Diana Shipping Inc (DSX) 2008 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by and welcome to the Diana Shipping Incorporated First Quarter 2008 Earnings Conference Call. During today's presentation all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions.

(OPERATOR INSTRUCTIONS)

I'd now like to turn the conference over to Edward Nebb, Investor Relations Advisor. Please go ahead, sir.

Well thank you very much, Vince, and thanks to all of you for joining us for the Diana Shipping Inc. 2008 First Quarter Conference Call. Members of the Diana Shipping management team who are with us today include Mr. Simeon Palios, Chairman and Chief Executive Officer; Mr. Anastassis Margaronis, President; Mr. Andreas Michalopoulos, Chief Financial Officer; Mr. Ioannis Zafirakis, Executive Vice President and Secretary; and Ms. Maria Dede, Chief Accounting Officer.

Before management begins their remarks, let me briefly summarize the safe harbor notice, which you can see in its entirety in the press release we issued earlier today. Certain statements made during this conference call, which are not statements of historical fact are forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on assumptions, expectations, projections, intentions and beliefs as to future events that may not prove to be accurate.

For description of the risks, uncertainties and other factors that make cause future results to differ materially from what is expressed or forecast in the forward-looking statements. Please refer to the Company's filings with the Securities and Exchange Commission. And with that, let me turn the call over to Mr. Simeon Palios, Chairman and Chief Executive Officer of Diana Shipping.

Good morning and thank you for joining us today. I am pleased to report that Diana Shipping has made a strong start in 2008, delivering record net income for the first quarter. Thanks to our efforts to expand the earning generation capacity of our fleet, as well as the sound economic prospects of the dry bulk shipping market generally, we believe the Company is on track to continue this excellent performance throughout the remainder of this year.

I would like to point out some of the highlights of the first quarter. Then the members of our Senior Management Team will review our market outlook and discuss the financial results in greater detail. Net income increased 149% for the first quarter of 2008 to an all-time high of $53.2 million U.S. or [$4.71] per share. Our strong performance last year really reflected the growth in our voyage and time charted revenues, as we expanded the fleet and manage our charting activities to take maximum advantage of the upward trend in time chartered rate as compared with the year ago period.

At March 31, 2008, we had 19 vessels employed in our fleet, or four more than a year ago. The increase has come in the [cape-sized] class where we have significantly increased our capacity over the past year. By pursuing a strategic and opportunistic approach to our chartering policies we have already secured revenues of between $241 million U.S. and $247 million U.S. for the 95% to 97% of the days remaining for 2008.

On a comparable basis, the [cross] revenues for the entire same period last year were only $152 million U.S. During the 2008 first quarter, we announced time chartered contracts for two of our vessels. These transactions demonstrated the strong demand for our vessels by quality charterers and bode well for our future. Please note there are still ten to 11 vessels to be chartered from now until the end of 2009.

I would also like to comment on our efforts to translate the strong performance of our company into a high shareholder value. Today, Diana Shipping declared a past dividend of $0.85 per share for the first quarter, consistent with our policy of rewarding shareholders with an attractive dividend. Including this dividend, we will have paid out a total of about $356 million to our shareholders since becoming a public company.

Last month, we also launched a dividend reinvestment and direct stock purchase plan. The plan permits our existing shareholders to reinvest their cash dividend in additional common shares of the Company. It also enables both existing and universal to purchase Diana Shipping common shares in a convenient manner. A number of our shareholders have been asking us to institute such a plan and we are pleased to be responsive to their interest in the Company.

In conclusion, we look forward to the balance of 2008 with great enthusiasm and confidence. We believe that our strategies have strongly positioned Diana Shipping to benefit from the favorable long-term trends we see in our marketplace. We have expanded and diversified our fleet, we have structured our time chartered contracts in a manner that maximizes the visibility of our earnings and we have the financial resources to support our profitable growth and to seize opportunities in our market. With that, I will now turn the call over to our President, Anastassis Margaronis. Thank you.

Thank you, Simeon, and once again a warm welcome to all who have joined us in this conference call. The first quarter of 2008 was certainly one of the most exciting quarters in recent history for both the equity [store] capital and dry bulk shipping markets. I might remind our listeners about the developments in the former, but to summarize developments in the dry bulk shipping markets which were equally remarkable, albeit much more positive.

We agree with shipping analyst, [Howell Robinson], that the wild freight market gyrations of the first quarter were primarily caused by fluctuations in the flow of cape sized iron ore and coal cargos at the time of relatively modest fleet expansion, this was mostly upset by driving port congestion, particularly in Brazil.

From January 2nd to March 31, 2008, the bulk and dry index fell 9.11% from 8,891 to 8,081. The bulk carrier cape index fell 9.37% from 13,233 to 11,993. While the Baltic Panamax index fell 0.89% from 7,938 to 7,867. These indexes have risen substantially since the end of the first quarter, and yesterday, March 13th, the Baltic Dry index closed at 10,354, the Baltic Cape Index closed at 15,769, while the Baltic Panamax Index closed at 9,710.

