Diana Shipping Inc (DSX) 2015 Q4 法說會逐字稿

Greetings and welcome to the Diana Shipping fourth quarter 2015 conference call. 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, Ed Nebb, Investor Relations Advisor. Thank you. You may begin.

Thank you, Christine. And thanks to everyone for joining us today for the Diana Shipping 2015 fourth quarter and year-end conference call. The members of the management team with us today are Mr. Simeon Palios, Chairman and Chief Executive Officer; Mr. Anastasios Margaronis, President; Mr. Andreas Michalopoulos, Chief Financial Officer; Mr. Ioannis Zafirakis, Chief Operating Officer and Secretary; and Ms. Maria Dede, Chief Accounting Officer. Before management begins their remarks, let me briefly summarize the Safe Harbor notice. Certain statements made during this conference call, which are not historical facts, are forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act. The forward-looking statements are based on assumptions, expectations, projections, 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 from the forward-looking statements; please refer to the Company's filings with the SEC.

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

Thank you, Ed. Good morning and thank you for joining us today to discuss the results of Diana Shipping Inc. for the fourth quarter and full-year 2015. In a challenging environment for the dry bulk marketplace, we continue to take advantage of opportunities to expand our fleet and position the Company for future industry cycles. At the same time, we maintain a solid balance sheet as a source of strength in a volatile market. To review our financial results, the Company recorded a net loss of $22.5 million and a net loss attributed to common stockholders of $23.9 million for the fourth quarter of 2015. The comparable results for the fourth quarter of 2014 were a net loss of $6.2 million and a net loss attributed to common stockholders of $7.7 million.

For the full year of 2015, the net loss and the net loss attributed to common stockholders were $64.7 million and $70.5 million respectively. This compared to a net loss and a net loss attributed to common stockholders of $10.3 million and $15.3 million respectively for 2014. Our time charter revenues were $38.3 million for the fourth quarter and $157.7 million for the full year of 2015. This compared with $46.1 million for the fourth quarter and $175.6 million for the full year of 2014. Diana Shipping continued to maintain a fortress balance sheet. Cash and cash equivalents exceeded $193 million at December 31, 2015. Long-term debt including the current portion was $606 million compared to stockholders' equity of over $1.2 billion.

As per our well established strategy, we continue to take advantage of the current market conditions to expand our fleet. We took delivery in November of 2015 of the motor vessel Seattle, 179,362 deadweight Capesize dry bulk vessel built in 2011. Also in November we took delivery of the motor vessel New Orleans, a 190,906 deadweight newly built Capesize dry bulk vessel. In February 2016 we agreed to acquire, subject to financing, three Panamax vessels with delivery expected by the end of this month; the motor vessel Sunshine, 2010 built Panamax dry bulk vessel of 75,700 deadweight; the motor vessel Manzoni, a 2015 built Panamax dry bulk vessel of 75,403 deadweight; and the Infinity 9, a 2013 built Panamax dry bulk vessel of 77,901 deadweight.

With the delivery of the three most recent vessel acquisitions, our fleet will consist of 46 dry bulk vessels. We also have two new-building Newcastlemax dry bulk vessels and one new-building Kamsarmax dry bulk vessel expected to be delivered in the third and fourth quarter of 2016. We continue to manage the fleet in a prudent manner that promotes a balance of time charter maturities and produces a predictable revenue stream. Currently our fixed revenue days are 64% for 2016. Moving forward, Diana Shipping will continue to deploy its strong financial capacity to support shareholder value-oriented strategies. Specifically, we will continue to maintain a strong balance sheet while seeking opportunities to expand our fleet to be well positioned for a more promising phase of the dry bulk side.

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

Thank you, Simeon, and a very good morning to all the participants to this fourth quarter 2015 Diana Shipping Inc. conference call. There is no need to remind anyone who is even remotely connected to the dry bulk cargo shipping industry of the current state of the dry bulk market. Just to put things in context, we will remind ourselves that on October 1 the BDI, the Baltic Dry Index, stood at 888 points and yesterday it closed at 332 points. The Baltic Panamax Index did not fare much better starting from 704 points on October 1 and closing yesterday at 357 points. The Baltic Cape Index moved during the same period from 1,911 points to 174 points. Now, let's look at macroeconomic developments. Latest figures show that the eurozone GDP grew by 1.5% in 2015 in line with expectations while the 28 countries of the European Union grew by 1.8% in 2015.

The European Commission's 2016 growth forecast for the eurozone has been lowered from 1.8% in November 2015 to 1.7% today due in part to increased global risks including slower growth in emerging markets and in China. However, lower oil prices and a lower euro are expected to support the growth in the eurozone during 2016. In February this year, the China Manufacturing PMI came in at 49. This was an improvement to December's 48.2, but still lower than 50 indicating economic contraction. China's January trade surplus reached a record of $63.2 billion. We agree with Commodore Research who believe that even though China has several problems to resolve with its economy, large consecutive market trade surpluses should not be ignored. These surpluses and huge foreign reserves provide a major benefit to the economy and room for the Chinese government to maneuver in its efforts to resolve these problems.

