More Ship Owners Eye Wall Street Via Direct Listings, Not IPOs
Golar LNG Ltd. (NYSE: GLNG) has confirmed plans to spin off its liquefied natural gas (LNG) carrier business into a separate public vehicle, signaling the entry of yet another player into an already very crowded field.
Despite a total collapse in the industry’s initial public offering (IPO) prospects, Wall Street’s shipping cadre keeps expanding as more owners opt for the ‘direct listing’ path popularized by Spotify (NYSE: SPOT), wherein shares become tradable but no proceeds are raised.
Before market open on May 21, Golar reported a net loss of $41.7 million for the first quarter of 2019, compared to a net loss of $21 million in the same period last year. Adjusted EBITDA of $63 million came in well above analyst consensus forecasts of $53 million.
The company, which is led by Norwegian businessman Tor Olav Trøim, the former right-hand man of shipping magnate John Fredriksen, has increasingly diversified away from LNG shipping into areas such as floating liquefaction (FLNG) and the power sector.
Golar LNG disclosed in its earnings announcement, “At its recent meeting in Bermuda, the board made a decision to proceed with a spin-off of the company’s TFDE [tri-fuel diesel engine] LNG carrier business, subject to satisfactory market conditions, and to focus the company’s future activities primarily around FLNG and downstream assets.”
The announcement also stated, “This will allow LNG shipping investors more direct exposure to the shipping market and reposition Golar’s core business toward LNG infrastructure on long-term contracts. Golar is in talks with other owners of similar tonnage to join the new shipping company.”
Golar did not disclose the timing of the new listing. Deutsche Bank analyst Chris Snyder commented in a client note, “While details around the spin-off are sparse, we expect Golar to take advantage of tightening LNG shipping markets and seasonal strength later in the year to dispose of the fleet at a solid price.”
Golar’s plan for a new LNG-shipping-only public entity coincides with plans for another direct listing in the same sector – by Fredriksen’s Flex LNG.
Flex LNG was formed in 2006, went public on the Oslo Axess Market in 2009, transferred its shares to the Oslo Stock Exchange in 2017, and filed a registration in April with the U.S. Securities and Exchange Commission for a proposed NYSE listing. It currently has a fleet of four LNG carriers and has nine newbuildings on order.
These two pending LNG shipping entrants follow a number of other direct listings by owners in other segments. The last successful shipping IPO was for Gener8 Maritime in June 2016; that company was sold to Euronav (NYSE: EURN) in 2018. Unsuccessful shipping IPO attempts were made last year by GoodBulk and Navios Containers.
Owners have instead opted for the non-IPO direct listing route. Those taking this path include TORM Shipping (NASDAQ: TRMD), a Copenhagen-listed product tanker owner that began trading in the U.S. in December 2017; South Africa’s Grindrod Shipping (NASDAQ: GRIN), which obtained a U.S. listing in June 2018; Navios Containers (NASDAQ: NMCI), which listed directly in December 2018 after its IPO plan flopped; Castor Maritime (NASDAQ: CTRM), a tiny Greek company that listed in February on NASDAQ with a fleet comprised of a single 15-year-old bulker; and the most significant direct lister to date – Diamond S Shipping (NYSE: DSSI) – which unsuccessfully pursued an IPO in 2014, listed directly in March, and is now one of the largest tanker owners in the U.S. public market.
More are likely to follow. Several other companies are said to be waiting in the wings for U.S. direct listings, including owners already trading in Oslo.
This isn’t how shipping’s Wall Street footprint was supposed to play out. Investment bankers speaking at ship-finance conferences over the past decade repeatedly voiced the hope that the number of U.S.-listed companies would be whittled down, and that the survivors would be larger-market-cap, blue-chip entities that would command respect among institutional investors.
They had hoped that the barriers to successfully pricing an IPO would limit new entrants and eventually render the playing field less muddled. But the direct listing trend has quashed that prospect. At least in the short- and medium-term, there are clearly going to be more U.S.-listed ship owners, not fewer.