Diana Shipping Inc (DSX) 2011 Q3 法說會逐字稿

Greetings and welcome to the Diana Shipping Inc. third-quarter conference call and webcast. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Edward Nebb, IR advisor for Diana Shipping. Thank you, Mr. Nebb, you may begin.

Thank you, Rob, and good morning or good afternoon all. Welcome to the Diana Shipping Inc. 2011 third-quarter conference call. The members of the 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 today's news release. Certain statements made during this conference call which are not statements of historical fact are forward-looking and are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act.

Such forward-looking statements are based on assumptions, expectations, projections, intentions, and beliefs as to future even that may not prove to be accurate. For a description of the risks, uncertainties, and other factors that may cause future results to differ, please refer to the Company's filings with the Securities and Exchange Commission.

And now with that let me turn the call over to Mr. Simeon Palios, Chairman and Chief Executive Officer of Diana Shipping Inc.

Thank you, Ed. Good morning and thank you for joining us. Diana Shipping delivered a respectable financial performance during the 2011 third-quarter despite operating in a drybulk marketplace and an economic cycle that continued to be extremely challenging.

While the overall market environment remains unsettled, we believe that the outlook for the balance of this year and into 2012 is for continued pressure on rates. In this difficult environment shareholders should rest assured that we will continue to follow our time-tested strategies managing our chartering operations in a balanced and conservative manner, prudently expanding our fleet and our revenue-generating capacity, and maintaining a sound balance sheet.

We will continue to pursue chartering policies that promote a balance of time charter maturities and sustain a predictable revenue stream. Currently, our fixed revenue days are 100% in 2011 and 79% in 2012. Significantly, during the past quarter we entered into time charter agreements for our two Newcastlemax newbuildings, the m/v Los Angeles and the m/v Philadelphia, through 2016.

Last week we announced a further expansion of our fleet with an agreement to purchase the m/v Vathy, a 2010-built Panamax drybulk carrier of 81,297 tons deadweight, for a price of $32.25 million. The vessel, to be renamed Leto, is expected to be delivered to the Company by the sellers during the first quarter of 2012. With this new acquisition, as well as our two Newcastlemax newbuildings, our fleet will consist of 27 drybulk carriers.

We have continued to emphasize a faultless balance sheet with strong liquidity and minimal leverage. Our cash position at December 30, 2011, was in excess of $395 million or about $50 million higher than at year-end 2010. Long-term debt, including current portion, was $374.8 million compared to stockholders' equity of $1.19 billion.

This solid financial position helps to ensure stability in a volatile market and is also a source of support for continued growth initiatives. Today we also announced that the Board of Directors has authorized a new share purchase program for up to $100 million of the Company's common shares, which may be repurchased from time to time until December 31, 2012.

The new authorization replaces the Company's previous share repurchase program which was scheduled to expire on December 31, 2011. The Company has not repurchased any shares under the prior buyback authorization.

Now let me review some of the key aspects of our results for the 2011 third quarter. Net income was $26.4 million for the third quarter of 2011 compared to $33.8 million a year ago. Time charter revenues were $64.2 million compared to $71.6 million for the same period last year.

The revenue comparison primarily reflected the consolidation of Diana Containerships Inc. and the decrease in time charter rates which averaged $27,957 for the 2011 third quarter, vessels $31,593 a year ago, partially offset by the addition to the fleet of the Alcmene in November 2010 and the Arethusa in July 2011.

Our expectations is that the present challenging industry environment caused primarily by the supply/demand imbalance will continue for the near term. In such an environment, we believe that our balance chartering approach, prudent operations, and solid capital position will deliver predictable cash flow and permit us to continue our efforts to gradually and opportunistically expand our fleet through vessel acquisitions.

With that I will now turn the call over to our President, [Stasi] Margaronis for a perspective on industry conditions. We will then be followed by our Chief Financial Officer, Andreas Michalopoulos, who will provide a financial overview. Thank you.

Thanks, Simeon, and welcome to all participants on this third-quarter 2011 conference call. During the past quarter the freight market was certainly as volatile as the equity markets have been, which is indeed the result of the prevailing fine balance between supply and demand.

The Baltic Dry Index stood at 1,422 points on July 1, 2011, having reached the high of 1,928 on September 26; yesterday closed at 1,854. The Baltic Cape Index was the main component of this volatility which started the previous quarter at 2,045 points, reached 3,344 on September 26, while closed yesterday at 3,146. The Baltic Panamax Index was much more less volatile during that period starting from 1,590, reaching 1,748 on September 15, and closing yesterday at 1,848.

World economic growth, according to the IMF, is expected to stand at about 4.3% in 2011 and 4.5% in 2012. The US is expected to grow by 2.5% this year and 2.7% in 2012. These figures are slightly higher than the US government's latest estimates.

China is expected to grow 9.6% in 2011 and 9.5% in 2012, while India is expected to grow at 8.2% in 2011 and 7.8% in 2012. There are several positive signs in China at the moment. Thermal coal demand has remained extremely strong and electricity production is expected to set new records once the peak winter demand season begins. Retail sales have also remained robust.

One of the biggest causes for concern, however, is that Chinese steel production appears likely to decline. While we do not expect that production will come under very long periods of pressure, steel stockpiles probably need to come down by about 1.5 million tons before production can rebound. According to the World Steel Association, steel use will [increase] by 6.5% on a worldwide basis during 2011 and a further 5.4% in 2012.