To put things in the right perspective, Commodore Research point out that China's foreign reserves are about $3 trillion. The government has according to Moody's reportedly been recently drawing from reserves in dealing with various problems and it estimates that reserves have shrunk by $762 billion over the last 18 months. Trade surpluses have been adding an average of $50.1 billion to these foreign reserves each month. The US Manufacturing Purchasing Managers Index, the PMI, in January was 52.7 beating expectations which stood at 51. Overall the US economy grew by 2.4% in 2015 and according to Braemar ACM is expected to grow by a similar rate in 2016. According to Braemar ACM, global manufacturing expansion accelerated slightly so far in 2016, but remained weak overall as faster growth in developed markets failed to offset the contraction in emerging economies.

One of the bright spots of 2015 as far as growth is concerned was India. Its economy grew at 7.5% in 2015 according to official figures. Even though from October to December 2015 Indian GDP growth dropped somewhat to around 7.3%, the Indian government revised sharply upwards previous quarter growth. Let's look at freight and time charter earnings now for bulk carriers. The current average Capesize spot market earnings are hovering around $2,300 per day while Panamaxes are earning in the spot markets around $2,800 per day. The average 12-month time charter hire paid for a modern Capesize vessel stands at around $5,250 per day delivery in Pacific while a modern Panamax will bring in a mere $4,500 per day again with delivery in the Pacific for the same time charter period. Such higher levels do not cover even the operating expenses of the ships concerned let alone covering the finance costs.

Now, asset values. With this month earnings of large bulk carriers and the negative sentiment prevailing in our industry for a while now have as expected affected asset values. The three-month price trend for modern Capesize bulker values has declined by approximately 24% with modern Panamax values dropping by approximately 20% during the same three months period. So, what about the new-building order book? According to figures published by Clarkson, the bulk carrier order book as a whole consists of 1,571 or so vessels which in tonnage terms represent about 16% of the existing global fleet. The Capesize order book is made up of 240 vessels of 48.5 million deadweight tons representing about 16% of the global Capesize fleet. With our 333 Panamax vessels on order including Kamsarmaxes and post-Panamaxes with a total dead weight capacity of 27.4 million tons representing 14% of the existing global fleet.

There will undoubtedly be several cancellations and delivery delays of the 2016 vessels into 2017 and beyond. Our estimate of actual compared to scheduled deliveries for this year is around 60%. According to Clarksons, there are reports that the three large Chinese bulk carrier owners; China VLOC Company Limited, China Ore Shipping, and ICBC Leasing; are about to order up to 30 VLOCs. These ships are planned for deployment by Vale SA on long-term contracts of [freight]. If this order is finalized, it would add at least 12 million deadweight tons to the Chinese order book this year equivalent to 40% of the total bulk carrier tonnage orders at Chinese yards in 2015. Again, if this order materializes, it will undoubtedly delay somewhat recovery for Capesize vessels. As regards laid-up bulkers, according to Gibson's, between 40 to 50 bulk carriers of all sizes are probably laid-up in Asia.

About 20 vessels are laid-up in Eleusis Bay, of which 12 arrived only recently. As a percentage of the total bulker fleet, the laid-up tonnage is still insignificant for the time being. As for scrapping now, the average bulk carrier age stands at just less than nine years according to Clarksons. However, the distressed market conditions are leading younger ships to the scrapyard. Clarksons continues that in 2012 the average age of bulk carriers sold for scrap was 28 years. This age has fallen to 25 years in 2015 and to 23 years so far in 2016.

For the Capesize sector, the average scrapping age has dropped to 20 years so far this year. In January of this year, Panamax and Capesize sold for scrap only 14 years of age each. This is a new record for a long while. During the [whole of] last year, 99 Panamax vessels were actually scrapped according to Braemar Shipping Services.

In the Capesize sector, 82 ships were reported sold for scrap during 2015. Clarksons predict that 40 million deadweight worth of bulk carrier tonnage will be scrapped in 2016. This could help reduce fleet growth to less than 2% this year. Again according to Clarksons, 78 bulkers of 6.7 million deadweight tons have been sold for demolition so far this year, at least 20 of which were Capesize bulkers representing approximately 1.8 million deadweight. Around 1.6 million deadweight of Panamaxes have been sold for scrap thus far in 2016 according to Maersk. Let's turn to fleet growth now. According to Clarksons, the dry bulk carrier fleet increased by 2.4% in 2015 after growing by 4.8% in 2014. In 2015 the Panamax fleet increased by 2% and the Capes by only 0.5%. Nearly two-thirds of the net bulk carrier fleet growth last year was concentrated in the Supramax, Ultramax sectors, which saw 259 deliveries and only 71 deletions.

Overall, the bulk carrier fleet is expected by Clarksons to expand by between 1% and 2% per year between 2016 and 2018. The assumption here is that deliveries will total around 40 million to 50 million deadweight per annum in 2016 and 2017 and between 25 million and 30 million in 2018. Removal figures are expected to be around 40 million deadweight this year as mentioned earlier, about 34 million in 2017, and 17 million in 2018. Clarksons predicts that in 2016 the Capesize fleet will reach 311.7 million deadweight representing a mere 0.7% increase compared to 2015. In 2017, the prediction is for the Capesize fleet to be 310.2 million deadweight. If this materializes, it will represent a 0.5% shrinkage of the fleet of Capes. For Panamaxes, the predicted figures for 2016 are a fleet of 198.3 million deadweight representing 1.5% fleet growth.

