Frontline Plc (FRO) 2003 Q3 法說會逐字稿

Welcome to Frontline's third quarter results presentation. With me today I have Oscar Spieler, the new CEO of the Company. We will follow the usual procedure and run through the slides which we put out on our Web, and thereafter there will be a question and answer session.

If we start with slide number three -- the fleet -- basically show you that there's no big changes since last time; 38 vessels VLCCs, out of which 8 are joint ventures; cash breakeven of just below $21,000 per day; 19 Suezmaxes. That's down from two from last time due to the sale that I will get back to. Cash breakeven of $14,200 per day and 8 Suezmax OBOs with a cash breakeven of 13,200.

As you can see, since we haven't had very much of a fleet renewal over the last 12 months, our average age is creeping up and at the same time the industry average is going down. So I guess we're looking a little bit more like an average shipping company as far as age goes and amount of double hull tonnage.

If we look on slide four -- main events 2003 -- in July the Board declared and paid out a dividend of $1.00 per share and then we had an ordinary dividend of $1.10 for the second quarter which was paid out in September. We have today announced a dividend for the third quarter of $1.30. That is to be paid out in mid-December. This brings the total dividend paid out this year to $4.40.

We have also sold two of our Suezmax vessels to OMI, our partner on the Suezmax segment, for $49.25 million each. Part of the payment was (indiscernible) consideration of the sale was 2 million shares in OMI. We're currently sold approximately 1 million of those 2 and the remaining 1 million is basically in the balance sheet as of quarter-end.

Further, we have sold and leased back two VLCCs built in the year 2000 to German KGs. They are charted back on a 12.5 years time charter arrangement, and this is accounted for as capital leases.

And a few weeks ago we signed a contract for the sale of Front Hawk, our last new building, which was delivered in July this year. And the vessel is to be delivered to the new owner in mid-December.

We have also today announced a strategic partnership with STASCO, which is Royal Dutch Shell's transportation arm. And under this partnership Frontline will provide STASCO with four modern VLCCs in charter arrangement that will last for two years. In addition to that we also have another two vessels that are tied up with STASCO, so we're bringing this up to six vessels.

The way we look at this new development is that we moved from being a provider of steel or vessels to STASCO into becoming more of a logistics partner. And the reason for saying that is that we will develop or the intention of the parties is to develop a closer relationship on the cargo side, as I will get back to later on.

If we move on to slide five, there's been in the market for some time and we have been presenting and discussing this in past presentations at seminars and also in the last quarterly report, that we are working on splitting the company into two. As you can see, the new entity, which we've called Ship Finance, which initially will be 100 percent owned by Frontline Ltd., will see 47 Frontline vessels transferred to it. Those 47 vessels will then be refinanced with a new banking facility of approximately $1 billion 50 million. And on top of that there will be a high yield bond which is to be approximately $500 million.

The vessels will then be chartered back to another Frontline entity, which name is to be Frontline Shipping. In Frontline Shipping we are to put in a start cash capital of $250 million. And that's a credit enhancing move, so that let's say investors into Ship Finance will have a reasonable -- it will be reasonable to believe that Frontline will be able to honor the charter agreements, not only in good times, but also through the worst of times.

Those charter agreements will be on time-charter basis. And then Ship Finance or its ship-owning subsidiaries will then turn around and outsource the regular management of the vessels to another Frontline entity, Frontline Management. So technically this is structured as time-charters. And from an accounting perspective it is likely that Frontline Ltd.'s balance sheet will look pretty much the same due to the fact that Ship Finance is -- let's say the 47 vessels will basically be treated as financial leases.

When the first part of the structuring is in place -- that's the bank financing and the high yield debt financing -- is in place, then the intention of the Company is to spin off Ship Finance, that is have it listed as a separate entity on the New York Stock Exchange.

The equity part of this deal is to be sold as a dividend yield stock. And the reason for us believing that we can do that is of course that we have fixed long-term charters. The charters are going to be basically almost for the whole remaining estimated life of each and every vessel. So there really should be limited cash flow fluctuations in the structure.

There will also be a profit-sharing agreement between Frontline Shipping and Ship Finance, so to the extent that Frontline Shipping experiences a superb market, then part of the super cash earnings will then be passed back to Ship Finance and will be one of the reasons for Ship Finance to expand its business over the years. I'm sure we will get back to that in the question and answer section.

