Valuing DryShips: Proving Demand for Shipping IPOs

By Matt McCleery

George Economou stunned the ship finance community worldwide and silenced almost all his harshest critics with the extraordinarily successful floatation of DryShips Inc. on the NASDAQ on February second. The final deal nearly doubled from its original size, going from 7.1 million shares in the initial prospectus to an astonishing 13.0 million shares (before underwriters’ over-allotments). Even with the massive jump in size, at $18 the shares still priced favorably compared to the red herring price of $17 and at the high end of the $16-18 range, raising for the company a gross $234 million against an initial target of $120.7 million (both before shoe and underwriters’ commissions). sions). Market sources at the time said that the deal was nine times oversubscribed, and the stock price quickly jumped another 10% in heavy trading. The execution of the offering was certainly a success for underwriters Cantor Fitzgerald & Co., Hibernia Southcoast Capital, Oppenheimer & Co., Dahlman Rose & Company and HARRISdirect.

Economou’s company, which owned a total of five panamax vessels and one capesize vessel with an average age of 18 years at the time of the offering, had originally planned to use the proceeds to purchase an additional eight panamax and one capesize vessel, as well as two handymax vessels, which would bring the combined fleet average age to 13 years. These were to be purchased with $111.5 million in net proceeds from the offering together with $145 million under a new senior secured credit facility with Commerzbank AG and HSH Nordbank AG, $30 million under another credit facility and 1.35 million shares. Now, having acquired its 11 identified vessels, but with more than $100 million more than anticipated in cash, the company has plenty of other options, and investors are already beginning to have the opportunity to gauge the company’s growth potential.

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