Genco Shipping & Trading Ltd (GNK) 2007 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Genco Shipping & Trading Ltd. third-quarter 2007 earnings conference call and presentation. Before we begin, please note that there will be a slide presentation accompanying today's conference call. That presentation can be obtained from Genco's website at www.gencoshipping.com. To inform everyone, today's conference is being recorded and now being webcast at the Company's website, www.gencoshipping.com. (Operator Instructions). A replay of the conference will be accessible anytime during the next two weeks through November 2007 by dialing 888-203-1112 for U.S. callers, 719-457-0820 for those outside of the U.S. To access the replay, please enter the passcode 3416172.

At this time, I will turn the conference over to the Company. Please go ahead.

Good morning. Before we begin our presentation, I note that in this conference call, we will be making certain forward-looking statements that discuss future events and performance. These statements are subject to risks and uncertainties that could cause actual results to differ from the forward-looking statements. For a discussion of factors that could cause results to differ, please see the Company's press release that was issued yesterday, the materials relating to this call posted on the Company's website and the Company's filings with the Securities and Exchange Commission, including without limitation the Company's Annual Report on Form 10-K for the year ended December 31, 2006, and the Company's subsequent Reports on Form 10-Q and Form 8-K filed with the SEC.

At this time, I would like to introduce Mr. Gerry Buchanan, the President of Genco Shipping & Trading.

Good morning and welcome to Genco's third-quarter 2007 conference call. With me today are Peter Georgiopoulos, our Chairman, and John Wobensmith, our Chief Financial Officer.

As outlined on slide 3 of the presentation, I will begin today's call by discussing the highlights of the quarter, followed by John's review of our financial results for the quarter ended September 30, 2007. Following this, I will discuss the industry's current fundamentals. John, Peter and I will then be happy to take your questions.

During the three months ended September 30, 2007, Genco made significant strides in the continued execution of the Company's growth strategy as we once again drew upon the management's extensive experience in actively consolidating the drybulk industry. We also secured long-term time charters at accretive levels during the third quarter and distributed a sizable dividend to shareholders, as we have consistently done in the past.

I will begin my discussion of the quarter on page 5. For the three months ended September 30, 2007, we recorded net income of $16.3 million or $0.64 basic and diluted earnings per share. Excluding the deferred financing cost write-off and the gain from our forward currency transactions, which John will discuss later in the call, we recorded net income of $19.4 million or $0.77 basic and $0.76 diluted earnings per share.

Our results for the third quarter enabled Genco to declare a dividend of $0.66 per share for the three months ended September 30, 2007, which represents our fourth consecutive quarterly dividend under the Company's increased quarterly target for 2007, our ninth consecutive quarterly dividend overall since our IPO in July 2005.

Since our inception, management has remained steadfast in its efforts to become the industry bellwether, with a large world-class fleet that drives significant shareholder value. As a further step towards this objective, we agreed to acquire nine Capesize vessels in July 2007 from companies within the Metrostar Management Corporation group. This acquisition expands our fleet into the large Capesize sector, increasing our ability to benefit from the strong demand for essential commodities in China and other developing countries. Of note, we have already taken delivery of three of the nine Capesize vessels and expect to take delivery of one additional Capesize vessel by the end of the year.

Building on our considerable success from the Metrostar acquisition, we agreed to purchase six drybulk vessels in August from affiliates of Evalend Shipping Co. SA. We expect this acquisition to improve our fleet profile and position the Company well to grow our earnings and cash flows in both the near term and the long term, as all six vessels are scheduled to be delivered by the end of 2007.

The 15 vessels in total that we agreed to acquire during the third quarter combine to expand our fleet by approximately 173% on a tonnage basis and solidify Genco's leading reputation as a provider of high-quality tonnage that meets stringent operational standards.

