UPDATE 1-DryShips says no contracts for drillships yet

* Seen pick-up in tendering activity on drillships side * Believes IPO of rig business is better option * No plans to raise funds through equity offering

* Shares down as much as 7 pct By Hezron Selvi

BANGALORE, Oct 27 (Reuters) - Drybulk shipping and contract drilling company DryShips Inc (DRYS.O) does not have contracts for its drillships under construction as of now, the company's Chief Operating Officer Pankaj Khanna said on a conference call with analysts.

DryShips currently has two operational and owned ultra deepwater rigs, and four more under construction. The company has obtained financing for two drillships under construction, but still needs financing for the other two.

Khanna said in the current environment, contracts are a pre-condition to getting financing.

Oppenheimer & Co analyst Scott Burk said before the call: "They need to get a contract for the drillships they have in the yard, then that would allow them to get the debt to pay for those new buildings. Otherwise, they don't have enough capital now to pay for the new buildings."

However, Khanna noted that there has been a marked pick up in tendering activity on the drillships side.

In the last few weeks, other than the drilling tenders invited by Brazil's state oil company Petrobras (PETR4.SA), there have been about seven additional tenders for rigs from other oil majors, Khanna said.

DryShips is bidding for all the tenders and it is also in one-on-one discussions with a couple of companies, he added. "While Petrobras is seeking rigs to be built in Brazil, we believe DryShips has an opportunity to win at least one award due to the shipbuilder's strong reputation within the drillship segment," Dahlman Rose & Co analyst Omar Nokta wrote in a note to clients.

Lazard Capital Markets analyst Urs Dur believes that at least two of DryShips' four ultra-deepwater rigs will be contracted by the end of 2009.

Obtaining financing for the drillships will also move the company closer to the planned spin-off of its drilling segment.

Khanna said he believes an initial public offering (IPO) of the rig business is better in terms of realizing value than it is in terms of just giving dividend.

"What our investment bankers are telling us is that they expect to see the IPO markets open up somewhere around the end of first quarter next year," Khanna said, adding that he does not expect the spin-off to happen before that.

In a research note to clients, Lazard's Dur said he expects the long-awaited spin-off to happen by the end of the second quarter of 2010.

DryShips also said it currently has no plans to raise funds through an equity offering.

Shares of the company were trading down 5 percent at $6.55 in afternoon trade on Nasdaq. They touched a low of $6.38 earlier in the session. (Reporting by Hezron Selvi in Bangalore; Editing by Himani Sarkar)