A shareholder lawsuit alleges Dynagas kept up a lie for roughly a year that it had the cash flow to support its dividend to buoy up its share price and keep from diluting the founding family’s stake.
The lawsuit, filed in a US federal court in Manhattan by shareholder Mario Epelbaum, accuses the New York-traded LNG carrier owner of obscuring the fact it had taken lower charter rates for two of its six ships, negatively affecting cash flows. The plaintiff is seeking class-action status, to represent all shareholders.
‘Outright lies’
“This is a case about a company that misled its investors regarding the terms of two key long-term contracts ... and outright lied about its ability to continue to make substantial distributions to shareholders,” wrote Epelbaum’s lawyers, led by Andrew Entwistle of Entwistle & Cappucci.
The lawsuit names Dynagas, its holding company and general partner as defendants, along with chief executive Tony Lauritzen, finance chief Michael Gregos and founder George Procopiou.
Citing disclosures and statements made on conference calls, it alleges the company obscured facts about charters for the 149,000-cbm Ob River (built 2007) and the 155,000-cbm Arctic Aurora (built 2013).
In 2016, the Ob River had its charter extended for a year until March 2017 by Gazprom, with a new charter beginning in March 2018. In February 2018, the company disclosed that Statoil (now Equinor) would employ the Arctic Aurora on a continuation of its existing charter.
On its fourth-quarter earnings call that month, Lauritzen said charter rates had gone up — and, the suit alleges, he insinuated that its $0.4225-per-share dividend was sustainable.
Then, on a May conference call after the company had cut the dividend from $0.4225 to $0.25 per share the previous month, Gregos maintained that the current level of distribution was appropriate.
But for the second and third quarters, Dynagas blamed the two ships for falling short of Wall Street expectations due to lower charter rates. In January 2019, it cut its distribution to $0.0625 per share.
The lawsuit says Dynagas’ shares cratered by 80% between February 2018 and March 2019 — when Gregos told analysts the dividend was dependent on a rise in the master limited partnership market — dropping from $12.60 to $2.30.
Dropdown funding
The lawsuit further claims that Dynagas was set to fund new dropdowns of vessels from Dynagas Holding with a $750m at-the-market offering filed in January 2018.
It alleges that the executives were motivated to lie because if the share price stayed high, the dropdowns could be funded without diluting Dynagas Holding’s leading 43.9% position.
US Securities and Exchange Commission filings show Dynagas Holding is owned by the Procopiou family, including George Procopiou’s daughter, Marina Kalliope Procopiou, who, the lawsuit says, is married to Lauritzen.
Dynagas did not immediately return requests for comment.
