If you've already bet everything but the kitchen sink, you might as well go all-in. That's precisely what DryShips
Under the notorious command of "Curious George" Economou, the shipper has confronted the prolonged malaise of the dry bulk shipping industry with a tireless quest for aggressive countercyclical growth. The approach has landed DryShips deep in the trash heap as risk-averse investors shun the shares, while penalizing some die-hard thrill-seekers with mountains of debt and epic dilution.
Please indulge me in this brief Foolish rant
Announced Tuesday, the company's latest move to acquire dry bulker OceanFreight
At the same time, OceanFreight's existing debt burden -- which is greater than its market cap even after Tuesday's 79% post-announcement surge -- compounds DryShips' already-weighty debt position. Perhaps more disturbing to this Fool was Economou's focus upon OceanFreight's low-cost credit facility of $142.8 million as a benefit of the move, particularly when combined with his mention of "further strategic acquisition opportunities." Give this guy a line of credit, and watch him find bold ways to spend it. We've seen that pattern repeat ad nauseum over the past several years. The part we have yet to witness is where shareholders have something to show for it. It reminds me of Obamanomics!
The unfathomable upside potential
With Economou's drubbing now freshly delivered above, we are clear to turn our attention to the all-important counterpart to DryShips' unspeakable risk profile. If DryShips can manage to survive this prolonged period of acute vessel oversupply -- which rival Diana Shipping
Although this latest transaction is orders of magnitude smaller than the company's collective moves to expand Ocean Rig's fleet of top-of-the-line drillships, it nonetheless has the capacity to prove a meaningful driver of long-term growth for the dry bulk segment. For starters, the addition of OceanFreight's fleet of four Capesize vessels will give pro forma DryShips the largest fleet of the behemoths operated by any public company in the world. Along with two Panamax vessels, the six carriers from OceanFreight offer a rejuvenation of DryShips' aging fleet, and come complete with "attractive long-term charters" in tow. The additions account for about a 25% expansion in the tonnage of DryShips' existing dry bulk fleet.
Meanwhile, I believe the real hidden gem in this transaction is the accompanying set of contracts to construct five new very large ore carriers for delivery in 2012 and 2013. At around 200,000 deadweight tons apiece, these gargantuans offer DryShips some timely fleet diversification for this period when Capesizes and Panamaxes represent by far the most acutely oversupplied segment of the industry. Evidence is mounting, furthermore, that the nature of ore demand will trend toward a preference for ever-larger vessels.
Take for example the move by Diana Shipping to construct two Newcastlemax carriers of 206,000 DWT, which are purpose-built to serve the very Australian export facilities that miners BHP Billiton
For confirmation of the trend, one need look no further than Vale's
The final word on DryShips' stock
Although ultra-high-risk ventures are generally not my cup of tea, I have found myself unable to resist building a small speculative position in DryShips. I consider the risks far too elevated to consider wagering a penny more than I'm prepared to lose outright, but I intend to hold shares in both entities after the Ocean Rig IPO to keep my high-stakes wagers on the roulette wheel.
Fool contributor Christopher Barker can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of Diana Shipping and DryShips. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.