DryShips Inc. (NASDAQ:DRYS) has announced the repayment of its outstanding commercial loan facility of $15.2 million, and the stock has reacted positively to this news. In the April 27th press release, George Economou states, quote:
We are very excited to have completed the remarkable transformation of our balance sheet. Having all of our assets debt free, no mandatory loan payments over the next 4 years and available liquidity of $384 million, we strongly believe that our efforts to access bank debt financing for the first time since November 2014 will be successful and will allow us to further grow the size our fleet.
This commercial loan repayment is part of DryShips’ strategy to obtain bank financing for future acquisitions. If DryShips manages to convince lenders to loan it money, it will be less reliant on equity dilution to raise cash, and this will make the stock much more attractive. Also, remember that DryShips recently amended its terms with Sifnos Shareholders – possibly to allow future bank loans to be secured by its assets.
DryShips: Updated Financial Situation
DryShips’ press release also comes with updated financial information that reveals per share calculations for liquidity and book value. Cash and cash equivalents are revealed to be $384 million, and this translates to $6.52 per share. DryShips’ liquidity is excellent on paper, but much of this cash is earmarked for acquisitions. And due to weakness in the dry bulk industry, the NPV of the cash flows from these acquisitions will probably be less than the cash used to acquire them.
The press release also reveals the book value of DryShips’ vessels, including deposits. The total is around $238 million or $4.04 per share. It also reveals the balance of DryShips’ Economou-owned Sifnos Loan Facility balance of $200 to be million, and the number of shares outstanding to be $58,905,719 million as of April 27, 2017.
Accounting for the Ongoing Dilution
DryShips’ April 27 press release has revealed 58.9 million shares outstanding compared to the April 11 press release with 47.0 million shares outstanding – an increase of 11.9 million shares or 1.34 million shares per day in that time frame. All the per-share metrics (except book value) from April 11th have been revised downward to account for the dilution.
The per share metrics that were released on April 27 will also be revised downward in the next press release because DryShips is not finished diluting. The dilutive capital raise with Kalani is for $226.4 million, and DryShips is nowhere near reaching this target. If we assume shares outstanding will end up around 150 million when the dilution is over, cash and equivalents per share drops from $6.52 to $2.52 and book value of assets per share drops from $4.04 per share to $1.59 per share.
DryShips has paid down $15.2 million in liabilities owed to unrelated third parties; however, the company still owes a large amount of money to its CEO through an agreement with an Economou-controlled company called Sifnos Shareholders. DryShips has paid down its existing third-party obligations and amended the terms with Sifnos to make the company more attractive for potential bank lenders in the future.
DryShips wants to fund its future acquisitions with bank debt instead of relying on equity dilution as it has done in the past. This transition, if successful, would be great news for shareholders in the company. I think Economou is beginning to realize that he cannot continue burning his common equity holders if he wants his stock to continue trading. That being said, DryShips should be avoided until – at least – this current round of dilution is complete.
Disclaimer: The author has no position or business relationship in any stock or company mentioned in this article, and he has no plans to initiate a position at any time. The author is not receiving compensation for this article expect from Smarter Analyst.