Wake Up Investors!! You are being "had" There is NO silver lining in this stock.
Greek shipping magnate George Economou has been attracting a lot of media attention. And it’s for all the wrong reasons. Economou has been called the ‘worst CEO in the world’ (which is quite an achievement) a ‘crook’ and many more similarly unpleasant names. What has he done to deserve such an infamous reputation and market outrage? Well it’s not pretty. Let’s take a closer look.
Economou is the CEO of dry bulk shipping company DryShips Inc. (NASDAQ:DRYS) founded back in 2004 (as well as Ocean Rig UDW (NASDAQ:ORIG), an operator of semi-submersible oil rigs and UDW drillships based in Athens). Shares in the company are currently trading at $4.62- back in April the share price peaked at close to $2000.
Reverse share splits
In the course of the last two years, Economou has put DryShips through multiple massive reverse splits (in March, August, October and January this year). These splits are all smoke and mirrors- they do nothing for the company’s fundamental picture and indeed studies show that reverse split shares actually underperform when compared to unsplit shares.
Multiple reverse share splits like this are very rare. The first three of these transactions took the number of DRYS shares from 700 million to just 1.1 million. This means shareholders are unable to benefit from small share price movements. Following each reverse split transaction, Economou sold shares back into the market. The result- share dilution and the reduction of value for shareholders.
Loan defaults
DryShips saw its share prices tank back in June 2016 after the company defaulted on three loan payments and announced total liabilities of $280 million. This year shares are down a further 84%. Why? Because of Economou’s tried and tested strategy of making a personal profit at the expense of generating higher returns for shareholders.
Private transactions
In the past month, there have been a number of dubious looking transactions. First, at the beginning of January, Economou refinanced the company’s debt with a $200m loan from his own company Sifnos Shareholders- which charged a 2% fee plus interest (LIBOR + 5.5%) plus 30% upside of any asset value collateral base increase.
So what was this loan used for? The press release tells us” entering into an option agreement to purchase four Very Large Gas Carriers (VLGCs) at a price of $83.5 million each ($334 million total) from yes, you guessed it, “companies controlled by its Chairman and Chief Executive Officer, Mr. George Economou”. If acquired the vessels will be managed by TMS Cardiff Gas- a company also controlled by Economou.
Shares did move higher on Jan 31, boosted by significant trading volumes following an announcement that the company had raised $200 million for the sale of 31.8 million shares. However even this apparent ‘success’ is a cause for concern as the shares (which sold at a premium price of $6.30 a share) were bought by Kalanai- a company about which very little is known other than that is based in the offshore tax haven of the British Virgin Islands. It is also very possible that this company is controlled by none other than Economou himself. And apparently, Kalani may have already sold the shares to public investors according to CNBC’s Karen Finerman.
Lies to the SEC
In a further twist to the tale, on Jan 24, news came out that Economou allegedly lied to the SEC in multiple 6-K filings and is now being investigated. The allegation is that Economou lied to the SEC using Panama Papers proxy and corrupt Canadian officials. Shares in DryShips fell 14% on the news. The 6-K filing is a required submission for foreign private issuers of securities so that US investors have access to the same information as investors in the company’s ‘home’ market.
Bottom line
Steer well clear of DRYS and ORIG (and any other company that has dealings with Economou) because bad leadership is never a recipe for success and almost certainly a recipe for disaster.
