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Dryships' Questionable Deals Don't Help Investor Confidence

I think the post gets to the heart of the "problem". In situations where you have a private company and public company (albeit one where insiders own a lot), there is always a winner and always a loser once the dust settles. However, there are advantages to having private/ public deals...

The just announced four ship deal is intriguing because of the optionality aspect. With some adroit timing, if there is a blip upward the public company might excercise the purchase options on the vessels. So, that's the trade- relatively high amount of deposit and option premium goes from the public company to the private company, but the potential upside (for the listed entity) in the event of a positive market surprise would be quite substantial.

But, yes, any situation where the deals are not 100% arms length will arouse suspicion. But, on the other hand, having a privately controlled entity enables deals to stand still so ship purchases can be married with lengthy charters. In a purely arms length situation, it may be more difficult to put such combinations together. And the lengthy charters (to credit worthy counterparties- that's another post for another blog) are what the investors crave.

Dryships claims it has access to financing; I don't know if that's true, or not. I recently wrote an article for Janes Transp Finance where I surveyed bankers- those who talked to me (including some big guys) said that for existing customers, they could finance if the deal made sense.