And for 2017, the Panamax fleet could reach 200 million deadweight, up by 0.9% compared to 2016. Obviously these figures incorporate several assumptions as regards scrapping and new-building deliveries, most of which are mentioned throughout this short presentation. Slow steaming now. According to Braemar Shipbroking when freight rates rose somewhat during the third quarter of 2015, Capesize ships accelerated to an average of 10.9 knots in ballast. This was about 0.5 knot faster during the first half of 2015 when rates were almost constantly below operating expenses. Latent speeds were also increased as operators wanted to capitalize on the better rates. As rates crashed during the fourth quarter 2015 and the first weeks of 2016 Capesize ships reduced their latent speeds, but carried on sailing at higher speeds in ballast. The recent fall in oil and bunker prices has rendered fuel savings less significant, hence this speed discrepancy.

On congestion, Braemar Shipbroking report that the congestion at the main loading and discharge ports came down during 2015 helping drag the Baltic Dry Index down to record low levels. The average number of Capesize ships waiting outside ports in China, Australia, and Brazil averaged 156 between January 2011 and June 2015. In contrast, just over 126 on average have been lined up at ports in those countries over the past seven months. On bulk carrier demand now. According to Clarksons, in 2015 the bulk carrier trade grew by just 1% compared to the previous year driven by the impact of slowing Chinese GDP growth on the country's seaborne iron ore imports. Another factor having a negative effect on seaborne bulk trade has been coal. Seaborne coal trade contracted for the first time in almost 30 years largely driven by a 30% collapse in Chinese coal import demands during 2015 compared to the prior year.

In the base case scenario, Clarksons predict that the dry bulk trade will increase by about 1% in 2016 followed by growth of 3% per year in 2017 and 2018. Growth in real tonnage demand taking into account ton miles is not expected to deviate significantly from the volume growth. Sailing distances in grain, soybean, and some industrial commodities are expected to rise while Clarksons foresee relatively small changes in iron ore and coal. Ship sailing speeds are not expected to increase much more than they already have until freight rates reach much higher levels. Based on the above mentioned assumptions, Clarksons expect growth in demand to fall short of fleet expansion this year without ruling out volatility in earnings due to factors such as seasonality, trading, and fleet productivity. In 2017 and 2018 Clarksons expect demand to gradually outpace the bulk carrier fleet, which could result in a recovery from late 2017 through 2018.

Slow steaming will determine the pace of any market recovery down the road together with several other factors not least of which is restraint in signing new-building contracts by owners especially for the next year or so. Let's look at steel now. According to Gibson Shipping Energy, world steel production for 2015 was 1.623 billion metric tons, down 2.8% compared to 2014. The steel mill capacity utilization for the whole of 2015 was 69.7% compared to 73% in 2014. China produced 803.83 million metric tons of steel in 2015 according to the National Bureau of Statistics, down 2.3% from a year earlier. This was the first annual fall in Chinese crude steel production in three decades. Gibson Shipping Energy predicts that steel production in China may be reduced by a further 2% or 3% this year. This is a prediction shared by the Chairman of China's Iron and Steel Association.

At the high end of this range, steel production will be reduced by between 23 million and 24 million metric tons. On iron ore according to Maersk Broker, global supply of iron ore persists as expanded output by the big low cost miners more than offset cuts in high cost supply mines especially in China. In 2015 Chinese iron ore imports increased by 2% to reach 9,054 million metric tons. A possible explanation for this increase is that the country's steel mills' advantage of collapsing iron ore spot prices not displacing demand for domestic ore or replacing it with cheaper imported iron ore. For 2016, Clarksons predict that Chinese iron ore imports will decline by about 2% compared to last year. On a global basis, iron ore imports are expected to decline by about 1% in 2016.

In the longer term Clarksons predict that with further downward pressure on iron ore prices, there will be an increase in the closures of uneconomic Chinese iron ore mines. Therefore, there could be an increase of iron ore imports to China of about 30 million to 40 million tons from 2017 onwards. The piles of iron ore in Chinese ports remain high at around 96 million tons. With steel production weak, these numbers gain more significance compared to the time when the steel industry was consuming ever greater volumes of this raw material on a monthly basis. Let's turn to thermal and metallurgical coal. We agree with Clarksons that a very vital factor for dry bulk demand will be the trend in Chinese coal imports. If the assumption is made that electricity demand in that country will climb to 3% for the year, the main question becomes at what pace will the capacity of alternative electricity production increase.

Hydropower capacity growth would probably be limited in the coming years judging by the number of new hydro dam projects. Even though capacity of other renewables will expand significantly, this will still be relatively small in the total production of energy specifics. According to Commodore Research, of the 491 billion kilowatt hours produced in China in December 2015; 385.6 billion kilowatt hours was produced from thermal coal power stations, only 67.7 billion of electricity produced last December came from hydropower. Thermal coal imports could also stabilize depending on the Chinese government's policy to support inefficient domestic coal mines. The Chinese government is planning to close up to 1,000 small Chinese coal mines in the coming year in a bid to remove 60 billion metric tons of output.