As we substantially increased our earnings power through the successful execution of our growth plan, we intend to draw upon our financial strength to fund our acquisitions. During the third quarter, we entered into a new $1.4 billion credit facility with favorable terms. We also completed our common stock offering in October that raised approximately $213.9 million in net proceeds.

I also highlight three additional accomplishments in the third quarter and year to date that we will discuss later in the call. First, we agreed to sell the two oldest vessels in our fleet, the Genco Trader and the Genco Commander. Second, we increased our ownership position in Jinhui Shipping and Transportation Limited. And third, we further increased our time charter coverage.

Moving to slide six, I will now discuss our combined success and the execution of our chartering strategy. During the third quarter, we reached agreements to charter a total of eight vessels at accretive rates. In doing so, we signed time charters for three vessels -- Genco Surprise, Genco Success and the Genco Wisdom, at significantly higher rates of 68%, 37.5% and 44%, respectively, from their previous time charter levels. Based on our success in locking away a large portion of our vessels on time charters at rates equal to or above previous levels, we currently have approximately 93% of our current fleet's available days secured in contracts for the remainder of 2007.

In addition to the three vessels I have just discussed, we secured the following five newly acquired vessels on time charters during the third quarter at attractive rates prior to taking delivery of the ships -- the Genco Constantine, the Genco Warrior, the Genco Charger, the Genco Challenger and the Genco Champion. Of note, our time charter for the Genco Constantine includes a 50-50 index-based profit-sharing component, enabling Genco to take advantage of the strong rate environment. The time charter for the Genco Titus, which will deliver during the fourth quarter, also has a similar 50% profit-sharing component.

With 76% of our fleet's available days secured in contracts for 2008, Genco is well positioned to benefit from a strong fixed revenue stream, while continuing to take advantage of a rate environment that remains robust and secure time charters at accretive levels. We take a prudent approach to our time charter strategy, observing the following criteria. First, we evaluate the current rate environment, as well as future trends, in order to lock the appropriate duration of our contracts. Second, we actively manage our contract securities to ensure staggering renewals. And third, we seek to enter into profit-sharing arrangements when the terms are beneficial to the Company and its shareholders.

Turning to page 7 of the presentation, we provide an overview of our newly acquired vessels. We expect to take delivery of our fourth Capesize newbuilding, the Genco Titus, on or about November 15, 2007. The five remaining Capesize newbuildings are scheduled to be delivered between the second quarter of 2008 and the third quarter of 2009. In respect to the six vessels acquired from affiliates of Evalend Shipping, three of the ships are Supermax vessels, including one Supermax newbuilding, and three are Handysize vessels totaling 254,153,000 deadweight tons. As mentioned earlier, all six vessels are expected to be delivered to Genco during the fourth quarter of 2007.

During a time when we continue to expand our leadership position through our acquisition strategy, we further improved the profile of our more than high-quality fleet by agreeing to sell our two oldest vessels, the Genco Commander and the Genco Trader. After the sale of the Genco Commander and the Genco Trader, as well as the delivery of the remaining 12 of 15 drybulk vessels that we agreed to acquire in the third quarter, Genco will own a fleet of 32 drybulk vessels, consisting of nine Capesize, six Panamax, three Supermax, six Handymax and eight Handysize vessels with an average age of approximately seven years, well below the industry average of 16 years.

At this time, I would like to turn the call over to John.

Thank you, Gerry. I will begin my remarks by directing you to slide 9, which presents our third-quarter and nine-month 2007 financial results. For the third-quarter and nine-month period ended September 30, 2007, we recorded revenues of $45.6 million and $119.7 million, respectively. This compares with revenues for the third-quarter and nine-month period ended September 30, 2006, of $32.6 million and $97.5 million, respectively. This increase was due to the operation of a larger fleet.

Operating income for the third-quarter and nine-month period was $25.1 million and $65.9 million, respectively. This compares with operating income for the third-quarter and nine-month period ended September 30, 2006, of $16.7 million and $51.8 million, respectively. The increase in operating income is attributable to higher revenues, which was partially offset by higher vessel operating expenses, as well as higher general and administrative expenses.

