Investor Lawsuit against Dryship

I haven't followed Dryship for some time. As I wrote previously, in my opinion
this stock was manipulated by the owner(s) and should be avoided.

This last week I saw headlines saying there is a class action lawsuit about to be filed against Dryship. Apparently there was one filed in the Marshall Islands (where Dryship is registered, due to financial advantages for a shipping company), and it
was dismissed. I read the investors were now trying to sue in the U.S., but not
sure if this is accurate.

Anyway, as I went searching around for move info, I found something interesting on
Seeking Alpha, who was all in favor of these stocks a couple of years ago.

Benko Investigated For Money Laundering: What Does This Mean For DryShips And Ocean Rig Investors?

November 29, 2011

The international media is reporting detailed information about George Economou's business interests which are not covered by the U.S. media. In fact, the articles are generally not written in English. Recently, an acquaintance of mine translated some of the latest news media concerning George Economou and his business partners for me. The news was insightful, to say the least.

Rene Benko and George Economou are business partners. Benko is the largest property investor in Europe - founding his company at the age of 22, likely financed from family wealth. Economou owns 50% of a company run by Benko called Signa Holding. The company Economou owns which has this ownership interest is called GlobalBasis Limited. Both Benko and Economou are making plans in a joint venture of sorts to try and purchase Galeria Kaufhof, 134 shopping malls in Germany, for the price of 2.4 billion euros.

The media is also reporting that Rene Benko is in the focus of the Vienna general prosecutor. He is suspected of money laundering, and the prosecutor has a large amount of evidence. This means that George Economou is not only highly suspect of illegal and unethical business activities himself, but his largest and most current business partner is now being formally accused of money laundering in Austria.

Economou and his related parties have been suspected for insider trading on the recent purchase of OceanFreight (OCNF), as illustrated in my prior article.

Economou has led many, many transactions between his private companies (Cardiff Marine, Drytanks) and his publicly traded companies (Dryships (DRYS), OceanRig (ORIG), OceanFreight). On a daily basis, Economou's private companies manage the logistics of Dryships and Ocean Rig. The fees are widely seen as out-of-line with arms-length transactions. Additionally, most every ship Economou has purchased for Dryships can be demonstrated to have been overpaid for by at least a few million dollars when compared to purchases he has made for his privately held companies.

Most Dryships followers are aware of the infamous options Economou sold to himself and then let expire, allowing him to bank millions during the peak of the financial crisis, but even the more recent oil tankers purchase was dramatically out of line with market values. Economou evaded the subject of valuation by talking up a spinoff for the assets, which still has not happened.

All of this information begs the question, who will protect the Dryships and Ocean Rig investors in the United States if all of these allegations prove correct and these companies go bankrupt? It also begs the question, why would bankers be so stupid so as to make exceptions for Dryships' broken loan covenants over and over again? Why would banks trust someone who clearly has such a questionable ability to fairly and competently manage a company? It also begs the question, are the Greek shippers and their related parties somehow partly responsible for the debt problems in Greece?

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
This article is tagged with: United States

Dryships decides against purchase of vessels

From Reuters

Nov 30 (Reuters) - DryShips Inc (DRYS.O) said it has terminated an agreement to buy two Panamax vessels as it could not get a period employment contract for the vessels within the agreed timeframe with the sellers.

It doesn't say who were the sellers.

Probably some company connected to George, the Chairman of Dryships, or maybe one of his friends.

It's a cozy club.

If this was such a good deal...why sell?

Upfront I want to say I don't trust George Economou, the Chief Executive of Dryships, and, I guess, Primelead.

Why would George want to sell off Primelead to DryShips, if it was a good investment? Why not keep it for himself?

But, what do I know. I read the DryShips stock has been going up, again.

From Tradewinds

DryShips has closed a deal to buy George Economou's stake of its drilling arm, the Nasdaq-listed company said Thursday.

The bulker and offshore drilling owner is paying $330m in cash and shares to buy the 25% stake from its chief executive.

The transaction makes Primelead a wholly-owned DryShips subsidiary.

click here for link to article

International shipping is a strange business.

Which shipping companies will survive?