Looking at the macroeconomic data, most forecasters see economic growth in the United States, Europe and Japan slowing during the next two and possibly three years. However, Japanese industrial production increased in February 2008 by 1.6% from the previous month and exports unexpectedly rose in January 2008 by 8% month-on-month after rising 7% in December 2007. This was due primarily to the sharp increase of exports to China and Russia, mainly cars, which more than made up for the drop of exports to the United States.

According to DnB Nord, although the Chinese government is actively trying to slow down economic growth through interest rate hikes and lending restrictions, closing the social and economic gap between east and west remains a major policy goal. In this respect, heavy investment in infrastructure projects should continue.

The Chinese energy sector is more shielded against the policy to cap growth, which should ensure continued strong commodity demand for new, mainly coal fired, power plants. Hence, Chinese industrial production in January and February increased by over 15% from the prior year periods, hardly a sign of a serious slowdown.

In India, gross domestic product growth is likely to moderate to 7.7% in fiscal year 2009 from an average of 8.7% during the past five years according to city research. However, industrial production rebounded to 8.6% in February after softening in December and January. Consumption demand is also expected to grow due to the fiscal stimulus included in recent budgetary proposals.

On the issue of rising global credit costs, according to the World Bank, emerging markets in China appear to be unaffected due to this partly due to the surging practice of the commodity that most of them produce, but mainly because of the growth of domestic funding sources. Developing nations have cut the amount of money they raise in United States and Europe to a residual part of their funding needs as local bond markets grow.

Turning to steel, according to Reuters EcoWin in 2008, global steel consumption is estimated to increase by 7% from a year earlier to 1.4 billion tons. Gains are being led by the BRIC group of countries; Brazil, Russia, India and China, where overall consumption is expected to increase by 11% this year compared to 2007. The average estimate of increase in steel production by the Chinese steel mills in 2008 taken from Howell Robinson, JP Morgan and Clarksons is around 13%. This will result in the production of an extra 63 million to 73 million metric tons of steel.

Taking these estimates into account, additionally Chinese iron ore imports sufficient to insure this increase in steel production come to approximately 60 million metric tons. This is with Chinese local iron ore production running at around 790 million metric tons per annum. Now to iron ore. The world's top five iron ore exporters increased their combined production by 12% in the first quarter of 2008 compared to a year ago. The five largest suppliers to the seaborne market produced a total of 162 million tons of iron ore in the first three months of 2008, that is 17 million tons more than during the first quarter of last year.

During the same period, Chinese stocks of this commodity at ports reached record levels. It is estimated that they are now near the 60 million ton mark. No doubt, some of this is related to the price negotiations where the latest developments are the following; some of Chinese medium sized steel mills have agreed with Rio Tinto to pay 71% more for term cargos from its Hammersley mine scheduled for shipment this month.

At the same time, according to the China Daily, senior figures in China's steel industry believe that the major steel mills are about to concede to Australian minors demands for price rises of up to 85%, for Australian iron ore, which has less of a transport cost element compared to the South American iron ore and is of much better quality than the Chinese product. These same sources cited the reasons behind such a possible huge price confession is the fact that Chinese steel producers are paying much higher prices on the spot market for iron ore compared to the benchmark price.

Now to coal. Looking at international seaborne coal trades, in the absence of any unexpected shocks, such as the recent floods in Australia, Howell Robinson expect an increase in the combined shipments of thermal and coking coal during 2008 of about 40 million tons. Most of the extra coking coal is expected to come from the United States, Canada and Australia. Canadian exports in January were up 42.6% year on year, reaching 2.26 million tons.

As far as thermal coal is concerned, most of the additional shipments will come from Australia, Indonesia, Columbia, the United States, and South Africa. China and Poland, on the other hand, are expected to reduce their exports of this commodity. According to ICAP Hyde, the United States exported during the first quarter of 2008 81% more than a year ago. While these figures are based on exports out of Newport News and Norfolk, they cover a significant volume of total first quarter 2008 coal exports at 9.4 million tons. This has obvious benefits on demand for dry bulk carriers through the ton mile affect.

Grain shipments are expected according to Howell Robinson to increase by an overall 15 million metric tons in 2008. A relatively modest 4% growth rate, but important in the sense that it underpins demand for Panamax's, especially during the river [plate] shipment season, which is about to commence.

Minor bulks, some of which are shipped in Panamax bulkers are expected to rise by about 30 million metric tons during 2008. Shipments of soymeal, phosphates, potash and fertilizers have been growing during the first quarter of 2008 faster than the rest at rates between 7% and 19% year-on-year. As individual shipment sizes grow, so does the demand for Panamax bulkers.

In wrapping up our demand side review, we would mention once again, the often neglected, but fast growing Chinese coastal trade. According to Howell Robinson , the expansion of this trade is estimated at $100 million metric tons for 2008. This would make the Chinese coastal trade the single, most potent source of demand in the subcape sized bulker sectors.

