Diana Shipping Inc (DSX) 2008 Q4 法說會逐字稿

Ladies and gentlemen, welcome to the Diana Shipping fourth quarter 2008 earnings conference call, on the 19th of February, 2009. Throughout today's recorded presentation, all participants will be in a listen-only mode. (Operator instructions) I will now hand the conference over to Edward Nebb. Please go ahead, sir.

Thank you, David, and welcome to the Diana Shipping fourth quarter and year end 2008 conference call. The members of the Diana Shipping management team who are with us today are 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 news release that we issued this morning. 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 a description of the risks, uncertainties and other factors that may cause future results to differ materially from what is forecast in the forward-looking statements, please refer to the Company's filings with the SEC.

Now let me turn the call over to Mr. Simeon Palios, Chairman and Chief Executive Officer of Diana Shipping.

Thank you, Ed. Good morning, and thank you for joining us today. I am pleased to report that Diana Shipping produced excellent operating and financial results for the fourth quarter and full year 2008. We are especially proud of this performance since it has been achieved despite the extremely challenging conditions facing global economies in general and the dry bulk sector in particular.

During this period of great disruption in the market, Diana remains a strong, profitable and resilient company. We are well positioned not only to withstand rough seas, but also to capitalize on future opportunities.

I would now like to share some of the highlights of our 2008 performance. More importantly, I will describe Diana's solid position as we look toward the balance of 2009.

Net income was $54.2 million for the fourth quarter of 2008, an increase of nearly 49% from the comparable period of 2007. For the full year ended December 31, 2008, net income was $221.7 million, an increase of more than 65% as compared to the prior year.

Voyage and time charter revenues totalled $84.3 million for the fourth quarter of 2008, and $337.4 million for the full year. This represents an increase of 43% for the quarter, and 77% for the year.

We believe the same strategy that enabled Diana to produce these positive results will continue to serve the Company and our shareholders well in the difficult times that lie ahead. Let me review some of the key elements of our strategy, which is prudent, time-tested, and intended to mitigate risk.

First, our chartering approach is designed to provide a high degree of revenue visibility. For the full year 2009, we have already fixed revenues for the majority of the available days. These revenues are significantly in excess of our fixed expenses. The revenues generated from the few vessels whose charters will expire in 2009 will be in addition to our already secure revenues.

Second, we have focused on building relationships with high quality charterers, an especially important factor at a time when the solvency of some charterers has been a cause for concern. The majority of our vessels have been chartered to companies whom we deem strong and substantial. Many of these relationships have been expanded in recent months, as the major charterers increasingly seek stable partners in the current marketplace.

Third, we believe in maintaining a solid balance sheet and have a debt level that is one of the lowest in our industry. At the end of 2008, long-term debt stood at $238 million dollars, compared with a total stockholders' equity of $775.5 million.

Fourth, we have always emphasized the value of a young fleet, which now has an average age of 4.3 years. The efficiency of our modern fleet and the flexibility afforded by our sister ships has been a strong point in attracting quality charterers. Above all, it helps us to ride the cycle during these difficult times.

These features, maintaining high revenue visibility, relationships with strong charterers, a healthy balance sheet, and a young fleet have combined to make Diana a strong, stable company. As a result, where many less well-positioned companies see only challenges, we are poised to seize opportunities.

In particular, we believe the present market will offer exceptional opportunities to acquire vessels at attractive prices. We also should see a continued flight to quality by end users of dry bulk carriers, enabling us to deepen our relationships with major charterers. Our management team will actively explore these and other opportunities in a selective and disciplined manner, intended to create value for our shareholders.

With that, I will now turn the call over to our President, Stassi Margaronis, who will provide you with a perspective on market trends. Thank you.

Thank you, Simeon, and a warm welcome to all who have joined us in this conference call.

The turbulence in the world economy has had a profound influence on the dry bulk shipping freight market, as can be seen from the Baltic indices mentioned below. The Baltic Dry Index started the fourth quarter of 2008 at 3,025, and yesterday closed at 1,986. The equivalent figures for the Baltic Cape Index were 4,186 and 3,587, while for the Baltic Panamax Index, were 2,102 and 1,352 as of yesterday's close.

There is no doubt that the future course of the freight market will be closely linked to the worldwide demand for steel, which in turn, will move with world GDP and industrial production growth. Let us look at the latter before discussing steel production.

According to the IMF, during 2009, world growth is forecast to fall to its lowest level since World War II, with global output and trade plummeting. For this current year, the IMF expects real economic activity to contract by around 1.5% in the United States, 2% in the Euro area, and 2.5% in Japan. With positive growth of plastics, 0.7% in China, the IMF predicts the world economic growth for 2009 to come in at around 0.5%.

The well-publicized stimulative actions taken by governments around the world will undoubtedly help the world economy come out of its present downspiral, and the big question, as usual, is when will this happen. According to a recent article in The Economist magazine, much depends on the effectiveness of the stimulus programs, the last one announced just a few days ago by the Chinese government, which in turn hinges on the extent to which China is now a capitalist economy.

