Sea Star Cyprus takes Adriatic, Greek seas by storm

— Majority stake in Minoan, Hellenic Seaways – f aces new revolt by Grimaldi

 

Sea Star Capital (SEAS), the CSE listed group controlled by Greek shipping tycoon Ioannis Vardinoyannis has taken a 26.71% controlling stake in Minoan Lines and a 34.70% stake in Hellenic Seaways for a total deal value of EUR 249.6 mln, becoming a major player in the Greek passenger and freight shipping market.

SEAS bought 18.481.487 shares of Minoan or a 26.05% stake in the company at EUR 5 per share for EUR 92.407.435 and 26.935.378 shares of Hellenic Seaways or 34.70% of the capital of the non-listed company at EUR 5.75 per share for a deal valued EUR 154.878.423 from companies controlled by Greek entrepreneur Laskarides. The smaller stakes were also purchased on the same terms.

Sea Star financed the whole deal valued at EUR 250 mln from bank borrowing, but expects to pay up to EUR 100 mln in borrowing from the proceeds of its planned rights issue of EUR 169 mln of which EUR 58 mln was used to buy a 14.9% stake in Anek. SEAS was advised by Credit Suisse Securities (Europe) Limited and Deutsche Bank AG, London branch.

Sea Star Board said in an announcement that the decision to acquire the significant stakes in Minoan Lines and Hellenic Seaways was in line with its expansion strategy.

 

— Goodwill

 

Established in 1972, Minoan Lines is active in the passenger and freight market serving the Greek domestic and Greece-to-Italy routes with six ships. By end September, Minoan had a net asset value of EUR 4.18 per share, which means that the goodwill that Sea Star is paying to get the 26.71% stake amounts to EUR 15.5 mln.

Minoan controls 33.31% of the capital of Hellenic Seaways, established in 1999 and with 30 vessels that is also active in the domestic and Adriatic markets. By end September, the NAV of the non-listed Hellenic Seaways amounted to EUR 156.9 mln with net after tax profit of EUR 34.6 mln. The NAV per share of HS as at end of September amounted to EUR 3.20 per share, which means that for Sea Star to acquire a 34.70% stake in the company, the goodwill will amount to EUR 68.8 mln.

Sea Star will treat the total of EUR 84.3 mln as accounting goodwill in its books and write it off over a number of years. For investors the value of the stakes acquired is significantly higher taking into account the fact that the ships are never revalued and are kept in the books at cost, less depreciation.

Sea Star is also the largest shareholder in Anek, Greece’s second largest sea transport operator with a fleet of 11 vessels.

 

— Competition rules

 

As of May 2006, Greece liberalised fares for domestic routes; operators now can optimise pricing policy and there is a free route allocation. Greece has also abolished the age ceiling, but operators and their vessels need to meet more strict international safety standards and regulations.

Although route allocation is generally unregulated, the Greek state ensures that certain, unprofitable but important routes remain operational and are subsidised, which partly recovers the cost of such subsidies through a 3% tax on the passengers of the other routes. There is no income tax on shipping companies but Greece imposes a minimal taxation based on vessels’ tonnage.

On first impression, Sea Star may be viewed as forming a dominant position in the market, but effectively, there should be no issue of abusing competition rules since Sea Star has only significant stakes in Anek, Minoan and Hellenic Seaways with ample competition from Attica Holdings/Blue Star (controlled by Marfin strongman Andreas Vgenopoulos and Dubai investors) and NEL Lines.

The Chairman of NEL, Apostolos Ventouris, did not wish to make a statement to the Financial Mirror regarding the deal.

Marine transport experts told the Financial Mirror that they did not fear a monopolistic situation with cross-holdings of major investors in various ferry or shipping companies, nor of a few cornering the market.

“The criteria set by the state regulators is whether it is easy or difficult for any investor to enter the market, considering the mobility of ships and their easy and quick deployment in any area,” one expert suggested.

He added that ever since the ‘cabotage’ restrictions on foreign-owned ships operating ports of the Aegean was lifted, any ship or ferry owner could enter the market.

“The same way that a major cruise company is exempt from monopolistic restrictions, because this is considered a part of the leisure sector, the same way any ferry company extending its hold on a market would be seen as part of the greater transport sector that would include passenger ships and even airlines,” explained a Cyprus cruise company executive.

Furthermore, the national subsidies to cruise ships imposed during the ‘cabotage’ are only applicable to loss-making routes or outlying islands that are uneconomical to be reached by commercial operators.

 

— Lucrative market

 

The domestic Greek routes constitute a EUR 450 mln market, primarily served by Anek, Blue Star, Hellenic Seaways, Minoan Lines and NEL.

In 2006, more than 9.5 mln passengers, 1.1 mln cars and 380.000 trucks were transported to and from the Greek islands. Listed operators hold a 65% market share of passenger traffic, 74% of car traffic and 87% of truck traffic.

In passenger terms, the routes from Piraeus serving the Argosaronikos islands (3.4 mln), Crete (2.7 mln) and the Eastern Cyclades (2.2 mln) are the most popular.

Piraeus-Crete (380,000), Piraeus-Argosaronikos islands (250,000) and the Rafina-Cyclades routes (200,000) are the most popular car routes.

For trucks, the routes from Piraeus serving Crete (209,000), the Dodecanese Islands (78,000), and the Eastern Cyclades (47,000) are the most popular.

The Adriatic routes constitute a EUR 500 mln market primarily served by Anek, Superfast, Minoan Lines and Blue Star. In 2006 more than 1.9 mln passengers, 439.000 cars and 334.000 trucks were transported in the Adriatic

 

— Grimaldi attacks Vardinoyannis

 

Meanwhile, Grimaldi Naples Managing Director Emanuele Grimaldi in remarks to Lloyd’s List has accused the board of Anek of acting against the best interests of its shareholders in pushing for a EUR 120 mln convertible bond issue from which existing shareholders would be excluded.

“It is particularly serious because these bonds can be converted into shares,” Grimaldi told Lloyd’s List.

Anek’s board said last month it was considering issuing the bonds, which would be reserved exclusively for institutions and convertible into stock during a sever-year window. The board also proposed a separate EUR 40 mln bond loan open to existing shareholders but did not explain why they would be excluded from the larger issue.

A shareholders meeting is due on December 19 to discuss the proposal, at which the required quorum is only one-third of the outstanding shares. Grimaldi said he would exercise his right to force a one-month postponement to rally opposition from other shareholders.

With shares eventually sold to bondholders to be priced at EUR 2 – 3.25 the process could see as many as 60 mln new shares issued. Anek now has 161.3 mln shares outstanding.

Speaking to Lloyd’s List last month, majority shareholder Ioannis Vardinoyannis said Anek needed the proceeds of the bond issue to fund vessel purchases. He also claimed that only around EUR 20 mln remained of the roughly EUR 100 mln raised in its recent share recapitalization, which saw Grimaldi acquire 22.6 mln shares for a 14.01% stake in the company.

Grimaldi challenges that contention, asserting that aside from the EUR 23.4 mln spent on acquiring a used vessel, none of the EUR 101 mln has yet been spent. He dismissed Varidnoyannis’ explanation that EUR 20 mln had been spent in reducing debt and said the EUR 30 mln-plus budgeted for refitting a newly-acquired vessel “appears to be very expensive.”