Finding more equity partners than debt partners has been always a tough task for shipping companies. However, with the industry looking at the post Covid-19 era and with increasing regulations set in place forging an environmental-friendly profile for the sector, attracting new investors may gradually become a more achievable goal than in the past.
It is broadly accepted that over the past 15 years or so, the industry has been gaining considerable traction from banking institutions interested in lending capital to shipping owners and operators. Appetite for lending has in turn increased leverage in balance sheets for the majority of the companies. Across certain market cycles, it has also provided sufficient debt capital to the shipping companies and has made them complacent in terms of financing. Therefore the need for equity capital has shown less urgent. However when it comes to the stock markets and the efforts of listed shipping companies to increase their market value, the equity capital appears to be of paramount importance.
The conditions and factors that could drive the industry towards a more appropriate direction in order to get more capital from investors and raise their valuation potential could be the following:
–Consolidation of shipping companies could lead to the formation of even larger players and the creation of even more established companies. If such trend escalates, then it will make investors feel more confident about the industry’s fundamentals, resilience and overall dynamics.
–Also if the cycle of interest rates begins to change and there is a spike in rates at some point in time, then there will be additional sectors, apart from shipping, that will look attractive to lenders. So this might lower the debt capital available for shipping finance and “put” the shipping companies into a search for investors.
–The shipping industry should focus on value investors as well as growth investors rather than momentum investors or bargain hunters who are only looking to enter markets that have bottomed out. Ideally this can be the result of greater transparency and continuous information flow towards the investors’ community.
–The IPO market must also play a bigger role in the sector’s potential shift towards the capital markets. The primary market has been historically weak for the shipping sector and this alone is an impediment to the shipping companies’ access to equity capital.
–Building stronger knowledge about the overall dynamics and mechanics of the sector should also continue to be priority. By this manner, asset managers will feel even more comfortable to follow the sector and put some of the shipping stocks on their radar.
–Finally, increasing coverage of shipping companies can also make a difference. This means that wherever there is limited institutional interest, the shipping companies themselves must step up and ensure adequate coverage of their stocks from independent equity research providers.