March 31: DryShips Moves Closer to Rig IPO

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DryShips ( DRYS) shares rose after the company appeared to clear the final hurdle on its way to a long-awaited spinoff of its oil-rig business.

In its fourth-quarter earnings report, which the company had delayed for about a month, DryShips said it had secured financing for the last two new drill rigs out of four that it had ordered from shipyards. The company needed to find oil companies to charter the vessels before it could convince a bank to lend it the money to pay for them. DryShips got charters for three out of four of the drillships late last year -- good enough for the banks, evidently.

DryShips also said it was able to restructure an earlier loan it had received from Deutsche Bank ( DB).

The bank deal would seem to pave the way for DryShips to sell off its energy-exploration operation, called Ocean Rig, in a long-awaited initial public offering in the U.S., and will "go a long way in unlocking the value of DRYS," wrote Credit Suisse ( CS) analyst Greg Lewis in a note to clients Thursday morning.

Lewis has an outperform rating on DryShips shares with a price target of $9.

DryShips stopped short of offering a timeline for the Ocean Rig IPO. Said George Economou, the company's founder and chief executive, "We remain committed to registering the Ocean Rig shares on an exchange at the earliest and to build Ocean Rig into a competitive player in the ultra deepwater sector."

In what amounted to almost an afterthought, DryShips reported fourth-quarter results that missed expectations. Excluding items, DryShips had per-share earnings of 24 cents. The Wall Street consensus was targeting 26 cents. A year ago, the company posted earnings of 19 cents a share.

In January, DryShips took delivery of its first two oil tankers from a deal in December in which the company acquired 12 tanker newbuildings for $770 million.

In mid-March, one of DryShips' Panamax vessels ran aground off the coast of an isolated island in the middle of the South Atlantic. The ship sank, but fuel spilled from the wreck, coating a colony of endangered penguins on the island and sparking reports of environmental disaster. DryShips said in its press release that it has insurance to cover the wreck, but it didn't say whether it would face any further liability involving cleanup.

DryShips also said it had three vessels chartered to Korea Line Corp., the financially troubled shipping concern that entered receivership earlier this year. DryShips has shifted all three vessels to the spot market. Credit Suisse's Lewis believes the charter defaults will cost DryShips between $30 million and $35 million in 2011.

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