Turning to supply and the new building auditor, broadly publicized new building statistics show that approximately 232 million tons dead weight of dry bulk vessels over 10,000 tons dead weight out on order representing about 59% of the existing fleet. These vessels are scheduled for delivery over the next four and a half years. The new building Panamax [panogen] on order comes to 49 million tons, which is about 45% of the existing Panamax fleet. While 119 million tons dead weight of capes are on order, representing about 90% of the cape sized fleet.

These figures taken from Clarksons research might vary somewhat depending on the source of the information. However, as mentioned on our last conference call, the main issue here is how many of these vessels will be actually delivered and when. Credit issues as well as the obstacles in the procurement of basic ship building materials by newly established yards plus the difficulties encountered in the completion of some shipyard projects are some of the reasons creating this uncertainty.

According to [Furly] consultants, after making some reasonable assumptions about new building deliveries and scrapings out to 2011, they estimate the Panamax fleet will grow by 6.6% in 2008, 7.4% in 2009, 12.9% in 2010, and 6.4% in 2011. For the capes, the equivalent numbers are 11.1% for 2008, 18.5% for 2009, 25.4% for 2010 and only 10.3% in 2011.

Turning to conversions, much has been said and written about single hull tanker conversions. Accurate numbers are hard to come by, but we consider the information provided by the World Shipbuilding Database and Maersk Broker as reasonably accurate. Apparently, China holds contracts for 39 conversions from VLCCs to VLOCs, the last of which is expected to be delivered at the end of 2008, or early 2009. The full 39 VLCCs as sold for conversion are indeed converted, it would result in an additional capacity growth of 95% in the VLOC fleet and 3% in the total dry bulk fleet.

In addition to the above, there are 11 [Supramax's], 17 [Aftermax's] and three Panamax's provisionally year-marked for conversion to bulkers. As we have said in the past, this whole conversion exercise is fraught with technical risk. Yard space is extremely difficult to find and it is unlikely that even the existing ships earmarked for conversion will, from a technical point of view, find the exercise plain sailing. Nonetheless, it is clear that in 2008, 2009 and 2010 at least some additional converted tanker ship capacity will be deployed principally in the long-haul Brazil to China iron ore trade.

However, it is well worth reminding ourselves that the far east run is inherently inefficient for these converted ships. Performing about four voyages per annum and without any back hull cargo, these super carriers actually transport the same amount of cargos in a year as an average 175,000 standard cape bulker, performing more productive triangular voyages. Only time will tell whether these very large bulkers provide an effective long-term solution to freight or ton reduction. All we can say is that they will have a negative impact on the supply-demand statistics.

Congestion now. According to Global Ports, in Australia the main coal and iron ore ports have 48 capes and about the same number of Panamax's waiting to load in early May. This is an increase of about four vessels compared to the week before. The grand total stands at 124 vessels, including [Handimax's]. At Dalrymple Bay, the waiting time two weeks ago stood at between 25 and 30 days, while at Newcastle vessels had to wait an average of between 16 and 21 days, both figures higher than about a month ago.

Simpson Spence and Young Australian Coal port congestion index stood at around 18 days at the end of April, about 23% before its all time high of 23 days seen in July 2007. The equivalent iron ore index stood at the end of April at around four days, considerably below its four-year high of 13 days reached last April. A frequently appearing port in recent lists of iron ore loading ports with congestion is the Brazilian port of [Porta di Madaya] where ships are having to wait between ten and 19 days to load their iron ore cargos. There is no doubt that congestion is continuing to play an important role in the demand supply balance of bulk carriers.

For our outlook now, we concur with most shipping analysts forecasts that strong increases in cargo demand will continue in 2008, and this is likely to be broadly matched by increases in tonnage supply. Factors affecting the supply and demand balance, such as the ton mile affect and congestion will continue having a generally beneficial effect for ship owners on this balance.

Risks on the downside include those we have already mentioned in our past conference calls, such as the downside risks of the whole commodity cycle, the growing bottlenecks in cargo generation and overinvestment in ships and shipbuilding capacity. The later might overshoot the moon after 2009.

Looking ahead at 2010 and beyond, all we can do is mention the brief extract from the March business plan announcement by Japan's Nippon Yusen Kaisha or NYK, one of the largest shipping companies in the world. They estimate that dry cargo rates in fiscal 2010 might fold to half their present level. The company's president, Koji Miyahara, is quoted as saying at the press briefing that the market will enter a phase of downward adjustment, a tonnage shortage created by a rapid expansion of demand will be cleared in fiscal 2010. End quote.

NYK projected the Baltic Dry Index would drop to 3,400 for fiscal 2010, which translates into a cape size time charter rate of about $55,000 a day. As low as this number might appear, compared to today's levels, it should be kept in mind that historically it is still very high. This means that at least according to NYK, the market is unlikely to return to the days in the past when cape size rates averaged as low as $10,000 a day.

