Based on what I've read so far, Dryships serves as the centerpiece of an interconnected system of businesses owned by GE. He doesn't reap any profits from the company itself, but rather through creative financing techniques that bolster its fleet of vessels. The process proceeds as follows: (1) conduct share offerings via Kalani at a discount to market value, (2) use cash proceeds to buy new ships, (3) undergo reverse splits to combat dilution & keep price above $1 (to stay listed on Nasdaq), (4) rinse and repeat.
The result is that both mgmt and Kalani benefit, while any public equity holders are faced with massive losses. GE realizes gains any time Dryships adds to its existing fleet b/c of mgmt fees associated with maintenance of new vessels (TMS, another one of his parent companies, charges $1.6k/vessel/day fees + setup costs and commissions). Further, another GE-owned business known as Sifnos Shareholders buys off outstanding debt on DRYS balance sheet @ LIBOR + 5.5%. All loans are backed by collateral and any increase in assets (from new ship purchases) incur fees amounting to 30% of borrowing base. On the other hand, Kalani is also happy b/c they're incentivized to immediately dump shares at a profit (due to a cap on total equity share of 4.9%) and realize any commission fees in the process.
GE has no real reason to prop up share price of DRYS because his returns from mgmt outsourcing (via TMS) and financing services (via Sifnos) are greater than any losses on equity that he incurs. He's also managed to maintain voting control due to (1) an ability to convert Sifnos loan principal into common stock, as well as (2) private placements & rights offerings.
In lieu of pending litigation, it seems like SEC has finally caught wind of this massive extraction of shareholder wealth. Maybe the company will finally cease operating as a going concern. In either case, definitely an interesting thought exercise.
Submitted September 06, 2017 at 10:48PM by CreatineKinase http://ift.tt/2vNwvKo
