If advertising on Instagram, it pays to have a powerful and beautiful influencer hawking your wares to their millions of followers. Unfortunately, they sometimes overstep the mark. Celebrities, including Khloe Kardashian and Cardi B, were all promoting so-called "detox teas" a few years back, with a stream of images of their gorgeous selves posing with steaming mugs of apparently wondrous brews. The influencers claimed that their stunning looks and hotness were in part due to plastic surgery these miracle drinks, which their fans could purchase by clicking a link and entering a discount code.
If a tea that could lead to a slimmer and better you sounds too good to be true, then it probably is. The Federal Trade Commission fined beverage maker Teami US$15 million for "deceptively claiming their array of teas could cause rapid and substantial weight loss, fight against cancerous cells, decrease migraines, unclog arteries, and prevent colds and flu."
You can read the details of the FTC settlement here, and on the wider Instagram scandal into inappropriate influencing of wellness drinks on Wired here.
But what's this got to do with offshore?
Now it seems that where Instagram led, Norwegian shipping is following. We're not in any way claiming, or even suggesting or implying in the remotest, that any laws have been broken – unlike those naughty folk at Teami – or that any wrongdoing or rule-breaking is intended.
But it is hard to avoid the conclusion that the Norwegian shipping market is now at a stage where personalities and celebrities matter more than a solid business case, discounted case flows, and the assets a company intends to own.
If you are lining up your company for an Initial Public Offering (IPO) of shares on the stock market, it pays to have a powerful, and, er, financially beautiful shipping influencer as a "cornerstone investor" ahead of the share sale.
The case in point is Edda Wind, which we first covered here as it announced it planned to list on the Oslo Stock Exchange in April. Since we wrote that there was a bubble developing in the service operation vessel (SOV) segment earlier this year, interest has only magnified – as we highlighted here, with the former chairman of Farstad Shipping, Sverre Farstad, launching Norwind, and Aage Remøy's REM increasing its SOV fleet. Now Edda is proceeding with its blockbuster IPO.
Edda Wind presently owns and operates two purpose-built offshore wind SOVs, but the company has six dedicated offshore wind vessels under construction – two regular SOVs and four offshore wind commissioning SOVs to assist in the start-up phase after the wind turbine installation offshore, rather than for routine maintenance.
These six ships begin delivery from 2022 in Spain. All the newbuild vessels are prepared ready for, "zero-emission operations utilising liquid organic hydrogen carrier as an energy source," the company claims, although they will not deliver on day one with all the equipment onboard. Edda Wind is owned by Østensjø Wind and Wilhelmsen New Energy on a 50/50 basis.
But not for long, as industry big hitters are buying into the company, and the lucky general public will have the chance to buy shares and speculate invest in Edda Wind as it plays the burgeoning SOV market. Edda Wind boasts that five out of eight vessels it owns already hold contracts, which it claims underpins the "quality of assets and ability to secure contracts."
Those new builds aren't going to pay for themselves, however, so the company plans to raise US$100 million in gross proceeds from the IPO (press release here).
At this point, enter the svelte and sexy influencers cornerstone investors to convince you that this IPO will make your portfolio hotter than it has ever been. In the words of Edda's release:
"Three cornerstone investors have undertaken to acquire shares for a total amount of NOK465 million (US$53.5 million) in the IPO, subject to certain conditions, and for price per share of up to NOK30.75 (US$3.54), which equates to a pre-money equity value of NOK1,015 million (US$117 million) based on the current number of shares outstanding…
"These three cornerstone investors are i) Geveran Trading Co ("Geveran"), a company indirectly controlled by trusts established by Mr. John Fredriksen for the benefit of his immediate family (NOK200 million committed) (US$23 million), ii) Xclat Holdings ("Xclat"), a subsidiary of the Quantum Pacific Shipping group associated with Mr. Idan Ofer (NOK200 million committed) (also US$23 million), and iii) Nordea Investment Management (NOK65 million committed) (US$7.5 million). Geveran and Xclat will both join the Board of Directors in the Company, with effect from the first day of trading on the Oslo Stock Exchange, and take an active role in the further development of the Company…."
What can we say? When Fredriksen and Ofer are leading the stampede, what is an ordinary investor to do?
This is literally how the acronym Fear Of Missing Out (FOMO) was coined.
Also, in the market for fresh capital is Eneti, the former Scorpio Bulkers. What these wind companies lack in profit and cash flow, they make up for with an insatiable hunger for capital. As new entrant to the wind industry, Eneti bought itself an impressive book of experience when it purchased the Seajacks fleet of wind turbine installation vessels (WTIVs) in August (here).