On April 25th this year another large bulk carrier shipping company from Japan, Kawasaki Kisen Kaisha, or K Line, announced its medium serve business plan with the assumption that the cape size time charter rates will average $100,000 a day in fiscal 2008, $80,000 a day in 2009, $60,000 for fiscal 2010, and $50,000 for fiscal 2011.

We not necessarily agree with these forecasts for the simple reason that they are as good as the strength of the assumptions made in the respective business models. There is no doubt that NYK and K Line have an enormous amount of data in their databases and their intelligence collecting resources are second to none in this shipping industry, but even they cannot avoid making assumptions about developments; for example in mining, port congestion, inflation, political events, etc. which if they do not materialize can make their forecasting model go badly wrong and the longer the forecasting period the greater the forecasting error.

For example, we are by no means certain of the effects of world trade or future measures by government and central banks to control inflation. It seems that the two present ills of the world economy, i.e. the financial services sector balance sheets with credit-related issues on the one hand and inflation on the other have been tackled, at least in the United States, one at a time. Once the banking sector problems have been cured, how can we know with any degree of certainty how the secondary of measures taken by the Federal Reserve against inflation will affect world trade. We fear, that even the policy makers themselves have no idea how this scenario will play out.

All we can say with a certain degree of certainty is that our model has a huge margin of error for any forecasting period beyond 12 months. That is the reason behind structuring our business model around the very strong balance sheet together with conservative chartering and vessel acquisition policy. I will now pass you to our CFO, Andreas Michalopoulos, who will provide you with our company's financial highlight for the first quarter 2008. Thank you.

Thank you, Anastassis. Good morning. I am pleased to be discussing today with you Diana's operational results for the first quarter of 2008. Net income for the first quarter of 2008 amounted to $53.2 million and increased by $31.8 million or 149% compared to $21.4 million for the same period in 2007. This increase is attributable to increased average hire rates and also to the enlargement of the Company's fleet that went from 15 vessels at the end of the first quarter of 2007 to 19 at the end of the first quarter of 2008.

The earnings per share of Diana shipping amounted to $0.71 for the first quarter of 2008 compared to $0.40 for the same period in 2007. For the computation of earnings per share for the period ended March 31, 2008, net income available to common shareholders has been reduced with a dividend amounting to $45,300 paid to the non-vested restricted shares that were awarded to executive and non-executive officers of the Company in February 2008.

Voyage and time charter revenues increased by $40.4 million or 105% to $78.9 million in the first quarter of 2008, compared to $38.5 million in 2007. The increase is attributable to increased average hire rates and the increase in the number of vessels in the fleet after the acquisition of the Aliki in April, the Semirio in June, the Boston in November, the Salt Lake City in December 2007 and the Norfolk in February 2008. This increase was partially offset by the decrease in revenues due to the delivery of the [Pandalis] to its new owners in July 2007.

Ownership days were 1,688 for the first quarter of 2008, compared to 1,350 in the same period of 2007 due to the enlargement of the fleet mentioned earlier. This utilization was 99.8% in the first quarter of 2008, and 98% in the same period of 2007. The daily time charter equivalent rate for the first quarter of 2008 was $45,191 compared to $27,283 for 2007. Voyage expenses increased by $0.9 million or 53% to $2.6 million for 2008, compared to $1.7 million in 2007. The increase in voyage expenses is attributable to the increasing revenues which created higher commission payments and was partly offset by income resulted from the sale and purchase of bunkers at the delivery and redelivery of vessels during the period, amounting to $1.1 million for the first quarter of 2008 and compared to $0.1 million for the same period in 2007.

Operating expenses increased by $2.7 million or 42% to $9.2 million in 2008, compared to $6.5 million in 2007. The increase in operating expenses is attributable to the 25% increase in ownership days resulting from the delivery of the new cape sized vessels to our fleet having higher daily operating expenses on the Panamax vessels and also the increases in crew costs, insurances, stores and spares. Daily operating expenses were $5,458 for the first quarter of 2008 compared to $4,830 in 2007, representing an increase of 13%.

Depreciation and amortization of deferred charges increased by $5.5 million or 115% to $10.3 million for the first quarter of 2008 compared to $4.8 million for the same period in 2007. This increase is attributable to the increase in the number of the vessels to our fleet and was partly upset by the depreciation expense of the [Panamax's fleet].

General and administrative expenses increased by $1.4 million or 64% for the first quarter of 2008 to $3.6 million compared to $2.2 million in 2007. The increase is mainly attributable to the increased salaries and consultancy fees, increased directors and officers insurance, increased expenses relating to our annual meeting, company promotion expenses and to accrued employee cash bonus, which did not exist in 2007.

