Tuesday, November 11, 2008

Don't throw good money after bad

According to Lloyds List, companies have decided it's better to cancel orders for new bulk ships, forefeiting their deposits, than to be stuck with new overpriced ships.

The Peter Georgiopoulos-chaired Genco Shipping & Trading last week said it was happy forfeiting a $53m deposit on six bulkers purchased for $530m, as against the current estimated market value of $300m.

Just as Genco’s decision to get out of its deal won praise from analysts, experts believe any cancellation ... would be seriously beneficial for Eagle Bulk.

Some experts have already issued projections of a an immediate doubling of Eagle Bulk’s net asset value if the cancellation reports are true, based on a market price of $375m as against the contracted price of $508m on the newbuildings.

According to Baltic Exchange assessments, the market value of its newbuildings is $32m each. The $42.3m price was seen as a coup when Eagle Bulk assumed ownership of the ships last year, as even secondhand values peaked at $75m.

It's hard to say when there will be any kind of upward correction. A lot depends on China's new stimulus plan.

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