China's manufacturing shrunk for the third month in August, the longest contraction since 2009. A slumping global investor confidence and heightened risks of recession in the United States and the euro zone economies are also weighing on the outlook for Chinese exports. China's export growth declined to the slowest rate in seven months during September.

Finally, according to Maersk Broker, foreign direct investment in China grew at the slowest pace in three months during September and as companies pared spending amid concerns that the global recovery is faltering.

Turning to Europe, the euro zone is expected to grow at a rather anemic 2% this year and 1.7% in 2012.

Let's look at iron ore now. Exports of iron ore are expected by Clarkson Research to increase by 6% to 1.056 million tons during 2011 and a further 3% in 2012. As has been the case for the last few years, China's growing population and economic growth are still expected to support an increase in seaborne iron ore imports in 2012 with the current projection standing at 703 million metric tonnes.

According to Commodore Research, approximately 92.7 million metric tonnes of iron ore are currently stockpiled at Chinese ports. Stockpiles remain close to the record 94.4 million metric tonnes that was stockpiled at the beginning of August 2011.

Japan is expected to remain the second-largest importer of iron ore in 2012, although lower economic growth would limit steel production and reduce imports by an estimated 5% during the year.

On coking coal now, Clarksons are expecting global exports to grow 2% this year and reach 240 million metric tonnes with Australian exports projected to reach 141.5 million metric tonnes, down 11% year on year. Preliminary estimates for Australian export during 2012 currently stand at 148 million metric tonnes.

On thermal coal, Clarksons forecasts an increase in total exports to 687 million metric tonnes this year and 718 million metric tonnes in 2012. These increases represent year-on-year increases of 3.8% and 4%, respectively. In China, restocking for winter is usually completed by mid-November and major ports in consuming regions appear to have already created large stockpiles of imported coal, limiting their capacity to import more.

The slowing of China's economic growth and industrial production may also reduce coal purchases by that country.

Grains now. Grain shipments are expected to remain steady during 2011/2012 grain season at around 244 million metric tonnes. Nevertheless, earlier this month the US Department of Agriculture raised their 2011/2012 global grain forecast to 285.4 million tons. This compares to the 279 approximate million metric tonnes estimated to have been exported during the previous 2010/2011 marketing year. Therefore, according to the USDA, the 2011/2012 grain trade is expected to increase by 6.6 million metric tonnes, or 2%.

Let's look at the supply of tonnage now. Out of the total 2,580-pound carrier vessels, or 213 million tons deadweight, currently on order more than half are being built at Chinese yards. Japan still holds the second-largest order book for bulk carriers with a quarter of all orders placed in that country. South Korea's shipyards hold 16% of the current bulk carrier order book while the Philippines holds 4% and India and Vietnam from 1% each.

Capesize sector has about 41.2% of the current global fleet on order, while the Panamax sector is burdened with an order book amounting to around 43% of the existing fleet.

Congestion now. We should also look briefly at congestion, which is still supporting the demand supply balance for large bulk carriers. Of the 116 vessels congested at major Australian and Brazilian coal and iron ore ports, approximately 110 of them are Capesize vessels.

In comparison, 100 Capes were anchored outside major Brazilian and Australian coal and iron ore ports only a week before that. According to DnB NOR, about 4% of the existing bulk carrier fleet is tied up in congested ports around the world.

Demolition. The age profile of the large bulk carrier fleet and the state of the freight market have been the prime factors affecting the decision of whether or not to sell an old bulker for scrap. In the Panamax sector about 16% of the existing fleet is over 20 years old, while a mere 11% of the existing fleet of Capesize bulkers is over 20 years old. This surely indicates that the limit exists in the number of large bulkers that can be scrapped going forward as continued scrapping will reduce more and more the number of older vessels still trading.

Clarkson is estimating that 15 million deadweight of Capesize vessels will be scrapped in 2011 and a further 10.3 million tons deadweight in 2012. As for Panamax tonnage, 1.2 million tons deadweight are estimated to be scrapped in 2011 and a further 800,000 in 2012.

According to Fearnley as regard Capes, assuming deliveries remain in line for the rest of the year with what we have seen to date and scrapping is maintained at current levels, the fleet will grow by more than 14% this year and about 5% next year. This, however, number excludes a large number of post-200,000 deadweight bulkers scheduled for delivery over the next two years.

In addition, a large number of very large ore carriers, in other words, are entering the market over this period of time affecting the earnings of Capesize vessels. Including these VLOCs the Clarkson figures goes up to 15.5% and 10.1%, respectively, for 2011 and 2012. As for Panamaxes, assuming deliveries remain in line with what we have seen so far this year and scrapping is maintained at current levels, Clarksons expects that the fleet will grow by more than 12% this year and 13.2% in 2012.

Let's look at actual newbuilding deliveries. According to Clarkson, during 2010 about 64% of all bulk carrier vessels scheduled for delivery were actually delivered, while by the end of September about 73% of the vessels scheduled for delivery this year were actually delivered.

On an overall basis, contracting volumes have gone down during 2011, particularly in the drybulk carrier section. Many yards are starting to worry about filling up capacity from 2013 onwards, especially if contracting levels remain weak. Consequently, it is very possible that we may start to see downward pressure on newbuilding prices in those sectors where contracting levels have dropped off the most.