If we move onto slide six -- profit and loss statement -- basically income on a time-charter basis, or net operating revenues as it's stated here, $142 million. We posted a gain on sale of the two Suezmaxes of almost $7 million. And total expenses I'll get back to, so we had an EBITDA of $97 million; depreciation currently running at approximately on an annual basis $150 million; EBIT $60 million; and then we had a very negative financial items this quarter of -$22 million.

The main reason for that is that Japanese yen has appreciated against the dollar from 118 yen on a dollar to 110 and that gave us all loss on our yen denominated debt of approximately $12 million. In addition to that, the third quarter was a low earnings quarter, leading to there being hardly any income from associated companies.

After that, we end up with approximately $38 million in net income, earnings per share for the quarter 52 cents and as stated a dividend of $1.30.

Move on to slide seven -- income on time-charter basis -- as you can see we're doing better with our T/C and bare boat vessels, earning close to $31,000 per day in the VLCCs segment. The spot tonnage was earnings 27,500, giving an average of 28,200. On the Suezmax and Suezmax OBO side we were earning approximate $22,000.

Moving on to slide eight, we have got ship operating expenses. As you can see, the expenses are slightly up compared to the first six months of this year. However, they're still at a very low level and definitely acceptable.

We have docked five vessels during the quarter. It comes up on the diagram as four, but that's because one vessel was docked in the second and transferred into the third. We account for dry-dockings, as I said before, on a cost as incurred basis. Basically, therefore, you can see some fluctuations to the operating expenses, but again at a very handsome level.

Moving on to slide nine -- total expenses -- ship operating expenses we have already commented on. Charter hire expenses is basically a before BP vessels that we have on a one year time-charter. And then administrative expenses is up slightly compared to the previous quarters, which again is due to -- we expend the share option program towards the employees. We expend that on a quarterly basis to current share price. And also there was a bonus payout to all of the Company's employees during the third quarter.

Slide 10 shows you the financial items. Again, as you can see, in the third quarter there was net interest expense of approximate $16 million, a small positive on share of results in associate companies and the big hit is really the $12 million on the foreign currency exchange losses.

Slide 11 shows you the balance sheet. We basically have got a pretty much cleaned up balance sheet over the last few quarters -- $228 million in cash at the end of September and other working capital including (indiscernible) in progress of $146 million. There's no new buildings there. It's just industrial vessel purchase options, which is related to VLCC Oscilla and to our right to buy the Company Independent Tankers Corporation, which controls 10 vessels which are financed by US bond market. We discussed that during the past quarter. So to our total balance sheet of approximately $3.1 billion.

Slide 12, I will just jump past. Moving on to slide 13, you see associated companies. We announced in connection with the second quarter results that we had split up on certain of the joint ventures. So now we're down to eight joint ventures. And as you can see, debt outstanding $238 million; our share $118 million. And then for the purposes of analysts who are doing net asset value calculations, we've included our share of cash and net working capital, which is $18 million for restructures for the eight joint ventures.

Slide 14 shows you the balance sheet, the liabilities side. You see that we have short-term interest-bearing debt of $148 million. In addition to that, under other current liabilities there's another $20 million related to the financial leases. So total, let's say debt due during the next 12 months is $168 million. And that compares to the approximately $150 million that we have in depreciation during one year. So we find that to be a very balanced loan structure, so to say.

If you look in the box on the right hand side, you see there's a posting -- deferred gain on sale of KGs of $22 million. That is related to vessels that we sell to the KGs with a profit. That gain is then taken over the time of the charters. So in essence that debt is really debt to our shareholders.

Slide 15 gives you the loan exposure. As you can see in the top box on the left side, there's $170 million of Japanese yen debt in the group. And floating debt, that is of course Japanese yen and US dollar debt is $1,180 million and total debt including capital leases is $1,810 million. So we currently have a floating rate exposure of approximately 65 percent of total debt outstanding.

Slide 16 shows you the off-balance sheet vessels. There is currently, in addition to the four BP vessels that I mentioned, we have four vessels that are on operational leases to German KGs. And of course those commitments are in addition to what is fixed on the balance sheet.

Slide 17 is for the accounting professionals. The only reason I'm showing it is to give me a chance to tell you when you look into investing activities or financing activities, please keep in mind that when we sell and lease back a vessel as a financial lease, then we actually end up selling the vessel and buying it back from an accounting perspective, and we also end up repaying the current debt and taking up new debt as liabilities. So therefore, you will see the figures under investing activities and financing activities are somewhat crossed up compared to I guess what you would call the realities, or let's say the commercial realities of the Company.