Ironically, the more it remains a command economy, rather than a capitalist one, the better the chances for a recovery in 2009. State controlled firms in China account for one third of industrial output, and almost half of all investment. They have been asked by the government not to cut capital spending.

At the same time, all the big banks in China are government-owned, and have had their controls on bank lending suspended, while at the same time have been encouraged to lend. On top of all this, more public housing and infrastructure projects are on the way. The banks appear to have led the way in this whole process, with total lending surging by 19% in the year to December 2008. China is one of the few large economies whose banking system has not been crippled by the global credit crunch.

How will these forces work to bring the world economy out of recession? According to DeLoitte Investment Advisors, the single best long-term forecast indicator of the US economy is the Treasury yield curve. Since World War II, it has correctly anticipated every recession and every recovery.

According to DeLoitte, the yield curve is something of a proxy for bank margins. A steep yield curve enables the banks to borrow cheap and lend dear. Over the past year, the yield curve has steepened significantly. For the current business cycle, the peak of the yield curve came in November 2008. Looking at the behavior of growth in past recessions, this suggests that the recovery from the current recession will not start before late this year.

In the meantime, the ongoing lack of credit, coupled with the deleveraging of bank and consumer balance sheets, will dampen the pace of any near term growth. On the positive side, pent-up demand is growing for cars and housing, while real wages, for those with jobs, are up 4.6% from a year ago. Rising real wages are a good leading indicator for consumer spending.

Having lost the benefit of mortgage refinance money, consumers in the United States need to rebuild their finances the old-fashioned way, through real earnings. As unemployment eventually stops rising, this will be a major factor in fueling future growth well before unemployment starts coming down.

How will all this translate in demand for transportation of bulk commodities, and how much supply will come in to meet this demand? To answer the question, we have to look at steel production.

According to Clarksons, world steel production dropped during 2008 20% year on year, as steel mills idled capacity. Surprisingly, Chinese output of steel actually improved in December, month on month, by about 10.3%. However, this is still down by 14.3% year on year. At least for the time being, Clarksons do not believe that the slight upswing in output represents the beginning of a long-term upward trend in the production of steel.

In a report on Hong Kong, HSBC said that 2009 global steel production is expected to contract by 7.2%. For the world excluding China, the figure is expected to be minus 9.4%. However, the bank expects some rebound in steel production during 2010, with an estimated increase of about 3.6% on a worldwide basis.

It will continue by focusing on the anticipated changes in overall demand and supply in dry bulk shipping, and will start with iron ore. Clarksons are forecasting that overall transportation of iron ore during 2009 will reach 752 million metric tons, a drop of 11% from 2008.

This forecast incorporates the assumption that China's steel demand will grow 5% during 2009, down from about 6% increase during 2008. Here there are a few positive signals to watch out for, such as China's steel prices, which have recently begun to rise, and a pickup in the rate of Chinese iron ore imports. The forecast of Clarkson Johnson Rice is that during 2009, Chinese iron ore shipments will grow by 7%, compared to 2008, with a further 8% rise during 2010.

The by now famous iron ore contract negotiations are well underway, with steel mills hoping to get from the miners a reduction of over 40% in the price of contract iron ore, while the mining companies are holding out for a 10% reduction compared to last year's contract prices. Chinese and Japanese steel mills are locked in talks with Valley, Rio Tinto, and BHP Billiton, pushing for a cut of around 45%, partly based on sharp spot-price declines in prices late last year. However, BHP Billiton and Rio Tinto are hoping to secure a lower than expected decline in annual contract iron ore prices, as demand rebounds in China.

Before we move on to other commodities, we ought to mention two more encouraging signs. The first is that according to Maersk Broker, iron ore stockpiles in Chinese ports dropped as of February 1, 2009, to around 54.8 million tons. Another is that iron ore carrying bulkers are waiting for up to five days at Beilun or Nantong ports before being allocated a berth. Congestion has therefore returned to the system, this time not only in Australia, but in China as well.

It is estimated that as of two weeks ago, more than 60 vessels were waiting for an average of nine days to discharge iron ore at Chinese ports. According to Clarksons, congestion in Australian coal ports has reached 39 vessels, with an average waiting time of nine days.

Now, coking coal. According to the latest report from the Iron and Steel Association, world steel production will certainly shrink during 2009. With this decline comes a reduced demand for coking coal used in the steelmaking process. Clarksons are forecasting the transportation of about 209 million metric tons of coking coal during 2009, a drop of 6% compared to 2008.

BHP Billiton is forecasting weak demand in 2009 for metallurgical coal. The company expects shipments from coal ports on the east coast of Australia to mills in Asia to be affected later this year.