Our interest expense in the third quarter of 2007 was $10.1 million, and $17.7 million for the nine-month period ended September 30, 2007, which compares to $2.5 million for the third quarter of 2006 and $6.9 million for the first nine months of 2006. Interest expense for the third quarter of 2007 includes drawdowns for the deposits made on the acquisition of the 15 vessels and amounts required to complete the acquisition of the three Capesize vessels, as well as the expense associated with the $77 million borrowed for the purchase of the Jinhui common stock.

Net income was $16.3 million or $0.64 basic and diluted earnings per share for the third quarter of 2007 and $49.9 million or $1.97 basic and $1.96 diluted earnings per share for the nine-month period ended September 30, 2007.

Excluding the previously announced noncash expense of $3.6 million during the current third quarter due to the write-down of the unamortized deferred financing costs related to the retirement of our previous credit facilities, as well as the $0.5 million gain from our forward currency contracts, net income totaled $19.4 million or $0.77 basic and $0.76 diluted earnings per share for the three months ended September 30, 2007.

The forward currency contracts are being used to hedge a portion of our exposure to the Norwegian krone related to the Jinhui stock. We are utilizing hedge accounting for the currency-related aspect of Jinhui purchase.

For the third-quarter and nine-month period ended September 30, 2006, net income was $12.9 million or $0.51 basic and diluted earnings per share and $47 million or $1.86 basic and diluted earnings per share, respectively.

Excluding the unrealized noncash loss from our forward interest rate swap agreements, net income was $15.1 million or $0.60 basic and diluted earnings per share for the three months and nine months ended September 30, 2006, respectively.

Moving to slide 10, you will see that we continued to maintain a strong balance sheet as we successfully expanded our fleets and distributed sizable dividends. Our cash position was $51.2 million as of September 30, 2007, and our debt to capital ratio was 65%.

Our total assets as of September 30, 2007, were $1.3 billion, consisting primarily of our current fleet, deposits on vessels to be acquired, Jinhui common stock and cash. Our EBIDTA for the three-month period ended September 30, 2007, was $33 million, representing an EBITDA margin of 72% of revenues.

Moving to slide 11, our utilization rate was 99.7% for the third quarter of 2007 and 98.7% for the nine-month period ended September 30, 2007. Our time charter equivalent rate for the third quarter of 2007 was $24,362 per day versus $20,387 per day recorded in the third quarter of 2006. This increase was due to higher charter rates during the third quarter of 2007 for two Panamax vessels, the Genco Knight and the Genco Beauty, and three Handymax vessels, the Genco Marine, the Genco Prosperity and the Genco Muse.

Higher rates were also recorded for the Genco Leader and the Genco Trader, the two Panamax vessels which operated in the Baumarine Pool during the third quarter of 2006 and were subject to fluctuations in the spot market.

Finally, included in Q3 2007 time charter equivalent rates are the time charter rates for the three Capesize vessels from the Metrostar acquisition.

The increase in time charter equivalent rates was partially offset by higher charter rates achieved in 2006 for the five Handysize vessels on charter with Lauritzen Bulkers A/S. As a reminder, on September 5, 2007, we commenced extended time charters for the five Handysize vessels at a gross daily rate of more than 44% higher than the previous daily rate for each vessel.

For the third quarter of 2007, our daily vessel operating expenses were $3665 per day versus $3681 per day for the third quarter of 2006. Daily vessel operating expenses for the first nine months of 2007 were $3673 per day versus $3237 per day for the year-earlier period.

Of note, our daily vessel operating expenses for the third quarter of 2007 were below our 12-month budget of $3682 per day, excluding the Capesize vessels, and our daily vessel operating expenses for the nine-month period was substantially equal to our 12-month budget. While we remain focused on maintaining our low-cost operating platform, the Company expects an increase in its 2008 operating expense budget to reflect the anticipated increased cost for crewing and lubes.

