. The combined deadweight ton capacity of the new ships will almost double the company’s current shipping capacity.

Another fund-raising offering in July generated $80.1 million in proceeds for the company, the majority of which it used to buy four new ships.

In the first half of the year, Star Bulk reported a net profit of $2 million, compared to a net loss of $4.5 million in the first half of 2012. The improvement was primarily due to reduced operating expenses and better operations and ship management in response to a soft market. Revenues dropped to $35.8 million compared to $49.8 million.

The company’s cash position as of June 30 this year was $20.2 million, down from $22.3 million at the end of last year. It has $181.3 million in long-term debt, down from $195.4 million.

In the same earnings release, the company’s president and CEO, Spuros Capralos reported that its new business – third-party vessels management – began to impact results. In addition to the six third-party dry bulk vessels it manages and seven third-party product tankers it services, it took on three dry additional dry bulk carriers, bringing its total of owned and managed fleet to 26. Revenue generated from the business is set to total around $3.2 million annually.

“We anticipate demand for dry bulk commodities from most developing countries to continue to grow and the freight market to start showing signs of improvement due to the lower orderbook, slow steaming and the scarcity of bank financing,” he said.

The global dry bulk industry transports larges columes of dry cargo such as iron ore, grain, coal, agriculture products, forest products, cement and many others. The industry has begun to see an incipient recovery this year, after a four-year decline beginning in 2008, though it faces threats from increased ship orders and setbacks in the Chinese economy, according to the Chartered Institute of Logistics and Transport. Vessels transported 4 billion tons of dry bulk cargo in 2012, accounting for more than one-third of all maritime trade. Analysts expect total cargo shipped to be 5% higher 2013, they said, citing Clarkson PLC, the industry’s largest shipbroker.

A spate of new ship orders is also putting the industry at risk for oversupply, which could lead to lower freight rates and a rush for lease payment, though the overall outlook by Maritime experts is positive beginning in the third quarter.

“Earnings for ships that carry dry- bulk commodities are set to start recovering in 2014 despite the fears of slow economy and oversupply of ships as fleet growth slows to keep pace with demand for the first time in four years, said Citigroup Global Markets Inc.,” the Chartered Institute of Logistics and Transport wrote.

The downturn in the shipping center had an adverse impact on Star Bulk as well, as revenue has been in decline since 2009 and earnings since 2011.

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Though primarily a bottom-up investor, Marks may be searching the beaten-down shipping sector for attractive values. He also purchased Baltic Trading Limited (BALT), another dry bulk shipper based in the Marshall Islands in the second quarter of this year, and already owned Genco Shipping & Trading Ltd. (GNK) since the first quarter of 2012.

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About the author:

Holly LaFon
Tim du Toit is the editor and owner of Eurosharelab. He has more than 20 year of institutional and personal investing experience. Tim is based in Hamburg, Germany. More of his articles can be found at http://www.eurosharelab.com

Visit Holly LaFon's Website


Rating: 3.6/5 (10 votes)

Comments

CarstenPrause
CarstenPrause - 10 months ago


Holly,

Are your revenue and profit numbers correct? You stated them to be in the billions but I believe this company is much smaller... It's correct that Marks bought a big stake but I think the company's P&L numbers are much smaller.

Thanks,

Carsten
vgm
Vgm - 10 months ago
Hi Holly,

Not sure what's going on here. It was reported on August 6th that Oaktree filed a 13D disclosing an 18.6% holding in SBLK:

http://www.marketfolly.com/2013/08/oaktree-capital-files-13d-on-star-bulk.html

The stock has been up 2x since then. Is it possible he actually REDUCED his stake to 13.8%???
guruhl
Guruhl premium member - 10 months ago
Apologies for the errors! They have been corrected.
vgm
Vgm - 10 months ago
Great Holly! Thanks. Things move fast these days. One of the fine things about GF is that we can help each other.
CarstenPrause
CarstenPrause - 10 months ago


thanks Holly!

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