Steam coal. The Clarksons estimate for transportation of steam coal during 2009 is at a steady 576 million metric tons. Clarkson Johnson Rice believes that if it were not for the reduced demand for transportation of thermal coal due to the cuts in production in the energy intensive industrial metals such as steel, aluminum and others, the transportation of thermal coal would increase during 2009. The main reason is that thermal coal used for power generation is generally inelastic, with the above-mentioned exception.

Population factors dictate a continuously increasing demand for power for domestic use, especially by developing nations. According to the Australian government agency ABARE, strong world import demand during 2009 is expected to be met by increased shipments from Indonesia, Colombia, and Australia.

Grains -- here, Clarksons expects the world shipments to reach 230 million metric tons during 2009, a reduction of 3% compared to 2008. As in previous years, the grain trade will play a side act in the future scenario affecting demand for the transportation of bulk commodities.

Before we look at the supply of tonnage and the anticipated fleet growth going forward, we should not neglect to mention the ton-mile effect. Even though demand is now much weaker for the transportation of raw materials than in 2007 and 2008, the slowdown has not resulted in the reduction in average voyage distance. Instead, the much lower prevailing freight rate environment allows more inefficiencies, i.e. longer routes, than a tight market does, assuming, of course, that other factors dictate purchases from more distant suppliers. The result of this, according to Clarkson Johnson Rice, will be the lengthening of the average route, which will contribute to demand through 2010.

Turning to the future supply of dry bulk tonnage, two other main things worth looking at. The first is the huge increase in scrapping, and the other is the cancellation of new building orders.

Starting with the simpler of the two, scrapping, according to Clarksons, during 2008, a total of 5 million tons dead weight of dry bulkers were scrapped, most of which went to scrap yards during the last quarter of last year.

Already during 2009, a further 2 million tons dead weight have headed for the breakers. It is estimated by Clarksons that January was the first month for many years that more ships were scrapped or lost than were added to the fleet. With a huge pool of old ships in the dry bulk fleet, it is anticipated that the rate of scrapping will continue, even if there is a modest increase in the earnings of these vessels.

Turning to the new building orders, here the picture is much less clear. By dead weight tonnage, about 70.3% of the world's dry bulk fleet is on order. About 106% of the Capesize fleet is on order, and 52.85% of Panamax bulkers. However, reports from Japan suggest that as many as 600 allocated hull numbers have been cancelled, with 80% of those losses recorded at Chinese and South Korean yards.

According to Mitsui O.S.K., later this year, the number of cancelled orders may reach 1,000, and they have cut back their buying plans to 50 vessels. Similar drastic reductions have been announced by K Line and NYK.

Some brokers even suggest that as many as half of the 3,400 bulkers on order might not be built, as a result of the credit crunch. Speculative orders, in particular by owners with little or no building track record in the dry bulk sector, were thought to be particularly vulnerable, together with contracts placed with the so-called greenfield yards in China.

The main problem with these cancellations, past, present and future, is that it is impossible to establish the precise number of vessels that will never be built. The reason is that some established and well-capitalized yards in China and South Korea have announced plans to build a number of ships whose contracts have been cancelled by buyers, and then try and trade them for their own account with the intention of selling them later on at more profitable price levels.

This means that these ships will not disappear, but will compete for business with the other new building tonnage, thus delaying the recovery in trade markets.

As regards the short and medium term, we agree with the views expressed by DnB NOR, that the present increase in dry bulk spot rates, mostly linked to restocking of iron ore inventories in China, will continue in the near term. However, if demand does not continue to increase, there is a very real risk that rates will come back down.

According to shipping analyst Gibson's, Panamaxes in particular should see rates improving during this month, initially because they are relatively cheap compared to Capes, with some sort of adjustment inevitably where charterers consider splitting shipments in smaller parcels. From March onwards, the start of the South American grain season, should give the Panamax market further seasonal support.

On the longer term, we fully agree with the view expressed by Arrow Shipbrokers that without the credit crunch and deleveraging process we are going through today, the dry bulk shipping industry will have had to go through a 1980s style depression from 2010 onwards. However, we share the long-term guarded optimism expressed by Arrow, based on the following factors.

First, there will be continued acceleration in the volume of scrapping. Secondly, the order book will continue to shrink, with some ships appearing later than anticipated, owned by yards and/or their bankers, while others will never be built. Thirdly, the cancellation and delay of investments in extractive and productive capacity as a response to short-term price depression will continue. Fourth, that government sponsored infrastructure projects will materialize worldwide, and it will create increased demand for bulk commodity transportation. And finally, that inflation returns when liquidity in the system becomes excessive and governments realize that they have to start draining the system from excess cash. All the above should sow the seeds of the next freight market bull run at some point after this setback in trust and confidence has run its course.

The challenge for most shipping companies will be to survive over the next two years or so, and then hopefully, optimism will return to the industry. In the meantime, opportunities will have presented themselves to acquire inexpensive assets with significant capital appreciation potential.

