Monday, May 27, 2013

Buy Baltic Trading: Dry Cargo Shipping Exposure At A Discount To NAV

Baltic Trading is a subsidiary of Genco Shipping & Trading, and is separately listed on NYSE. It owns a modern fleet of nine vessels with an aggregate DWT capacity of 672,000 MT and an average age of 3.4 years as of March 31st, 2013. GNK has a 24.8% ownership stake in the company, but through a dual class of shares it controls the majority of voting rights. GNK also exercises full managerial control.

But whereas GNK has been saddled with a massive debt load (its total debt outstanding at the parent level was $1,437 million as of March 31st, please also note I have examined GNK’s debt situation in my recent Seeking Alpha article), BALT had a relatively manageable $101.25 million in debt outstanding as of the same date. More importantly BALT is not required to make debt repayments before November 2015. 

What has attracted me to BALT is its value proposition. The stock has been trading at a discount to its Net Asset Value (NAV), as calculated based on fair market values and not accounting (book) values. Nobody knows when a cyclical recovery in the dry-cargo shipping industry will get under way, and the supply-demand fundamentals don’t exactly look rosy. Yet, if I want to execute a buy-and-hold strategy, I might as well acquire assets at bargain prices.

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