Does Nordic American Tanker Really Need New Cash? (NAT)

Ship_image_suez_maxThere has been one shipping company which has been largely immune to the woes of the shipping sector and the global economy.  That is Nordic American Tanker Shipping Ltd. (NYSE: NAT). It has been making acquisitions when it can.  Its dividend is sky-high and management claims that its business model is safe. Yet, the company’s CEO has been conservative on his many CNBC appearances and in presentations to the financial community.  Jim Cramer has been a huge fan of the company.. So why did the company announce a 3 million share offering that would commence next week?

The company said that it would sell 3 million shares under its existingshelf registration and noted that Morgan Stanley would be theunderwriter.  It expects the deal to close on January 13.  The common shares purchased by Morgan Stanley are being offeredfor resale from time to time in negotiated transactions or otherwise,at market prices on the New York Stock Exchange prevailing at the timeof sale, at prices related to such prevailing market prices orotherwise.

  • Its Chairman & CEO Hernjorn Hansson noted, “In our view, thepresent markets offer attractive opportunities to increase theCompany’s fleet further. Because of the financial turmoilinternationally, ship values have been reduced. We believe that ourpast acquisitions have been accretive, that is, after acquisitions ourdividend and earnings per share have been higher than under a scenariowhere such acquisitions had not taken place. We announced an agreementto buy a double hull Suezmax tanker earlier this week, which isexpected to be financed with funds that were available to the Companybefore this offering. Going forward, we expect this offering tostrengthen the Company`s equity base and increase the Company’scapacity to make further acquisitions….”

We did see that acquisition earlier and that was a $56.7 millionpurchase, and that is after two more ship acquisitions which will giveNordic American a 15-ship fleet.  But the 3 million shares representsroughly $100 million, and about $115 million if the 450,000 shareoverallotment option is exercised.  Despite the whole Wall Street anointment, Nordic American’s market cap is only $1.2 billion basedupon yesterday’s close of $35.49.  Its 52-week trading range is $22.00to $42.00. 

The company runs with a very lean balance sheet, so this will allow thecompany to do deals without having to burden itself with debt.The Company has no net debt and an unused credit line of$500 million.  What is interesting is that on Monday the companysaid that this most recent acquisition was expected to be financed fromout of its financial resources.  So why are we harping onthis?  If you read through that press release of the acquisition thereis essentially no clue that the company was going to announce an equitysale besides the CEO note that “further acquisitions are underplanning.”

Its dividend is actually all over the place and that yield advertisedof well over 10% looks a bit misleading if you see the history of itsquarterly dividends.  The Company announced that its dividend per sharefor the 4th quarter of 2008 is expected to be approximately $0.85 pershare. Here is a 3-year dividend history:
19-Nov-08    $1.61 Dividend
19-Aug-08    $1.60 Dividend
21-May-08    $1.18 Dividend
20-Feb-08    $0.50 Dividend
19-Nov-07    $0.40 Dividend
15-Aug-07    $1.17 Dividend
21-May-07    $1.24 Dividend
20-Feb-07    $1.00 Dividend
13-Nov-06    $1.32 Dividend
14-Aug-06    $1.07 Dividend
10-May-06    $1.58 Dividend
14-Feb-06    $1.88 Dividend

The company has been a successful story.  That cannot be ignored..  Nordic American said it will be able to continue to paydividends..  It also said this week that the spotrate contracts entered into for 2009 are “well above the level achievedon average for the 4th quarter of 2008.”  You probably know how lowshipping rates were in Q4.

Our initial take is to take Mr. Hansson at face value here and believethat he is raising this cash merely to opportunistically have moregunpowder for acquisitions.  Maybe the acquisition opportunities aresuddenly just much more attractive or opportunistic as 2009 commenced.But with as high as the dividend is and with close to an extra 10%added to its shares, it is really hard to wonder if the company isgiving itself more of a dividend cushion on top of its acquisition cashcushion.

We’ll know in time, but the timing of this capital raise after lookingat the wording of its release just from Monday makes us question thissale at least with a footnote. One thing is for certain.  If this offering is successful, you might as well get ready for other stock offerings from other shipping companies.

Jon C. Ogg
January 8, 2009