On slide 12, we present a pro forma balance sheet that reflects the Company's payment of its third-quarter 2007 dividend of $0.66 per share; the drawdown of $106.25 million for the remaining 85% payment for the Genco Titus, expected to be delivered in November; the drawdown of $302.4 million for the remaining 90% payment of the six vessels acquired from Evalend, expected to be delivered before the end of the year; proceeds of $43.6 million from the sale of the Genco Commander; and lastly, net proceeds of $213.9 million from our follow-on offering. The sale of the Genco Commander during the fourth quarter of 2007 is expected to result in a gain of approximately $23.4 million. As you can see, our pro forma cash position for the quarter is $32.2 million.

As of September 30, 2007, our pro forma liquidity totaled $431.9 million, and our net debt to total capital ratio was 60%. It should be noted that while the pro forma balance sheet includes $77 million in debt associated with the purchases of Jinhui common stock, it does not include the approximately $225.6 million of proceeds or the unrealized gain of $96.4 million related to our Jinhui stock position based on yesterday's close of NOK79. Also, the pro forma balance sheet does not include the anticipated sale of the Genco Trader during the first quarter of 2007.

The $23 million gain on the sale of the Genco Commander, as well as the approximate $26 million gain on the sale of the Genco Trader, which is expected to deliver during the first quarter of 2008, once again demonstrates management's opportunistic approach to increasing shareholder value.

On slide 13 of the presentation, we outline our payment schedule for the remaining 12 of our newly acquired vessels to be delivered. I would like note that the deposit payments have already been made in the amount of $168.1 million. The remaining balance will we made upon the delivery of each vessel. As a result, we expect to make final payments totaling $408.65 million for the delivery of the Genco Titus and the six ships acquired from affiliates of Evalend Shipping during the current quarter.

Before moving on to our dividend policy, I will now briefly discuss our anticipated breakeven levels. Consistent with the breakeven numbers we provided in the past, we note that for modeling purposes, the budgeted daily vessel operating expenses for the nine Capesize vessels we acquired are expected to be $4900 per day per vessel. The budgeted daily vessel operating expenses for the three Supermax vessels to be acquired are expected to be $4325 per day per vessel, and the daily vessel operating expenses for the three Handysize vessels to be acquired are expected to be $4100 per day per vessel.

Daily vessel operating expense estimates for the six drybulk vessels acquired in August include increased crewing and insurance costs based on 2008 calendar-year budgets, as well as predelivery costs, which will only affect the 2007 numbers. We plan to provide updated breakeven figures for the fourth quarter once we take delivery of all six vessels from Evalend Shipping and the one remaining Capesize vessel, the Genco Titus, which are anticipated in the fourth quarter of 2007.

Next, I will briefly discuss our dividend policy, provided on slide 14. As Gerry stated earlier, we declared a third-quarter dividend of $0.66 per share, our fourth consecutive dividend under our quarterly target rate for 2007. Based on our closing price yesterday of $71.89 plus the cumulative dividends of $4.98 per share that we have paid to date, we have provided shareholders who invested in our IPO in July of 2005 a total return of approximately 266%. Our dividend policy, which is determined by our Board of Directors and is calculated based on free cash flow, less cash reserves for fleet maintenance, renewal and growth and debt amortization, provides important benefits to shareholders.

Complementing our approach to rewarding shareholders through sizable dividends, we have taken active measures to maintain our strong financial position during a time when we capitalized on strategic acquisitions that adhere to our strict earnings and cash flow accretion criteria, as well as return on capital hurdles. In the third quarter, we entered into a new $1.4 billion revolving credit facility. The new credit facility, led by DnB NOR Bank ASA, has a 10-year term with amounts borrowed under the facility bearing interest currently at LIBOR plus 0.85%. In addition to financing our acquisition of the 15 drybulk vessels, proceeds from the new credit facility have been used to retire the outstanding amounts under our $550 million facility and our $155 million short-term line.