Some new coal-fired power plant projects in Japan, Indonesia, Vietnam, and elsewhere in Asia could provide a much needed boost to the thermal coal trade. Finally on a worldwide basis, thermal coal imports are expected to remain flat in 2016 compared to last year. Turning to metallurgical coal, Clarksons see an upside potential for the coal trade in the form of higher Indian imports. Expanding Indian field production coupled with an increasing number of coal-fired power plants may generate higher growth in overall demand for coal down the road as India cannot source all of its coal requirement domestically. India is expected to increase its import during this year by 6% compared to 2015. Gibsons report that the import tax cut from 6% to 4% on Australian metallurgical coal imported to China is now in effect. This has resulted in some additional interest from end users for February and March delivery cargo.

However, for 2016 as a whole, Clarksons are forecasting that Chinese coking coal imports will drop by 8%. On a global basis, Clarksons expect seaborne coking coal export to fall by 1% in 2016 compared to last year when total exports declined by 3%. Grain cargos now. According to Clarksons, the global combined wheat and coarse grain trade is projected to drop by 2% in the 2015 to 2016 crop year. The decline is expected to be partly driven by a 4% drop in imports into Asia. According to Howe Robinson, combined corn exports from Brazil and Argentina are forecast to reach record levels in the 2015 to 2016 season. In addition to large supplies, both countries have weak currencies making their exports very competitive relative to other suppliers. Brazil's exports are forecast to grow to record levels due to an exceptionally good harvest.

Argentina's exports are forecast to be the second largest on record. Exports are expected to remain strong mainly due to larger projected supplies these coming months. The bulk of Argentina's 2015 to 2016 exports are likely to shift towards the middle to the end of the summer season in the Northern Hemisphere. Finally, let's have a look at the seaborne trade outlook. Vale is predicting according to Commodore Research that its S11D project, which is targeting the production of an additional 90 million tons of iron ore per annum, will be completed by the end of 2017. Vale's production will then reach 430 million tons per annum and operations are expected to commence in the second half of 2017. The Port of Ponta da Madeira should be able to handle a massive 230 million tons of iron ore per annum by 2018.

All this together with the projected fleet statistics lead Commodore Research to the prediction that the Capesize market is a segment of the dry bulk market that has the greatest chance of turning first and possibly reaching levels far above market consensus as these are expressed by the FFA curve. This could happen by 2018. However, Commodore is quick to add that for strength to return to the Capesize market, a great deal has to go right. The main factor is that China's economy should stabilize together with its steel production. Commodore are much less optimistic on the recovery prospects of the Panamaxes as they remind us that this year at least deliveries will outpace the scrapping volume. Things may start improving next year, but the ground that will need to be covered for equilibrium to return to the sector is quite long and tedious.

We generally agree with the above mentioned views and wish to add that, as mentioned in our last quarterly conference call, the ground work is being laid finally for the market to improve. As usual, the big question is when. Taking into consideration that compared to say 30 years ago supply and demand statistics shift up and down much faster now than then, it is not unreasonable to assume that barring any unforeseen external negative development down the road, this crisis should be shorter than what the industry went through in the 1980s. How much shorter is something that they need to decide for themselves after looking at the pointers and other factors, which we have tried to cover as concisely as possible in this presentation. We at Diana do not plan the Company's investment strategy with a specific recovery timetable in mind.

What we do know is that we are finally at the bottom of the bulk carrier shipping cycle (inaudible) work to make this market much better and profitable than it is now. With the Company's strong balance sheet, the Diana fleet will keep expanding and the Company will emerge from this crisis with a modern fleet of bulk carriers ready to take advantage of improved time charter earnings and asset values. I will now pass the call to our CFO, Andreas Michalopoulos, who will provide us with the financial highlights of the fourth quarter of 2015 and of the year as a whole. Thank you.

Thank you, Stacy, and good morning. I am pleased to be discussing today with you Diana's operational results for the fourth quarter and year ended December 31, 2015. For the fourth quarter of 2015 net loss amounted to $22.5 million, net loss attributed to common stockholders amounted to $23.9 million, and loss per common share was $0.30. Time charter revenues decreased to $38.3 million compared to $46.1 million for the fourth quarter of 2014. The decrease was due to the decreased average time charter rates that we achieved for our vessels during the quarter and was partly offset by revenues derived from the addition to our fleet of the vessel Santa Barbara delivered in January 2015, Medusa delivered in June 2015, and New Orleans and Seattle delivered in November 2015.

Ownership days were 3,870 for the fourth quarter of 2015 compared to 3,588 for the same quarter of 2014.

