December 6, 2022

CloudVisual/iStock by the use of Getty Pictures

Remaining week, main dry bulk provider Diana Transport (NYSE:DSX) reported decent 3rd quarter effects and declared a $0.175 money dividend in step with commonplace percentage.

Because of the corporate’s center of attention on medium- and long-term charters, moderate day by day time constitution an identical (“TCE”) used to be down simply rather from Q2 in spite of the Baltic Dry Index (“BDI”) proceeding its droop from year-to-date highs reached in Might.

Tradingeconomics.com

Impulsively easing port congestion and susceptible Chinese language commodity call for were the principle drivers in the back of the continuing constitution price deterioration and without a near-term catalysts in sight, dry bulk delivery shares have misplaced a lot in their enchantment with buyers in contemporary months.

Within the present surroundings, Diana Transport is making the most of its conservative chartering approach with many vessels nonetheless hired on above-market time charters thus protective nearly all of profits and money flows neatly into subsequent yr.

That mentioned, susceptible business prerequisites have ended in 2nd hand vessel costs pulling again from multi-year highs thus impacting web asset values (“NAV”).

Fleet Overview

Corporate Press Unencumber / MarineTraffic.com

For example:

3 months in the past, Diana Transport introduced the purchase of 9 fashionable ultramax carriers for an mixture acquire worth of $330 million, of which $220 million might be paid in money and $110 million within the type of 18,487,395 newly issued commonplace stocks at a value of $5.95 in step with percentage.

Even if bearing in mind the corporate’s considerably diminished percentage worth, the combination attention nonetheless calculates to $300 million as in comparison to an estimated marketplace worth of roughly $235 million for the vessels lately.

NAV

Corporate Press Releases and SEC-Filings / MarineTraffic.com

Assuming complete supply of the above-discussed Ultramax fleet, Diana Transport’s charter-free NAV calculates to rather under $4 however this quantity does now not account for the corporate’s above-market charters which I’d estimate so as to add roughly $0.50 to NAV.

That mentioned, the money dividend, even taking into account the 36% sequential relief, continues to be beneficiant however prone to decline going ahead with increasingly profitable legacy charters expiring.

Proposed Particular Dividend of OceanPal Most well-liked Stocks

As well as, Diana Transport has dedicated to distribute all 7% Sequence D Convertible Most well-liked Stocks (“the Sequence D Stocks”) of former subsidiary OceanPal Inc. (NASDAQ:OP) with an mixture $25 million liquidation choice held via the corporate within the type of a distinct dividend.

The Sequence D Stocks had been issued previous this yr as partial attention for OceanPal’s acquire of the Capesize vessel Baltimore and are convertible into commonplace stocks at any time on the holder’s possibility at a conversion worth equivalent to the 10-trading day trailing VWAP of OceanPal’s commonplace stocks.

As a result of no public marketplace exists or is predicted to expand for the Sequence D Convertible Most well-liked Stocks, as an lodging to commonplace shareholders, the Corporate will robotically convert the Sequence D Convertible Most well-liked Stocks into OceanPal Inc. commonplace stocks on or across the Inventory Dividend fee date and distribute such commonplace stocks to every commonplace shareholder. Commonplace shareholders, of their sole discretion, would possibly elect to decide out, in complete however now not partially, of the conversion of the Sequence D Convertible Most well-liked Stocks and as a substitute obtain Sequence D Convertible Most well-liked Stocks in reference to the Inventory Dividend.

Shareholders electing to obtain Sequence D Convertible Most well-liked Stocks via opting out of the automated conversion will obtain quite a lot of Sequence D Convertible Most well-liked Stocks equivalent to such commonplace shareholder’s pro-rata portion of all Sequence D Convertible Most well-liked Stocks, rounded all the way down to the closest complete quantity. Any fractional Sequence D Convertible Most well-liked Stocks that might another way be dispensed might be transformed into OceanPal Inc. commonplace stocks on the appropriate conversion price and offered, and the online proceeds therefrom might be dropped at such commonplace shareholder.

Assuming a $0.20 conversion worth, OceanPal could be required to factor as much as 125 million new commonplace stocks. Underneath this situation, Diana Transport commonplace fairness holders would obtain roughly 1.2 commonplace stocks of OceanPal for each and every Diana Transport commonplace percentage owned. The calculated worth of the particular dividend could be round $0.24 in step with Diana Transport commonplace percentage.

That mentioned, buyers must sparsely weigh their choices as the impending distribution of as much as 125 million new stocks will nearly surely lead to OceanPal’s percentage worth to lower considerably which in flip would cut back the worth of the particular dividend for shareholders of Diana Transport.

Given this factor, I’d advise Diana Transport shareholders to decide out of the conversion and elect to obtain the Sequence D Stocks which stay dilution-protected and are convertible into new OceanPal commonplace stocks at any time on the possibility of the holder.

Buyers nonetheless conserving OceanPal’s commonplace stocks at this level must believe promoting ahead of the December 15 distribution date given the looming as much as 400% building up in remarkable commonplace stocks.

Please word additionally that OceanPal might be required to behavior a opposite inventory cut up till March 6, 2023 to regain compliance with Nasdaq’s $1 minimal bid worth requirement.

Backside Line

Within the present marketplace surroundings, Diana Transport’s conservative chartering approach is bearing fruit with nearly all of profits and money flows secure neatly into subsequent yr.

That mentioned, with increasingly legacy charters arising for renewal, quarterly dividends usually are diminished additional going ahead.

When it comes to the introduced particular dividend of OceanPal’s Sequence D Stocks, buyers must believe opting out of the proposed conversion into OceanPal commonplace stocks and moderately obtain the dilution-protected Sequence D Stocks which may also be transformed at any time on the possibility of the holder.

With Diana Transport’s stocks buying and selling close to web asset worth and quarterly dividends prone to lower over the following couple of quarters, I’m downgrading the inventory to “Cling” from “Purchase“.

https://seekingalpha.com/article/4559903-diana-shipping-conservative-chartering-strategy-is-paying-off