In further support of our strong growth initiatives that create significant value for the Company and its shareholders, we completed a common stock offering in October that I will now briefly discuss. Including overallotments, Genco had offered 3,358,209 shares of common stock and a selling shareholder, Fleet Acquisition LLC, offered 1,076,291 shares of common stock pursuant to the Company's existing shelf registration statement.

This offering underscores Genco's ongoing support from the capital markets and was noteworthy for a number of reasons. First, the offering raised approximately $213.9 million in net proceeds for Genco, which has been used to pay down debt. Second, the offering was priced at a premium to the closing price on the date the offering was announced. And third, the share ownership of management and Genco's Chairman did not change, which demonstrates our confidence in the Company's prospects.

Before I turn the call back over to Gerry to discuss the industry fundamentals, I will now provide an update on our ownership position in Jinhui Shipping and Transportation Limited, a drybulk shipping owner and operator focused on the Supermax sector of drybulk shipping. Following the announcement of our initial position in the Company in May of 2007, our current position in Jinhui is 15,296,900 shares, equaling 18.2% of the outstanding shares in votes of Jinhui's capital stock as of September 30, 2007. The total debt level related to the Company's purchase of Jinhui's capital stock is currently $77 million.

Based on Jinhui's closing price on October 31, 2007, of NOK79 per share, we have an unrealized gain of $96.4 million. Genco may purchase additional shares of Jinhui's capital stock or dispose of any and all shares of Jinhui's capital stock that Genco holds, whether through open market transactions, privately negotiated transactions or otherwise.

I will now turn the call back to Gerry.

Thank you, John. I would like to take this opportunity to spend a few moments discussing the industry fundamentals. I will start with slide 16, which points to the drybulk indices. Represented on this slide are the overall Baltic Dry Index, the Baltic Capesize Index and the Baltic Panamax Index.

As can be seen when looking at the first nine months of 2007, the rate environment has displayed a significant increase since the beginning of the year, reaching record levels of over 10,000 points through October of 2007, representing an increase of approximately 160% over the corresponding level of last year.

Of note, although the BDI movement was led by record levels of Capesize spot rates, the correlation between the aforementioned and Panamax rates is evident by almost parallel increase in the BPI index.

Moving on to slide 17, we will discuss the drivers of this robust market. As indicated on the graph at the bottom left, Chinese steel production grew to 362 million tons for the first nine months ending September 30, 2007, while 284 million tons were imported into China for the same period. For the cumulative period, Chinese steel production grew by 18% and iron ore imports grew by 16% year over year.

As noted on previous calls, strong rates have been supported by not only by increased demand for commodities such as iron ore and coal, but also by customer demand to move these commodities over longer routes. A prime example of that was evident during the third quarter of 2007, where combined iron or exports from both Australia and Brazil were 13% for the month of August and estimated at over 10% for the third quarter of 2007 cumulatively.

Another important factor affecting drybulk rates has historically been port congestion, with focus most recently given to the Australian coal ports. Port congestion has decreased from its July record levels of 23 days to a current level of approximately 13 days, while at the same time, rates have shown significant increases. It is our belief that the cause of this disconnect has been the underlying demand for commodities and the growth in ton miles.

Looking at the graph at the bottom right-hand side, we can see the drybulk orderbook by quarter through 2012. A fairly defined orderbook over the next two years provides for good visibility over the medium-term charter market. Furthermore, albeit the scheduled deliveries for 2009 and into 2010 seem to have increased over the past couple of quarters, we believe that projected continuous growth in demand, as well as the aging drybulk fleet and potential scrapping, bode well for the drybulk industry. As of September 30, 2007, the drybulk fleet grew by approximately 5%. Firm freight rates through the third quarter helped maintain scrapping levels at minimum, with only 17 drybulk vessels reported as scrap for the first nine months of 2007.

