23rd April 2010 - No Planes - But Plenty of Tankers!

Another recent round of IPO launches, even though less well received than previous issues, has once again demonstrated the increasing importance of the stock market to the tanker industry. Over one third of all tanker ownership is now in the hands of stock market investors, with the promise of even more control destined for this area through further floatations. During the period 2004-08 it was fairly easy to whip up interest in investment opportunities on the back of rising markets. During this spell the emergence of China and the promise of new refinery capacity in the Middle East and India helped to sell the idea of increasing product exports, with the consequential increase in tonne-miles.   It could be argued that today's scenario is perhaps not that different, with IPO listings being offered on the basis that the tanker market is once again moving forward. Of course in any recession there are casualties. However, the tanker market appears to have emerged relatively unscathed with few company failures and limited newbuilding cancellations to date. Admittedly the cash reserves may be thin, but the accountants have been charged with finding innovative ways to raise funding to take advantage of ‘low' second-hand values and newbuilding prices. As we have said before, owners tend to retreat back to the markets they know and trust and it follows that tangible assets once again become the ‘currency' of choice.

The IPO option may be time consuming and not as quick to arrange as other conventional types of finance. However, the risk is with the investor and the head owner will maintain a controlling interest in the company without increasing debt.  Investment opportunities in the current market come and go very quickly and owners need to be in a position to move fast. A number of established companies are already on the acquisition trail and we are starting to see asset values rise as a consequence. Investors are presently showing a reluctance to invest in fresh IPOs and with so much uncertainty surrounding the orderbook, who can blame them. However, there are still plenty of new IPO entrants waiting for the right moment to enter the fray. What we don't expect to see is another volcanic eruption of new tanker ordering as witnessed in 2008 and the subsequent cloud of dust still waiting to settle.