Aries IPO/ Jefferies - financial considerations

The roadshow will depend in part on the financial parameters of the deal:

The way the Aries deal is structured of the offered share price of US$ 15.00 there is an immediate dilution of US$ 9.35 to shareholders, whilst Mons and associates make a profit of US$ 4.62 on their shares. Compare this to theTOP Tankers IPO where out of an offered share price of US$ 14.00 there was a much smaller dilution of US$ 2.96 to shareholders, albeit the Pistiolis family make a somewhat larger profit of US$ 6.04 on their shares. TOPT is presently trading around US$ 15.00. So the propective Aries investors willface a substantial dilution of 62%. This is quite a big hit.

The big selling point of the Aries business is the long term charters,especially on the container vessels, which they acquired very recently in2004 backed with employment from CMA. This is most likely an incentive in the Fortis and CSFB participation.

There is considerable debt restructuring in the Aries deal. It isinteresting to note that Aries was paying quite high pricing on their bankdebt: 1.75% over LIBOR, which is usually charged for smaller and higher risk companies.

On the other hand, whilst I have not examined the DCF for Aries, I would note that the fixed rates for the tankers, which is my market, areconsiderably lower than prevailing spot rates. I cannot comment on thecontainers - a business that I do not know very well. I do see, however,that Aries appears to have acquired the container units in 2004 - veryrecently. It is all CMA-related and dependent. CMA is their majorcustomer. It is likely that the financial returns are moderate inconsideration of the premium in asset values and rate discounts for thelong-term employment cover.

Of course, long-term time charters are not 'hell and high water'. If rates plummet, they can be renegotiated and there can be frustration. Furtherthere is the matter of performances.

Whilst there are professional ship managers in the TOPT deal: Unicom and V.Ships, the Aries management is in-house where there can be a unexpected setbacks and performance problems. As you probably know, a very modern Aries tanker was detained in the fall 2004 and they have not had a lot ofinspections. On the container side, I have no idea about their operatinghistory, but it is certainly not an established company in this field.

Another point to note is that Aries appear to be members of the AmericanClub, which is one of the weakest of the major Pandi Clubs and usuallyreserved for those owners, who cannot find coverage elsewhere very often due to poor claims records. The case of Polembros is illustrative.

NB Subsequent to this article, Aries has had two severe setbacks in their product tankers due bad technical management. The UK Port Authorities found a hidden crack on the deck of their vessel 'Citius' sealed with metal lock. This resulted in the immobilization of the vessel and extensive repairs on site with prolongned off-hire. Aries troubles were further compounded with a second a costly incident on another tanker. As a result, the company results have fallen into the red and they have recently taken on a new technical manager under pressure from investors.