Breakeven rates on slide 18, we've already been through.

Then we move on to the oil market section. What really has been the triggers in the market lately have been there's been a surge in demand for oil. That's basically led by, I guess some would say to some surprise, by obviously a very mature industrialized country -- that's the United States -- which over the last 12 months has had an increase in its oil products consumption of almost 600,000 barrels per day. And knowing that US inland production of crude is falling at the same time, that is a tremendous kicker for the shipping industry. That increased demand for transportation by sea.

In addition to the United States we have also seen the same thing happening in China, and for that matter in India and some of the other newly industrialized Far Eastern countries. China is having an increase in oil consumption of 500,000 barrels per day in this figure, which is from the International Energy Agency.

On the supply-side, the big mover in the market is, as it has been for the last four or five years now, the former Soviet Union. And as you can see on the graph on slide 20 on the left hand side, almost all of the increase in production is really being exported. Obviously as ship owners we probably would say that the best thing to happen would be if the Arabian countries in the Middle East were taking care of all the increase in production, but actually transporting crude out of the former Soviet Union through the Black Sea and the Baltic also ties up a considerable amount of tonnage.

Another positive for ship owners is of course the North Sea, in addition to let's say the United States oil production or crude production, also the crude production in the North Sea has been falling, and is basically down over the last four or five years by 5 or 600,000 barrels per day.

Moving on to slide 21, part of the volatility that we've experienced in the rates over the last 12 months has really been caused by how OPEC is conducting their market communications. And back in late September they announced that they were going to reduce their production quotas by 900,000 barrels per day from early November. We tried to convince the market that this was really just window dressing and nothing substantial. However, it was quite evident that ship owners at least didn't believe what we were saying and the market plummeted. It's back up again now, and it is stronger than ever.

What's important to remember when it comes to OPEC is that what they really were doing was I guess believing what the Americans in Iraq were saying, that Iraq would be increasing its production substantially between then and new year 2004. Instead of waiting for that to be proved and thereby see the oil price plummeting, OPEC decided to take a proactive stance and basically announced that they would be reducing production so that they could bring in Iraq without destroying the oil price. I think we have to say that there is a difference between quotas and actual production. And as you can see in the current shipping markets, it is quite evident that the Middle Eastern countries must be producing way beyond the new quota limits that they have put in place.

Moving on to slide 22, just going to look at the right hand one, we have had a good year compared to last year. One of the reasons is, of course, as you can see on the left hand side, the orange or carrot colored line shows you that there's been a fairly good buildup since the end of February during this year. And of course that's been a positive push for the shipping market. Now we're back to the same levels as we were at this time last year and knowing what happened during the winter last year, things look pretty positive for us.

And we will just jump past slide 23, and on to slide 24. One of the few negatives really in this presentation is probably that somewhat to our surprise the US natural gas industry has been able to replenish its stocks from the seven-year lows that they had back around Easter-time and bring it up to really the top of the seven-year highs as it is currently. However, interestingly enough, the natural gas prices stayed at fairly high level, at least from a seasonal point of view, and is currently being -- Henry Hub British thermal units currently trading around $4.50 per unit. So we're very close to a situation where we could see switching again also this year, which of course would be positive for crude transportation.

Next slide shows you that we continue to have the backwardation in the market. What that means is there's no intention for oil traders to try to build up inventories. Instead we'll have the situation, which I actually think it's advantageous for ship owners, is that nobody will buy crude until they really need it. And of course that means that people will be inclined to buy during the wintertime and during the summer driving season instead of trying to replenish during the odd season, early fall and springtime. And you can also see on the right hand side that the spread between Western Texas intermediate and Brent is still positive and that should really give room for lots of cross-Atlantic trades going through most of the winter as it stands today.

Moving onto slide 26, I'm not going to drag you through all of the production levels and the supply stuff, etc., but Just make the point that the estimated call on OPEC from International Energy Agency and US Department of Energy has been scaled up continuously over the last few months. And International Energy Agency had another upgrading just during the last few days.

In addition to providing those, we have also shown you Barclays capital here. Actually this is our old friend from Chase who moved on to Barclays who is continuing to provide these statistics. And you continue can see he continues to be at least more bullish than the International Energy Agency on the figures.

