Description

Globus Maritime Ltd. (Ticker: GLBS) is a zombie drybulk shipping company that has recently gotten swept up in the shipping bubble started by DryShips Inc (Ticker: DRYS).  Due to an extremely dilutive offering at $1.00 or 87% below the last price and a squeeze in the stock, it now has a short term catalyst to drop  50%+. The deal is expected to close on December 22th and see the fully diluted share count including 1.60 strike warrants expand from 2.6mm shares to 53mm. As seen in the reaction to the extremely toxic DRYS financing, I expect a similar result here.

GLBS 15 Day Stock Chart

GLBS operates 5 (4 Supramax, 1 Panamax) ships that are struggling to generate positive gross profits. While the upturn in the baltic dry index (See Supramax pricing below) should improve this situation, the reality is the potential earning power under any conceivable scenario of this existing business is inconsequential compared to the dramatic dilution being used to bring the company back from insolvency. The share count is expanding by over a factor of 20x and the book value is dropping from ~$10 to $2.29 following the dilution. Thus, the stock now trades at over 3x a likely inflated book value.

The company’s outlook in their own words:

“The dry bulk shipping outlook for the remainder of 2016 remains bleak as we continue to deal with a quite large order book for new ships and oversupply continues to remain the biggest thorn in the industry which coupled with the reduced demand for iron ore and coal from both China and India, places most of us in the industry in peril.”

Supramax Pricing Improvement

DryShips Stock Price:

Borrow/Execution

The difficult part of this trade is obviously the execution with the borrow rate spiking over 200% (unlikely to stay this high though for long) at most brokers this week. Shares are hard to come by but some do still exist through locates and the timeframe for this should be short.

It’s worth noting that GLBS was around $4 until it doubled last Monday before the deal was announced. It briefly traded under $3 when unhalted but the next day and through the rest of the week traded back up to the $7-8 range as the borrow remains tight. Clearly, there is a continued manipulation/squeeze here until the deal closes and the share count expands even as the rest of the sector continues to unwind. Simply reverting back to where the rest of the sector is trading would quickly send GLBS well below $4 or 50%+ lower.

Catalyst

On December 22th the deal is expected to close. Technically these Cyprus financiers cannot register the shares for 180 days but they can be expected to short or perhaps being foreign use some way to circumvent the lockup.