A global shipping company that specializes in carrying dry bulk commodities and drilling rigs, DryShips Inc. (DRYS) recently announced the issuance of senior notes worth $500 million through private placement.
These senior notes have been registered under the Norwegian Securities Trading Regulation and will only be issued to Norwegian professional investors. Hence, these senior notes will not be issued to U.S investors as these debt instruments will not be registered under the Securities Exchange Commissions (SEC) Act or other applicable securities laws in other jurisdictions.
It is believed that the fund to be raised through this debt financing scheme will be utilized to build new drillships for their parent company, Ocean RigUDW Inc.
Drybulk shipping industry is highly competitive and fragmented. Fifteen new drilling units are expected to become operational in 2011. This will intensify competition of the deep water drilling segment, on which DryShips is currently depending for its future growth. Currently, DryShips competes with other drybulk carriers, such as Diana Shipping Inc. (DSX) and Excel Maritime Carriers Ltd. (EXM).
Furthermore, future demand and supply of drybulk commodities are very difficult to predict. Several economic and geopolitical events can significantly affect demand, supply, price, and transportation of drybulk commodities within a short span of time. As a result, drybulk shipping rates is also volatile. Moreover, fuel is the largest expense in these shipping industries. The significant rise in oil price resulting from the on-going tension in Libya is expected to affect the company’s bottom-line growth in the short term.
We, thus, maintain our long-term Underperform recommendation for DryShips Inc. Currently, DryShips Inc. has a Zacks# 5 Rank, implying a short-term Strong Sell rating on the stock.
DRYSHIPS INC (DRYS): Free Stock Analysis Report
DIANA SHIPPING (DSX): Free Stock Analysis Report
EXCEL MARITIME (EXM): Free Stock Analysis Report
Zacks Investment Research
