All That Is Gold Does Not Glitter

| About: Golden Ocean (GOGL)

Summary

Recent 22% rise in stock price is not based on any fundamental improvements.

Dilution of shares by more than doubling number of shares.

No improvement in the market will result in further burning of their cash.

Golden Ocean Group (NASDAQ:GOGL) announced their 4th Quarter 2015 results today. The loss for the year comes out to $220.8 million. The bulk of this loss stems from impairments, which totaled $152.6 million.

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Two weeks ago, I mentioned in my article "Dry Bulk Shipping - How Low Can It Go And How Long Can It Last? that there is more pain to come, as we are now starting to see the damage that the market is doing to the Dry Cargo Shipping companies.

The positive news from the report is that they have taken constructive measures to mitigate the effect of the poor market, by selling off as much as four Capesize ships. Two newbuilding contracts were sold to Frontline Ltd. (NYSE:FRO). These ships will be converted to Suezmax tankers. In addition in November, they sold the KSL Baltic, and in February this year, the KSL Caribbean. Both ships has been taken back on one-year charters.

Management has done what most management do, that is to try to look positively at what will happen to the market. The key to that lies in what happens in China. I am less optimistic than they are, and this can be seen in my article, as referred to above.

One problem, which is too late to solve is their poor coverage. This I pointed out in my article Dry Bulk Shipping Market Update last November.

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They have been given some breathing room, as they have just come to an agreement with their lenders to amend the bank facilities, whereby there will be no repayments for the next two and a half year and various covenants are amended or waived. However, that is subject to GOGL raising $200 million in equity.

The number of outstanding shares issued is 172.7 million. If they are able to raise $200 million at today's price of $0.80 it would add another 250 million shares. This would obviously seriously dilute present shareholders. I would think the increase of 22% seen the last 5 days is orchestrated by some who knew that they would raise capital, and are trying to get best possible price for those new shares.

Conclusion

I would sell GOGL at today's price.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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