Monday, April 4, 2011

Dryships in record US$ 2 bn loan bonanza

Dryships has had an incredible run recently with banks lavishing credit on the group. A consortium led by Nordea Bank and ABN AMRO has coughed up US$ 800 mio to pay for the Ocean Rig Corcovado and Olympia. DVB Bank, Deutsche Bank, National Bank of Greece and Norway’s export credit agency GIEK are also in the deal. Deutsche Bank agreed to restructure a US$ 1.1 bn loan, of which US$ 495 mio has been earmarked to pay for the Ocean Rig Poseidon. The drillship is on hire to Petrobras.

Dryships has taken some hits from the Korean Line bankruptcy on a Capesize bulker and two Panamax vessels, marked down to spot rates from substantially higher time charter levels, deflating some of their 82% contract coverage for this year. Their 4th quarter results disappointed the Street at 20 cents a share by 6 cents below consensus forecast.

On the other hand, their drilling activities as they come on stream have provided a ten-fold increase in fourth quarter profits on the back of increased revenues. Dryships successfully raised US$ 500 mio by private placement for Ocean Rig in their plans discussed now for several years eventually to spin this off as a separate listing.

Added to this is an additional US$ 770 mio deal for tanker new buildings, where there have surfaced again some trust issues between the listed company and Economou's private company Cardiff related to how this order was originated and booked for the listed company. Economou had pledged no more intercompany transactions between Dryships and Cardiff.

Economou recently pulled in US$ 45 mio stock grant from his DryShips business in New York. The stock grants have allowed him to rebuild his share position in the business despite the substantial share dilution from repeated at the market follow-on offerings over the last two years.

Ocean Rig appears to be well capitalized. The financial risks from the tanker foray seem manageable, but it remains a speculative play when there is already a challenging market in the dry cargo sector and the company has suffered recent hits. Again Economou is challenging the 'pure-play' approach as he has done in the past.

Investors seem happy with the company albeit its shares trading currently at US$ 4,80 are far from the heady days of US$ 80-100 per share, but they have improved from previous lows in the US$ 3 range and even briefly traded in the US$ 6 range last December.

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