Our Company is certainly well-positioned to take advantage of this period of freight market and asset value weakness. A strong balance sheet and secure cash flow from high quality time charterers will provide us with the ammunition to purchase assets when pessimism reaches its peak. And the majority of players convince themselves that for dry bulk shipping, things will be much worse than in the 1980s.

I will now pass you to our CFO, Andreas Michalopoulos, who will provide you with our Company's financial highlights for the fourth quarter of 2008, and the 12 months of last year. Thank you.

Thank you, Stassi, and good morning. I am pleased to be discussing today with you Diana's operation results for the fourth quarter and year ended December 31, 2008.

Fourth quarter 2008. Net income for the fourth quarter 2008 amounted to $54.2 million, and the earnings per share of Diana Shipping amounted to $0.72. Voyage and time charter revenues increased by $84.3 million, compared to $58.9 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 Boston in November 2007, the Salt Lake City in December 2007, and the Norfolk in February 2008.

Ownership days were 1,748 for the fourth quarter of 2008, compared to 1,542 in the same period of 2007, due to the enlargement of the fleet. Fleet utilization was 98.6% in the fourth quarter of '08, and 99.3% in 2007.

The daily time charter equivalent rate for the fourth quarter of 2008 was $45,824, compared to $36,459 for 2007. Voyage expenses were $4.8 million for the quarter. And operating expenses amounted to $9.9 million, an increase by 16%. The increase is attributable to the 13% increase in ownership days resulting from the delivery of the new Capesize vessels to our fleet, a 6% increase in crew costs, a 60% increase in insurance costs due to supplementary calls, an 8% increase in repairs. Those increases were partly set off with decreases in stores and spares.

Daily operating expenses were $5,675 for the fourth quarter of 2008, compared to $5,516 in 2007, representing an increase of 3%. Depreciation and amortization of deferred charges amounted to $11 million for the fourth quarter of 2008. General and administrative expenses decreased by $2 million, or 39%, for the fourth quarter of 2008, and $3.1 million compared to $5.1 million in 2007. The decrease was mainly attributable to the 2007 accrued employees' cash bonus, which was all recorded in the fourth quarter in the year 2007. Interest and finance costs increased to $1.5 million for the quarter, compared to $0.6 million in 2007.

Now, for the year ended December 31, 2008, compared to year ended December 31, 2007. Net income for 2008 amounted to $221.7 million, and the earnings per share to $2.97. Voyage and time charter revenues increased to $337.4 million in the year ended December 31, 2008, compared to $190.5 million in 2007. The increase is attributable to increased average hire rates in 2008, compared to the same period of 2007, and the enlargement of the Company's fleet. This increase was partly offset by the decrease in revenues due to the sale of the Pantelis SP, and its delivery to its new owners in July, 2007, which derived revenues during the months of 2007 that did not exist in the same period of 2008.

Ownership days were 6,913 for the year ended December 31, 2008, compared to 5,813 in the same period of 2007. The increase in ownership days resulted from the enlargement of the fleet.

Fleet utilization was 99.8% for the year ended December 31, 2008, compared to 99.3% for the same period of 2007. The daily time charter equivalent rate for the year 2008 was $46,777, compared to $31,272 for 2007.

Voyage expenses amounted to $15 million. Operating expenses amounted to $39.9 million. The increase in operating expenses is attributable to the 19% increase in ownership days, resulting from the increase in the number and size of the vessels to our fleet, the 11% increase in the exchange rate of euro to US dollar, and increases in all categories of operating expenses.

Daily operating expenses were $5,772 in 2008, compared to $5,046 in 2007, representing an increase of 14%. Depreciation and amortization of deferred charges for 2008 amounted to $43.3 million. General and administrative expenses in 2008 increased by $2.1 million, or 18%, to $13.8 million, compared to $11.7 million in 2007. The increase is attributable to compensation costs on restricted stock awards during the year that did not exist in 2007.

Interest and finance costs in 2008 decreased to $5.9 million compared to $6.4 million in 2007. An insurance settlement for vessel unrepaired damages amounted to $0.9 million, and relates to cash received in the first quarter of 2008 for unrepaired damages claimed for the motor vessel Coronis during the previous year.

Thank you for your attention. Now we would be pleased to respond to your questions. I will turn the call to the operator, who will instruct you as to the procedure for asking questions.

(Operator instructions) Doug Mavrinac from Jefferies and Co.

I'm full of questions for you all. First, it seems, within the industry at least, there has been a resurgence in discussions and debate over the past few days related to time charter contract cancellations and/or renegotiations. Could you please share with us the status of your time charter contracts, and with your counterparties, and whether you have been approached by any of your counterparties about renegotiating the terms of existing contracts?

Well, during 2008, three vessels were delivered earlier than the earliest allowable delivery dates specified in the relevant time charter contracts. The earlier is delivered, it's during 2008, ranged from a few days to a couple of weeks, with a combined minor effect on the anticipated cash flow and earnings.

Separately, in the case of the bankruptcy of Atlas Bulk Shipping, the Calypso lost approximately $1.5 million in contracted hire, which was apportioned between the fourth quarter of 2008 and the first quarter of 2009.

