Page 48: of Maritime Logistics Professional Magazine (Q1 2011)

Maritime Risk

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48 Maritime Professional 1Q 2011

T o hear COO Pankaj Khanna’s take on DryShips, its stock price and executive decisions, one might conclude that the master plan is complete with fair winds and follow- ing seas to complement the journey. At the same time, no shipping company has seen higher highs and lower lows and lived to tell the tale afterwards.

And, just when you think you might have them figured out, the firm dives right into another market segment on the heels of a much ballyhooed IPO for its drillship business. As DryShips moves inexplicably into the tanker mar- ket, there is much to ponder about one of NASDAQ’s most active, volatile and interesting stocks. And, that’s because

DryShips defies definition.


DryShips (DRYS) in 2010 endured as much of a wild ride as anyone, weath- ering a liquidity crunch and the specter of collapse in the face of an enormous (~ USD $4+ billion) CapEx burden. In

December, DryShips COO Pankaj

Khanna said that his firm has a strong balance sheet. “We’ve turned this com- pany around. Today, we have almost a billion in cash and our debt is down by $1 billion with CapEx reduced to a total of about $1.7 billion. In terms of where we were and where we are now, it is like day and night. We have been able to do that because DryShips is one of the most liquid shipping stocks on Wall

Street.” On that score alone, he is right.

DRYS has, at times, been the 7th most liquid stock on NASDAQ, trading as much as $30 million in shares in a single day. It can also be described as a volatile listing, ranging from highs of over $130 to its current price hovering around $5. With general markets off as much as 25 percent from historic highs, there was nothing unusual about large stock price swings for all business sec- tors over the past two years. For ship- ping stocks and because of the enor- mous debt load being carried in that sector over that same timeframe, price swings were particularly pronounced.

Khanna insists that its liquidity has helped them raise equity – more than $1 billion since the fourth quarter of 2008.

Over time, they’ve paid down a similar amount of debt. He also points to cash flow fueled by long term charters for 60 percent of its fleet, all fixed before the financial crisis. Those charters, says

Khanna, are all performing at high rates. “All our charters have performed and the fleet is operating at almost 100 percent utilization.” Khanna expects that although the charter coverage drops to about 40 percent in 2012, the average daily rate for this tonnage should increase by more than 35 per- cent. Not everyone shares that opti- mism, however. Khanna sums up the

DRYS dry side equation by saying, “We had a good strategy of fixing out at the right time and this, with the increase of equity and cancellation of 21 vessels worth of CapEx has reduced our CapEx expense (there) to virtually nothing.”

DryShips couldn’t always paint such a rosy picture. Overleveraged in the worst credit crisis in the last half centu- ry, the company teetered on the brink of disaster. Forfeited deposits, fees and other capitalized asset write-offs relat- ing to the cancellation of various hulls weighed on the bottom line. Found to be in violation of several loan covenants because dry bulk carrier val- ues plummeted during the financial mess, DryShips has, for the time being, righted their listing ship. Khanna




DryShips Defies Definition

Watching DryShips increase its market focus from two to three different sectors, for reasons that have investors nervous, provides no better risk story on the global waterfront. by Joseph Keefe


Pankaj Khanna

COO, DryShips

The Drybulk business is signifi- cant, but the drillship business is more so, based on the capital employed in that business. We’re involved in two cyclical businesses; one related to the crude oil cycle, the other related to the general growth in the economy. You have to look at where we are in the cycle. If investors think we have properly judged the fundamentals, then they will see that we are the right vehicle.”

Maritime Logistics Professional

Maritime Logistics Professional magazine is published six times annually.