Euroseas Ltd. Divides to Conquer: Euroholdings Ltd. Takes Shape

Euroseas Ltd. , a prominent player in the shipping industry, recently announced their strategic decision to spin off the three owning companies of three of their older vessels into a newly formed company named Euroholdings Ltd. The vessels involved in this spin-off are the M/V Aegean Express, M/V Joanna, and M/V Diamantis P. This decision was rooted in the company’s objective to unlock shareholder value, drawing parallels to the successful Eurodry Ltd.spin-off in 2018. The conference call during which the announcement was made, featured executives Mr. Aristeidis Pittas , Chairman and CEO, and Dr. Anastasios Aslidis , Chief Strategy Officer and Treasurer, who elaborated on the rationale behind the spin-off, the company’s capital structure, and its strategic direction moving forward. A couple of days after the call, Euroholdings announced the sale of M/V Diamantis P for over $13 million.

Key Highlights

• Strategic Spin Off of Euroholdings aims to maximize shareholder value by providing enhanced flexibility and investment options. ?
• Euroseas will continue to focus on feeder and intermediate container ships, while Euroholdings will seek to leverage opportunities in older vessels but also potentially explore other maritime segments.
• Euroholdings Ltd. a consolidator of older vessels, operating as unlevered entity with an initially projected NAV of $9.50 per share and cash flow breakeven of $7,800 per vessel per day, prior to the sale of the M/V Diamantis P. After the sale, projected NAV increases to about $10.50 per share.
• New entity to offer higher dividend yield of ~ 8-10%, compared to Euroseas’ 6-8% with a focus on growth financed through a balanced mix of cash flow from operations, debt, and potential share-based transactions.
• Euroseas completed its feeder newbuilding program taking delivery of M/V Symeon P and M/V Dear Panel the final two vessels in a series of nine newbuilds ordered in 2021 and 2022. The Company has recently placed orders for two additional intermediate size containerships. Fleet expansion and modernization aligns with the company’s decarbonization goals.

“The spin-off of and the distribution of all shares to our common shareholders, the only shareholder class in our capital structure, enables us to maximize the value of the older vessels in our fleet and shareholder returns by creating a new platform to capture new opportunities following a different strategy from Euroseas” stated Aristides Pittas, Euroseas CEO.

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Euroseas: Focusing on Fleet Upgrade & Renewal

In conjunction with the spin-off announcement, Euroseas also reported the delivery of the M/V Symeon P and Dear Panel, two newly built, 2,800 TEU vessels, marking a significant milestone in the company’s fleet expansion. This delivery was part of a broader initiative that included the completion of a series of nine newbuild vessels ordered in 2021 and 2022. The addition of these vessels not only enhanced the company’s operational capacity but also aligned with an ongoing commitment to modernizing their fleet, enhancing operational efficiency and improving their environmental footprint and efficiency.

The delivery of these vessels was a pivotal moment for Euroseas, a reliable partner of major shipping lines, as it aims to enhance its competitiveness adhering to the evolving environmental regulations and global decarbonization efforts. The management emphasized that the new vessels would contribute to the company’s goal of maintaining a modern fleet capable of meeting the demands of the shipping market.

Regarding fleet related upgrades, Mr. Pittas detailed plans for continued upgrades and retrofitting to improve environmental efficiency across its operational fleet. Following the spin-off, Euroseas will benefit from an improved fleet age profile, higher forward cover, and will retain a modern fleet of 22 vessels, comprising 15 feeder and 7 intermediate containerships, plus two vessels under construction scheduled for delivery in 2027.

Euroholdings Spin-Off Rationale, Capital Structure & Strategy

“We firmly believe that under the right circumstances, there is considerable value in the current environment in continuing to trade older well-maintained vessels, as these can ultimately generate higher returns. The increased market and operational risks associated with older vessels are mitigated by the fact that the Euroholding vessels are currently unlevered and are under time charter employment providing medium term visibility of earnings and all vessels will continue to be managed by our affiliate, Eurobulk Ltd., which has a proven track record of handling older vessels. In the case of the M/V Diamantis P, we felt that the price offered was significantly higher than what we would expect to earn chartering the ship until its next dry dock. We therefore decided to sell it and are looking for other accretive opportunities” stated Aristides Pittas, CEO.

The formation of Euroholdings Ltd. represented a strategic move by Euroseas to enhance shareholder value through the spin-off of. The reasoning behind this decision was multifaceted. Firstly, the spin-off was intended to create a separate entity that could focus on different investment opportunities than Euroseas.

This approach follows the successful 2018 spin-off of Eurodry Ltd., which had resulted in an about 50% increase in the combined valuation of the two entities. This previous success served as a model for Euroholdings, in its potential to unlock similar value for shareholders. Thus, management expects that the combined valuation of both companies together will be higher than Euroseas’s current valuation.

Euroholdings was established to consist of an initial fleet of three older vessels, which were debt-free and collectively valued at approximately $26.5 million. This valuation primarily stems from the vessels’ contracted charter revenues less operating expenses plus scrap value of the vessels. After the sale of M/V Diamantis, the NAV increases to $29.5 million.

According to Dr. Aslidis, the spin-off which represents approximately 5% of Euroseas' NAV would involve the distribution of approximately 2.8 million shares of Euroholdings to Euroseas shareholders, at a ratio of one Euroholdings share for every 2.5 Euroseas shares. He also indicated that subject to approvals of the registration statement by SEC and the application to list on Nasdaq, the record date for the distribution of Euroholdings shares would be January 23, 2025, with shares expected to be distributed on or about January 30, 2025. The Company will issue a press release when these dates are finalized.

Dr. Aslidis also provided insights into the charter arrangements for the vessels being transferred to Euroholdings. The M/V Aegean Express was chartered for approximately 10 months at a rate of $16,700 per day, while the M/V Joanna was secured for a two-year charter extending to the fourth quarter of 2026. Management was considering options for M/V Diamantis P and eventually decided to sell the vessel due to the higher sale price agreed as compared to operating the vessel until its next drydocking. The average age of the fleet is 26.4 years, and the operating cost structure will be moderately above ESEA. EBITDA breakeven is expected to total $7,821/day with no interest payments as the vessels are debt free.

The full presentation is available on the Euroseas website:

https://www.euroseas.gr/investor-relations/presentations.html

In terms of net asset value, Dr. Aslidis mentioned that Euroholdings was projected to have an estimated NAV per share of $9.50 (which increased to about $10.5 after the sale of M/V Diamantis P), while Euroseas maintained a pro forma NAV of $65 per share after the spin-off of the vessels. The management team indicated that the spin-off would allow both entities to pursue distinct strategies that would ultimately enhance shareholder returns through dividends, growth, and strategic asset management.

Euroholdings is envisioned to become a potential consolidator of vintage vessels, hoping to capitalize on a niche in the shipping market that is undergoing transformation due to new environmental regulations and the global push for decarbonization. And while Euroseas would continue to focus on feeder and intermediate container ships, Euroholdings will not only seek to leverage opportunities in older vessels but also potentially to explore other maritime segments.

Growth for Euroholdings will be financed by a balanced approach, incorporating cash flow from operations, debt, and potential share-based transactions. Unlike Euroseas, the new company will not prioritize share buybacks in its early stages, choosing instead to concentrate on leveraging its fleet for cash flow and growth.

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