DRYSHIPS INC DRYS S
May 08, 2017 - 1:35am EST by
hkup881
2017 2018
Price: 0.99 EPS 0 0
Shares Out. (in M): 77 P/E 0 0
Market Cap (in $M): 77 P/FCF 0 0
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 300 TEV/EBIT 0 0
Borrow Cost: Hard to Impossible 50%+ cost

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Description

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
 new share count at 77 million. This has now been going on since November 2016 in one form or
another. It will continue to go on as this is the 4th such equity distribution program. Previously, DRYS
used ATM programs or any other way to put shares into the market without a regard for valuation. Now
it is using Kalani. That is the reason that the shares have continued to collapse at such a rapid rate.
 
Why mention DRYS now, after it’s already declined from over 6 million per share? Because for the first
time in months, interactive brokers has almost 1 million shares to borrow and the borrow rate is down
to only 50%. More importantly, there is likely to be a short-lived short squeeze following the reverse
share split and earnings this week, which may allow you to short shares at a higher price than today’s
price. While a 50% borrow cost isn’t cheap by any means, given how rapidly the share price has been
declining, it seems more than reasonable. DRYS has been known to have epic short squeezes from time
to time, so I keep my position small and add over time on mini-squeezes as the shares decline and it
becomes a smaller percentage of my PA.
 
Risks: The only real risk is some sort of super-nova short squeeze if the equity sale program ends. This
may lead to a sizable short squeeze but ultimately, the shares would settle out around NAV or whatever
discount to NAV is appropriate for a GE managed vehicle. I don’t see this being an entity that will ever
trade at a sizable premium to NAV outside of sudden squeezes based on its past history. Otherwise, the
NAV per share will continue to be diluted by 5-20% a week as it has since November. As a rule in finance,
Greek shipping companies are never dull…
 
 
 
 
George Economou being told that someone was stupid enough to buy DRYS
 
 
 
 
 

 

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.

Catalyst

Continued Greek shipping CEO shenanigans...

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    Description

    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
     new share count at 77 million. This has now been going on since November 2016 in one form or
    another. It will continue to go on as this is the 4th such equity distribution program. Previously, DRYS
    used ATM programs or any other way to put shares into the market without a regard for valuation. Now
    it is using Kalani. That is the reason that the shares have continued to collapse at such a rapid rate.
     
    Why mention DRYS now, after it’s already declined from over 6 million per share? Because for the first
    time in months, interactive brokers has almost 1 million shares to borrow and the borrow rate is down
    to only 50%. More importantly, there is likely to be a short-lived short squeeze following the reverse
    share split and earnings this week, which may allow you to short shares at a higher price than today’s
    price. While a 50% borrow cost isn’t cheap by any means, given how rapidly the share price has been
    declining, it seems more than reasonable. DRYS has been known to have epic short squeezes from time
    to time, so I keep my position small and add over time on mini-squeezes as the shares decline and it
    becomes a smaller percentage of my PA.
     
    Risks: The only real risk is some sort of super-nova short squeeze if the equity sale program ends. This
    may lead to a sizable short squeeze but ultimately, the shares would settle out around NAV or whatever
    discount to NAV is appropriate for a GE managed vehicle. I don’t see this being an entity that will ever
    trade at a sizable premium to NAV outside of sudden squeezes based on its past history. Otherwise, the
    NAV per share will continue to be diluted by 5-20% a week as it has since November. As a rule in finance,
    Greek shipping companies are never dull…
     
     
     
     
    George Economou being told that someone was stupid enough to buy DRYS
     
     
     
     
     

     

    I do not hold a position with the issuer such as employment, directorship, or consultancy.
    I and/or others I advise hold a material investment in the issuer's securities.

    Catalyst

    Continued Greek shipping CEO shenanigans...

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