Intercont sees green in the ocean with ‘Recycling at Sea’ plan
The bulk shipper plans to use funds from a proposed U.S. IPO to retool a new fleet of ships to recycle paper pulp at sea
Key Takeaways:
- Hong Kong-based Intercont plans to use proceeds from a planned U.S. IPO to assemble a fleet of eight “ocean factory” ships to recycle pulp from cardboard
- The shipping company’s existing fleet of four bulk carriers earned $32.4 million in revenue and $10.9 million in profit last year
By Edith Terry
When Intercont (Cayman) Ltd. filed for a Nasdaq listing on Sept. 27, it looked like an unlikely IPO candidate despite its strong financials. In a global dry bulk shipping industry with 12,861 ships and 964 million deadweight (dwt) tons of capacity, Intercont’s fleet of one self-owned and three leased ships, with total capacity of 217,191 dwt, are a mere drop in the ocean.
But its small size hasn’t stopped the company, which has a potentially interesting green story to tell environmentally focused investors as it seeks to raise $35 million in a deal underwritten by boutique investment bank Kingswood Capital Markets.
Intercont’s revenue rose 3.5% last year to $32.4 million, and its net income was up 28% to $10.9 million, which are both respectable in this kind of mature industry. Its gross margin of 44% last year was also quite respectable.
Its revenue fell 37% to $12.4 million in the second half of last year from the year-ago period and its gross margin fell to 27% from 50% over that time, as shipping rates returned to more normal levels after spiking during the pandemic. But such volatility should be largely in the past as prices stabilize at more normal levels post-pandemic.
Intercont has two revenue streams, time chartering and vessel management, with the former accounting for about two-thirds of its revenue.
Bulk shipping is quite cyclical, and the Baltic Exchange Dry Index, which tracks rates for dry bulk commodities, has varied between a high of 5,050 in September 2021 at the height of the pandemic, to the current 2,030. Reflecting the relatively mature state of the industry, trading volume of global bulk carriers is expected to grow by just 0.7% annually between 2023 and 2027, according to market data in the prospectus.
If such a slow-growth story sounds less than overwhelming, Intercont has another trick up its sleeve, pitching a new business that the IPO proceeds will help to create.
That new business is for seaborne pulp recycling, which will start aboard a single refurbished bulk carrier in the first quarter of 2025 and later scale up to eight vessels. The ships will become “ocean factories” taking cardboard boxes and breaking down the material into pulp. Raw materials will be collected at the Port of Los Angeles, with final recycled pulp delivered to China. To make the story even greener, enzymes or fungi will be used for pulp production instead of less environmentally friendly chemicals.
Intercont points out that “the sea-based environment provides natural mixing and agitation through tidal and wave movements, which aid in the breakdown of lignin and enhance the bio-pulping process.” It adds that demand for pulp in Asia will reach an estimated 140 million tons this year, accounting for more than 70% of the global total of 197 million tons.
So far, Intercont has spent $300,000 on a study to provide proof of concept. It plans to use 30% of the IPO proceeds to develop the technology, 20% to engage professionals to promote maritime ESG, 15% to build an R&D team for the project, and 35% for fleet expansion. In other words, just about all the IPO funds will go to Intercont’s green future.
Attracting ESG investors
The concept behind the company’s green transformation is clear enough, making use of cash flow from its current bulk shipping operation to incubate the new business. The addition of its green element could help to attract exchange traded funds (ETFs) and others seeking environmentally friendly investments for their portfolios.
The concept seems to be the brainchild of Intercont’s Chairman and CEO Zhu Muchun, whose background is in asset management, backed by other investors from the shipping industry. One of those key backers is Topsheen Shipping Singapore Pte Ltd, which provided 43% of Intercont’s revenues in 2023 and 52% in 2022.
Topsheen currently provides two of Intercont’s four leased carriers, both built in 2018, and Topsheen controlling shareholder Lei Shoucheng also owns about 18% of Intercont’s pre-IPO shares through a British Virgin Islands (BVI) company. Zhu was previously a financial advisor to Topsheen from 2019 to 2020 and owns 20.7% of Intercont’s shares through two BVI companies. Intercont’s largest shareholder is Li Jun, a relative of Lei Shoucheng, with about 41% of the company’s pre-IPO shares through two BVI companies.
Intercont has five shipping-related subsidiaries in Hong Kong, which have been engaged in time chartering or vessel management since the 2010s and were reorganized in July 2023 under a holding company called Fortune Ocean Holdings. Fortune Ocean will continue to operate the company’s core shipping services, while a new Singaporean company called Openwindow Technology, formed in July last year, will operate the new recycling business.
The concept of this kind of “factory at sea” is hardly new. Fish processing is a big global business that uses the model, dating back to the days of whaling and the onboard production of whale oil. Openwindow will give the concept a 21st century twist using an asset-light model based on leasing, rather than ownership, of vessels refurbished for pulp processing. “Under this model, Openwindow can quickly scale up its business without incurring significant capital expenditures,” Intercont said in the prospectus.
The term “green shipping” usually applies to shipping companies that use environmentally friendly marine fuels such as methanol, ammonia, hydrogen, electricity or biofuels to reduce their carbon footprint. Norway-based dry bulk shipping company Golden Ocean Group (GOGL.US) recently took delivery of one such 85,000 dwt bulk carrier that meets the latest pollution emission standards, according to the ship’s builder. Privately owned Oldendorff Carriers, which operates a fleet of 700 bulk carriers, has invested $4 billion in 100 such “Eco” bulk carriers over the last eight years.
Bulk shipping, as we have previously hinted, is not a sexy industry. But you have to credit Intercont for thinking creatively with its plan to assemble a fleet of eco-friendly ships engaged in recycling at sea. That could help to distinguish it from its larger but more mundane peers, though whether ESG-focused investors will buy into the story remains to be seen.
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