Shares of Nordic American Tankers (NYSE:NAT) are sinking on Wednesday and were down 27% at 10:45 a.m. EST. The driving force behind the sell-off was the pricing of an equity offering well below its recent trading price.
Yesterday Nordic American Tankers announced plans to sell $100 million of stock in a public offering to help recapitalize the company, which has been sinking under the weight of $341.5 million in net debt after tanker rates plunged. The company priced that offering today, raising $110 million in cash due to strong demand. However, that's significant dilution for a company that now has a market value of $275 million after today's sell-off, especially since it sold those shares at $2.75 apiece, which is well below the $3.66 per share the stock had been trading at before announcing the share sale.
This year has been a challenging one for the tanker industry. Last quarter Nordic American Tanker noted that it pulled in an average of $10,600 per day per ship, which is well below the historical average rate of about $30,000 per day these vessels have captured over the past 25 years. Because of that, the company lost money in the quarter, which put more pressure on its balance sheet since it has three newbuild ships scheduled for delivery next year that it needed to finance. While the company secured funding for those vessels, it noted last quarter that it intended to "explore alternative sources of funding to make our capital structure more efficient" which it did with today's stock sale.
Shipping rates are excruciatingly volatile, with Nordic American Tanker warning last quarter that "the tanker environment may change quickly and unexpectedly, up or down." While today's stock sale will provide it with more room to breathe if rates keep plunging, this isn't a stock for the faint of heart.