Adventures in the nanocap bulkers universe, Part 2

The shipping nanocaps universe is phenomenal. It is crowded with eccentric participants: Kazakhstani billionaires, low-cost Onassis reincarnations, greedy investors, and Manhattan investment banks.

An eclectic blend of characters makes investing in small shipping companies more of a reckless adventure than a prudent investing decision. Despite that fact, small caps have their place in shipping investors’ toolboxes.

Betting on small caps in shipping comes with extreme risk. The prime one is the quality of the people. Small shipping companies are often led by people who are too focused on their well-being. One of their favorite tools to achieve that goal is share dilution.

Share dilution and shipping nanos

And here comes Maxim Group, a Manhattan investment bank. 2019/2020 was the peak of share dilution led by Maxim Group, an eponymous investment bank involved in a public offering with companies like Top Ships, Globus Maritime, and OceanPal.

Freedom Holdings has been interested in Maxim. The company is incorporated in Nevada, but its headquarters are in Kazakhstan. The billionaire behind Freedom is Timur Turlov. According to various sources, Freedom rejected the initial offer of $400 million. For now, the deal is on hold.

Nevertheless, Maxim Group is still operational. The last listing Maxim participated in was Icon Energy Corp a week ago, another small shipping company that owns bulk carriers.

Maxim Group is a common theme among small shipping companies. This fact does not imply that share offerings are not inherently evil. The issue resides in the scale of share dilution. The chart below shows 2020 proceeds from the shares offered. Chart via Freight Waves.

That year delivered handsome profits for Maxim. A few small-cap shipping companies issued so many shares that exceeded their market cap then. The offering process was efficiently designed. The shipping company sells the newly minted shares to Kalani Investments. The latter sells the shares to the retail investors. Maxim Group is involved in all stages, clipping lucrative commissions. On top of that, there have been involved “naked” short sellers who profited handsomely from excess share dilution that depressed share prices.

Maxim Group and some of the short sellers were subject to scrutiny from the SEC. Besides that, a few court cases have been filed against Maxim. As you can see, the shipping nanocaps world is arcane and complex. It is much easier to lose your money than to make any as a retail investor. ?

So, investing in shipping companies with a market cap below $200 million is not for the faint-hearted investors. It requires experience, industry knowledge, and, most importantly, uncompromising risk management.

That being said, today, I discuss four small bulker carrier owners.

Choose your player

Before I move on to the companies, let’s recap why I believe dry bulk shipping is an excellent place to be in the next 12-18 months.

In summary, the ingredients for an asymmetric bet skewed in our favor are here:

• Constrained supply: low order book, aging fleet, limited shipyard capacity
• Growing demand: China and India as the main major bulk consumers
• Catalysts: rising geopolitical entropy disrupting the supply chains

Inelastic supply, fluid demand, and constrained supply chains are recipe for a profitable bet. Let’s see what small bulk carrier shipping companies have to offer.

In today’s discussion, our contenders are genuinely nanocaps. Only one of the companies has a market cap above $50 million, while Mr. Market values the remaining three below $40 million.

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