Interest and finance costs decreased by $0.6 million to $1.5 million for the first quarter of 2008 compared to $2.1 million for the same period in 2007. The decrease is attributable to reduced interest costs relating to long-term debt outstanding during the period. Insurance settlement for vessel un-repaired damages amounted to $0.9 million and relates to cash received in the first quarter of 2008 for un-repaired damages relating to the claim of motor vessel [Korinice] during the previous year.

As an additional note, in February 2008, the Board of Directors granted 75,500 shares of restricted common stock to executive management and non-executive directors pursuant to the Company's 2005 equity incentive plan and in accordance with the terms and conditions of the restricted shares award agreement signed by the [grantee]. The restricted shares will be vested over a period of three years by one-third each year and are subject to forfeiture until they become vested unless they forfeit, grantees have the right to vote to receive and retain all dividends paid and to exercise all other rights, powers and privileges of the holder of shares.

The total compensation cost will be $2.3 million and is accounted for on the straight line basis over the vesting period. During the three month ended March 31, 2008, compensation costs relating to the issuance of the restricted stocks amounted to about $75,000 and is included in the general and administrative expenses.

Turning to dividend policies. For the first quarter of 2008, the Board of Directors has decided to declare a dividend of $0.85 per share. Diana declares and pays quarterly dividends that are substantially equal to available cash from operations during the prior quarter. In calculating the cash dividends, we take into account expenses, dry docking reserves, contingent liability and cash needed to support the Company's operations.

Pursuant to our amended dividend policy on September 22, 2007, the first quarter dividend has not been increased for the interest expense and is not tax-related as if we were financed with equity for the outstanding date debt, as the qualifying debt on our balance sheet was about $150 million. Thank you for your attention. We would be pleased now to respond to your questions, and I will turn the call to the Operator who will instruct you as to the procedure for asking questions.

Thank you, sir. We will now begin the question and answer session.

(OPERATOR INSTRUCTIONS)

And our first question is from the line of Seth Glickenhaus with Glickenhaus Company. Please go ahead.

I really don't have any questions, I just wanted to congratulate you on a wonderful quarter and hopefully a very fine year. Thanks ever so much, gentlemen.

Well, I would like to thank you and especially because it comes from you. Thank you very much, sir.

Right, sir.

Thank you. Our next question comes from the line of Justin Yagerman with Wachovia. Please go ahead.

Hi, this is Mike Webber filling in for Justin Yagerman. Good morning, guys.

Hi, good morning, Mike.

Hi. I've said a couple of questions, first some high-level questions and then a couple more granular questions. Looking at your fleet and looking out across at some of your competitors, I think acquisitions that you guys have talked about before is certainly something that you guys are looking towards. Within the SNP market today and given where rates are, where are you looking specifically for fleet growth? And then, with regards to the liquidity in the market, can you do a deal at last done or are you going to have to pay up to do that?

Well thank you very much for your question. I think that the ships for sale are there and I think today the accretion for which we are looking is more vivid than previously. So both all the Panamaxes and on the capes. The first thing to look for us will be the capes, and secondly the Panamaxes. But rest assured, that in both segments there is accretion.

Okay, thanks a lot. With regards to some of the strength we're seeing specifically in the Atlantic, it looks like it's providing some of the froth to or otherwise seemingly orderly strong market. How sustainable do you think that strength is and how much of it do you think is to do with pockets of liner supply and demand imbalances stemming from the Argentinean [ax] strike and then at what point does vessel migration mitigate that catalyst?

It looks like the market will sustain for the immediate future and we show today an increase of [grades]. The capes went up today 588 points and issue roots are at $196,000 daily and [does regard the Panamax] for this routes is standing today at $80,000 daily. It went up 239 points today.

So I think that the rates are looking very good and as we mentioned before, we have between nine and ten vessels which are going to be open. So I think that we look pretty strong and because we have such a strong balance sheet we can be a little bit more opportunistic, so we are going to wait a little bit longer for the vessels which are coming open in about 2 months time to try and get the maximum rates.

Great, that makes a lot of sense. With regards to your dividend, obviously $0.85 is you are getting up to some lofty levels. And given that you are creeping up on the maximum earning capacity of your fleet and we're probably closer to a peak than a trough with regards to rates, has there been any thought of moving away from a fixed dividend policy to maybe avoid year-over-year declines when you look out towards 2009, 2010 and the supply that's coming online.

I think the essence of our strategy is to be a dividend player and the characteristics of our model is, as our Chairman and CEO pointed out, to have a very strong balance sheet and together with that, to have a very young average age of fleet. Those two characteristics make us feel extremely comfortable to be able to reward our shareholders with the high dividends that you see this quarter and most probably the next quarters as well. If you look at the percentage revenues that we have secured for the next quarter, you will very quickly make the calculation for yourself. So we feel comfortable with our model today and our possibility to distribute dividends.

Okay, great. And then just a couple more granular questions. With regards to the non-cash amortization of prepaid charter hire, I know you guys haven't broken that out in the last couple of quarters, but what's the phenomenal amount of non-cash revenue that's reflected in your net revenue figure?