Now, the company is in the market to raise a fresh US$200 million of equity capital to fund its enlarged newbuilding programme of WTIVs. When we first covered Eneti's WTIV newbuilding plans in 2020 here and here, it had ordered one firm new WTIV unit at Daewoo in Korea and held three options at the yard.
Now it says it intends to exercise the first of those options, to give it two high-specification international WTIVs, but that it is also in the process of ordering a Jones Act Newbuild WTIV, with the ability to install 15 to 20 MW turbines in American waters.
This would be only the second Jones Act-Compliant WTIV after Dominion Energy's Charybdis, which is expected to be operational by late 2023 after delivery from Keppel AmFELs' yard in Brownsville, Texas. Eneti announced that it had even been hired as a technical consultant by Dominion to provide expertise around the design, construction, and operation of Dominion's Charybdis.
Eneti says its Jones-Act compliant unit is expected to be delivered between October and December 2024. This increase in order size from one firm to three units will catapult it ahead of its competitors to make Eneti the largest operator of WTIVs capable of installing turbines of over 10 MW in the world, with five such vessels at the end of 2024.
Move over Cadeler, move over Fred Olsen Wind Carrier, move over the big five from the Netherlands and Belgium, Eneti is moving into prime position. It claims its newbuild can "install turbines faster, safer, in a more efficient and more environmentally friendly manner than any WTIV currently on the water."
What's not to like?
Quite a lot if you are a current shareholder. News that US$200 million of new capital would be diluting existing shareholders had a savage effect on Eneti's stock price. It plunged from over US$14 per share on November 4 to below US$9 at close on November 12, even as rival Cadeler's stock price soared to new highs. This is the lowest price in five years for the stock, either as Eneti or its previous incarnation as a bulk carrier operator.
The small print of the investor presentation from Eneti (here on page 21) shows that Seajacks' Japanese owners took a US$289 million impairment on their five rigs in the first quarter of 2021, ahead of the combination with Eneti. This was what Eneti described as a "transaction-related revaluation of [the] asset base."
Suddenly, we can see why the former owners of Seajacks, Japanese players Marubeni Corporation, INCJ, and Mitsui OSK Lines (MOL) were so keen to fall into the arms of Emanuele A. Lauro, the CEO of what was then Scorpio Bulkers. Now, with a sweep of accounting magic, Eneti booked what it described as a "gain on bargain purchase of Seajacks" that was among the US$27 million in "other income" in the pro-forma results in the presentation on November 9. How?
There's a lot of detail in the Eneti presentation (here). Firstly, on page 14 is a clear statement that wind turbine installations worldwide outside China will decline in 2021 and 2022, compared to 2020, which was a record year. Investors are clearly looking to the long-term story of 18 per cent compound growth from 2010 to 2026, rather than the choppier short-term outlook, which is one of declining demand this year and next year.
Even Eneti's own graph of supply of WTIVs versus demand (on page 16) shows that there is no shortfall in supply of WTIVs expected until 2025, so there is time for more entrepreneurs to step up to the plate to fill the gap with vessel upgrades or newbuildings (where is Triumph Subsea when it is needed?). In the original presentation to investors in August last year (here, page eight), Eneti had forecast a supply crunch in 2024, that has now been pushed back a year.
Finally, there is a reminder that even raising US$200 million doesn't pay for one single WTIV, and that the operating costs of its larger units Zaratan and Scylla are already between US$31,300 to US$38,300 per day. Eneti says it is also "in process of pursuing a new credit facility, which could include proceeds of US$175 million via a secured term loan and a revolving credit facility."
Offshore wind is a chunky business with big capital requirements. Expect some more capital raising in the sector, which is now running red hot – either with new concept IPOs to capture the market zeitgeist (here) with newbuildings, or secondary issues from players like, just maybe, Fred Olsen Wind Carrier, Cadeler or Seaways7, to fund what is becoming an arms race to acquire the very specialised and expensive tonnage to install and commission offshore wind farms.
That magic hockey stick graph of 18 per cent compound growth in the installed offshore wind turbine base is still sitting there in the latest Eneti presentation. You can bet that investment bankers, green-minded investors, and those good old-fashioned shipping influencers are feeling the pangs of Fear Of Missing Out. This is one boat nobody wants to miss.
Never underestimate FOMO as a factor in shipping.
Background Reading
You can read more about Edda Wind's newbuildings and see a photo of the launch in Spain in our coverage here.
Our favourite interview with John Fredriksen titled John Fredriksen: The Man, the Myth, the Legend is here.
Forbes' profile of Idan Ofer is here.
Triumph Subsea's website of interesting future potential wind vessels is here.