The new company, to be called Diamond S Shipping, will benefit from a balanced and large-scale portfolio of vessels, strong management leadership and a cost-efficient commercial platform, CPLP claimed.
Diamond S Shipping is to be listed on the New York Stock Exchange and will be headquartered in Greenwich, Connecticut.
This transaction reflects DSS’ strategy to access public markets with enhanced scale at a cyclically opportune time to create one of the world’s largest shipping companies well positioned for future industry consolidation, it said.
CPLP said that it intended to continue operations as a master limited partnership (MLP), with a modern fleet outside the tanker sector.
This deal is valued on an NAV-to-NAV basis with CPLP receiving $23 mill in the form of around 3% incremental ownership in Diamond S Shipping related to certain transaction benefits, including access to public markets and enhanced scale.
Initially, CPLP unitholders will own about 33% and DSS equity owners will have around 67% of the new company, subject to closing adjustments. CPLP unitholders also will continue to own their units. CPLP said it intended to effect a reverse unit split promptly after the closing of the transaction.
Diamond S Shipping will include the combined product and crude tanker fleet of CPLP and DSS, totalling 68 with an average age of 7.8 years, including 52 product tankers and 16 crude tankers.
As a result, Diamond S Shipping will become the third largest publicly traded product tanker operator and the fifth largest public tanker company worldwide.
The new company is to be well capitalised, with post-close net debt to fleet value of about 60% and total liquidity in excess of $90 mill and it will be led by DSS’ management team.
For example, Craig Stevenson, Jr, current DSS CEO, will serve as the new CEO, while the new company’s board will consist of seven members, the majority of whom are expected to be independent.
DSS will initially nominate three board members, Nadim Qureshi, who will serve as Chairman, Hal Malone, and Kate Blankenship. CPLP will nominate two board members, Jerry Kalogiratos and Gerry Ventouris. The board of directors will also include Stevenson and Bart Veldhuizen.
Stevenson commented:“Our organisation is pleased to create with CPLP one of the world’s largest public company tanker operators. This transaction will occur at an opportunistic time in the cycle and creates one of the largest, highest quality fleets and best capitalised public shipping companies in the market.
“We are confident that this unique combination will create significant shareholder value through the cycle by using our cash flow to invest in the business via acquisitions and returning capital back to our shareholders. We look forward to leveraging CPLP’s outstanding expertise and industry reputation as we work to grow the business together,” he said.
Gerasimos (Jerry) Kalogiratos, director and CEO of Capital GP (CPLP’s general partner), added:“We are excited about this transaction, which marks a strategic step to drive value creation for our unitholders, as we expect the sum of the parts following this transaction to exceed the current equity valuation of CPLP.
“The Partnership’s common unitholders will not only receive $23 mill in consideration, which implies an approximate 10.8% premium to the NAV contributed as part of this transaction, but will also retain exposure to the product and crude tanker markets at greater scale, while continuing to receive a meaningful common unit distribution from CPLP post transaction.
“This transaction also enables CPLP to combine its tanker assets with DSS, a market leader that will be led by an accomplished management team with an excellent industry track record.
“Finally, this transaction allows CPLP to reshape its business with a modern fleet that has a remaining average charter duration of 5.3 years, providing CPLP unitholders with more stability and cash flow visibility. This should well underpin the new quarterly common unit distribution guidance of $0.045.
“After the transaction, we believe that we will be uniquely positioned to grow our asset base again with modern vessels employed under medium- to long-term charters both from our sponsor as well as the second-hand market with a view to growing our long-term distributable cash flow,” he concluded.
The initial Form 10 registration statement relating to the spin-off is expected to be filed with the US Securities and Exchange Commission (SEC) in December, 2018, and the distribution and combination are expected to be completed in the first quarter of next year.
VesselsValue’s senior analyst Court Smith, said that the new fleet will comprise of 68 vessels - 43 from DSS and 25 from CPLP. The merged fleet will own the second largest Handysize tanker fleet with 52 vessels, behind TORM.
This merger will be most significant for the MR2 tanker market. The trading areas of the two fleets appears to be varied. CPLP has commercial relationships with Brazilian operators. DSS has more activity in the US Gulf, Singapore and the Far East, Smith said.
“We appear to be at the bottom of a market cycle for MR tankers, leaving plenty of upside for the asset value of the underlying vessels,” he added.