The effect of the non-cash revenue is not that big because we have income from amortization and expense. For example, we have the Salt Lake City, which for the first quarter has an amortization of $1.3 million, but we also have the vessels [Sideris], [Aliki] and [Semirio], which have been chartered with variable rates. And we account for those rates for the average rates of those agreements and not the ones that we are being paid. So the net effect of all these amounts is about $30,000 so there isn't actually an effect.

Okay.

$30,000 for the quarter.

Great, that makes sense. And then, finally, I know you don't have a tremendous amount of exposure to this, but is there any sort of hedging with your bunker costs for those few voyage charters you do have and how exactly does that work?

We do not pay the bunkers for the vessels, the bunkers are paid by the charterers and there are some occasion and that is laid out in the charter party whereby, when you have a redelivery of vessels like we had, for example, redeliveries of many vessels during that first quarter, you can have other gain or loss on your bunkers. But this is just one of that can be either way. The positive for this quarter, is that we had a gain, as I mentioned during my little speech for this quarter. But from that, we do not pay the bunkers on the vessels.

Okay, so that's not associated with that two-month charter, I believe it's on the Nirefs? That's --

No, that was a time charter, we don't have any voyage charters on our books at present.

Okay.

The freight market is so strong, you are not in need for [balancing]. So when the charter expires, then the next charter that takes delivery from where the previous charter has left the vessel, so there is no need for you to balance.

Okay, great. That's all I have. Thank you, gentlemen.

Thank you.

Thank you. Our next question is from the line of Jonathan Chappell with JP Morgan, please go ahead.

Thank you. Good afternoon.

Good afternoon.

Good afternoon, Jonathan, good afternoon.

Simeon, you showed a little bit more optimism towards potentially growing the fleet than just a couple months ago, and I understand the returns have changed given a stronger rate environment. When we think about the financing of any potential acquisitions, can you remind us what the deck capacity is to add new vessels? Maybe update us on how you view the bank's credit situation right now as far as lending? And also, just to wrap it all up, how this growth strategy ties to the recent filing that you put out there?

Well, as I mentioned before, I think that are a number of deals that you do and provided they are accretive to the dividend per share, we are very, very closely looking at them. Now, we have different alternatives to finance those vessels and I think that we are in the process to see what are the best and to add value to our shareholders way of financing those without diluting existing shareholders to any degree, provided they are accretive, we will do it.

I can add on the revolving credit facility that we have, it is still $300 million with the Royal Bank of Scotland, which is basically on very good terms and those terms have not changed. The structure of our company, as you can understand, the experience of the management makes us to be in a very good position to be the least affected by any kind of credit crunch problem. And banks still are visiting us to see whether they could have an opportunity to lend us more money. So this $300 million is just indicative.

At the moment, from this $300 million, we have used $143.2 million as we speak. And so having said all this though, we still stick to our strategy, as Mr. Palios said, to have accretive acquisitions to the dividend per share and to basically finance those accretive acquisitions with increasing our capital base. This is our strategy and we have not changed that strategy at this point in the cycle.

Okay.

There is no doubt, Jonathan, that any further borrowings will not be on terms as favorable as Andreas mentioned, the $300 million facility, but it will be available, that will be available at slightly higher cost, which is not going to make the deal unattractive.

Understood, thank you. Another detailed question just on the debt structure, of the $197 million that was outstanding at the end of 1Q, just at it relates to dividend calculation, how much of that is attributable to the fleet on the water versus to the new builds?

It was around $170 million, which is on or about $150 million.

So the --

Yes. As the pre-delivery facility, we [fought this] bank for the two cape sized vessels of 2010.

Okay, and two more quick ones. Dry docking; we have two vessels scheduled for dry dock this year, is that still correct?

At the moment we had in the first quarter, motor vessel Alcyon that had this intermediate survey that was past in lieu of dry dock in February. We had motor vessel [Annai], which had the intermediate survey also passed in Europe dry dock in South Africa, and we had in March motor vessel [Naias], which has also the intermediate survey that was passed.

Motor vessel Aliki in January that had been to intermediate survey passed in lieu of dry dock in South Africa. And finally, also, motor vessel Salt Lake City in February that passed its intermediate survey in lieu of dry dock, which was planned for later in the year in September. So as we speak, we have now through the end of the year only motor vessel [Yioni], which needs to have an intermediate survey and which has intermediate survey deadline in November, so in the fourth quarter of '08.

Okay, helpful. One last industry question; seems like there's some new iron ore projects coming online in the Pacific Basin, specifically the [Fort Ascue] iron ore plant with about 30 million tons. As you view this in the overall market dynamics, is this a positive because there's more cargo on the water to move or is it potentially a negative because you'd replace some of the longer haul Brazilian ore with some shorter haul Pacific Basin ore?

