DryShips Inc. (NASDAQ:DRYS) looks like it is in a death spiral, and after countless dilutions and stock splits, even the most stubborn bulls are finally giving up on this investment. The stock is being hit from every angle, and investors should expect nothing but more downside in the company’s future. But recently, there has been some good news: DryShips has secured third-party debt.
Business as Usual & New Acquisitions.
Despite the freefalling stock price, DryShips continues its business as usual. It is important to note that even if DryShips’ market cap falls to almost nothing, that doesn’t mean the company will go bankrupt. The main problem with a low market cap is the diminished effectiveness of capital raises through diluting equity. However, instead of issuing more equity, DryShips has successfully tapped the debt markets, obtaining a $150 million senior secured credit facility with ABN AMRO and KEXIM.
The credit will be used to finance the delivery of the company’s four new VLGCs – it will also be secured by these ships. This new VLGCs are part of a long line of recent acquisitions. In the month of May, DryShips reported the delivery of an Aframax tanker vessel, a Karmsarmax dry bulk vessel, and recently a Suezmax tanker. The Suezmax is the largest classification of tanker vessels, and this particular asset is a new build 159,855 deadweight ton that will thankfully come with a time charter. The duration of the charter will be five years in addition to a profit-sharing agreement – presumably with the entity the ship is chartered with.
According to the press release, “The total expected gross backlog under the time charter, assuming an average spot market for Suezmaxes for the next 5 years of $25,000 per day is estimated to be approximately $43.1 million.” However, like most of DryShips claims, that projection shouldn’t be taken seriously. What should be taken seriously, however, is the caveat that comes next. The press release goes on to further state, quote:
“The vessel was acquired from and chartered out to entities affiliated with our Chairman and Chief Executive Officer, Mr. George Economou. The transaction was approved by the audit committee of the Company’s Board of Directors and the independent members of the Company’s Board of Directors”.
Basically, Economou has chartered the new Suezmax tanker to what appears to be himself. This deal is a blatant example of the related-party transactions that make DryShips such an unattractive company to invest in. The wording of the press release also seems to suggest that there will be a profit-sharing agreement between DryShips and this Economou affiliated entity. It sounds like DryShips may split the vessel’s profits with its charter holder (Economou) while undertaking all the fixed and variable costs of operating the vessel. Great deal, huh?
DryShip’s stock is not doing well, and it is likely to face further declines due to the mismanagement of its CEO, George Economou, as well as serious weakness in the Baltic Dry Index and dry bulk industry in general. DryShips’ management continues to act in a self-dealing, value-destructive way. And this new $150 million credit facility does little to change the fundamental problem with this company.