Dag

DryShips: The Time to Buy Is Now

Hi David,

I am sorry but there is no way in heaven I believe in Mr. Economou, there has been several transactions with serious doubt as other has pointed out. Also you valuation of the 4 rigs sounds extremely high. Day rate of $675k/day you can forget about, highest day rate paid when steel were at $1000 and oil at $148 was around $625K/day. These rates has now come down significantlyas has the price of rigs.
Typical quality newbuild yards, like Daewoo and Samsung have both expanded EBITDA margins from the 0-3% range up to 10%+ levels. The reduced newbuild activity will put pressure on the yards to win new business, s will put pressure on prices. Newbuild prices were at $500m at the beginning of the cycle and peaked last summer at $700m, with current steel price and cut in E&P would mean newbuld prices to drop to $500-550m (vs your estimate of $900m) and that would indicate a dayrate of $450-460k/day hence inorder to have normal payback time of 5 years.
The drybulk rates as been artificial inflated lately by china restoring iron ore levels to normal (export out of Brazil still below average), with availability of vessels at ATH (120 vs normal 50) in the pacific, 15% of the world fleet idle and 12% supply growth in 2009 rates are heading for cash breakeven (-70% from today’s level). The drybulk sector is still a sell especially DRYS and GNK

Dry Bulk Shipping: Recent BDI Rise Is Heartening

Stanislav has a good point on the supply demand situation of ships, in two years the amount of dry bulk vessels will almost double which will keep prices down. Another factor one should take into account is the contracts, According to industry paper Tradewinds one of the biggest players, Korea Line is trying to renegotiate all contracts and cancel new buildings. Korea Line have chartered in 450 vessels (10% of the world fleet), and is probably the largest counterparty in the dry bulk market. If 450 contracts fail, this will have a devastating effect on DRYS, EGLE and GNK NAV whichwill be negative.

On Jan 14 04:03 PM Stanislav Oleynikov wrote:

> The only commodity that is really important for drybulk shipping,
> at least as far as Chinese import and capesize market are concerned,
> is iron ore.
>
> Last year China imported only about 6 million tonnes of coking coal
> and about 36 million of power coal. It compares with more than 410
> million tonnes of iron ore imports.
>
> The amount of other commodities in dry bulk shipping routes to China
> is marginal.
>
> What really important for shipping rates is supply vs. demand picture.
> This issue was not address in the article.
>
> There was really significant activity in chartering ships to haul
> iron ore to China in the last several weeks. Over 150 spot capesize
> vessels are heading to China at the moment. It compares with virtually
> zero activity in the spot market two months ago and may easily lead
> to oversupply of iron ore in Chinese ports again by spring.
>
> But even such frantic chartering activity could not significantly
> rise spot capsize rates above OPEX level. Current spot level of $15,684
> looks decent (though it only a fraction of the rate required by overleveraged
> US listed bulkers like GNK, EXM, DRYS, which bought a lot of their
> levels at huge bubble prices, to stay afloat).
> However, not a lot of currently idle capesize vessels are able to
> get this kind of rate at the moment. BCI index is actually determined
> by rates on several shipping routes. In Europe, where it is hard
> to find an available capesize vessel, it is possible to charter a
> ship for $24,096 a day in the moment. But in the Pacific, where most
> of the trade is actually concentrated (on Australia to China route),
> the spot rate is only $6,036, still below OPEX level. This is the
> region where most of the idle vessels are located in the moment.

>

Baltic Dry Index Signaling a Market Bottom?

Prices on ships do differ but these ships have the same measurement etc so failry easy to compare. Prices on cape size vessels seems to be ranging $30-35m compared to +$150 7 months ago. So if you borrowed money to buy or order ships at $100-150m with rates at 100k/day vs today 10k and operators are going bust is not to hard to understand that companies with high leverage are in trouble since they can neither sell or or re-chart without bigg losses.


On Jan 07 12:17 PM BS Detector wrote:

> "...in tow years time the dry bulk fleet will double (no one know
> how big cancelations will be) which will continue to put pressure
> on the rates..."
>
> Don't think so. The economic incentives for entering this market
> are greatly reduced, capacity scrapped in October alone was greater
> than for the previous two years combined, and companies are walking
> away left and right from contracts to buy and build new ships (e.g.
> DRYS, NM).
>
> "Key is to see what the values of the ships are; today a capesize
> vessel built in 1997 was sold for $27m."
>
> This is an extraordinarily thin market, understandably distressed,
> with very few "comps" to try to determine a market price. I would
> no sooner assume a single sale is representative than assume a house
> is worth no more than what the foreclosure next door sold for.

Baltic Dry Index Signaling a Market Bottom?

Agree dry bulk stocks looks oversold but for a reason, in tow years time the dry bulk fleet will double (no one know how big cancelations will be) which will continue to put pressure on the rates. Key is to see what the values of the ships are; today a capesize vessel built in 1997 was sold for $27m. Using this price tag for the dry bulk fleets of GNK, EGLE and DRYS will put equity in negative territory. Agree dry bulk stocks looks oversold but for a reason, in tow years time the dry bulk fleet will double (no one know how big cancelations will be) which will continue to put pressure on the rates. Key is to see what the values of the ships are, today a capsize vessel built in 1997 was sold for $27m. Using this price tag for the dry bulk fleets of GNK, EGLE and DRYS will put equity in negative territory.

Correct Armanda shipping leased their vessels from other operators such as DRYS at rates around $40k/day, but now they will have to be re-chartered at current rates ($10k) which will slash earnings massively.

Baltic Dry Index Signaling a Market Bottom?

If you look into the balance sheet of these companies especially the debt side you will see that there is no equity nleft. Prices for dry bulk vessels have collapsed lately and are now in the range of $25-35m per ship versus $150m we saw this summer. Using these latest transaction prices to value the ships and subtracting the debt there is negative equity for DRYS, GNK and EGLE

Also the "e" in p/e '09 x3 is very uncertain, most drybulk names will say that their fleet is on contract and have contract coverage of i.e. 90% for 2009 hence earnings should be stable. BUT drybulk names are going belly up every day (Armanda Shipping today) due their contracts are broken. I wouldn't buy any of these names given the uncertainty and economic outlook in 2009, last time we saw a bear market in shipping it lasted 8 years.

VeraSun Energy: A Growth Stock Reborn

What about those margins? no leverage in buisness, and when production is up to speed by the end of the yer I doubt we will se continue earnings growth because problem is mixing capabilities in the US, hence ethanol will continue to be undervalued and margins depressed

Why Microsoft Should Drop the Yahoo Bid and Buy ValueClick

Why buy VCLK? MSFT could buy a company called Tradedoubler #1 in affliate buisness in Europe. US market already crowded place for affliate buinsess while several countries in Europe still show good growth in internet penetration.

AOL tried to bid for Tradedloubler a year ago stock is now down by 50% since they withdraw their bid.