Newlead Holdings has undergone a dramatic transformation in the year since being taken over by Grandunion and its two shipowner partners, Nick Fistes and Michael Zolotas. They have rebuilt the fleet, selling off underperforming vessels inherited from Aries and acquiring over a dozen new ships. As a result, estimated annual earnings have increased fivefold. While the company lost money in the first half due to costs from the turnaround, signs indicate the transformation is taking hold as financial and operational performance improves. However, challenges remain to fully restore credibility with investors and the industry given the company's history.

1. 4 News Analysis Wednesday August 18, 2010 Lloyd’s List
lloydslist.com bringing you maritime news as it happens
Newlead’s
turnaround
on track to
bear fruit
NEWLEAD Holdings, the Greece-
based dry bulk and tanker owner
which has just reported a net loss
for the second quarter, lost plenty
of money in the first half of this
year.
But the red ink is partly
evidence of a battle to turn the
company around, which is already
showing signs of great promise.
The increased loss also reflects
the much bigger business Newlead
— the former Aries Maritime
Transport — has become in just a
few dramatic months, even if the
company’s market capitalisation
has yet to catch up with this fact.
Investors might do well to
reflect on the maxim that it is often
better to be lucky than smart, for
the management re-engineering
the company has some form in
both these regards.
In mid-2009, when Nick Fistes
and Michael Zolotas, the two
shipowner partners of
Grandunion, finally signed the
deal to take over Nasdaq-listed
Aries, it was at the fourth attempt.
The failure of a first bid nearly
four years ago, when Aries’ share
price was more than $11, may have
saved Grandunion over $200m.
Further offers were launched as
Aries’ share price plummeted and
by 2008 the frustrated Greek pair
had begun looking at other
avenues to access the capital
markets. A reverse merger with
Canada-based financial special
purpose acquisition company
Tailwind was unveiled, but the
deal came a cropper with the
collapse of Lehman Brothers and
the plunge in the dry bulk market.
By December that year,
Grandunion was back in front of
Aries’ posse of troubled banks,
trying to explain its strategy to
restore the company to health.
Within a few weeks negotiations
started again in earnest and on
October 13 last year Mr Fistes and
Mr Zolotas took the reins of Aries.
Luck again smiled on the duo as
almost immediately the dry bulk
and tanker markets experienced a
positive surge. But the last few
months have also been a story of
hard graft and delivering on the
strategy already sold to the banks.
To describe progress since the
takeover, Newlead could do worse
than borrow the US army motto,
“The difficult we do immediately.
Theimpossibletakesalittlelonger”.
Although Grandunion said it
acquired a controlling stake in the
company because it believed it
would make a suitable platform for
growth, turning around the former
Aries is a different proposition to
the planned Tailwind transaction,
which promised a relatively
straightforward path to taking
Grandunion public.
One of the new management
team, chief financial officer Allan
Shaw, describes the current
challenge as akin to attempting a
heart transplant and brain surgery
at the same time.
Priorities included a dramatic
remoulding of the fleet, adding
cash-generating vessels and
rebuilding credibility in the
shipping industry, including
relations with major customers.
By the end of April, Newlead
could claim the first phase of the
turnaround was complete. In
many ways the transformation in
well under a year already appears
remarkable.
Most evident to the outside eye
is the transformation wrought on
the fleet. Of the fleet of 11 vessels
inherited from Aries, seven have
gone or are on their way out, while
13 new vessels have been acquired
since the first quarter of this year.
Newlead has been led into the dry
bulk arena for the first time, while
exiting the container sector.
According to Mr Shaw, one of
the priorities was to quickly fold as
much as possible of the
Grandunion fleet into Newlead to
“avoid any impression of double
dealing or conflict of interest”.
As part of last October’s $400m
recapitalisation of the company,
three time-chartered 1990s-built
capesize bulkers with a net asset
value of $36m were transferred to
the Newlead fleet. This was
promptly followed by a dropdown
of six more Grandunion vessels —
four bulkers and two product
tankers — together with Newlead’s
ship management company.
As an integrated shipowning as
well as technical and commercial
managing entity, Newlead today
has grown to more than 80 staff,
contrasting with Aries’ skeletal
profile that was reliant on third-
party management relations.
Of the valuation of $180m put
on that transaction, most was
assumed by Newlead in liabilities,
but $20m was paid by issuing
shares at $2.25 per share, which
represented a premium of about
125% over the public stock price.
Last month, the company
completed a second dropdown
from Grandunion, this time of five
bulkers, including two handysize
newbuildings for delivery in 2011
and 2012. The $147m transaction
involved Newlead assuming $93m
of existing liabilities on the ships
and the remainder as commitments
on the two newbuildings, which
have 12-year charters attached.