Let's turn to the all-important supply/demand balance now. During the first six months of this year the bulker fleet has expanded by [223] vessels or 30.8 million tons deadweight, which equates to growth of 5.6% in deadweight terms. This is despite an upturn in scrapping with 248 vessels demolished during the year-to-date compared to 133 during the full year 2010.

We agreed with Clarkson that over 2011 the Capesize fleet will grow by 15% while demand is unlikely to grow nearly as fast. Therefore, the short- to medium-term outlook for the Capesize freight market remains negative. The problem here, according to Gibson Shipbrokers, is that the freight market has to rely on China and the BRIC countries to keep up demand while most of the developed world is in recession mode.

There are two schools of thoughts for 2012. First, more steam coal and iron ore will come to the market which will absorb more Capes than anticipated; and second the contrary view, which is that China went on a one- to two-month stockpiling run recently and will retreat back to the shadows in their traditional way. In this latter scenario the expected increase in iron ore production next year may be slower than expected and the actual growth in trade will not be enough to keep the Cape market at today's levels.

As for Panamaxes, the fleet is still expected to grow, according to Clarksons, by 12.6% during 2011 so overcapacity is likely to remain a significant problem for Panamaxes in the short term. If Chinese coal demand does pick up over the coming winter months and large import volumes are resumed, this could help to absorb some of the excess capacity. The recovery of Australian coal exports to normal levels should also be positive for demand.

Therefore, all-in-all the future does not look particularly positive for large bulker, despite the significant increase in scrapping we have been witnessing this year. However, shipping is indeed full of surprises and we can never be sure that strong, positive forces might not surface over the next few quarters and help absorb what now appears to be a significant future surplus of tonnage.

We at Diana have said all along that we cannot foresee the exact timing of the market peak or, for that matter, a market trough. Therefore, as our Chairman and CEO mentioned earlier on, we are still on track to implement our plan of growing the fleet in an orderly manner and chartering our acquisitions at market rates for periods which fit the staggered time charter maturity of the fleet time charter contracts.

Even though we anticipate asset values to drop further, we do not intend to wait for the bottom of the market to make our acquisition simply because, as mentioned above, we do not know when that bottom will come. As for newbuilding contract, there is no doubt that as mentioned earlier prices will come under pressure as yards try to fill up their empty slipways for 2013 and 2014. The competition between yards is heating up and we will be looking at newbuilding opportunities as well over the next few quarters.

Now I would like to pass the call to our CFO and Treasurer, Andreas Michalopoulos, who will provide you with our third-quarter and nine-month financial highlights. Thanks.

Thank you, Stasi, and good morning. I am pleased to be discussing today with you Diana's operational results for the third quarter of 2011 and nine months ended September 30, 2011.

Third quarter of 2011. Net income for Diana Shipping Inc. for the third quarter of 2011 amounted to $26.4 million and the EPS was $0.33. Time charter revenues decreased to $64.2 million compared to $71.6 million in 2010.

The decrease is attributable to decreased average time charter rates that we achieved for our vessels during the period compared with the third quarter of 2010, and also increased revenues due to the deconsolidation of Diana Containerships Inc. The decrease was partly offset by revenues derived from the vessels Alcmene and Arethusa added to our fleet in November 2010 and July 2011.

Ownership days were 2,202 for the third quarter of 2011 compared to 2,200 in the same period of 2010. Fleet utilization was 99.7% in the third quarter of 2011, the same as in 2010. The daily time charter equivalent rate for the third quarter of 2011 was $27,957 compared to $31,593 for 2010.

Other revenues for the third quarter 2011 amounted to [point four dollars] and consists of revenues derived from the management and administrative agreements between Diana Shipping Services SA and Diana Containerships Inc. Voyage expenses were $3.1 million for the quarter.

Operating expenses amounted to $14.1 million and increased by 8%. The increase is attributable to increased crew costs, insurances and stores, and spares, and was partly offset by decreases in repairs and maintenance and miscellaneous costs. Daily operating expenses were $6,387 for the third quarter of 2011 compared to $5,962 in 2010, representing an increase of 7%.

Depreciation and amortization of deferred charges amounted to $14.1 million. General and administrative expenses decreased by $0.2 million, or 3%, for the third quarter of 2011 to $6.1 million compared to $6.3 million in 2010.

The decrease was mainly attributable to the deconsolidation of Diana Containerships Inc. and office rent and annual meeting expenses that existed in the third quarter of 2010 and did not exist in 2011. The decrease was partly offset by increased salaries and compensation cost on restricted stocks.

Interest and finance costs were $1.2 million for the quarter compared to $1.5 million in 2010. The decrease is attributable to decreased average interest rates during the period and the deconsolidation of Diana Containerships Inc., and was partially offset by costs on increased average debt.

Loss from derivative instruments amounted to $0.4 million for the quarter compared to $0.8 million in 2010 and includes both realized and unrealized interest costs relating to our $100 million of notional amount, zero-[caller] swap agreement terminating in May 2014.

Income from investment in Diana Containerships Inc. Now the gain from our investment in Diana Containerships Inc. amount to $0.4 million.

