Will Ebiefung

About the Author Will Ebiefung

Will Ebiefung studied finance and accounting at the University of Tennesee. He works as a freelance investment analyst focusing on equities with market caps below $100 million. In addition to writing, Will is a full-time investor focusing on web properties and debt-based securities.

DryShips Inc. (DRYS): Will The Dilution Ever End?

This news shouldn’t surprise anyone familiar with DryShips Inc. (NASDAQ:DRYS) and its unorthodox CEO, Georgie Economou: DryShips has once again diluted shareholders.

This time, the dilution comes through an agreement with Kalani Investments Limited to sell up to $226.4 million in common stock over a period of 24 months.

DryShips has also agreed to purchase six new vessels: One Aframax tanker, three Kamsarmax dry bulk vessels, and two VLGCs. The total gross price of these acquisitions is $268 million, according to the corporate press release.

The Acquisitions

DryShips will purchase the six vessels with cash on hand, new bank debt, and the company’s – Economou-owned – credit facility with Sifnos Shareholders Inc. DryShips’ $2 billion mixed shelf filing leaves the door open for future dilution if the company once again runs out of liquidity.

Two of these vessels, the VLGCs, will come from companies affiliated with Economou; they will operate under ten-year charters with a backlog of $208 million. The rest of the vessels will operate on the spot market subject to the volatility in daily rates as measured by the Baltic Dry Index.

The spot market is great news if the index continues to rise but bad news if it stays flat or declines. So far, the Baltic Dry Index is giving mixed signals.

The Baltic Dry Index

The Baltic Dry Index has fallen off its March high of 1338 and continues to decline. The drop in the daily shipping rates is driven by falling Capesize rates as Chinese demand for iron ore softens. The Capesize Index represents around 60% of the total value of the Baltic Dry Index.

While the overall index is declining, the Panamax index component of the Baltic Dry Index continues its upward trajectory, hitting 1379 on April 3rd. In the past, DryShips was an almost pure Panamax play, with over a dozen Panamax vessels employed on the spot market. Now, however, the firm is much more diversified and doesn’t benefit from high Panamax rates alone.

I predict Panamax rates are near their peak, and will soon begin to decline along with the rest of the Baltic Dry Index.

The Dilution

$226.4 million in dilution is around 183 million shares at the current stock price of $1.24 – this more than doubles shares outstanding which currently sit at a little over 152 million.

Anyone familiar with DryShips knows what comes next; the stock will face powerful downward pressure for the near future, and this pressure will probably take the stock price below $1.00. Be on the lookout for another reverse stock split to prevent delisting.


DryShips has acquired several more assets, two of which are on stable fixed rate charters. The other four will operate on spot rates and depend on the volatile Baltic Dry Index. The Baltic Dry Index has fallen off its highs in late March, but the Panamax component continues to rally.

This new dilution will more than double shares outstanding, and the stock will probably fall below $1.00. Economou may reverse split to prevent delisting. The stock will face strong downward pressure over the coming weeks and should be avoided.


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