General Maritime (NYSE: GMR) recently concluded the acquisition of tankers from subsidiaries of Metrostar Management, which is a provider of ship management services. The $620 million acquisition, signed last year, included five very large crude carriers and two Suezmax new vessels. Is this acquisition bringing good fortunes for General Maritime? Let's find out what effect this acquisition will have.
Possible impacts
Last year, before the acquisition, General Maritime had a fleet of 31 tankers including two VLCCs. With the acquisition, General Maritime now has seven VLCCs in its fleet. At the same time, the company dumped a few vessels. Net-net, General Maritime has improved its capacity of carrying crude from 4 million tons deadweight last year to 5.2 million dwt this year.
VLCCs will help the company boost its capacity to meet the growing demand for crude across the globe. This can help General Maritime attract more customers in the Persian Gulf and Far East and score a point over competitors such as Frontline (NYSE: FRO) and Overseas Shipholding Group (NYSE: OSG) which have also seen their growth affected by the recession.
However, it won't be that easy for General Maritime to compete with rivals since it has debt-related issues to sort out. In 2010, total liabilities were as high as $1.4 billion, much of which was set to come due soon. This has been hurting the investors. Last month, a credit facility of $200 million from Oaktree Management was a relief to investors. However, this credit facility solves only a fraction of the problem. General Maritime requires heavy growth on the top line to sustain itself in the coming years.
Bear in mind, investors who once delighted in a cash-distribution machine have now noticed that the dividend per share has been declining consistently over the last two years. The dividend of $0.22 per share in 2010 is the least that it has paid out in the last five years. Dividend reduction was clearly a defensive mechanism to shore up the company during the financial crisis, which included a loss per share of $3.02 that the company recorded in 2010. Things clearly did not look promising back then. But a stronger fleet and economic recovery seem to indicate that the company is growing stronger once more.
The Foolish outlook
As economies gradually recover, demand for crude oil will rise, which would further trigger revenue growth for those involved in international trade. This suggests that the shipping industry would see an improvement in activity in coming years.
Investors should give the stock some more time to prove its potential. It would be a good idea to track oil demand and prices as these two factors would likely guide the shipping industry. Moreover, Fools would be required to spend some more time watching the actions of the company. While the company and industry should be able to avoid Davy Jones' Locker, supply growth will be another problem for shipping companies to overcome.