Yes, sir. It would have been negative if this additionally iron ore were to replace longer haul shipments. From what we can see, it is absolutely necessary that we get some extra commodities to be shipped. For the simple reason that, as I mentioned, that one of the risks that this market is facing with the increased tonnage are the commodity production bottlenecks, and this is one development, this new Fort Ascue that somehow alleviates the problems of these bottlenecks which are more acute, I should say, and more pronounced in the coal sector.

And we welcome them because without such developments, there would be ships there but not enough commodity to ship them from. Of course, we would love it if this whole project were as far away as possible from Asia, but we need it and we need it anywhere in the world that it appears so it can keep the ships busy that are coming on stream.

Okay. Thank you, Simeon, Anastassis and Andreas.

Thank you. Our next question is from the line of Greg Lewis with Credit Suisse. Please go ahead.

Good afternoon, and congratulations on another great quarter. I mean, I guess my first question is regarding -- you talk about and clearly it is poor congestion's been picking up, what sort of infrastructure adjustments have the Australians been making to alleviate poor congestion? And is this going to more like out two to three years or is this something that we could see potentially even longer out?

Well, there are plans which we have mentioned in some previous conference calls, going out to 2015. Now, the immediate projects which [arranged] to bring more cargo to port and at the same time make ports capable to ship these are going to start increasing capacity to ship primarily coal, but also iron ore from Australia at a tune of around 10% to 15% over the next two years. Talking very roughly now without having detailed notes before me.

So there are plans happening, there are also problems, especially on the land logistics because of the number of interests that are involved in their development and execution. But there is no doubt that the Australians have realized what the Chinese have as well realized, but have done more about it, that unless they increase the ship handling capacity and the commodity handling capabilities, there will be continuous problems leading to congestion to the point that shippers might not bother sending ships to certain ports, which is the last thing that the port authorities want.

So the answer to your question is yes, there are plans, there are not enough to cope with the increased demand for shipment. But at least they are there and they're being, as we speak, executed, many of them sponsored by the main mining concerns, of course, like [Realtor] BHP Billiton.

Okay, great. And just to follow up on that, towards the end of last year, some of the call terminals implemented quota systems in Australia, are those quota systems still being -- are those still in place at this point?

Yes. There's one major quota system in place effectively in the Newcastle area, and it's still effective. They have reduced the cargo allocations slightly by about 1 million tons because they can't cope with what they were hoping they would be able to cope as far as cargo movement is concerned. But the answer is yes, and the existence of this, let's say, [Berta] location system is the reason why we don't have much longer cues in the Newcastle area.

Okay, great and then I guess one follow, last question. Did it look like, quarter-over-quarter, your vessel operating expenses were down on a vessel per day basis. With current costs on the rise and clearly maintenance and lubricants on the rise, how were you able to push that number down on a quarter-over-quarter basis?

Well, as you know, we are extremely tight on the vessel operating expenses in the sense that we follow them extremely closely and not only that we follow them, but without jeopardizing the preventative maintenance on the vessels. Now, having said that, it's first of all -- it's really marginally down. That's point number one, it's not as if you had an enormous, let's be fair.

And second of all, it sometimes depends on two things. First of all, initial supplies on vessels and how important those are, and we had the initial supplies for the Salt Lake City in the last quarter and also for Norfolk in this quarter, so I guess that's not the [agreement]. But the second thing is that sometimes we always try to find, in terms of our suppliers, the best port to be able to supply the vessels. This is the second reason.

But most importantly, we had some savings on crew costs this quarter that due to the mix of crews that we have on the vessels and this is -- this brought part of this very good operating expenses that we have. So do we expect the same level for the next quarter? The answer is yes. In our budget for the next quarter, we expect more or less the same level than the first quarter and more or less the same level with the end of the year, the last quarter, fourth quarter '07.

Now, where you might see an increase is the typical increase that you get in the third quarter of the year whereby you have crews that get their increases in typically the third quarter of the year and are retroactive from the beginning of the year. And finally, and I will stop there. Insurance has also increased in the first quarter of this year and will probably continue increasing and you will see that in from the second quarter with continued increasing in the second quarter of '08 for sure.

Okay, great. Thank you very much.

Thank you. Our next question is from the line of Urs Dur with Lazard Capital Management, Capital Markets. Pardon me. Please go ahead.

Good morning, gentlemen.

Good morning.

Urs Dur. I guess the one question I have is more on the supply side and it was mentioned by Anastassis. I was wondering if you could walk through a little bit again your view of the order book and substantially what your opinion is of possible delays and non-deliveries and how it relates to different segments of the order book, say cape size and Panamax versus Handimax, Handisize.

Complex issue which is --

Yes

-- impossible to answer accurately. But there are, of course, already problems with certain yards which have not been constructed facing with the completion of their construction. The Korea yard is one which was recently hit the wires and it has been several news releases about the holding of construction of that yard due to a protest by fisherman and other strong interests in the area. Now that will take about ten to 15 capes out of the order book if this yard is never constructed. But more importantly, in China we should focus on the inability of many yards to get the refund guarantees which are necessary to make their ship building contracts effective, as we know.

