George Economou’s DryShips announced an 8 for 1 reverse stock split yesterday which sent the share price tumbling over 36% to just $1.01.
While a stock split has been on the cards since October last year, the ratio of the reverse split reduces the number of common shares to just 8.7m, making the stock even more vulnerable to increased selling pressure and wild price swings.
Today’s fall continues a terrible run for DryShips this year, having dropped 73% from its price of $3.73 at the beginning of the year.
While a $200m loan from Economou appeared to put the company on a firm financial footing, a subsequent move to raise a further $200m by selling shares to the little-known Kalani Investments wasn’t accepted well by investors.
DryShips is using the funds to acquire new vessels, having just announced the acquisition of one VLGC from four options it was given at zero cost by Economou’s TMS Cardiff. The new $85m vessel is locked into a five-year charter earning $54m rising to $92.7m if a further three-year option is taken.
However, investors remain sceptical that the earnings will be outweighed by the dilution caused by the issuing of new shares for the Kalani deal.
The reverse stock split will take effect on January 23.