Okay, thank you, Mr. Palios. And do you have any fears or thoughts that any of your vessels that are currently on charter -- I mean, looking at your charter list, it's very, very high quality, very blue chip, with Cargill and BHP, NYK, all along the list. Have any of those counterparties come to you and -- or, well, first, begun to pay you maybe less than the contracted rate, and then second, expressed that their desire to maybe reduce future payments that would be lower than the currently contracted rate?

No, they have not.

Okay, perfect. I -- okay, great. Thank you. And then, sticking on the charter hire theme, looking at your charter lists, you guys have a couple of Panamaxes that are operating on time charter contracts that expire over the next one to two months. Can you please share with us your thoughts on how you intend to approach chartering those vessels relative to the class of charterer, versus contract duration, versus rates, and how you balance your goals for each of those?

Well, this will be chartered in line with the portfolio approach, which we have been using all along since our Company became public in March, 2005. This means that the vessels would be chartered to top-class charterers, so as you come open on different dates in the shipping cycle.

Okay, great. So the class of charter, the type of charter, is probably one of the things that you focus on above -- even potentially what the rate is? It's just you want the best quality of charter that you can get?

Indeed.

Okay, great. Thank you. And then, just two final questions before I turn it over. Given the recent improvement in both charter rates within the market, both voyage rates and time charter rates, can you share with us what you are seeing relative to asset values, whether you've seen a slight improvement, a marked improvement, or no change, as it relates to current assets?

Well, the current assets have been improved, somehow more than what they should.

Okay.

Of course, we believe that this is a blip.

Okay. Okay, great, thank you. And then actually, that's a segue to my final question, and it's -- if you could share with us, Mr. Palios, your view on -- you guys are in a very advantaged position, one of the strongest balance sheets in the industry, if not the strongest. How do you approach making future acquisitions? What you're going to look for to say, this is potentially the right time for us to take advantage of our balance sheet strength?

Well, we are continuously monitoring the market for investment opportunities. These may come in the form of modern vessels from shipyards, banks, or the secondhand market from different owners.

As far as other public companies are concerned, we have not as yet seen any competing investment opportunities, mainly because of issues affecting their balance sheets. This, coupled with the fact that according to our calculation, the discount to net asset value are not attractive enough, which have kept us from moving forward with any acquisition of such public entities.

Okay, perfect. Great -- thank you very much, Mr. Palios.

Thank you.

Justin Yagerman from Wachovia.

Hey, good morning. How are you guys doing?

Fine, Justin. How are you?

I'm good. I wanted to get a sense of the upcoming chartering activity. Obviously, you've had a good concentration of your recent charters with Cargill. Is that something you would look to change going forward? Are you looking to diversify your charter book a bit more, as you built up a pretty decent critical mass there? Or has that kind of happened out of necessity, that when you look at the top tier charterers, they're really the ones who are open to taking period right now?

Well, the latter is more -- is closer to the truth than anything else. When things are weak, as far as the freight rates and freight market is concerned, there are not many good charterers offering for the type of business that we would be prepared to consider.

Having said that, of course, we are always monitoring the number of ships that we have chartered to any one charterer regardless how good that charterer happens to be. And now, we are, of course, aware of the fact that we have a good number of ships with Cargill, and our first preference, ideally, would be to charter with another corporate entity of equal or better status, on terms that would be similar, of course, with what Cargill would be prepared to offer for our time charter business.

Sure. What's the liquidity like in the time charter market right now as you look out? I think the next couple you've got coming up are Panamaxes. In the one, two, three year, what are you looking at in terms of availability, and what are rates like currently?

Well, we can see today something in the vicinity of excess of $15,000 daily, which of course is well above the running expense of the ship, for a year. And for two years, we are coming close to $16,500 to $17,000 daily, which again, is not a bad rate.

And then the three year is not something you'd entertain right now, I would assume?

Well, provided the ships open different days in the shipping cycle, yes, because I think that's very important today -- we don't have all the ships opening in the same time.

Yes, I think it's a good point. When you weigh either the acquisition opportunities that are out there, and you said that companies right now -- there's nothing, because of -- even at a discount to their NAV, it sounds like you think asset values are going to drop more. And then you look at the new builder secondhands out there -- you also have a share repurchase authorization on the table. Is that something that you'd consider doing if you don't -- if you have to wait out for too long? Or is the fact that you guys are trading above NAV something that would prevent you from thinking about doing that right now?

Hi, Justin, this is Ioannis. You understand as long as we trade above NAV and we are well priced as a company, which we think we will continue being well priced, the share purchase program will not be used at all.

Okay, that makes a lot of sense. And then I guess last, and I'll turn it over to someone else -- on the dividend policy, obviously we just moved away from that, but I don't know if you guys have yet publicly said what kind of benchmarks you'd be looking for to reinstate a policy at some point. Obviously, you're looking for opportunities in the market, but you will be building cash over the next several quarters, and if those opportunities don't arise, you'd be looking for ways to return some capital to shareholders.

