DryShips Inc. (DRYS), a global diversified marine transporter, has decided to resume its previously announced program of issuing $200 million worth of common equities in an at-the-market offering. Evercore Group L.L.C. will be the company’s sales agent.
Management stated that the primary reason behind accessing the equity capital market is to partially reduce or fully eliminate the company’s funding needs of an estimate $150 million through 2014.
Despite an improving U.S. macroeconomic scenario, the financial condition of the drybulk shipping industry is still not out of the woods. This is solely attributable to non-economic decisions taken by the shipping companies in 2008, just before the onset of worldwide recession.
The sheer increase of vessels under operation resulted in intense price competition. Due to the lack of near-term foresight, most of the vessel operators ordered large number of newbuild ships in several docks. The glut of ships resulted in severe cut-throat price competition.
A major problem for DryShips is that a large part of its shipping contracts are currently under volatile spot rate market. Management declared that 33% and 19% of the company’s fleet are exposed to the spot market in 2014 and 2015, respectively.
Such a huge exposure to the spot market will definitely generate severe top-line fluctuations, going forward. The company may not be able to employ its vessels upon the termination of its existing charters at its current charter hire rates.
Meanwhile, the drybulk shipping rates and ship values have increased in the last month. DryShips expects this trend to continue in the near future, at least for shippers with an extensive asset base. DryShips has three types of operations, namely, drybulk shipping, oil tanker and offshore deepwater drilling facility.
Other Stocks to Consider
DryShips currently has a Zacks Rank #3 (Hold). Other stocks in the marine transportation industry which are performing well include Aegean Marine Petroleum Network Inc. (ANW), Knightsbridge Tankers Ltd. (VLCCF) and Diana Containerships Inc. (DCIX). All three stocks currently carry a Zacks Rank #1 (Strong Buy).