On slide 18, we detail the long-term drybulk demand fundamentals, which we believe remain strong for the following reasons. Increases in China's GDP continued at strong rates, reaching an annual growth rate of 11.5% for the third quarter of 2007. India's GDP grew 9.3% year on year for the first quarter of 2007. Furthermore, 2007 growth estimates stand at 9%. World GDP growth for 2006 came in at 5.4%, while growth is forecast at 5.2% for 2007. A major driver of this growth is the Asian economies.

Finally, if we look at the graph on this slide, we can see that China has overtaken Europe and Japan as the largest importer of major bulks, accounting for approximately 21% of the world's imports. When looking at the same data from 1998, Chinese imports accounted for only 6% of the world trade. As China continues to rely on long-haul trade routes from Brazil and Australia for its iron ore needs, ton-mile demand is expected to continue to grow.

What will drive the market going forward? On slide 19, we point out what we believe to be the favorable fundamentals of the industry. Evident by the continuous growth in Chinese iron ore imports, strong steel production, combined with expectations of high iron ore contract prices for 2008, bode well for a sustained strong rate environment. Additional confidence is derived from recent forecasts by the International Iron and Steel Institute, which place the world steel consumption growth at 6.8% for 2007 and 2008. With much of that consumption originating from rapidly growing China, it is not surprising to see that the majority of incremental Brazilian iron ore exports have been absorbed by Chinese steel mills that are ramping up steel production. Furthermore, the fact that Chinese companies have been actively investing in Brazilian and Australian mining companies in order to access mining rights to the much-needed iron ore is a good indication of bullish long-term fundamentals.

India's economic growth is serving the drybulk industry by adding further pressure to the coal trades in two ways. Firstly, its increased steel production is forcing the country to become a major importer of coking coal. Secondly, its increased energy demand will result in higher thermal coal imports.

On the grains front, the North American grain season is expected to ramp up during the fourth quarter, showing a significant start to the season, with wheat exports growing almost 150% in September over the same month last year.

Lastly, over 30% of the world's fleet is 20 years or older. As we have indicated on past calls, unlike tankers, bulk carrier scraping is not mandated. It is more of an economical equation and the cost of repair to comply with the requirements of a fifth or sixth special survey. However, charterers do become more selective in less robust markets, and many of them will not take vessels which are in excess of 20 years or older for longer-term time charters. Therefore, we believe that scrapping will become an increasing factor in the future.

This concludes our presentation, and we will be now happy to take your questions.

(Operator Instructions). Doug Mavrinac, Jefferies & Company.

Congratulations on another fantastic quarter. I just had a few questions for you guys. First, you all have a number of vessels operating on charters that expire in the coming months. Have you seen any changes in interest from charters in recent days, given the volatility in some markets this week?

No.

I figured not as much. I just wanted to ask. And then looking at your fleet, you all have a number of Supermaxes and Handymaxes coming up for renewals over the next few months. How far in advance of contract expirations do you like to secure employment for those vessels in particular?

It's John. We have basically two Supermaxes from the Evalend transaction that will be coming up, and we're starting to take a look at those now. Obviously, both will be delivering before the end of the year. And then some of the Handymax vessels start to roll off at the end of the year into first quarter of next year. So, again, those are things that we're definitely starting to take a look at and looking at one- to three-year rates.

And then finally, obviously you guys have been very active in acquiring tonnage in recent months. Do you still see a lot of acquisition opportunities out there being circulated?

There are a lot of acquisition opportunities being circulated. Prices have obviously increased significantly since we did our two deals. Some things have gotten a little richer, but I think there are still plenty of opportunities.

Jon Chappell, JPMorgan.