According to Paul Slater, chairman and chief executive of First International, who was interviewed by Lloyd's List, the shipping companies listed in New York are now in the hands of "day traders".

He makes a very good point. I have been amazed at the activity and unreasonable price of Dryships stock, which Mr. Slater makes a specific reference to in the interview.

He also stated

MORE than half of the shipping companies with stock exchange listings could slide into bankruptcy or administration proceedings in the next year as their cash drains away.
.... forecast that the next 12 months would be “really painful” for the three main shipping sectors of containerships, dry bulk and tankers.

But those in NY are hoping to sweep away these concerns..

But Peter Shaerf, president of the non-profit New York Maritime and managing director of AMA Capital Partners, said shipping’s presence in New York’s capital markets had remained robust this year.

Trading volumes in shipping companies continued to increase, and $1.4bn had been raised in at-the-market or follow-on offerings this year.

The real problem is that most of the shipping companies continue to pay dividends, instead of trying to preserve cash. Investors are only looking at the dividend payments. This will catch up with them.

My money is on Mr. Slater

click here for article and video from Lloyd's List

Dryships to sell more stock

The other day I noticed Dryships was one of the most actively traded stocks. They have just announced plans for a second stock offering in 2009.

I think people buy and sell this stock just as a gamble, because the price does not reflect the value, but it continues to go up.

I am not the only one who believes the stock is overvalued.

Martin Sommerseth Jaer, who follows DryShips for Arctic Securities and has a “sell” rating on the shipowner’s stock, says today’s announcement is not a surprise.

He told TradeWinds: “If you look at the extreme leverage in the company, this is an obvious outcome. The equity market is willing to purchase overpriced DryShips shares so why not issue stock?

“It is selling a dime for a dollar and, interestingly, the more dimes it sells for a dollar the more accretive it is for to previous shareholders as it aids net asset value."

This is because the equity is being raised at share price levels above underlying NAV, he explains.

click here for complete article from Tradewinds

Will Dryships survive?

Dryships auditors have some concerns.

In a note to the Athens based company’s accounts, auditors Deloitte, Hadjipavlou, Sofianos and Cambanis said the company’s breach of financial covenants, negative working capital and other considerations raised “substantial doubt” about its ability to continue as a going concern.

Of course, George Economou says otherwise.

DRYSHIPS boss George Economou has said that the dry bulk and drill ship company’s “proactive approach” to problems has re-engineered it for the long term, in spite of an auditor’s note registering some doubt about the future.

Dryships will not negotiate...

... to lower charter rates to their customers, unless, it's a company connected to the chairman of Dryships, George Economou.

The only exception was “if we have to accept it because we have no recourse or if we are wrong”.

An example was the capesize Brisbane, which has been chartered to Classic Maritime, an Economou-backed independent operating company. DryShips conceded a reduced rate — apparently from $57,000 to $25,000 a day — as the charterer threatened to cancel, based on an alleged problem in the vessel’s suitability for a key ore trade, Mr Economou said.

click here for article from Lloyds List

The Problem with Bulk Carriers

Yesterday I made a post concerning Dryships, and at the end mentioned you shouldn't be buying this stock.

It's not just Dryships, it's the entire industry. An article in Lloyds List details the problems besetting bulk shipping. It's rather lengthy, so I will try to put it in a nutshell.

Orders were placed for ships, for which there is no longer a demand. But, the ship yards are not accepting cancellations, nor delays in deliveries.

Here's the official version.

THE world’s bloated bulk carrier order book “spells disaster” for shipping markets and could produce “a wave of destruction for banks to rival the sub-prime crisis”, one of London’s most respected shipbrokers forecast on Wednesday.

Howe Robinson’s annual dry cargo report for 2009 appealed for owners, banks and shipyards to urgently and responsibly work together to “re-order” newbuildings and keep shipping solvent over the next decade.

“The newbuilding profile needs putting back in a tube, from whence it can be squeezed out again over many years to come,” the report said.

“If this does not happen the road to recovery will be littered with many more bankruptcies — and they will not just be shipowners.”

The warning comes as many owners remain embroiled in contentious talks with shipyards in Asia to scale back, cancel or delay orders made at the height of the six-year shipping supercycle.