What's interesting both on this slide, 26, and on the next one is, which shows estimated call on OPEC for 2004, is that the parties typically believe that there's going to be a strong stock build in the second quarter and a stock depletion in the fourth quarter. We tend to believe that it's in OPEC's interest to limit such moves. And of course, that brings in more volatility into the tanker rates. But on average more volatility is a good thing for the bottom line of a tanker company.

Basically what you see if you look at Barclays' estimates for the coming year, the levels of production are going to be healthy. And especially the fourth quarter next year definitely looks like it's going to be an exciting time again.

Moving onto slide 28, we're presenting this regular correlation diagram that we had. Due to the increased volatility that we've seen over the last year, which basically the red colored time indications, this line has been becoming less predictive here represented by the R2 correlation. Basically the line has been moving upwards in time. Again, a very strong and steep line, which is every ship owner's dream.

Slide 29 shows you the current demographics in the industry. Both in VLCCs and Suezmax the number of vessels has been very stable throughout the last 12 months or actually the last few years. And we currently have a situation where there's only 16 vessels left in the VLCCs segment which are built in 1980 or earlier. And on the Suezmax side, it's only 33 vessels. Our view is that this basically means that those oldies are going to be left within the next 12 months by all likelihood. And given the strong increase in world demand due to production going out of Russia and also to some extent out of the Arabian Gulf, we tend to believe that there should be no problem in assimilating the new build program for 2004. Obviously the program for 2005 and beyond definitely then we will need to see a continuous growth in the world's consumption of oil. And we tend to believe that unless there is an economic recession, especially in Asia, that that should really be easy to assimilate.

Moving on to slide 30, here we show you trends in tanker values. What has been happening lately is that with the appreciation of the Japanese yen and the Korean won that we have started to see increases in shipbuilding prices. We felt we did a very good sale when we sold Front Hawk or announced the sale of Front Hawk at $76 million. However, apparently a price spike continuing to spike, which means that maybe we should have waited a little bit longer on that one.

If we look at the secondhand prices compared to the new buildings, you can see on a five year-old secondhand vessel we're currently priced at 85 percent of new building parity. So basically that means that the people are willing to pay a premium to acquire a secondhand vessel, which also is an indication of how people perceive the forward rates in our near future to be.

We've discussed under slide 31 just show you what's been having happening in the VLCC market over the last 123 months. Basically it's been, as the chartering department states, very much of a stop and go. The market is very nervous and this has created many opportunities for ship owners to really spike rates and get fantastic earnings. And obviously as you can see from this graph, the same thing is happening right now. Currently the market is approximately $80,000 per day for VLCCs and $45,000 per day for Suezmaxes.

We're getting to the end here. Slide 32 basically shows you we believe the bull is still out -- strong underlying growth from Far East, as I've explained; good growth prospects there. The inventory situation in United States, or for that matter in the whole of the OECD countries, is expected to remain low, which will also contribute to continued volatility and spikes in Suezmax and VLCC markets. And again what's also helping us is of course what we call the "Prestige Effect" after the vessel Prestige that sank about a year ago.

What's also interesting is that due to the EU limiting or prohibiting trades or entrants of single hull vessels into European waters we definitely have a situation where the fleets will simply be traded less efficiently. And that of course is a positive for us in the long run.

We also note that with the current problems in Iraq that there's no oil to be coming out of Sahan (ph) and we actually don't tend to believe that there's probably not going to be any oil coming out of Sahan until maybe next spring or summer. Having said that, that means that if Iraq increases its production, we're going to be indifferent. Whether it's Saudi oil or Iraqian oil that's going to be shipped, that's not going to make any difference on demand for vessels.

Jumping on to the slide 33, we've got just a brief presentation here of to trend status on the OBOs. What has happened during the last six months is that all of a sudden the dry boat market has skyrocketed, and that's actually even stronger than the tanker market currently. So we decided to switch the vessels, our OBOs that had been trading consistently wet for three or four years into the dry market. And as you can see from the graphic presentation here, we've fixed all of those vessels on long charters, or at least let's say three to six months, but some of them for several years. And we're currently working on extending the current charters for several years again. One of the advantages of doing this is of course that we have also managed to reduce the Suezmax fleet by approximately 2.5 percent by doing this, which brings up utilization rates in that market further.