Also this year, Newlead has
acquired two geared kamsarmaxes
for delivery in the fourth quarters
of this year and next. A purchase
price of $112.7m reflects solid
charters of at least five years that
come with the vessels. In addition,
Newlead acquired a 92,000 dwt
post-panamax for delivery in the
second quarter of 2011.
The core fleet now comprises 16
vessels in the water and five on
order.Thecompanyhasfirstrefusal
on three more kamsarmaxes due
for delivery in 2013.
When all the fleet comes to
fruition, the effect will be to boost
estimated annualised earnings
before interest, taxation and
depreciation to more than $80m,
compared with adjusted ebitda of
nearer $20m earlier this year.
Newlead says integrating a
quality management operation
has added to profitability, with a
17.3% reduction in direct vessel
operating expenses on a second
quarter 2009-2010 comparison and
through greater fleet utilisation.
The new chartering strategy
focuses on long-term cash, with
upside via profit-sharing, while
tracking both dry and wet market
trends. The company has already
built up more than $200m in
contracted revenues to the end of
2013, at base charter rates.
As to the future, the present
bias towards dry bulk may not last
long. Newlead chief executive Mr
Zolotas says the intention is to
pursue a more balanced fleet
portfolio that will enable the
company to hedge its exposure so
that at least part of the operation
can exploit market conditions.
“Historically the wet and dry
markets are never depressed at the
same time,” he says. The company
is said to be “currently evaluating”
a variety of tanker projects but is
also positioned to take advantage
of possible distress opportunities
in the dry bulk market.
Although industry players such
as banks and big charterers are
said to be supportive again, as a
publicly listed company Newlead
can at best claim the battle for
credibility is half-won.
“Nothing that we have done has
been reflected in the share price,”
says Mr Shaw flatly. “Now we have
stabilised the business
fundamentals, we are evaluating
ways of rebuilding our balance
sheet and creating more value for
shareholders.”
The company is keenly aware
investors will likely remain averse
until the illiquidity of the shares is
addressed. Grandunion holds
28.5% of the stock and 48% of the
voting rights, but the free float
accounts for little more than a fifth
of the outstanding shares. Cutting
leverage is also a challenge.
With a $500m shelf registration
made effective this year, it is more
than likely the company will
consider an offering sooner rather
than later, depending on the mood
of the markets. Already one of the
more fascinating rebuilding
projects in shipping, Newlead’s
turnaround story will surely have
plenty of interesting chapters to
come in future. n
A year on from the
birth of Newlead
Holdings from the
takeover of Aries
Maritime Transport
by Grandunion, the
streamlined group is
well placed to repay
its creators’ faith
Shipowners
Duo’s reputation built on experience
“THE only way to fix the reputation
of a company in the shipping
market is by performance,” says
Newlead chief executive Michael
Zolotas.
The belief is illustrated by the
inclusion in recent presentations
of a scorecard, showing concrete
achievement on key management
targets.
There is little doubt, though,
that reputation is also golden in
shipping and that the two Greek
shipowners spearheading
Newlead bring to their task a
wealth of personal experience,
starting with a grounding in
marine engineering.
Executive chairman Nick Fistes
was for many years a top executive
of the Peter Livanos family
shipping group, holding posts
such as chief executive of Ceres
Hellenic Shipping Enterprises and
Seachem Tankers. He is also a past
chairman of Intertanko, a post he
held between 2007 and 2009.
Partner Michael Zolotas
describes himself as a third-
generation shipowner with 18
years’ experience. Since founding
his own company, Stamford
Navigation, in 1996, he can claim
to have bought and sold about 175
vessels.
Although both men are related
to the Livanos family and are of
Chios island origin, their first
dealings were as pool partners in
the Coeclerici-Ceres bulk carrier
pools formed about a decade ago.
A number of cross-holdings
developed and the two decided to
team up with a 50-50 single
holding company, Grandunion, in
2006.
Both are exceptionally hot
when it comes to operating
technicalities, are well known to
the chartering community and are
veterans of numerous deals.
According to Newlead chief
financial officer Alan Shaw, recent
newbuilding deals already provide
“evidence of their ability to deliver
a proprietary deal flow”.
The 92,000 dwt newbuilding
contract Newlead acquired earlier
this year for construction in South
Korea in 2011, which has already
been chartered for seven years,
cost $37m — a discount price more
commonly seen for smaller
kamsarmax orders this year.
“We are not guys who wanted to
go public just to sit here quietly,”
says Mr Zolotas. “We are going to
bring interesting things to the table
for everyone.” n
Good housekeeping
boosts fleet fortunes
ARGUABLY the most accretive
move by Newlead’s new leaders
has been weeding out vessels
blamed for contributing to Aries’
financial woes and stuttering
operational performance.
