) decided to sell two of its unfinished Suezmax tankers,
currently under construction at Samsung Heavy Industries, South
Korea to a third party buyer. Last December, DryShips entered
into two novation agreements with the buyer under which the third
party owner will assume all rights, benefits, liabilities and
obligations of the two Suezmax tankers. However, to get rid of
the tankers, DryShips itself will pay $21.4 million in cash.
The primary reason for this divestment is to reduce the annual
capital expenditure of DryShips by a significant $101 million. At
present, the Shipping industry is in grave turmoil. The drybulk
shipping and oil tanker industry is facing severe challenges as
the vessel rate collapsed even below the rate during the
recession. We believe the sole reason for this dismal condition
is the sheer increase of vessels under operation that resulted in
intense price competition.
The only bright spot for DryShips is its majority owned
deepwater oil drilling unit -
Ocean Rig UDW Inc.
), which is flourishing due to a worldwide rig shortage. However,
strong performance of Ocean Rig was more than offset by tepid
results of the company's legacy drybulk shipping cargo division
and the newly formed oil tanker division.We believe economic
headwinds, slowdown of the Chinese industrial sector, and
fluctuations in oil prices are the major near-term concerns.
In the third quarter of 2012, total operating expenses of
DryShips were $307 million, up 46% year over year. Operating
income in the reported quarter was $36.6 million compared with an
operating income of $107.8 million in the prior-year quarter.
Adjusted EBITDA was $141 million compared with $172.9 million in
the year-ago quarter.
DryShips currently has a long-term Underperform recommendation
and a short-term Zacks Rank #5 (Strong Sell) on its stock.
DRYSHIPS INC (DRYS): Free Stock Analysis
OCEAN RIG UDW (ORIG): Free Stock Analysis
To read this article on Zacks.com click here.