Fleet utilization was 99.8% compared to 99.2% for the same quarter of 2014 and the daily time charter equivalent rate was $9,169 compared to $12,090 for the same quarter of 2014. Voyage expenses were $3.4 million for the quarter compared to $3.5 million for the same quarter of 2014. The decrease in voyage expenses was due to the decrease in revenues and was partly offset by increased loss from bunkers resulting from the redelivery of vessels during the quarter amounting to $1.4 million compared to $1.3 million for the same quarter of 2014. Vessel operating expenses amounted to $23.6 million compared to $22.3 million for the fourth quarter of 2014 and increased by 6%. The increase was due to an 8% increase in ownership days resulting from the enlargement of the fleet, increased stores and spares, and environmental costs. This increase was partly offset mainly by decreased insurance and repair costs.

Daily operating expenses were $6,093 for the fourth quarter of 2015 compared to $6,225 for the same quarter of 2014 representing a decrease of 2%. Depreciation and amortization of deferred charges amounted to $19.8 million. General and administrative expenses were $7.5 million, the same as for the fourth quarter of 2014. Management fees to related parties were $0.3 million for the quarter and were the fees paid to Diana Wilhelmsen Management Limited after transferring the management of six vessels from Diana Shipping Services SA. Interest and finance costs amounted to $4.9 million compared to $2.2 million in 2014. This increase was attributable to increased average debt and average interest rates during the quarter compared to the same quarter of 2014.

Interest and other income amounted to $0.5 million compared to $0.9 million and was decreased due to the decrease in the income earned from Diana Containerships as a result of the amended loan agreement. Loss from equity method investments amounted to $2.3 million compared to income of $0.2 million for the same quarter of 2014. For the year ended December 31, 2015 net loss amounted to $64.7 million, net loss attributed to common stockholders amounted to $70.5 million, and loss per share was $0.89. Time charter revenues decreased to $157.7 million compared to $175.6 million for 2014. The decrease was attributable to decreased average time charter rates that we achieved for our vessels during the year and increased dry dock and off hire days compared to 2014 during which the vessels did not earn revenue. This decrease was partly offset by increased revenues due to the enlargement of the fleet.

Ownership days for 2015 were 14,900 compared to 13,822 for the same period of 2014. Fleet utilization was 99.3% compared to 99.4% for 2014 and the daily time charter equivalent rate was $9,739 compared to $12,081 for 2014. Voyage expenses were $15.5 million for 2015 and includes $7.5 million of loss from bunkers from the redelivery of our vessels during the year. Vessel operating expenses amounted to $88.3 million compared to $86.9 million for 2014. There was an increase in operating expenses due to the 8% increase in ownership days resulting from the enlargement of the fleet, but this increase was partly offset by decreased stores and spares. Daily operating expenses were $5,924 for 2015 compared to $6,289 for 2014 representing a 6% decrease. Daily operating expenses decreased due to decreased average crew costs, insurances, stores and spares, and taxes.

Depreciation and amortization of deferred charges amounted to $76.3 million for 2015. General and administrative expenses amounted to $25.3 million compared to $26.2 million in 2014. The decrease was mainly attributable to decreased salaries and the exchange rate between the US dollar and the euro and was partly offset by increased Board of Director fees, legal and other professional fees.

Management fees to related parties were $0.4 million and were the fees paid for technical management for six vessels transferred to DWM, Diana Wilhelmsen Management, progressively in 2015 from August to December. Interest and finance costs amounted to $15.6 million compared to $8.4 million in 2014. This increase was attributable to increased average debt and average interest rates during 2015 compared to 2014.

Interest expenses amounted to $13.9 million compared to $7.8 million in 2014. Interest and other income amounted to $3.2 million compared to $3.6 million for 2014. This decrease was due to the decrease in interest income received from Diana Containerships Inc. during the year amounting to $2.7 million compared to $3.2 million in 2014. Income lost from equity method investments amounted to $5.1 million compared to income of $12.7 million for 2014. The loss in 2015 was mainly due to $5 million loss from our investment in Diana Containerships Inc., part of which was due to being diluted as our share ownership in 2015 decreased to 26.08% from 26.34%. Additionally, there was $0.1 million loss from our investment in Diana Wilhelmsen Management Limited.

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

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) Mike Weber, Wells Fargo.

This is Donald stepping in for Mike. With asset values at historic lows and balance sheet risk creeping through the space seemingly almost everywhere except Diana, can you talk a bit to the potential for a large scale M&A?

As we have said in the past, the consolidation in our industry is not such an attractive opportunity. You can understand that you can buy cheap assets out of the market instead of buying a company that probably has vessels that you don't want. Also the due diligence is getting more and more difficult especially nowadays. So M&A is not a very attractive proposition for anyone or I would rather say only for those that want to be safe, but we do not consider that as an attractive opportunity for our Company.

Okay. And as a follow-up to that, it seems the banks are taking a bit of a harder line to this downturn relative to say their let's work it out stance during 2009 to 2011. Can you talk a bit to this bank posturing and how you think it plays out as covenants are increasingly breached in sort of the next 6 to 12 months?

Certainly the banks they look at the covenants, but what they look mostly is the ability of the company to pay the amortization and the interest expense. The covenants are usually used as bells to warn someone for potential problems. Certainly there are companies out there that have big financing issues and they are not able to pay the amortization of the facility and also the interest expense. However, banks are willing to reconsider the covenants and give waivers in companies that are there to perform and especially for some more years to come as well.

