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Shipping players voice rebellion against ‘bigger is best’ mantra
January 30, 2019
Attendees weigh up sector’s fixation on size, with one saying there are ‘a few drawbacks in a bigger company’
Tradewinds January 30th, 2019 11:14 GMT
by Andy Pierce
Shipping’s fixation with scale got brought down to size in a lively debate at Marine Money in London last week.
Shipowners, pool players and Chinese lease financiers questioned the obsession of investors to create larger platforms and the desire of banks to offer ever-cheaper debt to their largest clients.
Aristides Pittas, the Greek shipowner at the head of Euroseas and Eurobulk, argued profitability, not scale, should be the key criteria for investors.
“Shipping is such a volatile market and adding debt because of our natural greed in order to augment the good times, we make the bad times even worse,” he said during a panel discussion on consolidation.
Pittas said mergers and acquisitions were “by no means the solution to everything” and could create additional bureaucracy while reducing flexibility.
“There are quite a few drawbacks in a bigger company,” said Pittas, who is looking to grow both of his listed platforms.
Kathleen Haines, the chief financial officer at Heidmar, also questioned if the merger of two companies to provide liquidity for private equity investors actually met the purpose.
“If you combine two or three companies with big equity partners, you have five or six big shareholders,” she said. “So, it can make it harder.”
Banks have a similar fixation with scale, with the largest public companies enjoying the cheapest debt since the 2008 financial crisis.
Alexandros Tsirikos, chief financial officer of Top Ships, asked why banks would not favour a midsize client with modern vessels and long-term contracts over a company with 100 older vessels?
“This obsession with size I really don’t understand,” Tsirikos said. “Even smaller players, as long as you have a good asset and you bring banks a time charter with a good counterparty, I don’t see why they would not take it.”
While Western banks may be sticking to the script, Chinese lessors have reviewed their business model.
“[With] top clients we always make very limited profit and now the company requires us to make more profit, so gradually we move to tier-two clients,” said Friday Wang, head of the Greek and UK team at CMB Financial Leasing.