Short Globus Maritime After An Outrageous DryShips-Inspired Recapitalization Deal Dilutes Outside Shareholders By More Than 90%

| About: Globus Maritime (GLBS)
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Summary

Company enters into an infamous recapitalization deal that more or less mirrors the recent DryShips transactions.

Current outside equityholders will be diluted by more than 95%.

Post-recapitalization net asset value estimated at just slightly above $1.

Short with no fear as tens of millions of new shares are expected to hit the market within short notice.

Expect the shares to at least move down to the warrant exercise price of $1.60.

Globus Maritime (NASDAQ:GLBS) is a small drybulk shipping company, incorporated under the laws of the Marshall Islands and headquartered in Greece. The company's fleet currently consists of five drybulk carriers, four Supramaxes and one Panamax which all operate in the spot market. The average vessel age is almost ten years.

Bildergebnis für "sky globe" vessel

Picture: Supramax drybulk carrier "Sky Globe" - Source: vesseltracker.com

The company is controlled by its founder and principal shareholder, Georgios Feidakis and lead by his son, Athanasios Feidakis who holds both the CEO and the CFO post.

Like most of its peers, the company has suffered from ongoing weakness in the drybulk shipping market that has substantially crippled the company's financials in recent years.

As a consequence, the company failed to comply with certain financial covenants governing some of the company's credit facilities but Globus Maritime managed to obtain waivers from the majority of its creditors in April 2016.

As of September 2016, the company reported vessel book value of $92.8 mln and total debt of 64.9 mln, down from $110.1 mln and $78.2 mln respectively at the end of 2015.

Unfortunately, the book value does not resemble the market value of the fleet which I would estimate at roughly $50-60 mln currently.

So with net asset value obviously being negative, even the company's current, tiny $20 mln market capitalization looks excessive.

Shortly after the company executed an 1:4 reverse stock split in October that reduced the number of outstanding shares to a mere 2.6 mln (with the majority obviously being held by the chairman), drybulk shipping rates increased to new recovery highs in November which, coupled with a breathtaking multi-session move in peer DryShips (NASDAQ:DRYS), lead to basically the entire drybulk shipping group getting picked up by momentum traders. As a consequence, Globus Maritime's shares rallied from below $2 to a peak of $23.60 within a few sessions only to fall all the way back to the $3.50 level within just another week.

On November 28, the company announced "an agreement regarding a $5 mln equity private placement and conversion of certain outstanding loans":

Globus Maritime Limited, a dry bulk shipping company, announced today that it has agreed to issue for gross proceeds of $5 million, an aggregate of 5 million shares of common stock, par value $0.004 per share and a warrant to purchase 25 million shares of common stock at a price of $1.60 per share, in a private placement to a private investor. The Company intends to use the proceeds from the sale of common shares and warrant for general corporate purposes and working capital including repayment of debt.

In connection with the private placement, the Company must terminate an aggregate of $20 million of the outstanding principal and interest of two loans with the relevant lenders in consideration of issuing 20 million shares and warrants exercisable for 7,380,017 common shares at a price of $1.60 per share. The Company expects approximately $1,212,835 (plus accrued interest through closing) to remain outstanding in the aggregate on both loans. In each instance, the outstanding amounts will continue to accrue under the respective loan agreements. Both lenders are related to the Company through common control.

The closing of the transactions described herein are subject to customary closing conditions. Mr. Georgios Feidakis, Globus's Chairman, stated "we are very pleased with our new investor, this is a strategic initiative on our part to solidify the Company and look for new opportunities for growth which will enhance shareholder value."

While this transaction was subsequently called off, the company finally entered into an almost identical transaction with four, new investors on February 8, 2017:

Globus Maritime Limited, a dry bulk shipping company, announced today that on February 8, 2017 it signed a share and warrant purchase agreement providing for the issuance, for gross proceeds of $5 million, of an aggregate of 5 million shares of common stock, par value $0.004 per share and warrants to purchase 25 million shares of common stock at a price of $1.60 per share, in a private placement to a group of private investors. The Company intends to use the proceeds from the sale of common shares and warrants for general corporate purposes and working capital including repayment of debt. The private placement closed today.

In connection with the private placement, on February 8, 2017 the Company terminated an aggregate of $20 million of the outstanding principal and interest of two loans with the relevant lenders in consideration of issuing 20 million shares and warrants exercisable for 7,380,017 common shares at a price of $1.60 per share to nominees of the lenders. The Company expects approximately $1,724,835 to remain outstanding in the aggregate on both loans. In each instance, the outstanding amounts will continue to accrue under the respective loan agreements. Both lenders are related to the Company through common control. Globus announced a similar transaction involving a private placement and conversion of portions of outstanding affiliate debt on November 28, 2016. The Company announced on January 13, 2017 that the previously announced transaction did not proceed as originally intended.

Mr. Georgios Feidakis, Globus's Chairman, stated "We are very pleased with our new investors, and in particular the confidence they are showing in our management and potential for future growth."

Admittedly, I went over the press release and the respective SEC-filings a couple of times as I simply couldn't believe the deal terms:

  • Globus Maritime issued 5 million new shares to four investors for gross proceeds of $5 mln. The placement price actually calculates to just $1.00 per share
  • In addition, the company issued warrants to purchase an additional 25 million shares at an exercise price of $1.60
  • In exchange for the termination of $20 mln in credit obligations, Globus Maritime issued an additional 20 mln shares to entities controlled by the company's chairman. The debt conversion price was also set at $1.00
  • The chairman's entities also received warrants to purchase another 7.4 mln shares at an exercise price of $1.60

The new share count calculates to 27.6 mln, an immediate dilution of 90% for outside shareholders. Even worse, the share count will soon increase to 60 mln given the low warrant exercise price of $1.60 and the fact, that the warrants are immediately exercisable. Final dilution calculates to 95.5% this way.

After the debt conversion and the exercising of all warrants, the company will have approximately $57 mln in cash and $45 mln in total debt for a net cash balance of roughly $12 mln - add the $50-60 mln in fleet market value and the company's net asset value post recapitalization will be just slightly above $1 per share.

Even when generously conceding the company a 50% premium to net asset value in light of renewed growth prospects and some potential fleet value appreciation in case of a drybulk market recovery, the price target would be just $1.50.

Clearly, this transaction was inspired by George Economou's clever move to recapitalize DryShips at the expense of common shareholders initially announced on November 17, 2016. I strongly encourage investors to get familiar with the recent events around DryShips that have been covered extensively by me in a series of articles.

Bottom line:

DryShips reloaded all over the place. Globus Maritime will be recapitalized at the expense of current outside shareholders while the new private placement investors will potentially pocket tens of millions of dollars in gains from exercising their warrants and selling the new shares into the open market.

While the company's balance sheet will improve considerably (assuming exercising of all warrants), outside shareholders will be almost wiped out by the transaction. There's no reason why the shares should not approach my estimated post-recapitalization net asset value of slightly above $1 over time.

Expect the shares to move down all the way to the warrant exercise price of $1.60 over the next few days and weeks until the selling pressure might finally abate somewhat.

While the shares are currently hard to borrow, the rapidly increasing share count will likely change this situation within short notice just like it did in case of DryShips as of late.

Short with no fear as Globus Maritime's management has clearly decided to sail "Economou-class" for the time being.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a short position in GLBS over 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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