Finally, my last slide, slide 34, just shows you how much we've fixed so far to date in the fourth quarter and also the earnings based on what has been fixed to date. And again, currently the rates are $45,000 per day for Suezmaxes and $80,000 per day for VLCCs.

Slide 35 shows you again this new partner shipping that we're doing with Shell. Do you want to talk about that, Oscar?

We have gone into a contract with Shell on four VLCCs which they take on bare boat for two years. One of those (indiscernible) already on bare boat charter to Shell and the three older vessels will be decided shortly. This is quite important for us because we are now the only customer of Shell on long time business. And we have currently six vessels with Shell. Then we also have a contract with BP, as you are almost all aware of, which we are renegotiating now. And that's it.

Don't you want to say anything -- okay, no need for saying anything more? Then, operator, we're open for questions and answers.

(OPERATOR INSTRUCTIONS) Mr. Testa (ph), One Investment.

I just have a couple of questions on the organization structure. You're going to raise two pieces of debt which is a bit over 1.5 million. Can you talk about how much debt that is going to be replacing and how much debt is held in the German KGs?

The debt to be replaced is approximately $1,150 million. So we will be creating approximately 400, $450 million, as explained in the quarterly report. I mentioned that we're going to move 47 vessels into this new entity, but actually the German KGs are going be left outside of that structure. They will be left in Frontline Ltd. really.

What are the assets and debt against the KGs currently?

Currently the debt in KGs is approximately -- as you can see in the balance sheet, it's approximately $470 million. Basically the vessel assets are approximately the same, actually.

Okay. You said there's about 2 billion of assets to be moved into new company. Does that include the associated interest?

Yes. What we will do is six out of the eight vessels that are listed on the overhead that we had showing the associated companies, we will have to split those with our partners and take three vessels each. Those three vessels that we're taking will be brought into the structure.

That's included in the approximately 2 billion of assets?

That's right.

Because if you take the assets of shipping on the balance sheet, minus something approximately the German KGs -- say 500 million -- it's not clear as to whether the associates are also including because you end up with a bigger number, that's all.

Then a question on the amount of cash you may need to hold in the structure. You said there is 250 million of cash to be held in the ship company. Will there be any cash needed to be held in either the parent company -- or sorry, the charter company is 250 -- any cash to be held in the ship company or in the parent company against and of the obligations they have or will the cash by free?

In Ship Finance there will initially be hardly any cash the basically from day one you get charter hire for one month, which will be in excess of $30 million. And from then on you will be building up a reasonable amount of cash so that you have more than that you have more than enough money to pay both the dividends and interest on high yield and interest in installments on the bank debt.

So when it comes to Frontline Ltd. saved for Frontline Shipping, there will be no conditions as to how much cash is in Frontline Ltd. Of course, we will have to have enough cash to be able to honor all of the German KG leases and certain of the vessels that are going to be left in Frontline Ltd.

Because that's just matching cash flow to match the leases, but that should be covered by the KGs themselves, shouldn't it?

Well, we pay let's say 26 to $30,000 per day for a KG vessels. Of course, we have to be able to earn that at least in the market to be able to function in the long run. But what we're thinking of is basically having approximately $3 million per vessel amongst those remaining vessels, which would translate into 50, $60 million as sort of a starting cash capital.

Then the rest of the cash will basically be available to either dividend out to shareholders or do new projects. Of course, then we haven't even considered how we're going to handle Ship Finance, which could either be spun off to current shareholders or more likely there will be a small IPO to set a new higher pricing on net asset compared to what we think it is, what is inherent from current Frontline share price, and then possibly do a secondary offering of shares held by Frontline in Ship Finance and/or finally handing over the rest of the shares to the shareholders, the current shareholders.

Because it's also mentioned in the press release of a high yield issue of the Ship Finance business, maybe a preference share issue or something like that, which falls I guess outside the debt raised and the high yield debt. Can you talk about what you're planning on doing there?

First of all, there's going to be a bank facility of 1 billion 50 million. Then there's going to be a high yield on top of that of approximately 500. So that equals totally --

But in addition there's a mention of a pass (ph) or something like that, a third security class.

Yes, and then the equity in Ship Finance is going to be sold as a dividend yielding stock. So I guess what you really could say is that we're presenting this as a two split structure. But in essence what we're doing here is really in addition to the three capital providers that we have in Frontline today -- this commercial banks, KGs and current equity holders -- we're introducing two new capital providers, and that's the high yield investors and preference share type of investor. We've decided to do this in a split structure because we think we actually get a better pricing amongst preference shareholders by doing in this way than simply introducing preference shares into the current Frontline balance sheet.

