Rewarding failure and value destruction has lately been the fashion on Wall Street. A number of troubled shipping companies with massive losses have been raising new capital at market prices to investors in order to restructure their senior debt and recapitalize from massive losses. Hedge funds and institutional investors have shown remarkable tolerance to loss-making companies in the shipping sector, where they have taken big hits themselves in their holdings. American business culture seems to take losses with relish as if they are only imaginary and cannot not have forward impact. This week Dahlman Rose's Omar Nokta made a tepid protest at this share-issuing practice, saying the boutique New York investment bank has found investors reluctant to buy shares in any owner with a pending ATM programme because of dilution concerns.
The dean of this technique is without doubt George Economou of Dryships (DRYS). Largely through the use of ATMs, DryShips has gone from a shares count of 40 million last autumn to 258 million today, raising over US$ 1 billion in fresh capital whilst in restructuring discussions with his senior lenders and posting massive losses
Investors gobbled up the DRYS shares with enthusiasm. It almost became a self-fulfilling pyramid with shares rising daily at double digit figures, reaching over US$ 10 per share until reality finally set in about expanded share count. Certainly Economou cannot be blamed for the 'get-rich quick' mentality and blissfulness of US investors.
Other companies like OceanFreight have followed suit with this technique. It is been an important source of fee income for Wall Street brokerage houses since the meltdown last fall.
The results will depend on the future of shipping markets, especially in 2010 and further out. If there is a robust recovery, everyone will win. If it is a poor market where many of these companies may be obliged to undergo a second round of debt restructuring with their senior lenders, things may start to get dicey.
The dean of this technique is without doubt George Economou of Dryships (DRYS). Largely through the use of ATMs, DryShips has gone from a shares count of 40 million last autumn to 258 million today, raising over US$ 1 billion in fresh capital whilst in restructuring discussions with his senior lenders and posting massive losses
Investors gobbled up the DRYS shares with enthusiasm. It almost became a self-fulfilling pyramid with shares rising daily at double digit figures, reaching over US$ 10 per share until reality finally set in about expanded share count. Certainly Economou cannot be blamed for the 'get-rich quick' mentality and blissfulness of US investors.
Other companies like OceanFreight have followed suit with this technique. It is been an important source of fee income for Wall Street brokerage houses since the meltdown last fall.
The results will depend on the future of shipping markets, especially in 2010 and further out. If there is a robust recovery, everyone will win. If it is a poor market where many of these companies may be obliged to undergo a second round of debt restructuring with their senior lenders, things may start to get dicey.
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