Alright. Thank you for the color, guys. That's it from me.

Amit Mehrotra, Deutsche Bank.

First question is on the announcement of the acquisition of the three Panamax vessels. The pricing is fine, it does have the benefit of lowering the average age of the Panamax fleet. But as a management team, you guys have said previously that buying more than one ship at a time does not fit the strategy given you locked in too much risk at one point in the cycle and I understand the market has moved significantly down since over the last six to nine months. But just wondering how the acquisition of en bloc transactions sort of fits into the strategy? Thanks.

Amit, to be exact what we have been saying is that we are not there to spend a lot of dry powder at what for one deal. We are very cautious in how much money we are investing at this time in the cycle and how much money we are reducing our dry powder. This specific deal, it does not involve a lot of equity of ours. If any, it is almost zero. If they are out there are these like these please bring them on, and we would do that. We are not wasting our dry powder there.

Right, okay, we can take it further offline, but maybe (multiple speakers).

But if you listen carefully to previous conference calls you will hear me especially saying that we are not there to waste a lot of our dry powder at one point in the cycle.

Let me just ask one more follow-up to the acquisition strategy I guess. You guys are pretty conservative and you've talked about this dry powder like you said, but obviously no one is immune into this market which is at an all-time low right now. So this market, does it at all make you pause a little bit or do you still continue to do the one acquisition every two, three months even in this market?

Yes. You see the most important number one factor that we have to worry about is surviving and we pay a lot of attention in giving to the Company the appropriate breathing space to do that. We think that we have done a very good job there and if there is also the ability of the Company to make some purchases as well without endangering a lot the survival period of the Company, we're there to do it. You have to understand that we have to take some entrepreneurial risk as well. We are in the shipping sector and we want to produce a return. In order to prove my point, I can say to you that we can sell the entire fleet and stay with the cash and wait for the market to recover before we do anything and we have 10 years in front of us for that to happen. Now everything is relative and we have still to take some entrepreneurial risk. It is true that we have managed very well up to now to buy a lot of vessels at the lower part of the cycle and we are not so in a hurry to buy more cheaper. Even if we don't buy any when the market turns, we will be very happy with what we have done. But we cannot exclude the possibility of buying something especially if we don't waste a lot of our dry powder or do not endanger the survival period of the Company.

So if I'm interpreting your comments correctly, you've been active over the last 12 months, you may continue to be active; but the pace may slow down a little bit.

Psychologically we strongly feel that this is what is going to happen, but the official response to the Company is that we should not decrease the pace.

Got it. Okay. That's helpful. Just couple more, one on the operating costs. The OpEx per day is a little bit higher than what other dry bulk companies have recently reported. I know there's a lot of different things going on in that number, but if you can just offer some thoughts on why this may be the case and maybe are there any other further opportunities to bring your cost down in any sort of material way?

Absolutely not. We've already commented many times on this OpEx number, which this quarter is at $6,092 per day per vessel on average, and we strongly feel that you cannot compare that cost for many reasons. One, because obviously you understand that the mix of vessels is different from company to company; two and most importantly, because the state of the vessel when you look at it is different from company to company. And we are proud to say that this number reflects a very efficient preventive maintenance that we have on our vessel and that enables us not to have huge dry docking costs when the vessel is due for dry dock. So, we feel that you should model at least if that's helpful the same type of number going forward. It would be wrong you see to say that yes, we are going to have because we are in the low end of the cycle suddenly our operating expenses will go to $4,000 per day. This would mean that we did something wrong all the previous years when the market was better.

How much of a risk do you think it is to the industry given that your implication is that other companies are underinvesting in their maintenance of ships. How much of a risk do you think this poses to the industry?

Certainly in bad times people cannot afford to properly maintain their vessels, companies cannot afford to maintain their vessels properly, and we see this as a detriment of the quality or the useful life of the vessel. Eventually this is one of the factors why the market turns positive at a point where you have a lot of scrapping of younger vessels really by condition of vessels, lots of money needed for their vessels to go through special surveys, and so on and so forth. This is part of the forces that will lead to the cyclicality of our industry.

One last one for me. Quick one, Andreas, can you just update us on the cash outlays that are going to be made for the three new-buildings in the three Panamaxes and if you can, the breakdown between the debt and equity financing? Thanks.

We believe as we've stated that most if not all the investment in the three Panamax vessels is going to be made through debt finance. So, the number of $39.8 million should be mainly out of debt finance. I mean if it's not 100%, around 80%, 90% should be through debt finance. So, that's what we see for those Panamaxes.

You must also recall for the other vessels that we have on order, the two Newcastlemaxes and the Kamsarmax, that we have a loan facility that we have signed with China Export-Import Bank of a total amount of $75.7 million. So, that's --.

What's your remaining payment? What are the remaining gross payments for those three?

Remaining gross payments for those three is $83.4 million.

Got it. Okay, guys. That's all from me. Appreciate it. Thank you for the time.

Noah Parquette, J.P. Morgan.