What are you looking at as benchmarks for reinstating a dividend policy, or potentially a timeline for when you would maybe special dividend out cash if you didn't see opportunities in the market?

Justin, I will -- maybe two of us will answer this, but my reply is that the dividend policy doesn't have a specific benchmark. As we have said from the very beginning, we will reinstate or follow a full payout dividend policy when we start acquiring assets for cash flow, and not for appreciation of asset values.

We consider it highly unlikely that we will not get a chance to acquire assets at attractive prices. The question is how attractive they will be. So the potential of appreciation in the value of these assets is the main reason for why we will be investing over the next few quarters. If we see that the potential for capital appreciation, or the appreciation of the value of the assets has diminished, then our acquisitions will be geared more towards cash flow, and then we will consider reinstating the dividend policy the way we had it from when the Company became public.

That makes a lot of sense. What is the highest level of debt that you guys would consider as you go about the acquisition of assets, before you'd either come back to the market or try to refinance it another way?

Of course, you understand that depends on the market, but very clearly, we would be able to leverage up the Company up to levers 70%, 80% easily. Of course, we have said that in the past. I don't think we would easily do that at once, because we feel that we cannot -- the same way, you cannot sell everything at the highest point, the same way you cannot find the lowest point in the market to buy. So the best way to have a maximum shareholders' value is to sort of start your acquisition, and widen the span of your acquisition, and therefore this 70%, 80% will not be done at once, but gradually.

Justin, I -- we are -- let me add something there. The closer we think we are to the market becoming much, much better, the higher the leverage you're going to see in Diana.

Yes. No, it makes a lot of sense. Okay, I appreciate the time, guys. Thanks.

You're welcome.

John Chappell from JPMorgan.

Thank you. Good afternoon. Andreas, a quick follow up on the balance sheet. Can you just talk about the timing of the debt assumption? Year end debt was about $66 million higher than at the end of the third quarter with no capital commitments for the next year. What was the timing purposes for that debt assumption?

Yes, hi, Jonathan. As you know, for cash management purposes, and because actually the flexibility of our credit facility enables us to do that, we were decreasing our debt with the cash from operations we had in the previous quarter, and we're keeping zero cash on the balance sheet.

Now, during the fourth quarter, as we decided to suspend the dividend, we drew down the total amount of debt relating to vessel purchases, and decided to keep the cash from operations on our balance sheet as a cash item in order to be ready should we need that cash promptly for vessel purchases, as we discussed before.

Now, the debt relating to the vessel purchases always was at around $200 million since the last delivery we had, and that is motor vessel Norfolk in February '08. Now the additional $15 million that you see there relates to us having -- you know, the new shareholders who are striving to some equity follow-on offerings happening between two quarters that were actually eligible for the dividend of the previous quarter, and also to some very minor adjustment we had for the last 15 quarters in rounding up the dividends.

So, having said all that, I think you have understood that our debt to book cap was at 23% at the end of the year, and this debt is very, very attractively priced for the Company. So that's a bit of rationale we have behind the levels that you see there, and we intend to keep those levels for now, until we start acquiring vessels, whereby we will increase the levels of debt gradually with -- according to the purchases that we will have.

Okay. And how much of the facility is still available for the final purchase of the New York and the Los Angeles next year?

At the moment, the facility in place that we have with RBS is at $300 million, and before -- and this will -- can be triggered at the time of delivery. But before that, we have the Fortis facility in place, which actually pays for all the pre-delivery finance, as you know, up to the delivery point of the vessel.

Don't forget that once we get those vessels delivered, and even today, there are banks that are there to lend us even more money than the available facility that we have with RBS, against those vessels. So we feel very comfortable at being able to finance those vessels.

There is a small difference in the pricing of any new debt, because the pricing of the debt with RBS cannot be repeated with any bank, on any percentage financed. But apart from that, Andreas is absolutely correct. There are banks who are willing to finance at market rates the acquisition of our Capesize new buildings or the acquisition of any other secondhand tonnage we might decide to make.

Okay. And Stassi, or maybe Simeon, if you can just give me a little bit of color on what you've perceived has been happening in the last couple of months. You stated, or Mr. Palios stated before that he thought there was a blip in asset prices, and you guys did a lot of chartering, rechartering of ships in the last couple months at prices that are well below current market levels. Do you think this recent run is temporary in nature only, and you're expecting more of a downturn in the middle of this year, which will provide you with more opportunities?

Well, we believe that number of tonnage which is coming from the yards are going to be much more than the scrapping which Stassi said earlier on, and the cancellations. So I think there are going to be an overhang of tonnage, which is not going to be able to be absorbed by any small blip like that. We need something more substantial.

