(By Mani) DryShips Inc. (NASDAQ:DRYS) may sell some assets as the dry bulk
and tanker markets remain weak and the company maintains a financing gap on its
new building program.
Athens, Greece-based DryShips is an owner of drybulk carriers
and tankers that operate worldwide. Through its majority owned subsidiary,
Ocean Rig UDW Inc. (NASDAQ:ORIG), DryShips owns and operates 9 offshore ultra
deepwater drilling units.
DryShips owns a fleet of 46 drybulk carriers (including new-buildings),
comprising 11 Capesize, 28 Panamax, 2 Supramax and 5 newbuilding Very Large Ore
Carriers (VLOC) with a combined deadweight tonnage of approximately 5.1 million
tons, and 12 tankers (including new-buildings), comprising 6 Suezmax and 6
Aframax, with a combined deadweight tonnage of over 1.6 million tons.
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The bulk shipping market is in a tough spot facing multiple
challenges. In the drybulk and tanker segments, spot charter rates
continue to hover at historic lows, and asset values have
dropped precipitously in the last two years, not to mention from the highs
In addition, bunker prices have dropped somewhat from the record
highs seen earlier this year but remain at high levels. The time charter market
lacks liquidity and the rates anyway are very low, well below breakeven rates.
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To compound all of this, there is a severe lack of liquidity
from the traditional lenders as they contract balance sheets to meet Basel III
requirements or due to complete exits from the sector.
"We still have contract coverage of 44% on the drybulk fleet for
the remainder of 2012, however, unless the freight market recovers the shipping
segment will remain a drag on our results," DryShips CEO George Economou said
in a statement.
For the second quarter ended June 30, DryShips reported a net
loss of $18.2 million, or 5 cents per share as compared to a net loss of $114.1
million, or 33 cents per share last year. Adjusted EBITDA was $144.6 million
for the second quarter of 2012 as compared to $136.2 million for the same
period in 2011. Revenue rose 50 percent to $336.13 million.
However, DryShips may look to sell some assets and restructure
newbuildings as dry bulk spot rates at or below operating expense levels of the
company. Drilling rigs operating expenses surged 132 percent to $145 million
from $62.2 million last year.
"Currently, DRYS has $463.5 million of capex remaining on its
dry bulk fleet, but we would expect the company's two unfinanced VLOC's to be
the top restructuring or sale candidates," Deutsche Bank analyst Justin
Yagerman wrote in a note to clients.
These vessels account for $95 million of capex in 2012 and 2013.
Additionally, the two Capes set for delivery later this year which require an
additional $81.2 million in financing.
Meanwhile, the company's Ocean Rig unit has signed a letter of
intent for three drillship charters which should be finalized in the next
several months. DryShips has also announced the syndication of a $1.35 billion
loan facility, which should remove much of the financing risk at the company.
"Upon completion of these two positive developments, we would
expect ORIG to announce a decision on one or more of its three newbuilding
options this winter," Yagerman said.
Assuming these contracts materialize, DryShips total backlog
could nearly double from $2.6 billion to $4.8 billion over three years and will
provide Ocean Rig with substantial cash flow visibility and growth.
The company expects to further increase its already substantial
backlog by entering into long term contracts for its two remaining units
available in 2013 given strong industry fundamentals and the fact that there
are very few ultra deepwater units available in 2013.
However, investors may prefer to remain on the
sidelines unless they see an improvement in spot rates, rising asset values and
Ocean Rig monetization at attractive valuations