I just want to ask you in your conversations in the S&P market, what's the sense you're getting from sellers compared to say three months ago in terms of so-called foresellers or at the value expectations. I mean has there been more resistance on pricing here or do you still think that values could move lower? Thanks.

Certainly the conditions are such and the psychology is such that there are more willing sellers at the moment and the prices are going down. There is not such a thing as a [large grand] deal that we usually have and I can say that anything goes. There are not too many willing buyers out there and we strongly believe that from the moment we are interested in buying a vessel, we will certainly find one that fits first of all the technical standards and then the price is going to be really good. There are not too many buyers out there.

And then on the three Panamaxes, can you give an update on I think it's subject to the bank financing being transferred? Can we get an update on that?

It's not actually transferring of the bank financing. It's finding from the existing banks financing almost 100% of the price that we pay and with some moratorium as regards the amortization. We have initial agreement. We have not signed documents yet, but we are very optimistic that we will get there soon.

And then lastly just following up on your acquisition strategy. Can you talk about your time frame for deploying capital? Has that changed at all in the last three months? Is it still kind of through this year or will you look to extend that?

As we said earlier, the first thing we worry about is to make sure that we have in front of us a period of time that we can easily survive without having problems with our bank. At the moment, we stand at the vicinity of two years to three years breathing space where we even in this bad market conditions, we have no problem whatsoever with the bank. Now as we said earlier if there are opportunities, we may take advantage of those. But officially the response is what I said earlier that the pace does not change over the purchase and neither the period of investment, which is for approximately another year as we have said. But psychologically, we know that may not materialize. We have as everybody a pressure, we look at what you see the psychology about the market and how long the market is going to stay low is always bad at a real bad time and the market turns when nobody believes it's going to turn. But we will do everything we can to make sure that we will be there when the market turns when the time comes.

Okay. That's all I have. Thank you.

Gregory Lewis, Credit Suisse.

Ioannis, just real quick just following up on I think the first question about potential acquisitions. Are any large fleets actually even being marketed at this point or not really? Are companies for sale? Are multi-vessel companies even for sale at this point?

Yes, I think there are a number of those companies around maybe they're not as yet ready to take the vessels, but within the next month or so there will be available. And there are two or three big companies with very nice fleets. But as Ioannis explained to you, I think we are going to stick to the staggering manner of buying ships, ships that we would like technically and are easy to run and ships that we have already in our fleet. So, we do believe in sister ships. So, that's what we're going to wait. We are not all that interested on a block deal.

Okay. And then just as we look at what's going on with HMM, clearly they are not a big player in the bulk industry. But just given all the uncertainty and overhang of that, is that having any type of impact on the industry or it's more just hey, we've seen this happen in the industry before and it's kind of just being readily absorbed?

As we have said in the past, Greg, many times, one of the most important factors is psychology. Indirectly facts like this that take publicity, well-known names having problems lead to a worse and worse psychology, which makes the necessary events happening like scrapping order book, laying up of vessels et cetera. People's psychology goes down further, which helps eventually and definitely indirectly it has a very big effect on our market.

Okay. As we think about where the current market is and it's miserable, cash rates up and rates well below breakeven, clearly they've been here for a while. As you think about over the decades being shipowners in this space, I mean realistically how long are these types of rates sustainable? And what I'm trying to get is I know there's no real answer, but realistically how long can rates stay below cash breakeven before we actually see that a snap back for scrapping, just idling of vessels? Can start thinking about that now or are we still too early in the move lower in the market to be thinking about a potential recovery?

So, very quickly I'd like to mention something and then others can add. We don't really see as I mentioned earlier that this recession lasting the five plus years that the 1980s recession lasted. And we say this because of the ability to take ships to demolition and at the same time the attitudes of banks which tend to become much stricter much faster than they used to in the old days. The only difference here now that we have which bothers us a bit are the low interest rates, which make banks more patient to a certain degree and more reluctant to ask for their borrowers to send ships to the scrapyards if the ships are of a certain age. But we are confident that things are going to happen faster in spite of what I just said because ships will be scrapped very quickly and in larger and larger quantities.

The problem is that there is a lot of surplus to be taken up and the Panamax sector and particularly the Ultramax sector, which is competing with the Panamax segment for certain cargos, looks pretty awful. It's shaded and it hides between the various statics for overall bulk carriers, but these ships are exerting a very negative pressure on Panamaxes and that will not go away very quickly and we have to be ready for a good number of quarters there of weak earnings. We can't go much further down on earnings we agree, but it's the time that these earnings will remain low that bothers us. Hopefully as I said less than the 1980s, but we are not near yet the end of the recession.

Greg, may I ask you a question? How long you think we are -- today, how long we are in a really bad market?

You know what Ioannis, I'd love to catch up with you off the line for that and some of my thoughts on that.

We have the opinion that we are in a really bad market for the last six months only.

I think that is correct. But I'll turn the call over and let's catch up later today or later this week. Thank you very much, gentlemen.

(Operator Instructions) Fotis Giannakoulis, Morgan Stanley.