Take, for example, the containers. Today, the containers are in a worse shape than the dry cargo market. And of course, we have seen the values deteriorating much more than the values of the dry cargo. Well, given some time, we believe that we may see the values of the dry cargo ships to come closer to the values of the containers. And then, of course, we have to move.

As Andreas said before, you cannot hit it right in the very low, but still, there is some room to -- for adjustment. A Cape today at $60 million, I don't think -- or $55 million, is not a bargain. For a Panamax, two year old or one year old at $30 million, $32 million, again, it is not a bargain, I think.

Okay, good insight. My final question is, the three vessels that were delivered earlier than the earliest part of the contract in '08, and as well as the Calypso, which lost $1.5 million, are you pursuing any legal action against the charterers, or are you just accepting the redeliveries as part of the market situation today?

The Calypso, with the Atlas Bulk Shipping, is going to be -- it has not finished as yet, but we are pursuing it. And I think in about a month we will know what will happen there.

The others, the other vessel that we mentioned, we are at -- in arbitration, and we have already arranged in one of them a settlement, and basically we are going to get, for sure, some money back, Jonathan.

Okay. Thanks very much to everybody.

Calypso, as you know, is with the liquidators at the moment.

Okay. Thank you.

And the next --

Sorry to interrupt, but we are talking about this -- all these claims are in the vicinity altogether, and less than $3 million.

John Dawson from Dawson-Herman Capital Management.

My question has already been answered.

Thank you, John.

Thanks.

Natasha Boyden from Cantor.

Thank you, Operator. Good morning gentlemen.

Good morning.

I just want to touch again on acquisitions, just very briefly. You almost referred to this on the Capesize and Panamax vessels, but would Handies ever be a possibility in terms of acquisitions?

Yes. But we will mainly focus on Capes and Panamaxes, but we will not exclude the Supermaxes.

Is there any particular reason for that?

I think it's much easier to deal with the Capes and the Panamaxes, and they are more easy to operate, and I think the running expenses are less, also.

Okay, great. Thank you. Anastassis, I think perhaps you may have touched on this briefly in your comments, but clearly, Panamax rates have been lagging Capes fairly significantly over the last couple of months. In your opinion, what is driving that discrepancy, and what's going to be the catalyst that causes Panamax rates to normalize more with respect to the Cape?

Well, the reason that has been driving the creation of this gap is obviously the iron ore transportation, particularly from South America. Now, the limit, of course, will come when it pays to make two Panamax shipments as opposed to one Capesize shipment from South America to the Far East. The problem sometimes is that shippers do not accept splitting the [stems] of the cargos -- in other words, creating smaller parcels, for their own logistical reasons.

But when the difference in the time charter rate becomes compelling, then there will be a demand for more Panamaxes, which are going to replace Capes, which most of which have now left anchorages and layup berths, and are busy transporting iron ore, or waiting to discharge iron ore in China.

The other reason I mentioned earlier was this seasonal grain trade from South America, which we have tended during the past few years to ignore, because we had such a strong freight market, we didn't pay much attention to the grain trade. But now, this will come possibly as a catalyst to lead to an improvement in an already firming Panamax freight market.

Okay, great. And then just lastly, on a fairly minor note, what would you suggest is a good run rate for Diana for a daily vessel operating expense going forward?

I think -- hi. I think basically the daily OpEx of around -- the average daily OpEx of around $5,800 for both Capes and Panamaxes is a pretty good run rate. Now, I would put at around $5,600 a Panamax, and then around $6,000 a Cape. So I would see the operating expenses of the vessel not increasing that much during 2009 -- at least, that's what we -- if nothing unexpected arises, that's where we would see that.

Okay, great. Thank you very much.

Welcome.

Gregory Lewis from Credit Suisse.

Yes. Thank you and good afternoon.

Good afternoon, Greg.

Hi, Greg.

I guess my first question is related to lower quality owners. Are you seeing in the market the discrimination of lower quality owners, and is that sort of helping push rates higher?

Are you referring from a charterer's point of view?

Yes.

Actually leave out lower quality owners from their chartering in possibilities?

Yes.

It's something that always comes as a factor in deciding which ship to charter when there is weakness in the market and a greater and larger choice from the charterer's point of view to charter vessels.

We feel that it is playing a role, but not a significant one at this point in time, from -- as regards strengthening of rates. When the point comes that there is a shortage of tonnage, then as we have seen in the past, any ship will be chartered, whether it belongs to a reputable or a non-reputable charterer. But for the time being, we see that operators who are regarded as more serious are benefiting from rates that they can get, which others cannot.

Okay, great. And then I just wanted to touch on the last two vessels that were actually chartered in January on one year time charters. What was sort of the rationale for going out and fixing those at around $10,000 or $11,000 a day, as opposed to just leaving them in the spot market?

This is exactly what our CEO has been explaining during his comments, that we do not try to forecast what the market is going to do, Greg. We have to play the vessels to open in a different time in the cycle. And basically, the main thinking process behind that was for how long we were going to fix the vessel, and what was the current rate for that period at that time.