Nine months ended September 30, 2011. Net income for Diana Shipping Inc. for the nine months ended September 30, 2011, amounted to $87.3 million and the EPS was $1.08. Time charter revenues for the nine months ended September 30, 2011, decreased to $198.3 million compared to $202.5 million in 2010.

The decrease is attributable to decreased average hire rates during the nine months ended September 30, 2011, compared to 2010 and the deconsolidation of Diana Containerships Inc., and was partly offset by revenues derived from the vessels Alcmene and Arethusa which did not exist in the same period of 2010.

Ownership days was 6,401 for the nine months ended September 30, 2011, compared to 6,097 in 2010. Fleet utilization was 99.4% for the nine months ended September 30, 2011, 99.7% in 2010, and the daily time charter equivalent rate was $3,015 compared to -- was$30,015 compared to $32,212 for the same period of 2010.

Other revenues for the nine months ended September 30, 2011, amounted to (inaudible) million dollars. Voyage expenses were $8.7 million for the nine months ended September 30, 2011. Operating expenses amounted to $40.5 million, an increase by 7%.

The increase is attributable to the 5% [increase in] ownership days resulting from the delivery of our vessels Alcmene and Arethusa, offset by the days lost due to deconsolidation of Diana Containerships Inc. The increase was also due to increased crew costs and was partly offset by decreases in all other operating expenses. Daily operating expenses were $6,328 for the nine months ended September 30, 2011, compared to $6,176 in 2010.

Depreciation and amortization of deferred charges amounted to $41.2 million for 2011. General and administrative expenses increased by $0.6 million, or 3%, for the nine months ended September 30, 2011, to $18.8 million compared to $18.2 million in 2010. The increase was mainly attributable to increases in salaries and compensation cost on restricted stocks and was partly offset by the reduction in costs due to the deconsolidation of Diana Containerships Inc. and office rent.

Interest and finance costs decreased by $0.1 million to $3.7 million compared to $3.8 million in the same period of 2010. The decrease was attributable to decreased average interest rates during 2011 compared to 2010 and the deconsolidation again of Diana Containerships Inc., and was partly offset by increased costs due to increased average debt during the period.

Loss from derived instruments amounted to $1 million compared to $1.8 million in 2010 and includes both realized and unrealized interest costs. Income from investment in Diana Containerships for the nine months ended September 30, 2011; there was a gain in our investment of $1 million.

Thank you for your attention. We would be now pleased to respond to your question. I will turn the call to the operator who will instruct you as to the procedure for asking questions.

(Operator Instructions) Michael Webber, Wells Fargo.

Good morning. I wanted to touch on something that was in your release in terms of reauthorizing your buyback authorization. Obviously you guys didn't use it last go around. Can you give some thoughts on how you think about it here with your cash position? And obviously, if you are looking to build out your fleet, any change to the way you are thinking about that buyback authorization with the new set?

Hi, Mike, this is Ioannis Zafirakis. If you remember the last time we introduced, we reauthorized again the plan, we said that we have it there just in case needed.

This time things seems to us rather different and we see some discrepancies in the way we are priced. We see this as a very attractive -- we see the price of Diana being at attractive levels for Diana to invest in Diana. So this time is, I would say, rather different and we are much closer to utilizing this plan.

Okay, that is interesting. How do you guys prioritize that versus acquiring vessels right now?

We do not prioritize one against the other, but certainly we see the purchase of a vessel and buying back shares as something similar. So if you take into account that we do things in a staggered manner, we will either do the one and then do the other or both. Both is not very probable.

Okay. So in terms of thinking about the buybacks, you would approach it like you would acquiring assets of potentially just a long trough in kind of small increments, like you are in terms of acquiring single vessels along the trough?

Correct.

Okay. All right, that is very helpful. Stasi, in your comments you mentioned -- in the deals you guys are seeing and what you guys could be doing over the next couple of quarters, you mentioned newbuilds which is a bit of a departure from your most recent strategy in terms of buying secondhand assets. Can you talk a little bit about what you are seeing now and why potentially moving back towards the newbuild market and where those returns are?

Well, bear in mind that today the rate which we are chartering the vessels, the bulk carriers are at a multiple to the running expenses of the ship. So until the rates go at par to the running expenses of the vessels, we will be buying either resales or very young ships.

But when the rates go at par to the running expenses, we may look for ordering newbuildings to utilize the period needed to take the vessel and get delivery of the ship. Can you understand what I am trying to say here?

No, no, I do, I do. That is very helpful, thank you.

We are going to utilize the period for building the vessel to come closer to the market changing from the bottom to higher rates.

Right. No, that makes a lot of sense.

I guess just finally, we are seeing some continuing counterparty issues in the space. It looked like it had kind of gone away a little bit, then we have recently seen COSCO renegotiate another Capesize charter. Obviously, your exposure there is minimal to none.

Can you talk about what you guys are seeing from your counterparties right now, whether or not there has been any payment issues and whether or not you guys have been approached to renegotiate anything?

We have no material situations in our fleet. Of course, you understand that you have brokers trying to see and fish around what is happening, etc., but in our case we have nothing material to report.

Typically what is your approach to those scenarios? I mean you have some longer Capesize charters that are pretty above market. I mean you have a pretty -- taking a pretty firm stance in terms of not renegotiating or how are you guys approaching that historically?

