Maritime Beaver (NASDAQ:CTRM) is a shipping company listed on Nasdaq but which has an employee, Mr. Petros Panagiotidis, located in Cyprus. He is the CEO, CFO and majority shareholder of CTRM. Recently, some have questioned the unilateral advantages it derives from capital increases.
According to a recent While searching Alpha item, Panagiotidis benefits greatly from its significant capital increases. And that’s what the company just announced on June 15. Castor Maritime has released a new prospectus that claims to raise $ 300 million thanks to issuance of more shares using an “to market” deposit system (ATM). This means that he can issue the shares at any time. There does not appear to be any particular prize associated with the show.
The problem is, it will dilute shareholders considerably. And the stock of CTRM collapsed as a result. As of June 10, according to the prospectus, it was $ 3.35. But today, July 2, CTRM stock opened at $ 2.63. This is down 72 cents per share, or 21.5% from just before the share issue.
Moreover, it is not yet clear whether or not the company has been successful in raising funds. The fact that the stock has fallen so much could mean that insiders are aware of the stock’s dilution.
How Petros benefits from the capital increases
As of March 31, the company had $ 64.2 million in cash and restricted cash on its balance sheet. The company uses its capital raising and existing liquidity to purchase and operate tankers and other vessels that collect daily royalties. In the first quarter, the company reported sales of $ 7 million and EBITDA of $ 2.6 million (earnings before interest, taxes, depreciation and amortization).
The problem is, the company has made it clear that it will continue to issue more shares to acquire more ships. This will continually add to the dilution that shareholders experience. In search of the alphaThe article shows that the book value per share of CTRM shares increased from $ 35.39 as of December 31, 2018 to $ 3.27 as of June 14, 2021.
In addition, the article also points out that Petros is making a 1% commission on each purchase and 1% on each sale of the fleet of vessels. It also gets a 1.25% share of all charter revenue, a sort of royalty just to have the vessels in the fleet and generate revenue. On top of that, he receives $ 250 per ship per day. How, exactly, this is different from the royalty is mind boggling (except in cases where a vessel is in dry dock or not generating revenue).
The author claims that in the end, Castor Maritime will have 50 ships and $ 400 million in revenue. This will bring in $ 5 million in royalties and $ 4.56 million in fees of $ 250 per day per vessel to Petros (250 x 50 x 365 = $ 4.56 million). The author argues that this is money that should be returned to shareholders in the form of dividends.
Where that leaves CTRM Stock
It’s not like shareholders are unaware of the dilution and disclosure of all fees paid to Petros. These have been clearly indicated in the company’s prospectus. Here is a typical risk that the company has put in the prospectus:
“Buyers of the common shares we sell, as well as our existing shareholders, will experience significant dilution if we sell shares at prices significantly below the price at which they invested. In addition, we can issue additional common shares… without shareholder approval, in a number of circumstances.
Here is another one:
“We have issued a significant number of our common shares and we may do so in the future. Shares to be issued under future share offerings could cause the price of our common shares to decline and could adversely affect our earnings per share.
My attitude towards the dilution and the benefits for Petros is clear. The SEC clearly saw these rules and made no comment. The broker who raised the capital probably had to disclose it to the buyers. So there is no need to complain about it.
Expect the book value per share of CTRM to continually decline with further dilution. Unless the company begins to pay a dividend and achieve strong and predictable earnings per share, CTRM stock will fall due to capital increases and associated dilution.
As of the publication date, Mark R. Hake does not hold any position in any of the stocks mentioned in the article. The views expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.