You see, we either have a portfolio project (inaudible) policy, or we don't. If we do have a portfolio process, targeted way of chartering the vessel, we have to speak on that. If we start changing, and waiting for a while before the market gets better or worse, then we don't have a strategy, basically.

And also, if I may add, if you have to fix for a trans-Atlantic or trans-Pacific voyage, which will take you approximately 40 to 50 days, at a rate of $3,000 or $4,000 daily, then to average out for the whole year the $10,000 as you mentioned before, you have to charter the vessel in excess of [14]. And are you going to be certain that the rate is there?

So quite honestly, for a company of [our own] of this size and this type of ships, and this age of vessels, etc., is almost not so relevant to try and charter the vessels at $1,000 daily more or less. It's almost irrelevant.

And as Ioannis said, it depends a lot when the vessel is open, and -- to open it in different days in the shipping cycle. That's more important. So you are always ready to fix ships.

So from that, it almost sounds like you aren't prepared to believe that we're at a trough in the cycle, because when I look back at your chartering strategy back in '05, and you had a lot of vessels in the spot market, it seemed like you were expecting a rising rate environment. So when I look at charters like that -- I mean, clearly, it looks like you were focused more on utilization of the vessel than potential upside.

I don't think that we ever had a lot of vessels in the spot market, Greg. However, don't forget that we were raising equity, and we were buying all the vessels that we could -- and we had placed in our portfolio management, and fixed this type of situation that we explained earlier.

So basically, our chartering strategy has always been the same. And this is why you have seen Diana at the moment having charter rates at much higher levels than what the market is today. Basically, we have a hedge chartering strategy. We are hedging our bets without using the (inaudible) at all, by doing a physical hit.

Okay. That's all for me. Thank you very much.

You're welcome.

Urs Dur from Lazard Capital Markets.

Hey, good afternoon.

Hi, Urs.

Hello.

All my questions have been answered, so thank you guys for the call. Thank you.

Thank you.

Scott Burk from Oppenheimer.

Good morning, guys. Just a couple more questions for you. Going back to the acquisition questions, when you're spinning off $40 million or $50 million per quarter in cash flow, so you've got a lot of cash flow to buy vessels, would you expect to use that, kind of store up cash to buy a big, big, big acquisition at one time, or a big, big fleet at once, or would you expect to see more ones and twos added to the fleet in coming quarters?

Well, as we said before, as far as all the public companies are concerned, we have not as yet seen any compelling investment opportunities, mainly because of issues affecting their balance sheets. This, coupled with the fact that, according to our calculations, the discount to net asset value are not attractive enough -- kept us out from moving forward with any acquisition of such public entities.

But of course, there are private companies which we have our eyes on, and -- but it's a little bit premature. It's a little bit premature. It's coming. I think within the next three to four months, we will see different values.

Okay. And you expect those values on the corporate side, as you're saying, or just for slightly lower vessel prices, individual vessel prices?

Well, I think it will come from the banks, or the shipyards, or private individuals.

I see.

It will come, without any doubt.

Okay, and then I had a question about -- this is kind of an accounting question. There's been some talk about the potential for writedowns of asset values for fourth quarter, maybe for the first quarter. Did you guys get -- have any discussions with your auditors, or with your accountants about that, in terms of writing down some of the asset values on the balance sheet?

No, absolutely not. We don't have -- we haven't got these types of discussions with our auditors. No. You must know that our balance sheet and -- in general, is so clean that we've done all our tests, impairment tests, etc., for the year. Everything has come out clean. We will obviously file the 20-F as quickly as possible as well, which is like the annual report, so you will be able to see the detailed accounts with the notes and management discussions in there.

But don't expect any surprise. Our accounts, for the moment, are more than clean and without any issues of this sort.

Okay. And then one final question. I saw a report a couple of days ago that you had -- or, one of the vessels had been sub-chartered from the -- you know, your good charterer, but it had been sub-chartered out to Armada. And have you seen any impact to your bottom line from that?

Not really -- nothing. Because the vessel is chartered to BHP Billiton, and as a matter of fact, the major charterers are going to have second thoughts in chartering ships from sub-charterers, which makes our position even stronger. So we are going to charter ships much better in the future, because they refrain from sub-chartering, or chartering ships from sub-charterers.

Right.

(technical difficulty) to mention is the Boston, and the Boston is chartered to BHP Billiton, so we have nothing at all, where everything is small.

Okay. Thank you very much.

It's a pity that our name is mentioned in this kind of situation, because we have nothing to do with those charterers ourself.

As you know, the Boston is chartered for four years, with an optional year, to BHP Billiton, at $52,000 daily. And that's the vessel you mentioned.

Right. Thank you.

You're welcome.

Okay, there appear to be no further questions at this time, sir.

Well, thank you again for your interest in and support of Diana Shipping. We are confident that our strategies will continue to enhance our strength and stability, and that our Company is well positioned to take advantage of opportunities for long-term profitable growth. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.