Wednesday, December 03, 2008
What's Next For Dry Bulk Shippers?
| Wednesday, 03 December 2008 | |
| With the flow of capital in the dry bulk market running dry, speculation is circulating that some publicly traded dry bulk companies may take themselves private. The two big names on everyone's lips: DryShips and Genco Shipping & Trading. Dry bulk shipping rates have plunged over 90.0% since the summer highs and the net asset values of ships have tumbled 70.0%, causing a significant number of dry bulk companies to breach their loan covenants. he result: The most heavily debt-laden dry bulk companies may decide to go private, wrote Wachovia Capital Markets analyst Justin Yagerman in a note to investors. Which company will it be? The edge goes to George Economou's DryShips -- the billionaire shipping tycoon can certainly afford it. As for risks, DryShips has earned itself a top spot on the list of publicly traded dry bulk companies with the most outstanding debt, and its total has shot up 131.3% over the prior year. here are other bad signs for investors, too. Last month, DryShips said in a filing with the U.S. Securities and Exchange Commission that it planned to sell as many as 25.0 million new shares, a move that could significantly dilute existing shareholders. It also warned it may breach its loan covenants if the current low charter rates in the dry bulk market continue. In October, the company took over nine Capesize ships that had been owned by Economou's privately held Cardiff Marine, a move many saw as a way to offload debt onto DryShips shareholders. ven more troubling is if Economou, who is No. 707 on Forbes' list of billionaires, decides not to take DryShips private but instead lets it fall into bankruptcy. Economou's first Wall Street venture ended badly when Alpha Shipping defaulted on $175.0 million in junk bonds in 1999, allowing Economou to strike a deal that let him pay creditors 37 cents on the dollar and left him in possession of most of the fleet. Αnother company that's exploring going private is Genco Shipping & Trading. The dry bulk shipper entertained the possibility on its recent third-quarter conference call. "At current valuation levels, all the dry bulk shippers are probably looking at all their options," said Jefferies analyst Douglas J. Mavrinac. On Tuesday, rates on Capesize ships, which are the largest vessels, fell to $2,316, down from $2,364 on Monday. Ironically, rates on the smaller Panamax ships, which can fit through the Panama Canal, sank to $4,499, down from $4,759 on Monday. The rates on the even-smaller Supramax ships slid to $6,244, down from $6,381 on Monday. Meanwhile, the Baltic Dry Index, which is managed by the Baltic Exchange in London and measures dry bulk shipping rates on 40 routes across the world, fell for the 10th straight session on Tuesday to below 700, a level not seen since 1986. The index slipped 16 points on Tuesday to 684. |
