Dry Ships Inc. (Nasdaq:DRYS)
[This is an updated version of a report we published on February 1, 2017]
Dry Ships Inc. (Nasdaq:DRYS) has it all – an intriguing Chairman, thrilling price and volume action, and industry commentary that would generously be classified as cautious. The company trades on the Nasdaq under the ticker DRYS and has been dominating trader chat rooms for several months. To add to the intrigue, rumors persist that Kalani no longer owns any of the shares it received in the January transaction and Economou, Chairman of Dry Ships Inc. (Nasdaq:DRYS), has used a financing scheme that enriches himself without risking any of his own funds.
An investor that purchased DRYS shares five years ago, Feb. 1, 2012, would have seen their investment, adjusting for reverse splits and dilution, lose 99.9876% of its value. So how could such a company survive not only de-listing but also investor confidence? The de-listing question is readily answered by multiple reverse stock splits and increased borrowing that some people claim serves no purpose other than to keep a failed company afloat. The company is 99.8% below its 52-week high and, according to its latest quarterly report, is burning cash at twice the rate of the previous quarter. Lastly, reported 2016 revenues were about 5.3% of their 2015 levels. To be fair – Dry Ships Inc. (Nasdaq:DRYS) sold off a lot of assets to reduce/restructure their debt load. But the story around Dry Ships Inc. (Nasdaq:DRYS) and its chairman is intriguing.
On December 1 of 2016 George Economou purchased most of Dry Ships Inc. (Nasdaq:DRYS) bank debt. Eleven days later, Dry Ships announced the successful completion of a $100 million equity raise in exchange for convertible preferred shares and warrants. On December 15, Dry Ships received an increase in their credit line from Economou to $200 million after the company repaid over $30 million. At the same time Economou lowered his firm’s management fees in return for 30% of all future realized asset value increases. To continue to add to the complexity, all within less than a month, Dry Ships Inc. (Nasdaq:DRYS) entered into a financing agreement with mysterious Kalani Investments for another $200 million in an equity placement. So, what did Dry Ships do with their funding? They bought ships from a company reportedly controlled by George Economou – Chairman of Dry Ships. And in the middle of all of this, DRYS outstanding shares grew from approximately 1.1 million to over 107.9 million in less than two months. On February 17, 2017 the company released news (and interestingly made specific mention that Kalani and Dry Ships have no affiliation) of a further $200 million Kalani investment in return for shares of DRYS common stock that could take place over the next two years.
Throughout all of this, Dry Ships has been extensively commented on in financial media. Some of the article headlines include the titles “DryShips Stock: The Worst Dollar You’ll Ever Spend” and “George Economou Is The Main Reason To Sell Dryships” – both on SeekingAlpha.com. The MotleyFool.com published an article with the headline “Why DryShips’ Shares Vacillate So Much and How It’s CEO is Hanging Investors Out to Dry”. To be fair, articles on more populist financial media websites are purported to be no less damning if one can read between the lines like a professional trader.
Still, DRYS stock has been the big topic in trader chat rooms. The increased volume and attention have led to massive liquidity that few, if any, stocks of DRYS capitalization enjoy. Since Mr. Economou’s entrance, DRYS has averaged over 13.5 million shares traded daily. In September and October of 2017, prior to Mr. Economou’s entrance, less than 8,000 shares traded hands on average. The ending to this story has yet to be written. Mr Economou may come off as a genius that schooled the more conventional observers of his actions and scoffed. Or the last one out of the DRYS stock pool may be left with nothing more than the thrill of a ride that few have seen before.
I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 96 hours. All information, or data, is provided with no guarantees of accuracy.