Must-know: Scorpio’s credit capacity and strong equity base
Scorpio’s credit capacity
As of April 25, 2014, Scorpio Tankers (STNG) has $151.7 million in cash, while the total amount outstanding is $329.7 million. The amount available stands at $1,328.2 million. During the 1Q14, the company made $190.9 million of installment payments on its newbuilding vessels.
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Strong equity—low leverage levels
The company maintains its policy to fund its fleet growth through raising equity and maintaining low leverage levels. Factually proven, STNG has made nine follow-on equity raises since its March, 2010, initial public offering (or IPO) raising a total of $1.26 billion including $1.06 billion since December, 2012.
Meanwhile, its purchases, in the 3Q13 and 4Q14, of eight MRs with Valero and Livanos and York Capital, included partial payment in STNG stock. The company maintains a strong relationship with leading ship financing banks. It has a proven track record of raising secured debt.
After the delivery of new tankers, STNG debt is expected to surge to $1,645 million on the addition of $1,328 million of new debt. However, with strong operating earnings this isn’t a concern. The company’s favorable debt profile is the cushion with $78 million of debt maturing in 2014, $137 million in 2015, and $112 million in 2016.
Strong operating cash flows and the largest ECO fleet in the shipping industry support Scorpio Tankers to refinance its debt with ease. The only risk to the company arises if the tanker market weakens significantly and operating level earnings diminish which is applicable to peers like Navios Maritime Acquisition (NNA), Capital Product Tankers LP (CPLP), and Tsakos Energy Navigation Ltd. (TNP). The Guggenheim Shipping ETF (SEA) tracks the shipping companies.
STNG records debt to equity ratio of 23.05 and debt to assets ratio of 18.43 for its latest quarter. Meanwhile, Navios Maritime Acquisition (NNA), Capital Product Tankers LP (CPLP), and Tsakos Energy Navigation Ltd. (TNP) records debt to equity ratio of 252.7, 75.8, and 123.68, respectively. Debt to assets ratio for NNA, CPLP, and TNP stands at 69.47, 42.09, and 53.21, respectively.
We’ll discuss Scorpio’s common share acquisitions and buyback of shares in detail in the next section in this series.