DryShips boosts balance

DryShips boosts balance with $475m share offering

GEORGE Economou"s DryShips plans to strengthen its balance with a $475m share offering.

The bulk carrier company has also underlined its determination to persevere with a transaction to acquire two deepwater drillship newbuildings.

DryShip has unveiled a second ?at the market? share offering with Merrill Lynch in little more than three months, which could bring the fresh equity raised by the company this year to about $950m.

It intends to use the net proceeds to ?opportunistically acquire dry bulk vessels?, for working capital, to support existing capital expenditure, and to repay debt.

However, market sources said it was unlikely that DryShips would move to expand the company fleet until it had resolved outstanding loan covenant issues.

The company has yet to obtain waivers on covenants for all its borrowing, which forced it to reclassify $1.8bn of long-term debt as current.

However, the company remains confident the covenant issue will be resolved imminently and that it will subsequently be well-positioned to capitalise on expansion opportunities.

Athens-based DryShips said it had received consents from its lenders in order to complete the acquisition of DrillShips Holdings, which owns two newbuilding ultra-deepwater drillships.

Together with four other drillships already owned by the company, DryShips plans to spin off its offshore drilling unit, but the company does not expect to complete this until the second half of this year.

DryShips said it had determined ?to proceed with this transaction (DrillShips Holdings) irrespective of whether the spin off occurs,? and intended to close the acquisition by the end of June.

?However, there can be no assurance that we will complete the spin off during the second half of 2009,? the company said, citing disruptions in the credit markets and weakness in the energy sector.

DryShips needs to secure about $1.1bn in additional financing for the two drillships, which are expected to be delivered in 2011 and 2012, being acquired with DrillShips Holdings.

Investment bank Cantor Fitzgerald believes the proceeds from the ATM offering will help secure the financing for those units.

However, the bank reacted to the ATM announcement by downgrading DryShips" shares to a ?sell? recommendation from ?hold? and suspended its price target, citing the risk of ?substantial dilution? because of the offering.

?Based on the current share price, and assuming the entire offering is utilised, this implies an additional issuance of 44m shares which would bring total shares outstanding to over 229m,? the bank explained.

The two drillships are being acquired from Cardiff Marine, the private company affiliated with DryShips" chief executive George Economou, which is exchanging its interest in the units for a 25% equity stake in Primelead, the vehicle to be spun-off, regardless of the number of shares outstanding.

Cantor Fitzgerald commented: ?While we believe the drillships spin off could highlight the substantial amount of value tied up in those assets, we now think that DryShips" public shareholders" ability to realise that valuation will be limited by the amount of equity dilution....and Cardiff Marine"s agreement for a 25% stake in Primelead.?

Source: Lloyd's List

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