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Greek Rich List News
Betting that oil won’t tank
The Wall Street adage says it’s best to invest when there’s blood in the streets. For Peter Georgiopoulos (profiled in Greek Rich List US Section), that means buying when there’s oil in the water. As oil continues to gush into the Gulf of Mexico, Mr. Georgiopoulos, the most successful U.S. shipping entrepreneur to come along in decades, is making what on the surface seems to be a spectacularly contrarian bet: buying every tanker he can get his hands on.
- Peter Georgiopoulos has been able to cash in before.
Earlier this month, he spent $620 million to snap up seven tankers for his General Maritime Corp., including five of what the shipping set understatedly calls “very large crude carriers”— the kind that can hold 2 million barrels.
The move comes as oil drillers and shippers face tougher regulations and higher costs. Adding to the risks, Mr. Georgiopoulos’ deal expands the size of General Maritime’s fleet by more than 50% just when a flood of new tankers is expected to hit the market. New supply could cause shipping prices to crash and swamp the heavily indebted company.
He’s an optimist
Unsurprisingly, Mr. Georgiopoulos doesn’t see things in such a gloomy light. The plainspoken Bronx native—who once dismissed an English speechwriter for seasoning his speeches with such posh words as whilst—insists that now is the time to strike. He argues that ships are attractively priced after their values fell by half last year, and he sees evidence of economic recovery taking hold.
“I’m feeling confident,” he proclaimed at an industry conference last week. “I’m feeling things are getting better here in the States. And I think we’ll all be dead before there’s a collapse in China.”
The 49-year-old former Wall Street banker has shown a spectacular sense of timing in the past. When oil prices were hovering at $10 a barrel back in 1997, and the shipping business had tanked, Mr. Georgiopoulos started General Maritime and turned it into the fourth-largest publicly traded shipping company, with $67 million in operating income last year on $350 million in revenue.
He built the company by stocking up on ships at depressed prices and selling many of them near the top of the market in 2005 and 2006. In less than a decade, he had translated the $80 million in capital he used to start his enterprise into $1.4 billion in dividends and share buybacks.
“He’s got a great sense of the deal,” says Peter Shaerf, a General Maritime board member and managing director of investment bank AMA Capital Partners.
Mr. Georgiopoulos declined to be interviewed for this article— begging off, he says, because his bankers at Goldman Sachs didn’t want him to talk to the press. But some investors seem to fear that this deal-master’s touch has eluded him in his latest bidding for oil tankers. Amid a general slump in shipping stocks, General Maritime shares have been especially dismal, falling about 75% in the past two years to $6.50 apiece. Nervous bankers would only lend the company enough money to cover 60% of the cost of its new tankers, forcing Mr. Georgiopoulos to raise most of the balance by selling $196 million worth of stock last week, which diluted existing shareholders’ stakes by nearly 50%.
Getting that painful deal done apparently took all of Mr. Georgiopoulos’ dealmaking skills, as he reminded investors of the many good times they shared in more prosperous days.“Look, we started with $80 million, we gave you $1.4 billion,” he says he told investors. “Give us another $200 million back.”
Even with the money, General Maritime has little margin for error. It carries $1 billion in debt and only $15.9 million of unrestricted cash, and it has pledged just about all of its assets as collateral, according to Standard & Poor’s.
Changing world
That financial burden could be manageable in ordinary times, but the Gulf disaster may be a gamechanger once an angry Congress and embarrassed regulators finish with the oil business.
“Our world is changing,” Morten Arntzen, CEO of Manhattan- based Overseas Shipholding Group, warned at a conference last week. “We will get unlimited liability as an industry, and I’m not sure anyone knows what that means yet except we all know that it’s going to cost us all more.”
The other issue lies in the flood of new ships about to hit the waves. Shipyards are scheduled to complete construction of enough new huge tankers to increase the size of the world’s fleet by nearly 30% next year. Whether the new capacity will be delayed or even canceled is a topic of huge debate within the industry.
Their arrival could trigger a “2009-type depression” in shipping rates, Sterne Agee & Leach analyst Salvatore Vitale warned in a recent client report. Rates on the very largest oil tankers last year collapsed to as little as $20,000 a day from their high of $145,000 in 2008. “If the 2011 official supply picture becomes reality,” Mr.Vitale advises, “run for the hills.”
Source: Aaron Elstien, Crain’s New York Business, June 2010