Shipping is in “the eye of the storm” as the global economy and world trade faces its most serious crisis in 60 years, Howe Robinson said.

At the same time there are more than 3,000 bulk carriers on order at 155 different yards in 15 countries by 479 known owners. All are scheduled for delivery by 2011.

“Yards, owners and banks must realise that it’s not going to rosy in the future unless they do something about this,” said one of the report’s authors.

Dryships is busy

Dryships gave an update today on four items

* Reduces sale price of M/V Paragon to $30.8 mln (half or original price)

* To recognize $2.4 mln gain on sale in Q1 2009

* Settles dispute with the buyers of M/V La Jolla

* Commences arbitration against Samsun Logix

It's rocky times for everyone, not just bulk shipping carriers, but I would bet this news is just the tip of the iceberg.

Also, I just realized, they make no mention of their ship, M/V Saldanha, which was hi-jacked by pirates.

Humm, that makes me wonder if they are trying to "throw us off the scent".

DRYS stock closed at 2.79 today, which is a 5 year low, if not an all time low.

And, to any of you thinking about buying this stock because it's so cheap.

Don't.

Dryship Vessel seized by Pirates

I saw the headline yesterday that the Somali Pirates had hijacked another ship.

It really didn't seem blog worthy, until I saw today that this ship belongs to
the company Dryships, one of my favorite companies to blog about.

The folks who chat about this stock on Yahoo Message Boards had this to say

Sorry it's an LTC Vessel with 1300 days left on LTC

http://messages.finance.yahoo.com/Stocks...

I have the ship value based on the January 2009 bulk report.
Saldanha 2004 5 Year Old $24,375,000

Here's the story from the BBC

It will be interesting to see who ends up paying the ransom, the owners or the charterers.

Maybe their P & I (insurance) will cover the costs.

If so, it makes one wonder if this will be a bad deal for Dryships, financially speaking.

Surprise Surprise

I've been questioning the financial viability of DryShips for quite some time now, so I do not find any of this information surprising.

In a research note moving DryShips to ‘Sell’, an analyst at Dahlman Rose said that on a charter-free basis, DryShips’ current loan-to-value was beyond 100%.

DRYSHIPS’ ... admitted that $752m of its debt was in breach of covenants with two of its leading banks.

In addition, the George Economou led company was “in communication” regarding breach of loan covenants with a third lender holding $650m of debt.

The disclosure, along with news that three bulker sales the company negotiated last year have unravelled, was contained in a new shelf registration with market regulators to cover the possible issue of up to $500m in new shares.

In a similar exercise launched last November, DryShips filed for 25m shares but although most of the offering was sold its proceeds amounted to $167m rather than the $500m initially expected.

and DryShips is also having some problems with a dispute regarding a cancellation of a ship purchase

GEORGE Economou’s DryShips has been given extra time by a US district judge to present its side of the story in a maritime attachment dispute involving Canadian shipowner Fednav.

Fednav brought a Rule B attachment complaint in New York two weeks ago, naming DryShips associate Kerkyra Traders as the main defendant.

Fednav’s complaint, had it been granted on an ex parte basis, would have allowed it to attach DryShips assets in the US without informing DryShips.

However, Judge Leonard Sand of the US District Court for the Southern District of New York said in an order dated January 22, that “this question is too close to be resolved based only upon ex parte submissions by plaintiff”.

DryShips posts loss, suspends dividend

Lloyds List reports DryShips has cancelled orders for ships. However, I think the more interesting news is they have suspended their dividend payments (which is why most people bought this stock), and also announced a substantial loss in the 4th quarter of 2008. Wonder what this will do to their total 2008 performance.

... the company has suspended dividend payments on its common stock, beginning with the last quarter of 2008, in a bid to retain capital.

The “corrective measures”, as the company termed them, were revealed as DryShips also disclosed it expects to make a substantial loss for the last quarter of last year.

Though preliminary and unaudited, the company said it expects to post a net loss of between $380m and $431m after provisions to cancel ships, including a previously announced disposal of four panamaxes, as well as $177m in unrealised interest rate swap losses.

