DryShips: Kalani Update

Summary

• I expect that in the fiscal 2017 the company will generate better earnings.
• The company has a strong balance sheet.
• Their poor share performance will continue until the dilution is over.
• It is speculated that the company will go for a fresh deal.
• I expect the round 4 Kalani deal will be completed in a couple of months.

Investment Thesis:

DryShips (NASDAQ:DRYS) has provided investors with an update of the share dilution. The share price collapsed from $4 to $1 since the latest reverse split. The company still needs to raise $82.9 million. Therefore the share price collapse and reverse splits are unavoidable.

Following the settlement for all of such Shares sold as of the date hereof, the Company will have a total of 26,609,379 shares of common stock outstanding. As of the date hereof, up to $82.9 million of the Shares is remaining that the Company may sell pursuant to the Purchase Agreement.

Kalani Update as of July 7, 2017

The company’s daily dilution generates a constant increase in share count. On June 22, 2017 (7th reverse split), the company had 5.65 million outstanding shares. Within the 10 days, the company added 20 million new shares.

Source: Created by Author (data obtained from SEC filings)

As we can see from the above chart, the company has been issuing about 2 million shares per day and the company is still managing to raise $2 million per day.

Source: Created by Author (data obtained from Yahoo Finance)

The share count increase has a direct relationship with the share price decrease (see the above charts share count vs share price). At this rate of dilution, only a couple of trading days will break the $1 mark. It should hit $0.50 if there is no reverse split announced this month. As well as this the company is facing numerous legal issues. There are more than a few legal firms investigating DryShips for the potential violation of federal security laws. DryShips’s investors filed a lawsuit against its CEO for breaches of fiduciary duty, unjust enrichment, and conflict of interest.

Revenue Forecast

According to Reuters, since beginning of this year, DryShips has taken delivery of eleven vessels and expects to take delivery of six more by end of year. I expect a dramatic increase in total revenue for the fiscal 2017.

The VLGC will be employed under a time charter on a fixed rate with five years firm duration to an oil major. The charterer has options to extend the firm employment period by up to three years. The Company expects a total gross backlog associated with this time charter of up to $92.7 million including the optional periods.

Conclusion

The company has a strong balance sheet. However the dilution is killing the stock. Regardless of the operation performance of the company, if the share dilution continues, the share price collapse is unavoidable. At this rate of dilution, round 4 of the Kalani deal should be completed in a couple of months. The question is whether the company will go for the fresh deal with Kalani. I would stay away from this stock for now. Shorting is the safest bet until the share dilution is over. To read my previous articles, please click here.

Note: On March 28, 2017, George Economou's other company Ocean RIG UDW Inc (NASDAQ: ORIG) filed for Chapter 15 bankruptcy protection in the U.S. court.

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Analyst’s 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.