So it is 500 million of high yield debt plus a preference share issue?

Yes.

Thank you very much.

Mr. Larsen, Enskilda Securities.

Good afternoon. I have a question regarding the associate financing. I have some problems understanding. You're right in your press release that you anticipate that you going to increase the liquidity by $400 million. You have already told us that you're replacing $1.1 billion in debt by $1.55 billion in debt, and thereby freeing up $450 million in cash. And the next step is that you're going to sell the equity in Ship Financing, which is going to give us another -- well, you're indicating a net asset value of 400. If you're able to sell that net asset value it gets you another 400. So it means that at least we're talking about 8 to $900 million before you subtract this restricted cash. Have I understood this correct or am I completely wrong here?

No, that's right. And you have to keep in mind that we already have $250 million in cash in Frontline currently.

That's true. So what you're referring to in your press release is just the first step of the rocket (ph)?

That's right. Okay, you said that NAV was approximate 400. I guess I said something like that in the presentation this morning. But we actually believe that since this is really going to be a yield instrument that we should get a pretty substantial premium to the NAV pricing, and of course that creates shareholder value for all of the current Frontline shareholders. So with a little bit of luck maybe we can sell the company for 6 or $700 million. That's actually what we think we can do.

But isn't 400 very low compared to -- you have a book value today, a book equity of 1.3 billion and you are transferring 47 out of 66 vessels and that only gives a net asset value of 400? I can't figure it out. It must be much more than 400 you're transferring downstairs.

We're transferring vessels valued at 2.0 to $2.1 billion, so that should be correct, really. But you have to keep in mind that in addition to the 2.1 billion in current Frontline you have $250 million of cash, you have approximately $150 million of current assets, that's $400 million. Then you're left with approximately probably 5, $600 million of vessels. So that brings you up to the $3.1 billion.

So the value is 2.1 and the debt is 1.55, so it gives you a net asset value of 550, which you're trying to sell into the market at a higher price?

You're probably right, that that's more correct figures, yes.

Thank you.

Mr. Testa, One Investment.

If you take the balance sheet and assets committee take the vessels and equipment at 2.5 plus the associated companies at 1.3, gives you 2.7 almost of vessels. Then you're talking about transferring 2 billion to 2.1, so 6 to 700 million would be left. The KGs are somewhere close to 500 million. So there is 100 to 200 million of vessels missing. Can you say where they are, please?

First of all, there's one VLCC, which is non-recourse to Frontline, but which is financed at approximately 130 percent of assessed value. And obviously we don't want to give away that structure. Obviously the financier involved in it would probably not want to take the loss either. Then we have three dry boat vessels -- is two Capesizes and one Handymax. And I think that basically covers -- excuse me, and then also there's going to be left two joint ventures -- the Front Tobago and the Golden Fountain. That probably makes up most of the missing vessels.

Okay. Just if you took the assets you're transferring -- this is book value -- if you took them on the current expression of market value, what do you think the difference would be between the 2 billion, the 2.1 billion and that figure?

Actually, it's probably very close to each other. But the latest assessments we have is that market value is something like $50 million below the book values. So it's really negligible.

And last question is on the breakeven rates under the charter agreement between the ship-owning company and the chartering company. What will be the breakeven rate on the 48 vessels for VLCC and Suezmax?

Thank you for asking me that. I probably forgot to tell the people. Starting time-charter rates are going to be 25,500 and 21,000 respectively for the two segments. That will decrease over the years and end up late in the life of the vessels at 15,000 and 18,000 respectively.

But keep in mind that that rate includes paying dividends to shareholders. So if you got into a tough market from a Ship Finance perspective you can say that the breakeven levels are approximately $4,000 less than the figures I indicated. Of course from Frontline Shipping’s point of view, they have to pay what they've contracted. But the structure will have a grace period worked into it which probably will allow us to call on Ship Financing that you can't pay dividends for a period of approximate 12 months, which would give a grace of, again, the $4,000 per day.

Okay. And you said that within this there is also profit-sharing of anything above breakeven of the charter company. How would that work, please?