Anyone following the
company’s pronouncements
since last year’s takeover will be
aware that disposals were viewed
as important as new acquisitions
to the immediate strategy.
In case the point is missed, a
key member of today’s
management line-up describes
the expected handing over of the
last of the unwanted ships in the
present financial quarter as
“completing the exorcism”.
The incoming team
accelerated the company’s
complete exit from the feeder
container trades with the $13m
sale of a pair of 2,917 teu vessels.
That still left five of the Aries
fleet of nine product tankers that
the new managers considered as
non-core and targeted for
disposal. These included older
double-hulled tankers and some
more recent Romanian-built
tankers that were either a
challengetocharterinadepressed
market or proving a drag on
earnings and burden on costs.
Problems reached a nadir in
the third quarter of 2009, with
fleet utilisation of only 61.4%,
including the effect of
drydockings.
According to Newlead, fleet
utilisation of its core fleet has
been restored to 97.4% in the
second quarter of 2010.
In April, the company was
able to sell two of the product
tankers, Chinook and the High
Rider, for close to $15m. Last
month, a $4.3m deal was struck
for sale of the medium-range
tanker High Land, and the last
two of the targeted tankers,
Ostria and Nordanvind, are due
to leave the fleet in the third
quarter of this year.
Newlead estimates the tanker
fleet housekeeping will boost
adjusted earnings before interest,
taxation and depreciation by
about $7.8m annually.
Just four former Aries tankers
— all relatively modern long-
range product tankers — remain
part of ongoing plans. n
NIGEL LOWRY — ATHENS
NEWLEAD V ARIES: THE FLEET THEN AND NOW
Newlead core fleet today
Name Size (dwt) Type Year built
Charter
coverage
Product tankers
Stena Compass 72,736 Panamax 2006 Dec 2010
Newlead Compassion 72,782 Panamax 2006 Spot
Newlead Avra 73,495 Panamax 2004 Spot
Newlead Fortune 73,495 Panamax 2004 Spot
Hiotissa 37,329 Handymax 2004
Min: Apr 2011
Max: Jun 2011
Hiona 37,337 Handymax 2003
Min: Mar 2011
Max: May 2011
Bulk carriers
Newlead Victoria 75,966 Panamax 2002
Min: Oct 2010
Max: Jan 2011
Brazil 151,738 Capesize 1995
Min: Oct 2014
Max: Feb 2015
Australia 172,972 Capesize 1993
Min: Nov 2011
Max: Jan 2012
China 135,364 Capesize 1992
Min: Nov 2015
Max: Oct 2016
Grand Ocean 149,498 Capesize 1990
Min: Dec 2010
Max: Apr 2011
Grand Venetico 134,982 Capesize 1990
Min: Jun 2011
Max: Oct 2011
Grand Rodosi 68,788 Panamax 1990 Sep-10
Grand Esmeralda 69,458 Panamax 1990
Min: Dec 2011
Max: Apr 2012
Grand Markela 71,733 Panamax 1990
Min: Feb 2013
Max: Jun 2013
Grand Spartounta 135,070 Capesize 1989
Min: Jul 2010
Max: Oct 2010
Newbuildings
Name Size (dwt) Type
Expected
delivery
date
Charter
expiration
To be named 92,000Post-panamax Q2 2011 7 yrs
To be named 80,000 Kamsarmax Q4 2010 7 yrs
To be named 80,000 Kamsarmax Q4 2011 7 yrs
SPP Hull H-4023 35,000 Handysize 2/2011 12yrs+/-4mths
SPP Hull H-4029 35,000 Handysize 7/2012 12yrs+/-4mths
Aries fleet: inherited ships at October 2009
Vessels Size Year built
Expiration
of charter
(net/day)
Charter hire
Product tankers
Altius 73,400 dwt 2004 - -
Fortius 73,400 dwt 2004 - -
Nordanvind 38,701 dwt 2001 - -
Ostria 38,701 dwt 2000 - -
High Land 41,450 dwt 1992 - -
High Rider 41,502 dwt 1991 - -
Stena Compass 72,750 dwt 2006 Thru 8/10 *
Stena Compassion 72,750 dwt 2006 Thru 12/10 **
Chinook 38,701 dwt 2001 - -
Container vessels
Saronikos Bridge 2,917 teu 1990 Thru 6/10 $20,400
MSC Seine 2,917 teu 1990 - -
*Bareboat charter rate of $18,232.50 + 30% of profits above $26,000.
** Bareboat charter rate of $18,232.50 + 30% of profits above $26,000.
Core fleet member: the handymax product tanker Hiona.
Deal makers: Zolotas, left, and Fistes.
“We are not guys who
wanted to go public
just to sit here quietly”
“Now we have
stabilised the business
fundamentals, we are
evaluating ways of
rebuilding our balance
sheet and creating more
value for shareholders”