Market takes positive view on Economou tanker deal

03.04.2015

Rather than wait to spin off tankers, chief executive George Economou steps in to snap up 10 vessels, in a deal that could be worth up to $536m



George Economou

George Economou




DryShips has abandoned plans to list its tanker fleet and has instead sold the ships on to chief executive George Economou, in a move that will boost its cash position and avoid selling tonnage at a major discount to investors.


DryShips had planned to spin off the Tankships Investment Holdings on the New York Stock Exchange (NYSE) but changed tack this week, offloading the 10 vessels to its leading shareholder in a deal potentially worth $536m.


Sources with knowledge of the listing effort suggest the rethink came about due to the poor trading performance of listed crude and products tanker peers — alongside the chance to boost DryShips’ balance sheet in a difficult bulker market.


It is suggested that a continued initial public offering (IPO) effort for Tankships Investment could have seen DryShips take a discount of between 20\% and 30\% on the net asset value (NAV) of the fleet, given the present IPO market.


Economou is paying $245m for four suezmaxes and an additional $291m for six aframaxes, with the prices based on multiple brokers’ valuations.


Former Credit Suisse investment banker David Herman tells TradeWinds that his overall view of the latest DryShips-Economou deal is positive. Herman is now a partner with Morten Arntzen in US-based consulting firm Castine Maritime Group, which is evaluating vessel acquisitions.


“George is a very bright and creative financier,” Herman said. “It’s easy to be critical of him because of all the funny stuff he’s pulled in the past. But in this case, he put out an IPO filing, and my sense is he got feedback from his bankers that they didn’t like it, that it would be difficult to execute without a discount.


“From the company’s perspective, they’re getting cash today versus basically taking shares in the IPO company. It should alleviate near-term pressures. In simple shipping math, he controls a company that trades at a discount to NAV. He’s buying assets essentially at NAV, so it’s accretive to value. The company is fortunate to have a sponsor who is supportive.”


Michael Webber, an analyst at Wells Fargo Securities, says the prices secured look roughly in line with market estimates. He prices the suezmaxes at $253m and the aframaxes at $294m, meaning an overall gap of $11m, or a 2\% discount by his calculations.


Webber added: “Economou’s purchase price looks 10\% below values implied [by] the IPO documents.”


DryShips chief financial officer, Ziad Nakhleh said in a statement this week: “Ultimately, we believe the sale of the tankers as opposed to an initial public offering of our tanker fleet is the best way to immediately realise maximum value.”


The sale of the fleet to Economou rather than a third party led Webber to suggest the deal represented “Groundhog Day” at a company that attracts a lot of attention when it comes to related-party dealings.


Webber admits that a related-parties contract is not a surprise in the case of DryShips but notes the sale will help release shares in drilling division Ocean Rig, which have been pledged against a loan with ABN Amro.


Sources close to the Greek owner contend that the agreement with Economou also offered more attractive terms to the public company than could have been arranged via a third-party sale in terms of both payments and flexibility in delivery.


A 20\% deposit will see around $50m come into DryShips’ bank account immediately. Had the deal been with a different buyer, the funds would have gone into a joint account and only been released when the ships were delivered, the source says.


“And $50m is handy for any dry cargo company today,” the source added.


source:www.tradewindsnews.com

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