We have no situation whatsoever and the charterers that we have they are the best names around. And, secondly, the policy -- they know very well that Diana's policies, we have not no tolerance whatsoever in any type of renegotiation.

Okay, that is very helpful. I will turn it over. Thank you guys for the time.

Justin Yagerman, Deutsche Bank.

I wanted to get a sense in this last transaction how many vessels you looked at, how many were on the market, and how thin the sales and purchase market is right now, because we obviously haven't seen a huge amounts of transactions.

Well, we have seen several ships. We have seen a number of Panamaxes, a number of Capes. We have seen two or three post-Panamaxes and a few Capes.

Now the criteria to buy the vessel is very high today because we have a lot to choose and pick. So if you take into consideration the very high standard we are putting on our new purchase, it leaves at the moment very few ships to pick and choose. And I think the proof is the Vathy, which is going to be renamed Leto, is a good example of what we are trying to do.

The vessel was built in [Universal], their first-class yard, and the specification was such that we could not refuse. So all-in-all there are ships to purchase, but there are very few to meet the criteria we are setting to buy the ships.

Okay. Andreas, maybe you could remind us. Between, I guess, cash, less what you are going to have to pay out for the vessel that you are purchasing, plus debt availability, what is the overall firepower right now at the Company?

And then if you think about new debt and where you would go from a leverage standpoint, I would be curious to hear how you guys think about your buying power in the marketplace right now.

As you will understand that we feel very comfortable about our buying power. Looking at the balance sheet at the end of the quarter you will see that our cash and cash equivalents are of $395 million and our total bank debt is of $375 million, i.e., our net debt is in the vicinity of $20 million.

Having said that you need to take into account that you -- we have in our fleet currently many vessels that are unencumbered and that means, as you know, that they are not mortgaged. And that is, namely, three Panamaxes and five Capesize vessels that are not mortgaged, so that could be added to this firepower that you are talking about.

Apart from that we have our chartering policy that is scatter the portfolio approach and, therefore, where we have our charters that distribute revenues every quarter steadily. So, for motor vessel Vathy to be renamed Leto, our strategy will remain the one that we have talked about all along and that is we will seek for leverage for that vessel. 50% is what we are looking for.

We are in the process of approaching banks for that leverage, and we already have some positive indications that we will secure leverage up to 50% which is what we want anyway. So going forward you can make the numbers yourself. Our firepower is big and we feel comfortable that we will be able to unfold as we have started steadily our strategy of buying vessels throughout the bottom of the cycle.

Justin, if I may add to what Andreas has said, is the gearing which we have in mind and what do we have as a target after two or even three years from now when the market recovers. We must find ourselves geared to approximately 50% of the prices of the ships at that particular moment, which means after two-and-a-half or three years from now. Now these create a different buying power, which I think you can very easily assess.

It's clearly in the vicinity close to $1 billion as we speak today.

Okay, that is helpful in terms of framing that up.

Then I guess so the thought process going forward, just piggybacking on what Mike was asking about before, now it's both ships and shares that we should expect you to be periodically purchasing over the next, let's call it, 12 months? Is there a thought that one will be favored over the other at different times, or that you will be looking to just buy both with that $1 billion of firepower over the next 12 months?

Justin, it depends clearly on the pricing of our stock. If the price of our stock presents an opportunity, we will buy back some shares but it depends. We have to wait and see whether this discrepancy in the way we are valued is going to continue or not.

And the question and I will turn it over to someone else. Just curious we get varying reports here in the US and in the public markets about the amount of capital on the sidelines. Having just bought a vessel, maybe you can talk about who else was there to bid on this vessel?

I don't know if this was an off-market transaction or not, but how you feel about the competitive landscape when you go to buy a vessel. Obviously, asset prices have come in, but do you feel like there is enough capital on the sidelines that we are close to a floor for asset prices where people are jumping in as vessels become available? Or is there enough scarcity that when you are out there bidding it's maybe you and a handful of other players and really it's more of a buyer's market?

There were others that were bidding for the vessel and of course you need others to bid in order to determine the price for a willing seller. But it is true that there are not a lot of players out there that they can be buyers at today's market. You need to have the strategy and the size of the Company that we do in order to be able to keep buying assets when the charter rates are going down and the prices are going down.

We think that we have an advantage here compared to the smaller players, and this is what we are going to utilize 100% for the sake of our shareholders. It is certainly a buyer's market but not yet in the levels that we are going to see in few months from now. (multiple speakers)

Justin, I think we have to differentiate between static money and dynamic money. Here the money is in our balance sheet; you have something to back you up all along. There are other monies around, but they are not in their balance sheets, so that is the difference. Can you follow?

Absolutely. I think that that is a really fair point, but it calls into question of if prices for a Panamax dip into the 20s instead of being in the 30s does that static money become more dynamic. I don't know, but we will have to see how that plays out.

Note that cannot be capped dynamic because the charter rate is not going to be a bear to keep producing a profit as a total picture of the Company. Then the buyer is going to think twice whether to spend the money to buy something that from day one is loss-making.

If the resale value of that vessel is 20 -- Panamax is 20, the charter rate will be, I can assure you, in line of the running expenses of the ship. So the question for the owner at that particular moment will be am I going to lay her up or am I going to trade her. So most likely he will be laying up the vessel at a substantial cost to maintain the vessel in the same position.

