Scorpio Bulkers is favouring acquisitions over the addition of time-chartered tonnage – but it is not keen on a return to the capesize market.
New York-listed Scorpio Bulkers resumed growth efforts this autumn with a swoop for six ultramaxes from Golden Ocean.
It also has a smaller chartered fleet. But given the way the market has risen this year president Robert Bugbee says the company could have been more aggressive in fixing-in ships.
“The market has now changed. On math it is better to acquire vessels right now than it would be for us to charter in vessels,” he said during a conference call with analysts.
Smaller sizes in focus
Scorpio Bulkers sold out of capesizes amid difficult conditions and today has 52 smaller bulkers on the water.
“I don’t think that there is any appetite, any desire, for the company to buy capesize vessels,” Bugbee said.
Scorpio expects drop in bulker quality
While capes have seen the largest improvement in both asset values and freight rates, Bugbee says the sector is dependent on iron ore and China.
“We like the fact that the ultramaxes and the kamsarmaxes are so much more diverse,” he said.
“We really like the features of that as we see a whole world. We’re able to triangulate more effectively, we are able to put a commercial stamp on that.
“So I think you can be very confident that to the extent that we will do acquisitions, we will keep it to the Kamsarmaxes or smaller.”
Changing attitudes to debt
Pressed by analysts about the potential size of the Scorpio Bulkers fleet down the road Bugbee said maintaining the company’s balance sheet is the key factor.
Scorpio Bulkers secured 60% debt financing for the Golden Ocean vessels, but its president says overall leverage will be kept considerably lower.
“I think the investors and the shipping market themselves are changing,” he said. “We’re not there as investors ourselves looking to leverage off the balance sheet to the maximum point.
Scorpio lines up loan on Golden Ocean ships
“We’re expecting now shipping companies to carry much less leverage than they did in the past cycles. That they have to be aware that on the rainy days if they have dividends, the dividend needs to be paid.”
Stock not steel?
Scorpio Bulkers has $62m in cash and net debt to capital of 32%. It also has around $79m un-drawn on a revolver, according to Greg Lewis of Credit-Suisse.
“Scorpio Bulkers has some balance sheet capacity for additional growth, but with SALT trading below NAV, buying back stock could make sense,” Lewis said.
The comments came after the shipowner reported an improved third quarter performance and reintroduced a dividend quicker than the market had anticipated.
Emanuele Lauro, chief executive of Scorpio Bulkers, said: “Our company is generating positive cash flows and we’re seeing profitability being a realistic short-term goal.
Scorpio Bulkers starts dividends after quarterly loss slashed
“Because of this, we have announced the dividend distribution of $0.02 a share.
“We are looking at making this distribution a sustainable one.”
He added: “In general, we remain optimistic for the dry cargo market recovery and look forward to further strengthening our position in the market in what is an improving rate environment.”
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