There is more gobbledygook in the article about how the monies for cancellations will be handled. What is really worrisome is they might issue more stocks to pay for the cancellations.

The company said the cancellation fee for that deal would include 6.5m shares issued to “entities unaffiliated with the company nominated by third-party sellers which will be subject to a six month lock-up period”.

Entities controlled by Mr Economou will only get 3.5m “out of the money” warrants, each entitling the holder to purchase one DryShips share.

It is understood that these will vest in three tranches over 18 months with strike prices of $20-$30 per share.

“In each transaction, counterparts are willing to take either some or all of their consideration in the form of DryShips equity securities,” said Mr Economou. “We believe these transactions enhance shareholder value, as the value recaptured from the cancelled transactions is dramatically higher than the consideration to be delivered by us for the cancellation.”

For the other three capesize disposals, about $36m in deposits would be forfeited, as well as $30m paid to an undisclosed buyer. Two further tranches of $25m may be paid in cash or by issuing 2.6m shares, the company said.

I need to look at the pictures, but I would guess that Mr. Economou's nose grows with each one of these announcements.

DryShips Cancellation approved by Audit Committee

I guess the Audit Committee came from Chicago.

In my blog of Dec. 11 re DryShips cancelling ships orders (from a company owned by the chairman of DryShips) I stated

Was that really in the best interest of the stockholders?

In the U.S. there are requirements that related companies treat each other at "arms length", meaning they need to treat each other as they would any other company.

Today, in Maritime Global Net

The Audit Committee of DryShips Inc. concluded that due to the significant deterioration in the dry bulk market since the time the agreements were entered into, it would not be in the best interest of DryShips Inc. to consummate the transaction.

In the blogs at Lloyd's List, Tony Gray had this to say

Critics point out that the $160m that is flowing into the private coffers probably more than covers the newbuilding cost of the four panamaxes. They argue that the terms of the cancellation are punitive and question the basis on which the option fee of $26.3m per vessel has been agreed.

Those taking a more positive view of the arrangement suggest that DryShips, where Mr Economou is chief executive and the major shareholder, has extricated itself from a hefty liability.

click here for complete post

And yet, the stock price goes up.

DryShips Cancels Ship Orders

The headline in Lloyds' List reads DryShips axes ships purchase to save cash.

This is how it starts out;

ATHENS-based DryShips has cancelled its proposed $400m acquisition of four panamaxes from companies beneficially owned by DryShips chief executive George Economou in order to preserve cash.

The company blamed a “significant deterioration in the dry bulk market”.

You caught that right? From companies beneficially owned by the chief executive of DryShips.

Later on in the article;

As part of the deal originally signed in July, the selling companies will retain the deposits totaling $55m for the four vessels, the company said.

The company also inked a revised deal with those selling entities, which gives it an exclusive option to buy the same four panamax ships for $160m.

Due to cancellation of the deal and purchase of exclusive options, DryShips paid an extra $26.3m per vessel.

Was that really in the best interest of the stockholders?

In the U.S. there are requirements that related companies treat each other at "arms length", meaning they need to treat each other as they would any other company.

Of course, the entire dry bulk market is a mess, but it's not like DryShips was buying these new, direct from a shipyard. If they were new, then George was being a go-between.

I know it seems like I am "George bashing", but I just don't have a warm and fuzzy feeling about this whole thing.

Oh, and I do not own this stock.

Marketwatch has the press release from DryShips, and the stock is going up.

The problem is people don't realize this company can go bust, probably not in the next few weeks, but my guess is within the next year. Furthermore, they are a very small player.

But, I guess if you play it right, there is money to be made trading this stock - people are putting in puts and calls.

I will try to do a posting next week with the various players and market shares - the ones listed in the U.S. are very minor players.

Review of publically traded dry bulk carriers

Below is a list from Google Finance as of Dec. 5., for dry bulk carriers listed on either the NASDAQ OR NYSE.

Almost all of these companies were listed in the last 2 years, when the shipping market started to heat up.

Every single one of these companies is Greek.

Yes, they are listed on U.S. exchanges, but they are all headquartered in Greece. London has much more to do with the shipping industry. Logically these stocks should be listed there. That right there should be a tip off. These folks were not courting informed investors.