So you understand that if he has a number of ships to back that particular vessel up it's a different story, but if he is putting his money from the bank, which is static money, it is not the same story.

That is fair. Thanks, that is really helpful in terms of market color. I appreciate the time.

Gregory Lewis, Credit Suisse Group.

Ioannis, we have touched on the buyback a little bit. Clearly, when I think about Diana or when people think about Diana the stock is trading below NAV and that is probably part of the reason why the buyback makes sense. But in thinking about a level for the stock where the buyback goes, clearly you guys have an outlook on where asset prices are going to be over the next couple quarters.

In your forward outlook are what you telling us is that where you don't think asset prices are going to push your NAV down to where the stock is trading?

This may happen, but as we have explained in the past, we are doing purchases in a staggered manner.

Okay, perfect.

So regardless of whether -- what we expect. So the same applies for our stock price. If we see that the discount which we feel is an attractive investment for our shareholder we will do it.

Okay, perfect. And then just changing topics a little bit to talk about newbuildings. When you think about what it costs the Chinese to build a vessel, what it costs the Japanese to build a vessel, clearly there is a lot of slot capacity that is going to be coming available at some shipyards.

In thinking about what the outlook looks like for newbuilding prices over the next year, I am getting the sense that we could see newbuild prices continue to bleed lower. Could you talk a little bit about that?

Well, if you want to purchase today ore to place an order for a Panamax, you will be talking between $30 million and $33 million depending where you are going to build the vessel. If you are going to build a sister ship to Vathy today, you will be talking closer to $35 million from -- or even more than that. So it depends where you are going to place the order.

But something which I want to want to make clear is that the replacement cost has no bearing on the value of the secondhand prices of the ships. If the vessel does not carry cargo on board her hulls, she is not an asset. She is a liability in respect to whether the replacement cost is high or low.

I don't know whether I have answered your question or you were implying something else.

I mean I guess I was just trying to figure out maybe how much lower newbuilding prices could go, but I think that is, I guess, just going to be a function -- but I am great. Thanks for the time, guys. Have a great day.

Fotis Giannakoulis, Morgan Stanley.

Just to follow up a little bit on the last question of Greg, about 10 years ago you started building your fleet when newbuilding prices were around $20 million, $21 million. Today brokers report that the newbuilding prices might be below $30 million.

Given the value of the steel and the change in the steel price, what do you think -- do you think that we are in a comparable situation and a comparable newbuilding market like we were at that time? And how low can the shipyards go?

Remember that when we ordered our first six newbuildings from Samho Hyundai, the price was $19.6 million -- $19.7 million, but the charter rate at the time was approximately $500 in excess of the expenses of the vessel at the time. So the price today, the rates which we are facing today, the time charter rates are not the same.

Today we are talking $12,500 daily for, let's say, a year if the vessel gives -- for a Panamax ship, the vessel gives delivery in the Far East and approximately $13,500 if the vessel gives delivery in the continent for a year. Which is twice (technical difficulty).

I understand on the secondhand prices. I just want to try to understand a little bit do the shipyards have the flexibility or do they still make money right now? And if you would have to make a guesstimate on the margin that they are earning from current prices what would that be?

Well, it's difficult for me to tell you how much a Panamax costs, say, there in China or in Japan today, but I think at today's prices they are still making money, yes.

What the anecdotal evidence seems to indicate that they are making a small amount of profit depending on when they purchase their raw materials, what deals they can reach with engine makers and the makers of all the exhilarated equipment, etc. As regard to Japan though, at least the Japanese yards claim that as long as the yen is under JPY100 to the dollar they do not consider themselves capable of competing with China and Korea, for bulk carriers at least.

That is what the Shipbuilders Association is indicating in public. I assume they are not wrong in this assessment.

If I made add that, in order to put it blandly, no one is going to buy a vessel at 30 -- a Panamax vessel at $30 million when their charter rates are at $7,000 just because this is how much it costs for a yard to produce it. The yard either will have to go down on the price or the vessels are not going to be built ever. You will not have a market for those vessels.

Therefore, their replacement cost is something that becomes irrelevant in that case. Don't forget also that the paints, the engine producers, everybody involved in building a vessel in order to keep having orders they will have to lower, as they have done already, their prices. So you may see even steel prices going even further down because of that, and you may see the replacement costs going even further down to $25 million for a Panamax vessel, for example.

Thank you. Ioannis, just from your experience, do you have -- do you remember in the past how long asset values -- the shipyards were willing to sell below their profitability level below their breakeven? Is this a period of one year that might last or it can last much longer?

This is something we certainly -- we cannot comment on. The business cycle does not repeat itself to the dot, but certainly it resembles, and we cannot be in a position to know. What I remember though, just for you, back in 1999 when we ordered the Panamax vessel it was the yard that they were begging us to buy the vessels. This is what I can tell you.

I understand, thank you. I am a little bit confused actually with the market, because we have seen the supply coming with double-digit rates. We are talking about 14%, 14.5% capacity expansion in 2011 and yet rates they have stayed well above operating expenses, which is in complete contrast with the other major shipping market, meaning the tanker market.

What is -- what are the drivers that they have kept the market at relatively healthy levels, provided, of course, one has bought the ships at reasonable prices?

