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Pioneer Marine: The road to Wall St

Singapore: Today sees the launch of the final issue of Maritime CEO magazine for 2015, an issue packed full of interviews and insights. On the cover is Pankaj Khanna, the CEO of Singapore’s Pioneer Marine

Khanna is a man who has learnt his trade from some of the best-known names in the industry. Aged 45, he started out as a cadet 27 years ago. His work ashore has seen him take on c-suite roles with Alba, Excel, Dryships, Ocean Rig as well as seven years with Teekay.

Khanna got into shipping by accident. “A friend was going for an interview,” he recounts, “he said come along and I got hooked.”

Khanna joined Barber Ship Management and sailed for seven years before moving shoreside. He joined Simpson Spence and Young (SSY) as an analyst and then moved to Teekay in Vancouver in 2001 where he focused on a wide range of tankers including LNG, shuttle and FPSOs.

In 2007 an opportunity arose when a friend was starting a dry bulk business and asked Khanna to join as CEO for a new $2bn company called Alba Maritime. At Teekay Khanna had been identified as a potential future CEO in maybe a decade. He opted for this new dry bulk company instead when dry bulk rates were in six-digit territory but about to slide. Khanna sold nine contracts for capes just two weeks prior to the Lehman crash at prices ranging from $85m to $107m. He then left the company.

Chastened by that experience, Khanna decided it was time to do something on his own. He approached several banks and told them he could manage their distressed assets. “It was too early in the cycle for that, the banks kicked the can down the road and are still dealing with issues from 2008,” he recalls. Instead, he joined Excel as CEO where he was in place for just four months before jumping ship to join George Economou at DryShips, another key moment in the education of this enterprising Indian national.

Economou wanted to tie him down to a three-year contract, something Khanna was unwilling to do, opting instead for a 12-month contract.

“DryShips was very interesting as I got into offshore,” Khanna says, detailing how he went out and raised close to $2bn of equity including a $500m IPO for Ocean Rig.

Finally, he reached a point in 2012 where he wanted to go out and do his own thing. Pioneer Marine was in the offing.

Khanna decided on handysize bulk carriers because the fleet age profile was old with a fragmented ownership – “3,000 ships, 1,000 owners”.

“Opportunities were there. It had all the characteristics of a sector where you could go in – you might not hit the ball out of the park and make huge amounts of money, but on the flipside you won’t go bankrupt,” Khanna says.

Economou, who 30 years prior had himself started out with handies, wished him luck.

Khanna pitched his plans to around 100 different funds before finally meeting kindred spirits in the form of Garrison Investments, who liked handysizes, having bought two previously with Tufton Oceanic. In September 2013, the pair signed a deal to go into business with the fund stumping up $100m in the first month alone. In January 2014, Garrison’s co-investors added another $100m.

“We got a full management team in place straight away; the idea was this would not be an asset play,” Khanna explains, adding: “Handies are not good for that. Volatility is not there like capesizes. The idea was it was an operational platform that would eventually lead to an IPO. In this way we’re different to others who have no operating platform.”

Pioneer has not hung around. Its existing fleet is primarily Japanese. It has bought 13 secondhand vessels, nine of which are Japanese and three were built with full Japanese equipment by a Japanese company in China. For newbuildings, Pioneer opted for 12 vessels at Yangzhou Guoyu Shipyard of which one has delivered. It has lately canned three of these and delayed the remaining eight on the back of the poor dry bulk markets. “We decided to go for China as price differential at the time was $3m each. There is no earning differential between a good quality Chinese built vessel and a Japanese so why pay such a large premium over 12 vessels,” Khanna says.

In March 2014 Pioneer raised $75m through a private placement and the company’s shares started trading on the Norwegian OTC, a precursor to Khanna’s eventual goal – an IPO in America.

“Our objective is a US listing,” Khanna confirms, admitting that the plan has been pushed back a couple of years because of the markets. “The name of the game is survival today. You have to have cash,” Khanna says. With that in mind Pioneer raised another $25m from existing investors in August.

“First mover advantage will be key for the US IPO market,” Khanna reckons, “but you need consolidation and heft to do that. You need to have a $500m market cap and higher to get a $150m IPO done.”

Pioneer is looking at merger opportunities. Private equity firms have invested in around 100 handies to date, but all in small numbers.

Khanna feels that the shipping market has changed especially with regard to sources of capital. Unlike traditional owners’ with deep pockets who can source equity from within the fold, Khanna points out: “For someone like me who started out as a cadet only with the relationships and reputation built over 27 years the non-traditional sources of capital including PE is my backyard – the capital markets, this is where I work with investors to create companies.”

He is also looking at setting up a pool for handies in the new year. After handies, Khanna might look at other ship types, he says.

“2016 should be better than 2015,” Khanna hopes, adding: “2016 should be a transformative year for Pioneer but that is market dependent.” The markets have been harsh this year – the latest quarterly results for Pioneer showed a $5.4m loss, something Khanna is desperate to turn around as he eyes Wall Street.

Pankaj Khanna is one of more than 20 shipowners interviewed in the latest issue of Maritime CEO magazine. Readers can access the full magazine online for free by clicking here.

Maritime CEO Issue Four 2015

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