Shares of Genco Shipping & Trading (NYSE:GNK) are down 9.3% in Friday trading as of 12:50 p.m. EDT, as investors sell the stock hand over fist. And can you blame them?
This morning, Genco confirmed that it is selling 6.1 million new shares of common stock at $16.50 per share -- roughly a 9% discount from what existing shares of Genco were worth at close of trading yesterday.
It makes sense that investors would be unwilling to value existing shares at $18 or more when new shares can be had for just $16.50. Hence the price drop.
Worse, prior to this flotation, Genco had only 34.5 million shares outstanding, according to data from S&P Global Market Intelligence. Now it has 40.6 million shares outstanding, so however many shares that stockholders owned before the new stock issuance, they now own a 15% smaller stake in the company.
That has to be disheartening.
But it's not all bad news. Genco isn't giving these shares away. To the contrary, management says it will reap more than $100 million in "gross proceeds" from the stock offering -- and maybe more, as the offering included a 915,000-share overallotment option that could enable Genco to sell even more shares, and raise even more money.
Meanwhile, Genco Shipping remains one of the more attractive stocks in dry bulk shipping (to my mind, at least). It has a modest debt load, which means management won't have to use all this new cash to retire debt. It can deploy its new cash to buy more ships, move more cargo, and earn more profit in the years ahead.
That's small comfort to investors who are smarting from today's stock price downturn, to be sure. But it's worth keeping in mind the big picture: Genco's generating good free cash flow, carrying moderate debt, and expanding its operations. If today's news is cloudy, the forecast for Genco has more than a few silver linings to it.