I mentioned a few drivers in my short presentation. The main factor that many analysts believe has been keeping rates steady is the buildup of inventory, the expectation that steel protection is going to remain robust, and that infrastructure projects in China and other parts of the developing world are going to keep at their high pace of increase and execution. Unfortunately, public housing as well is being seen as a sector which will take up a lot of this steel protection and is a driver for commodity demand.

Now we cannot, of course, keep saying that this is going to continue forever. We are going to see what happens in China. If these housing projects, which are already beginning to show signs of fatigue, start being reduced, at least the pace of increase going down, we are going to have a reduction in the rate of increase in demand for steel and, hence, iron ore and coking coal.

Now it is a good sign indeed that the tonnage has been absorbed, but it doesn't mean that it hasn't been building up in the meantime. And that these ships when they come off charter will be competing for business, which has to keep increasing at a similar pace.

As I mentioned, with the VLOCs taken into consideration, next year will see over a 10% increase in the Capesize or very large bulk carrier sector. This is not an encouraging sign because we have to assume again that we are going to have growth in China in excess of 9%, which is beginning to look doubtful now, plus all these infrastructure projects being executed at the same speed that they had been doing during 2010.

These are not forgotten conclusions and the problem that we have with this market is that there is no breathing space here for demand to stop increasing, even for a quarter or two, because the ships keep coming and the surplus will keep increasing. There isn't much you can do in the way of scrapping to alleviate that with the age profile of the Capes and even the Panamax fleet.

Okay, thank you. I am sure that most of the analysts agree and recently they have revised downwards their projections in the steel demand for China. But I think one of the big debates is what is going on with local iron ore production, especially with prices dropping and how profitable the local miners are going to be. Do you have a view on that? And if you -- do you think that the Chinese will keep producing iron ore or will be depending more on imported iron ore?

Unfortunately, we don't have enough data to form an opinion on this. All we do is read what others have to say and they don't seem to reach any specific or uniform conclusion in their analysis, so the answer is, unfortunately, we cannot say much on that.

And last, you mentioned earlier that you might start looking at newbuildings again. There is this discussion in the market about these new designs, the fuel efficient, that they can consume much less, 3 to 5 tons at least less than the previous designs.

Is this a real story? And what would that translate in terms of cost or in terms of earnings capacity for a vessel like that?

Don't forget that today the banker price (inaudible) is $650 per ton for (inaudible) and for this at least $1,030. So the price is too high and whenever the price is too high everybody is coming out with new ships, very efficient ships to run.

I think that most of the designs, both on the engine and on the hull structure, is such that it does not give us a lot of room to be very happy of having a very efficient ship. I cannot see anything more than about 2% to 3% better efficient overall on the smaller ships and even less on the Capers. So we don't see it as a breakthrough situation here.

Okay, I understand. Thank you very much for your time. Thank you.

Sal Vitale, Sterne Agee.

Just a quick question just going back to the decision as to whether to repurchase shares or continue to acquire vessels. So it sounds like you are more disposed at this point, given I guess what the stock price is, to acquire shares and I just want to get a sense on what your view on the continued decline on asset prices is.

So if I look at it just looking at, say, five-year-old secondhand Panamax vessels, 76,000 deadweight tons, they are down about 30%, 32% from a year ago levels so they were about $39.5 million, according to Clarksons now about 27 million.

So was your hope or was your belief that the asset prices would have come down more? Is it just a little bit of, I guess, a view that the continued decline might take longer than you would have liked and therefore you might shift your strategy to buying more shares -- buying shares rather than buying vessels?

As we have explained throughout so many years, six years that we are public, this is -- our model is exactly placed exactly for that reason not to have to try and forecast how low the prices can go and how long this is going to take. This is the reason why we do the purchases in a staggered manner. Although we have a belief that the values they may go further down, we buy one asset or we will spend $30 million, let's say a number, for buying back shares.

Of course, it is our view that the prices may go further down and it is very possible for that to happen, and we will keep buying assets or buying back our stock as long as we are in this part of the cycle. What we would like, though, to explain further is, as regards the share buyback program, we really value the liquidity of our stock, the number of shares that they are trading every day. So we are not there to do something that is going to put this in danger and decrease the liquidity of the Company.

So you have to understand that the share buyback program is there and is going to be used very carefully and not to disturb the liquidity of the stock.

Sure, that is helpful. Then just, I guess, a follow-up on that regarding capital deployment. I look at your P&L and your results and you are solidly profitable every quarter. You have some growth opportunities ahead of you where you can grow your fleet.

But have you considered or would you consider at this point maybe initiating a dividend again, maybe something conservative, say something like 20% payout or 25% payout, where you are still conserving a lot of cash but you are returning some cash to shareholders in the form of a dividend?

We have said in the past that in this part of the cycle we don't feel it's the right time to issue a dividend. We have better use of cash and that is to acquire vessels, and we will remain at that.

When the market will turn towards better days, when we hopefully will have increased our fleet and also our leverage up as Mr. Palios says to 50% leverage towards the peak of the market, then will be the right time to reinstate the dividend. And also change our strategy towards one where we grow our capital base by issuing more equity and making acquisitions that are accretive to that dividend. So, yes.

