Tamas Eisenberger Long Star Bulk Carriers & Scorpio Tankers: Sohn London Conference

We're posting up notes from the Sohn London investment conference.  Next up is Tamas Eisenberger of Sikra Capital who presented longs of Star Bulk Carriers (NAS: SBLK) and Scorpio Tankers (NYSE: STNG).


Tamas Eisenberger's Sohn London Conference Presentation

Long: Star Bulk Carriers (NAS: SBLK) & Scorpio Tankers (NYSE: STNG)

Large ships usually burn low quality, highly polluting fuel. One cruise liner can put out the same amount of sulphur dioxide over a year as 20m cars. A Finnish study found that if shipping emissions continue at their present level, they will cause 600,000 premature deaths over the next 5 years.

A new International Maritime Organisation regulation will come into force in Jan 2020 that will drastically reduce the amount of sulphur ships can emit. Shipping companies have been slow to gear up for new emission standards. Ship operators have two choices. Either they pay 50% more for better quality fuel or they install scrubbers that allow the ships to run on the old low-quality fuel but with less emissions. Well capitalised forward-thinking owners are installing scrubbers. Installing scrubbers will save $8-10,000 per ship/day compared to running on the high-quality fuel.

The shipping industry is highly cyclical. The last eleven years has been a bear market in which many players have gone out of business or were taken over. It has been destructive including many shipyard closures. Supply is now quite tight. It will stay tight for quite a few years because of the long lead times in shipbuilding.

The introduction of the new regulation in 2020 will cause chaos for at least the first six months. High quality fuel prices are likely rise because most ships have not been fitted with scrubbers. Those without scrubbers that will be burning the high-quality fuel may have to start slow steaming in order to use fuel more efficiently. If they travel 10% more slowly, cargo will take 10% longer to get to its destination. Ships fitted with scrubbers will have a significant advantage. Less fuel-efficient old ships will be uneconomic and scrapped.

Shipping can be unprofitable for long periods but this can be made up for in a two or three year period of super profits. In good times, a ship can earn 20-30% of its equity value in a single month.  The new emissions regulations are the catalyst that can usher in a period of super profits.

Star Bulk Carriers has one of the largest and most diversified fleets. They are the low-cost operator and their fleet is 100% fitted with scrubbers. Scorpio Tankers will be 100% fitted with scrubbers by the end of next year. They have a young fleet and the management team are good.


Be sure to check out the rest of the presentations from Sohn London conference 2019.

Senator Investment Group Shows Equity Stakes in Star Bulk Carriers and Noble Corp

Doug Silverman and Alex Klabin's hedge fund firm Senator Investment Group has filed two 13G's with the SEC recently.

Senator Shows Star Bulk Carrier Equity Position (SBLK)

First, Senator has filed a 13G on Star Bulk Carriers (SBLK) indicating they own 6.83% of the company with over 4.07 million shares.  This is a newly disclosed equity position for the firm and the filing was made due to activity on January 23rd.

This was part of a private placement of common shares where Oaktree Capital and Senator pruchased at $8.154 per share.  The sale netted the company $51.5 million and they've agreed to "grant shelf registration rights to the investors for the resale of their common shares"  per a press release.

Per Google Finance, Star Bulk Carriers is "an international shipping company. The Company owns and operates a fleet of dry bulk carrier vessels. The Company's segment is operating dry bulk vessels. The Company will have a fleet of approximately 76 vessels consisting primarily of Newcastlemax and Capesize, as well as Kamsarmax, Ultramax and Supramax vessels, with a carrying capacity between 45,588 dwt and 209,537 deadweight tonnage (dwt). Its fleet, which emphasizes Capesize vessels, primarily transports minerals from the Americas and Australia to East Asia, particularly China, as well as Japan, South Korea, Taiwan, Indonesia and Malaysia. The Company's Supramax vessels carry minerals, grain products and steel between the Americas, Europe, Africa, Australia and Indonesia and from these areas to China, Japan, South Korea, Taiwan, the Philippines and Malaysia. Its vessels include Maharaj, Star Poseidon, Leviathan, Peloreus, Star Borealis, Star Angie, Star Georgia, Star Nina and Mercurial Virgo."


Senator Also Shows Noble Corp (NE) Stake

Second, the hedge fund firm also has filed a 13G on Noble (NE) indicating they own 5.76% of the company with 14 million shares.  This is another newly disclosed equity position and the activity was made due to activity on January 24th.

Per Yahoo Finance, Noble "operates as an offshore drilling contractor for the oil and gas industry worldwide. It owns and operates a fleet of mobile offshore drilling units."

Oaktree Capital Files 13D on Star Bulk Carriers (SBLK)

Howard Marks' hedge fund firm Oaktree Capital has filed a 13D with the SEC regarding Star Bulk Carriers (SBLK).  Oaktree disclosed an 18.6% ownership stake in SBLK with 3,865,888 shares.

On May 1st, Oaktree and other purchasers entered into a purchase agreement and agreed to backstop an equity rights offering up to $75 million with a subscription price of $5.35. 

Oaktree also agreed that it would not acquire more than 40% of common shares without approval of the board.  On July 25th, the company announced successful completion of the rights offering.

The 13D also notes that the company has agreed to increase the size of the board by 2 directors.  The filing was required due to portfolio activity on July 25th.

Per Google Finance, Star Bulk Carriers is "an international company providing worldwide transportation of drybulk commodities through its vessel-owning subsidiaries for a broad range of customers of major and minor bulk cargoes including iron ore, coal, grain, cement and fertilizer."

We also just posted up Howard Marks' latest memo if you're interested in hearing his market thoughts.