Dryships Inc (DRYS) serves as an industry leading source of earnings for George Economou (GE), the CEO
and controlling shareholder of shareholder of DRYS. Over the years, DRYS has provided GE with a
diversified stream of profits including; management fee revenue, interest on related party loans, built-in
profits on asset sales to DRYS and a host of other related party revenue sources. DRYS will likely
continue to be an excellent profit making enterprise for GE as long as shareholders continue to fund it.
DRYS also happens to own some boats…
If you owned 336,000 shares on March 10, 2016 you will now have 1 share following yet another reverse
split on May 11. During that time, shares have declined from 5250 to .99. Longer term shareholders are
looking at a decline, pre-split from over 6 million. We all know that VXX has declined at a steady rate for
the past decade, but DRYS has outperformed VXX to the downside by almost 200 times during that
period. This epic decline has mostly been accomplished by endless share sales that are often agnostic
about the price.
Currently, DRYS is using an entity named Kalani to execute its share sales. While the mechanics aren’t all
that important, the key point is that shares are sold to Kalani in blocks and Kalani then re-sells the shares
into the market for a profit beyond the difference in price that it buys the shares at compared to where it
sells them at.
Since these sales started, Kalani has raised approximately $566 million for DRYS as of April 28 and Kalani's
share re-sales have been roughly 15% of the average daily volume during these sales periods. Unlike a
normal At-The-Market Offering, where management is focused on issuing shares accretively, Kalani sells
shares at whatever price it can and its share sales have been highly dilutive to equity holders. Frequently,
shares are sold at under 20% of stated NAV, where increasingly, NAV is made up of easy to value ships
and an even easier to value cash hoard. At this point, it’s effectively a free-for-all to put as much cash into
DRYS at any price as we are on the 3rd equity program after a warrant program thus far.
Based upon the most recent public data as of April 28, the rough balance sheet was:
$392 million of cash
$238 million book value of vessels (take the valuation with a grain of salt)
Total Assets = $630 million
Subtract $200 million of Sifnos Loans (to GE naturally) and tangible book value is $430 million. As of April
28, there were 65.564 million shares outstanding, hence book value per share was $6.56.
So why would any sane person short shares at 99 cents? Because DRYS is continuing to raise money
dilutively and will dilute that NAV per share indefinitely. If you don’t believe me, from April 24 to April
28, DRYS sold 6.6 million shares at approximately $1.24—they just don’t care what price they sell at.
There remains $159.2 million available on the current Kalani facility and it’s almost certain that it will all
be used.
Since the last reported sale date of April 28, 76.1 million shares have traded at a 94c VWAP. If you
assume that Kalani remained at roughly 15% of this volume, they’ve sold an additional 11.4 million
shares for $10.7 million in proceeds, putting the new book value per share at roughly $5.72 based on a