To put this number in perspective, you understand that paying $1 as a diffident is a little bit north of $80 million. $80 million today cash can buy you assets equivalent of $160 million and the way the prices are going we see that being translated to five vessels. So you can see here the difference of paying a dividend and growing the Company in a market that we think at a point will turn for better and better.

Sure, I see that, I understand that. I guess just one question on a topic that hasn't been asked. You see a lot of companies that are struggling, a lot of your peers that are struggling, both publicly traded and private I guess.

What are you seeing right now on acquisition opportunities in terms of buying entire fleets? I assume you have been presented opportunities by several banks given that your balance sheet is so strong and you have such high acquisition capability.

I think it will be very wrong for us to go and buy something at a particular moment. We have to make the purchases at one and every so often, not a number of vessels, because then you are taking a specific point and you hope that very soon the market will go up. And it will be wrong. It's better to buy every three months or every four months one ship rather than to go and buy a fleet at one specific time.

Don't forget that you have also another safety valve. You have a fleet which is chartered to major charters, so what you have to also take into consideration is that you are aiming to get the 50% gearing when the market will start coming up. So if you are not successful, let's say, after two years or a year from today, you have to see again and take a photograph to see where are you and what are you making out of your existing fleet. So that is your safety net to come to this 50% gearing at the end of the lull period.

That is very helpful, thank you very much.

Gary Chase, Barclays Capital.

I wanted to see if I could ask you the charter terms that you announced on the, I think the vessel is the Nirefs, were more -- a little bit shorter term than what we have seen. Is that something that we should expect?

I know you have a number of vessels that are -- you are going to be looking to recharter over the next year or so. Should we be expecting that you will be looking at shorter terms for those just given where the market is and where rates are?

No. We continue -- as we have said in the past, we are not here to change our strategy as regards chartering. It's a way of hedging our risk and we are here to stagger the opening days of our vessels. We have a portfolio approach in the way we charter the vessels.

As you have seen, the Nirefs is chartered for another year, another two -- approximately a year-and-a-half. The new charter is going to be -- the new charter with Morgan Stanley Capital Group is going to be finishing either between January and April 2013.

The reason why we charter the vessel in such a manner is not that we are taking the position that after that the market is going to be better. It's simply because in our portfolio approach we didn't have a lot of vessels opening during that period. The next one may be shorter or longer than this, it doesn't mean anything.

When you talked about the amount of leverage that you are going to -- or you said you had a commitment I think for 50% leverage on what would become the Leto. Is that just reflective of your own goals and the idea that you want to be 50% levered when you come out the other side of this? Or was that -- is that more reflective of where the market is in terms of what banks are allowing you to leverage against new purchases?

At the moment this is reflective of our own goals. So, yes, that is reflective of our own goals, but I want to say we don't have anything committed yet. As soon as we have something committed and signed we will come up with a press release and announce -- we will announce it as everything we do we do that way. We are in discussions with banks and what we are asking is 50%, so that is our goal.

Each one of the vessels which will be mortgage. We have others which are mortgaged, but 50% overall on the total fleet is going to be the goal after two-and-a-half or three years from today. And that two-and-a-half or three years will depend and have the safety net of the existing charters so you can move it.

Right. And if you had -- if it was your intent to get better leverage on that you don't think you would have had a problem moving to like 70%?

It's difficult to comment. I think for sure 60% would be possible, possibly 70%, but 60% I am very comfortable that if we were asking for 60% we would have no problem to obtain it. Now 70% in those days I cannot really comment, but, quite frankly, we -- even for 60% is my personal view that it would be easy to obtain if we wanted to.

Well, bear in mind it will be entirely whether you are going to give [segments of] Diana Shipping Inc. If Diana Shipping Inc. does not countersign on the loan, maybe 70% is not possible, but if you are willing to countersign, yes, I think it's possible.

Okay, thank you very much, everyone.

Michael Pak, Clarkson Capital.

Given that it's pretty late in the call I will make it quick, but I did want to make clear in my mind is given your outlook on the drybulk market and the continuing possibility of your valuation discrepancy and also your stated strategy of staggered cycle approaches to acquisition, can we feel confident that you could complete this new $100 million program of share buyback?

I think today, the way things are today $100 million is too many. It's too much money to be spent quickly. The $100 million is there just to have a number, but $100 million, if you think about it, is going to buy a lot of shares and this is going to be detrimental to the liquidity of the stock and the free float. So we do not expect to utilize in full by 2012 this payback program.

Great, that is all I had. Thanks a lot, guys.

[Lambros Pappagallo], (inaudible) Asset Management.

I would like to ask on the two newbuilding vessels that you have on order if you could provide some guidance on the remaining installment payments, when we should expect them and if we should have any in the fourth quarter of this year?

We don't foresee to have any further installment on the fourth quarter of this year. We expect to have the delivery of the first vessel hull, 1234 Los Angeles, we expect to have it in February. And that is more or less in February, you never can be absolute about those numbers, but in the first quarter of 2012.

Finally, for the hull 1235 we expect to have an additional installment in the first quarter of 2012 and the delivery either at the end of the first quarter of 2012 or very beginning of the second quarter of 2012.

Thank you very much.

Thank you. There are no further questions at this time. I would now like to turn the floor back to management for closing comments.

Well, thank you again for your interest in and support of Diana Shipping. We are continuing to manage the Company for reliable results in a challenging market environment, and we look forward to speak with you next quarter. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.