‘Small is not beautiful’ and size matters, says Euronav chief Rodgers

Euronav CEO, Paddy Rodgers has controversially declared the small, family-owned shipping company “dead”, arguing that size and public ownership are vital in the new market.

“Size matters more than ever –don’t believe what you’re told. Small is not beautiful,” said Rodgers at the London International Shipping Week conference. “One of the challenges we’re going to face is access to capital. The second most important is access to information. Economies of scale will be important – you must have efficiency and cost control.

“Since 2003, Euronav has grown from 10 ships and 3million dwt, to 55 ships and slightly more than 13m dwt,” Rodgers explained. “By far the biggest element in our access to capital was bank debt. Nearly $5.5billion worth.” Euronav was struggling to survive in 2013 through the long term doldrums of the tanker market, but managed to turn itself around through a growth story to the investment market that saw it make the ambitious move to acquire Maersk Tankers VLCC for $980million in Januray 2014.

“This is the old model, as we would call it. A small family business with very good market information. I think this model is essentially over. For the banks, that model was part of a model of super-leverage, which was part of the problem that caused the banking crisis. Of course, that ended with the financial crisis. That capital has completely withdrawn from the shipping industry.

The exit of the banks from the market required a huge step change in Euronav’s financing, Rodgers explained. “What’s happening is despite earnings prices aren’t going up, because there aren’t buyers with liquidity. Buyers with liquidity aren’t there because the banks have been crushed.

“We were a small shipping company, we’re now publicly listed, increasing to a number of stock markets. The reward is increased access to capital, which enables the company to replenish itself because we have wasting assets.” Euronav is now dual-listed on Euronext and the New York Stock Exchange.

“The key to this is size. We have to have size and we need liquidity. So we’ve been working hard on selling share every day, then eventually people can build big positions, and they can exit those positions without moving the price against their own interest. So on two exchanges, Euronav has been able to get $20bn of daily liquidity. This is definitely going to be the way you can access capital in the future.

“We have to get bigger. It’s no good being small.” 

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