In other words, banks in China seeing the difficulties that these yards would experience in procuring the ship building materials that they need and coping with other problems relating to completing the building of their shipyards are hesitant to issue their refund guarantees, especially when they see a huge probability of them having to pay out under these guarantees. Therefore, no refund guarantee, no contract is the answer. So the question then becomes how many shipyards are facing these problems and for how long will they be facing them? Their estimates ranging from anything from 20% to 30% of all contracts placed with Chinese shipyards having this problem.

Now, what types of ship are they building? Primarily, I would say that they are building ships in the Handimax Panamax, and quite a number of them now in the cape size sector and container ships as well, from 1,000 [PEU] up to 3,000 to 3,500 PEU. So what will happen now at the end is really anybody's guess. We have to monitor this, we'll get a better picture towards the end of the year, but we can say with certainty that there are about now, as we speak, 250 ships according to some quite good estimates that are very much in doubt whether they will ever be delivered out of the order book.

Now, that's not a lot. It's only 10% of the order book and is mainly focused on the smaller bulk carriers, I would say Panamax and below. But this is only the beginning now of the problem. I sure that this number will rise towards the end of the year and we will be looking at a much higher number of ships whose future delivery looks very much in doubt. But unfortunately, this is all I can say of this problem.

Right, it's a tough one. I appreciate it. Thank you very much.

I think I'll add something, you've --

Of course, yes.

I think we have what [Staci] mentioned, the green field yards around. One would question whether they will be able to produce the new building orders they have received and, of course, you have also the viability of funds, which is another issue and you need to -- according to the honor list you need $635 billion is going to be required over the next five years to finance the new building orders. Now, what I would like to stress is that the net effect of those issues mentioned are not only positive for companies like ours that we do not have orders in non-existing green field yards, and have a very strong balance sheet.

Yes.

You get my point?

Yes, I understand.

Thank you.

No, I appreciate it very much. Thank you very much. See you in Posidonia. Thanks.

We look forward to welcoming you here.

Yes, thank you.

Thank you. Our next question is from the line of John Mims with BB&T Capital Markets. Please go ahead.

Hey, good morning. I'm standing in for John Barnes. This, quickly, you mentioned the large bulkers could possibly change the supply and demand dynamics in the market and rates may be possibly reaching a peak. If rates were to fall off rapidly, do you have any -- do you see any default risk in your long-term contracts?

Well, the long-term contracts that we have are with the first class charters. You have the likes of BHB built on [Cargill], [Borosch] and major Japanese. So for the long-term charters, the answer is no.

Okay, so no risk that they would just walk away for better pricing elsewhere?

They cannot walk away. The [Russians] are there.

Right. Okay, okay. That makes sense. And just one other question. Looking at China, do you foresee any disruptions in production with the most recent earthquake and then looking ahead at the Olympics?

I think the flywheel of China is huge. And to have any interruption, you need a number of earthquakes; one will not suffice.

And of course, the medium-term effect of this is positive primarily for the Handimax's and Handisize and Panamax vessels, not so much for capes because this tragedy, which is undoubtedly what it is, is going to lead the country and the government to give priority to reconstruction and add effectively to the already high number of infrastructure projects, projects relating to the provinces that have been mostly hit by this earthquake. So a lot of building materials will be moving around, and there will be demand for commodities, more demand again for power and things that we have been seeing being in huge demand in China.

Great, great. That sounds awesome. Well, thank you for the color and again, congratulations on a great quarter.

Thank you very much.

Thank you. Our next question is from the line of Kevin Sterling with Stephens, Inc. Please go ahead.

Good afternoon.

Good afternoon.

Good afternoon.

Congratulations on a great quarter, and nice increase on the dividend. I just, most of my questions have been answered. I just have one follow-up question to the vessel acquisition strategy and what you are seeing in the market. Are you seeing larger fleets put up for sale or are we still seeing mainly one or two vessels that are generally for sale. I'm just curious, are we seeing any potential larger fleets up for sale?

We haven't seen major fleets, the most prominent fleet which is now on sale, I think, is a fleet of new buildings, which is being marketed by a company which is based here in Greece. Cape sizes primarily, but they're not in the water. And these similar to the Quintana transaction, which was done recently, we have not seen being marketed since then. So ships primarily are the main sale candidate that appear.

Okay, well thank you for that. That's all my questions. Once again, congratulations on a great quarter.

Thank you.

Thank you.

Thank you. And that's all the time we have for questions today. I'll turn it back to Simeon Palios for any closing remarks.

Thank you again for your interest in and support for Diana Shipping. We are very encouraged by the record results for our company in the past quarter and we look forward to continue progress and growing shareholders value in the months to come. Thank you very much.

Thank you. Ladies and gentlemen, that does conclude our conference for today. I'd like to thank you for your participation.

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