Diana Shipping is the best of the lot. It just suspended dividends in order to have some cash. Star Bulk just issued an alert to investors.

In my opinion, none of these companies will make it through the next year.
They will either go bankrupt, or be taken over. Whether or not the stockholders will get anything is questionable.

I really hope I'm wrong. I'll make a note to check back on these stocks in a few months.


Name Name Exchange Symbol Last Trade Change Mkt Cap

Star Bulk Carriers Corp. NASDAQ SBLK 1.80 -0.09 (-4.76%) 101.12M

Euroseas Ltd. NASDAQ ESEA 3.99 +0.19 (5.00%) 121.73M

DryShips Inc. NASDAQ DRYS 4.75 +0.56 (13.37%) 299.18M
(the link for DryShips is now directing to Cardiff Marine, a sister company - I smell a rat)

Paragon Shipping Inc. NASDAQ PRGN 3.85 +0.32 (9.07%) 104.48M

Excel Maritime Carriers Ltd NYSE EXM 3.70 -0.21 (-5.37%) 159.84M

Navios Maritime Holdings Inc. NYSE NM 2.15 +0.23 (11.98%) 216.76M

Safe Bulkers, Inc. NYSE SB 3.89 -0.09 (-2.26%) 212.01M

Diana Shipping Inc. NYSE DSX 8.09 +0.46 (6.03%) 607.56M

OceanFreight Inc. NASDAQ OCNF 2.94 -0.08 (-2.65%) 48.28M

DryShips

I found an article called "The Golden Fleece", written in 2005 regarding the issuing of Dryships stock.

It starts out like this:

Dryships’ Debut Shows Speculation,Liquidity Trumping Experience
“It was surreal. When someone asked why he was doing the deal, here–now, he actually said, basically, ‘Because Americans are the dumbest investors around, and there’s lots of liquidity in this market.’”

If you don't own DryShips stock, read the article. It is quite amusing.
If you do own Dryships, well, you might want to skip it.

When I read the comments posted on Google financial, concerning this stock, I too question the intelligence of American investors.

I have looked at the reports filed with the SEC by Dryships, but honestly, I can't figure much out. I don't know at what values they have the ships declared. If they valued them high, and borrowed against them, then it's going to get pretty bad.

If they valued them pretty much at cost or market when the stock went public, and haven't increased their value on the books, they might be able to stick it out over the next year.

Of course, don't forget, there is always the chance this stock could go down to pennies and someone buy out the company, leaving the shareholders with very little.

Beware owners giving glowing reports

I haven't really followed DryShips stock. All of the dry bulk companies are having problems with the BDI recently loosing 90%.

This is why it bothers me when an owner/chairman says "everything is OK" in this article from Lloyds List, Economou allays fears as DryShips shares fall.

DRYSHIPS boss George Economou has confirmed that his Nasdaq-listed company is in good health after a warning-laden share prospectus filing spooked the market, already jittery from the dry bulk crash.

This is what he is referring to:

DryShips ... register up to 25m new shares in a prospectus filed with the Securities and Exchange Commission.

Among risk factors included in Thursday’s filing, DryShips said that even with a hefty injection of fresh equity from the sale of the new shares it “cannot be assured” that operating and capital needs would be satisfied, or that it would remain in compliance with debt covenants “if the low charter rates in the dry bulk market continue”.

Conjuring up a possible doomsday scenario, the company said: “If we are not able to comply with our loan covenants and our lenders chose to accelerate our indebtedness and foreclose their liens, we could be required to sell vessels in our fleet and our ability to continue to conduct our business would be impaired.”

However, Mr Economou told Lloyd’s List a day later that the grim tone that arguably could be discerned in the filing was a normal one for prospectuses.

“The underwriters put in a lot of risk factors to safeguard our back against litigation,” he said. “We are not breaching any covenants and we are not at risk of breaching covenants. Nor are we planning on breaching them.”

He said an analyst who downgraded the company’s stock had over-reacted.

Hum. Over-reacted. Those nasty SEC requirements to protect investors.

I'll keep an eye on this one. But, who knows. Maybe they will be one of the survivors.