What's the Problem with Diana Shipping?
Board: Value Hounds
I've posted on Dians Shipping (DSX) on the board. The specific post on Diana is a little tricky to locate. Luckily, I have a good memory, and thus, a good starting point to "set the table" for this discussion. We go back to Hohum's archives (from a little over three years ago) http://boards.fool.com/sep-2010-musing-dsx-28772006.aspx?sor...
So, three years ago, Diana Shipping (DSX) had a fleet of 8 Capes, 14 Panamax vessels, and a pair of newbuild Newcastlemax vessels (Cape category, but 10-15% larger than a typical Cape vessel). While DSX had gotten caught up in the dry bulk shipping bubble i.e. paid inflated prices for Cape vessels that would lose a huge chunk of value over the next couple of years, they did have a strategy that helped them get through the dry bulk downturn better than most of their dry bulk peers. The company continued to add vessels to its fleet over the last few years, but have been more conservative and prudent about the prices paid for these vessels. The fleet now consists of 36 operating vessels and 4 newbuilds.
That archival post gives some idea on the type of debt that DSX was carrying. Mostly a $300M credit facility, now in principal pay-down mode. Per Q2 2013, DSX had total debt (short term and long term debt) of $470M. That debt spread across the operational fleet would amount to slightly over $13M/vessel. But DSX also hold a lot of cash on their books ... over $370M in cash. Factor that into the equation, the debt per vessel stat shrinks to < $3M per vessel. The oldest vessels are six 2001 built Panamax size vessel, so not small and not-so-old. Diana Shipping also owned a pair of container vessels in 2010. These were new vessels that the company placed in a subsidiary that became a listed spin-off, Diana Containership (DCIX). If one were a shareholder in DSX in late 2010, one received whole shares of DCIX and some portion of cash from the accumulation of fractional shares that got sold in the market. In any case, it was a dividend payout to then-DSX shareholders. DSX had discontinued its dividend payout during the dry bulk shipping downturn.
So what's the problem with DSX? I've already mentioned the sudden about-turn maneuver that the Baltic Dry Index (BDI) did starting in mid-August 2013. To recap, the BDI was around 1000, and more than doubled over a 5-6 week period. It managed to reach somewhere in the 2100s, but has since pulled back to the 1900s. Yes, this was a rising tide that lifted all boats, but the true beneficiary of this particular wave was the Cape category. Cape spot rates increased from around $12K daily (in mid-August) => $42K (in late September), and has since dipped back to the low $30ks daily at the current time. Panamax vessels would also have seen a bounce over the same time period, but the rate bounce would be more like 15-35%. The Panamax spot rate would probably have gone $9K daily => $12.5K daily. The thing is, all this is mostly moot for DSX. I'm not psychic, but I can already see the ??? pop up. Well, DSX follows a different wave, not the BDI wave :) DSX, like the Navios entities, prefers to fix its vessels on charters. Long term charters if it could secure them, but medium term if that is the next-best option. Here's the DSX fleet employment table. http://www.dianashippinginc.com/default.asp?siteID=1&pag...
The time charter strategy aims to create stable revenue flows so it avoids the extremes, both highs and lows. But one issue with this is the prevailing spot rates are a factor in determining the medium and long term charter rates. So the medium term rates that DSX locked in maybe 12-15 months ago are now lower compared to either spot rates or charter rates. From DSX's perspective, the prevailing medium term rates available 12-15 months ago were acceptable as these rates covered the vessel operating costs. The six month comparison shows the revenue dip from $115.1M (2012) => $82.6M (2013). I think the 9-month results will also show a dip, then numbers start to even up, and possibly get better.
DSX has added a few vessels types, so I might need to spend a little time on figuring their fleet value. Even if the listed value is on the higher side, the amount of cash on their books suggest DSX do not have any near term financing problems. I have to go look for pricing for certain vessel types.
To be continued ...
No DSX position currently.