Monday, November 25, 2013

Navigator Holdings Ltd. - A Case Study on Private Equity Groups (Part I)

The foray of private equity groups in the shipping industry has been a focal point of discussion in industry forums, ever since the high-profile investments by celebrated investor Wilbur Ross in privately held Diamond S Shipping Group (a company specializing in suezmax crude oil carriers & medium range petroleum product tankers) & Navigator Holdings Ltd. (a company specializing in liquefied gas carriers). Today, Diamond S Shipping remains a privately held company, whereas Navigator Holdings (NVGS) just consummated a very successful IPO on NYSE, selling a total of 12 million shares at $19 per share, at the high end of its expected $17-$19 price range.

Industry pundits, myself included, have attempted to explain the motivating factor behind private equity’s love affair with the shipping industry (answer: high return on investment), and the investment, monetizing, and exit strategies to maximize such return. Typically, private equity groups make sizable investments in privately held companies, aiming to monetize their investment by a subsequent IPO, and eventually divest their holdings, ideally in a three to five year time frame from their original investment.

This seems to be the strategy followed by WL Ross & Co., the main investment vehicle of Wilbur Ross. Since his first investment in Navigator Holdings in November 2011, Wilbur Ross amassed a total of 27.2 million shares in three separate transactions, at an average cost of $8.73 per share.

By the time Navigator Holdings filed for its IPO, Wilbur Ross was the single largest shareholder in the company, owning a total of 28,040,508 shares or 60.6% of total shares outstanding.

Navigator Holdings sold a total of 12 million shares to the public on November 20th, 2013. Included in the total number of shares sold were 2.97 million shares offered by a selling shareholder. The selling shareholder was, you guessed it, none other than WL Ross & Co. In fact, if the underwriters exercise their option to acquire an additional 1.8 million shares from the selling shareholder (a scenario that seems very likely given the positive reception by the market so far), WL Ross & Co. stands to divest a total of 4.77 million shares, or a little over 17% of its holdings. 

Given that the net proceeds after underwriting commissions & discounts were $17.67 per share, WL Ross & Co. stands to generate a cool return on investment of just over 100% in less than two years. Not a bad start for an investment in a staid industry.

As I begin devouring the IPO prospectus for an insight into the liquefied petroleum gas (LPG) industry and the company’s intrinsic valuation, (I plan to revert on these in a future article), I cannot help but notice the absence of any related-party items. Wilbur Ross gave the keynote speech at this year’s Marine Money Conference in NYC, and was vocal about the need for the shipping industry to adopt proper corporate governance practices. Sir, for your business acumen I offer you my compliments, but for your integrity I owe you my gratitude.

The full article was published on on November 25, 2013.  The link to the full article is as follows:

Update:  On Tuesday November 26, 2013, Navigator Holdings Ltd announced the closing of its IPO, including the full exercise of underwriters' option to purchase additional common shares.  As per my prediction, WL Ross & Co. was able to divest 4.77 million shares in this very successful IPO, but still remains the largest shareholder controlling 42.1% of the company.