We haven't fixed the threshold, but just as an example -- now I'm really tossing more of an idea that what we've agreed on. But we were talking about, for example, offering Ship Finance 20 percent of the trading profits above $35,000 per day and $25,000 per day for the two segments. Of course that really isn't let's say a selling argument to words banks and high yield investors, but it's more a thing that you'd like to present to equity investors later on.

And the rest would be through the charter paid to the Limited company to be used for dividend?

Yes. Just to take that one too, the structure is such that for Frontline Limited to get any money after Frontline Chartering there has to be at least $250 million left in -- excuse me, in Frontline Shipping -- there has to be $250 million left in Frontline Shipping after such dividend payout.

You mean the charter business rather than the -- (indiscernible) asset owner?

Yes.

So that 250 is a minimum threshold. Anything above that after profit-sharing would be paid out is the new sort of guideline?

Correct.

Okay, thank you.

Mr. McKnight (ph), Mason Capitol.

Any perspective level of dividends you're going to pay at the Ship Finance unit?

The indicated levels that we intend to start with -- and again this is all subject to different instruments floating the way we think they should be doing. We intend to pay out approximately 65 to $70 million initially. So back to Mr. Larsen's question, if you assume a 10 percent dividend yield that would basically price the Company to 650 to $700 million.

Thank you.

Mr. Testa, One Investment.

One other question. On timing, can you give any views on timing for the Phase I with the bank debt and the high yield bond and then Phase II for the split and the IPO?

We're trying to get as much as possible of the bank and high yield bond stuff done before Christmas. However, as surely many of you know, that can often be tight during that part of the season because I guess you could say that investors tend to become a little bit complacent, having closed their books more or less. Based on that, we may decide just to move on into January in doing it. But then we definitely should be done by the end of January.

When it comes to the next stage, which is the equity part, that will have to be done shortly thereafter.

But you will proceed trying to start one as soon as the other is finished in terms of the marketing (indiscernible) overlap in preparation (multiple speakers) long ladies and gentlemen because things and take time to get permission to lift in New York, and prospectuses put together and so on?

That's right.

You expect to be working on that alongside it rather than --?

Yes, that's right.

Thank you.

Mr. Lovator (ph), Pastor Capital.

Good morning. I had a couple of other questions. What's the cash on the balance sheet currently?

It's in excess of 250, I said earlier.

And that's not including the dividend payment about to come out?

Yes, that's right. But if I had all our vessels fixed at today's market, which I of course don't have, then what we would be earning $2.5 million per day in the bottom line. So we don't have any problem paying out $96 million in dividend knowing the current strong market that we have.

I had a question on the market. What percent of the vessels, let's say of the transatlantic trade that you mentioned might be strong, given (indiscernible) what vessel class operates in that business?

For the most part it’s Suezmaxes, but also you find a number of VLCCs trading typically, mostly to the United States, really.

Okay.

It's mostly Suezmax. And of course you also move into the segment which we aren't operating in. That is the Aformax (ph) segment.

Okay. In your slide of the current fleet and the new buildings, what percent of the new buildings which you show on order for 2003 are already in the current fleet as of November 13th, I think?

The vessels that we show on the slide should be the ones that still have to be delivered.

So those still need to be delivered then in the next month?

Yes. And there's always some flexibility into taking delivery of a vessel. So obviously what may happen is that some of the ones listed in 2004, obviously in a $45,000 and $80,000 environment everybody will be working day and night to get the vessels finished as soon as possible. So it could be that some of the vessels in 2004 -- that's only a handful I guess in each segment -- could be moved into 2003.

In other words, on the market it seems like the vessels available in the Middle East right now are extremely low. I think the last number I saw was maybe 26 available in the next 30 days. Does that mean that thereafter there will be a bubble of vessels arriving into the Middle East? Or is that not the case?

What we see today is that the charter, they are splitting our business (ph) cargo into Suezmax cargoes. And the supply for the next few weeks seems very low and the few months as well. So it's a very interesting market to follow the next few weeks. It has been very positive.

So there's not sort of a wall of VLCCs arriving to the Middle East?

Not as far as we can see. Supply is not there.

Final question I had -- these big dividend payments that you're making, have you considered there are withholding taxes that some investors are sort of subject to. Could they not be classified as returns of capital? Have you considered that?

I guess we could have done that, but par value in Frontline is only $2.50 per share. There really isn't that much room to do that.

Okay. Thank you very much.

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We thank you all for listening in to us, and give us a call if you have more questions. And if not we will see you for the fourth quarter presentation later on. Thank you.