Simeon, I would like to ask you from your experience comparing the crisis of today with the crisis of the 1980s. Except of the interest rates that Stacy mentioned earlier, what other differences do you see today?

Really there are not a lot of differences. But Stacy was right in mentioning the interest rate because don't forget that those days the interest rate was almost 23% or even higher and today it's almost zero. So that is a huge difference, which makes the lagging effect between the chartering graph and the purchase graph come to sort of anecdotally a point much quicker. That is correct. Another point which maybe is different is who are the players today. In the 1980s players were shipowners, today most of them are shipping vessels. So, that is a key issue that may alter the pace of changing the markets. I cannot see anything else. The volumes of course are different, today the supply of cargoes are different, the magnitude of iron ore and the coal is different. The ability of the shipyards to produce tonnage today is much different from the 1980s. Don't forget that the biggest shipyard in the world in 2000 was Hyundai able to build 58 vessels per year, which was every week one vessel and we thought it was huge. Today, there are so many else who are capable of building more vessels and that culture changes the forces which will bring (inaudible) a different market provided of course that owners will be wise not to start ordering again.

Can you also explain to us after three months of a very bad market as Ioannis mentioned, we haven't seen so many idle vessels. We hear stories about many more idle vessels in the 1980s. Also if you can add, how many ships do you think or what percentage of the fleet do you think that right now the market is oversupplied and how in order for rates to move above the breakeven levels including interest and debt service?

I think Stacy mentioned the numbers in his little presentation, which is not all that much today. The difference though between the lay-up tonnage in the 1980s and today is that the quality of the vessel of the 1980s is completely different from today. Today when you lay-up a vessel, you may have a problem in recommissioning the ships because of the technology involved as opposed to the 1980s. That's another factor that we have to take into consideration. What would be the amount of money necessary to spend to recommission the ship and this we're not seeing in the 1980s.

Fotis, we have not seen a lot of vessels being laid up, we expect to see much more. And you have to understand that if we don't see a lot of vessels being laid up, that will mean that the psychology is not at the absolute bottom and it means that the market supply of vessels will not go down to the level that they should go. Laying up of vessels people believe that they can be reactivated easily, which is not correct. First of all, they cannot be reactivated easily; secondly, the people will not take the decision to reactivate the vessels promptly; and thirdly, laying up of vessels creates a bad psychology that makes other people scrap their vessels. But certainly one thing is certain that we have to see vessels being laid up if we want to see the market picking up at a point.

One last clarification about your liquidity. Obviously you have the strongest liquidity compared to every other dry bulk company. But comparing it with two, three years ago before you bought around 20 vessels during this time, you had around $450 million of cash in your balance sheet, right now the cash is slightly below $200 million. How much cash do you think that is safe for you to have in your balance sheet? At what level would you decide not to buy any more vessels especially since 2012 and 2013 rates have come much lower than they were at that time?

Fotis, as we said earlier, we are entrepreneurs and we would like to produce a nice return for our shareholders eventually. Taking positions at the lower part of the cycle is the best thing we have done up to now. Having invested as you said, having purchased more than 20 vessels at the lower part of the cycle means that it is very, very probable that we will create lots of value for our shareholders from the moment the market turns. The safe level of money today is what we have in our balance sheet. After a year from now, it may be a lower number and it has to be a lower number. Again, we have to say that we are here to have an entrepreneurial risk in order to produce a nice return. If we were not shipowners, we wouldn't have done these. We are very, very happy with our debt level at the moment because being at the absolute bottom of the market having the debt level that we have, we consider to be the most appropriate debt level to have in order to produce nice returns. We would not have been happy with our balance sheet if we had 20% finance today or even 50% or 60%. This is not proper shipping.

Can you explain to us? I assume that there is no plan of trying to raise equity in order to keep growing the fleet.

Yes, certainly. This is something I forgot to mention. When I started responding to your question, I had to say that we have managed to buy so many vessels at the lower part of the cycle without having diluted at all and without having issued at the lower part of the cycle any equity. This is a very big achievement and it is not our intention to raise more equity provided we have all the other means of surviving the cycle. Of course as the last of the last resort, this is something that we always have an option to do. But we are certainly not considering of doing something like this because there is no need for that and we have managed so well up to now not diluting our shareholders to the contrary of all the other shipping companies that we are here to try to preserve that.

And one last question related to the liquidity more of the entire peer group. Of this current market, what do you think is the best measure to look at the ability of a company to sustain the downturn without dilution? Is it the net debt to fleet value, is it the cash on hand? And can you remind us based on your estimates what is the leverage that you refer to, what is your estimate and what is the safe level that equity dilution is not a risk in order to be able to compare with other companies?

The safest way of looking at this is the ability of the Company to pay interest first of all, amortization second of that, and that's it. If a company is not in a position to pay for the amortization, then it talks to the bank and usually they give a moratorium for a while and if they cannot pay interest, they have a problem.

So, we have to cover operating expenses as well after that.

Thank you very much all of you. Very helpful.

We have reached the end of the question-and-answer session. I would now like to turn the floor back over to management for closing comments.

Thank you again for your interest in and support of Diana Shipping. We look forward to speak with you in the months ahead. Thank you.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.