Last week, Navios Maritime Partners (NYSE:NMM) or “Navios Partners” shocked market individuals with the acquisition of 36 dry bulk carriers from debt-laden former dad or mum Navios Maritime Holdings (NM) or “Navios Holdings” for $835 million and a subsequent $100 million frequent unit buyback announcement.
Our board approved a unit repurchase program for as much as $100.0 million. At present costs, this program would cowl roughly 17% of the general public float. The timing of the repurchases and the precise variety of items to be repurchased shall be decided by the Company based mostly on market situations and monetary and different concerns, together with working capital and deliberate or anticipated development alternatives. Total return to traders, we imagine, is the best way to measure our success, and can use this software as a method of reaching this consequence for our unitholders.
Particularly the buyback announcement was well-received by traders as the corporate continues to trade at a steep low cost to internet asset worth (“NAV”):
Navios Partners at present states the charter-free worth of its fleet at roughly $6.4 billion. After deducting nearly $2.2 billion in debt and bareboat liabilities, internet asset worth calculates to $4.2 billion.
Even after final week’s rally, the corporate’s frequent items proceed to trade at an nearly 80% low cost to NAV proper in keeping with relentless diluters from the likes of Top Ships (TOPS), Castor Maritime (CTRM), Performance Shipping (PSHG), OceanPal (OP), Globus Maritime (GLBS), Imperial Petroleum (IMPP) and United Maritime (USEA).
To be truthful, Navios Partners has additionally offered traders ample motive for mistrust in latest quarters:
Last 12 months, the corporate’s controversial CEO and Chairwoman Angeliki Frangou engineered a bail-out for the group’s tanker phase and raised the required funds by promoting new Navios Partners frequent items into the open market at a tiny fraction of internet asset worth.
The unitholder-unfriendly transfer resulted in 5% holder MRMP Managers LLC sending a letter to the corporate “sharing urgent and serious concerns regarding the current management and direction of the Company“:
While we’re solely holders of LP pursuits in NMM, we now have critical issues relating to Angeliki’s choices that appear designed to profit different entities within the Navios group. We imagine these choices run counter to her responsibility as Chairman & CEO of NMM.
Indeed, final week’s $835 million acquisition of the corporate’s former dad or mum Navios Holdings’ fleet of dry bulk carriers quantities to a different bail-out of a associated entity.
Clearly, shopping for again frequent items at an enormous low cost to NAV could be a far superior capital allocation relative to buying vessels at 100% of internet asset worth.
But with restricted partnerships normally being established to profit the final accomplice, frequent unitholders cannot fairly count on the corporate to spearhead rules of shareholder worth.
Moreover, the Navios Holdings bail-out will not end in further dilution for frequent unitholders because the near $400 million money portion of the deal will probably be funded with money readily available and $220 million in proceeds from the sale of two classic containerships introduced earlier this 12 months.
Quite frankly, I used to be anticipating a a lot worse and highly-dilutive take care of Navios Partners outright shopping for Navios Holdings and Angeliki Frangou utilizing loans offered to Navios Holdings by her closely-held entity Navios Shipmanagement to seize a really substantial stake in Navios Partners on the expense of out of doors equity holders.
With mainly the corporate’s whole money steadiness getting used to fund the transaction, traders shouldn’t count on materials buybacks within the close to time period.
That mentioned, with all three segments at present producing respectable money flows, liquidity ought to replenish shortly going into 2023.
With the long-standing Navios Holdings overhang now being addressed with out further dilution for frequent unitholders, not less than for my part dangers for traders have decreased considerably.
While near-term utilization of the brand new $100 million frequent unit buyback program will stay restricted at finest, Navios Partners may develop into extra critical about repurchases subsequent 12 months.
With all enterprise segments at present producing sturdy money circulate and no ailing associated entities left on the market, Navios Partners’ frequent items seem to have loads of room for value appreciation.
For instance, narrowing the low cost to 50% of NAV would end in a value goal of $70 per frequent unit.
In truth, growing the frequent unit value significantly could be quite simple train for Ms. Frangou. Based on my money circulate assumptions, the corporate might simply afford growing its quarterly frequent unit distribution from a measly $0.05 at present to $1.00.
That mentioned, I don’t count on such a transfer for not less than one other couple of quarters as Navios Partners first must rebuild its money place.
Despite the corporate now being lively within the dry bulk, container and tanker markets, the frequent unit value has largely saved its correlation with the Baltic Dry Bulk Index (“BDI”) which is unlikely to alter after the Navios Holdings fleet acquisition offered substantial, further publicity to the dry bulk phase.
Speculative traders with the power to abdomen inherent volatility in delivery shares ought to think about using setbacks to seize some Navios Partners items for his or her portfolio.
I’ll talk about the deal’s implications for Navios Holdings’ equity holders in a separate article subsequent week so keep tuned.