What The Heck's Happening At DryShips?

• DryShips Inc. DRYS shares have plummeted 76 percent year-to-date, declining steadily since their high of $1.13 on January 2.
• Deutsche Bank’s Amit Mehrotra maintained a Hold rating for the company, while reducing the price target from 50c to 35c.
• Following the sale of most of its dry bulk vessels, DryShips will be left with $235M of equity, most of which would comprise of its stake in Ocean Rig UDW Inc ORIG, Mehrotra said.

DryShips announced plans to sell 17 of its 39 dry bulk vessels to its CEO George Economou for a total consideration of $377M. Since the total includes the assumption of $237M of debt, DryShips would get net proceeds of $140M from the transaction.

The remaining 22 ships, of which 20 are Panamax and 2 Supramax, will have the “held for sale” status. “We estimate the bottom line of all the moving parts is equity value of $235M, or 35c per share (which is our revised target),” Mehrotra wrote.

“Pro forma for the previously announced tanker sales and today’s announcement, we estimate DRYS will have total debt of $380M (down from just over $1B), cash of $195M (up from $10M) and $160M stake in ORIG (unchanged),” Mehrotra commented.

DryShips owns 56.08M shares of ORIG. At the current price, the stake translates to a value of $160M. Following the transactions, DryShips would have no hard assets and $235M of equity. About 70 percent of this is accounted for by the company’s stake in ORIG, and the balance net cash from the estimated proceeds from the sale of dry bulk assets.

In the report Deutsche Bank noted, “The moves effectively create a new base for the company to rise from, though it will likely be years before existing shareholders, who have almost been wiped out, to start recouping their losses.”