You guys are lucky enough to be the first drybulk company to report after Tuesday's volatility. Gerry, can you talk a little bit about not so much the volatility in the market, because anybody who has been in shipping knows there's going to be volatility, but really what's been coming out of the Chinese, about pushback on Chinese iron ore increases? Can they really force the Australians to not increase prices? And what kind of impact would their posturing ultimately have on the drybulk markets, in your opinion?

Well, I think they probably can, because they are a major, major importer of Australian ore. So, I mean --

Sorry to interrupt, Gerry. What do we care? I don't really care what the prices are. As long as we just move a lot of it, the prices don't really matter that much to us. It's like the price of oil, if you -- we've studied this plenty of times. We just want to move the stuff.

I'm aware, but would that impact the volumes at all, I guess is what I was ultimately getting to?

I don't think it's going to impact the volumes. I think these guys have a program. If you think of China, you say, oh, it's a communist country, it's really not. It's what I would call a controlled capitalist country. And they've got a program. They've got projects. They've got to get the stuff done. They need the iron ore to complete those projects.

So I'm a big believer that we can sit and speculate all we want and we can talk about someone is dumping the market on Tuesday because he controls the market -- it's all nonsense. And then you have people go into a panic and dump the market. I think it was a great buying opportunity. But I just think that people can sit and speculate all they want about this nonsense. Long term, the fundamentals are, the iron ore is needed, the steel has to be made and it has to be moved.

That's what I wanted to hear. Another hot topic of late has been the conversions of tankers to drybulk, and obviously we're getting some differing opinions, depending on whether it's a drybulk owner or a tanker owner. So I guess maybe this is perfect for Peter as an owner of both. Do you see this as a real feasible shift? Do you think it will really help the tanker markets by taking a lot of tonnage out, not just tonnage on the water, but also these newbuilding slots? Or is it really not the shipyard capacity to make it that meaningful relative to the bulker markets?

I don't think it's going to be that meaningful either way. And I will tell you why. Number one, I think a lot of people are dreaming if they think they're going to take a 20-year-old VLCC -- and I'm not an engineer; maybe Gerry wants to jump in when I'm finished -- take a 20-year-old VLCC and change it into a bulk carrier. And I'm just talking from the structural standpoint.

Iron ore is a lot different than oil. It's a lot denser and it doesn't -- if you think about the way a tanker holds liquids in its cargo, the entire cargo hold is full of a liquid, whereas iron ore is chunky, so it's not. So the stresses are completely different. And I would be petrified, to be honest with you, to put iron ore into a 20-year-old VLCC hull. The thing will snap in half. But that's not our business.

So I don't think there will be as many as you think. I think additionally, companies are having a hard time finding yards to drydock their ships. I don't know who are going to do these conversions and what yards are going to do it. So I think there has been a lot of talk. I think you will see some. I don't think it's going to affect either market one way or another. Gerry, do you have anything to say and?

Yes, I would just like to add to what Peter said. He is actually spot-on. What the stresses on these ships are going to be over the long term, we see the problems we get with Capesize, and over the long term, they were designed for this. VLCCs, 20 years old, with all the inherent problems of a VLCC being converted to a VLOC, they are looking at the cargo-carrying capacity -- there's other areas of the ship they don't look at, which are still subject to problematic issues with the loading sequences and other estimates. I just don't see it as a long-term project.

Very good. And then one last one, to not leave John out. There's been a lot of talk about the balance sheet and how strong it is and use of proceeds from some of these vessel sales to pay it down. How do you view the balance sheet as far as a debt to asset value perspective, and how comfortable would you be to add more leverage if the right opportunity came about, whether it was either in Jinhui or in other assets?

Well, we are definitely in a comfortable leverage position to do additional acquisitions, whether that's Jinhui stock or physical assets. As I said, there are quite a few things that are not on this pro forma balance sheet, including the $225 million in proceeds from Jinhui, the Genco Trader sale. We've said that we plan on using the proceeds from the Genco Commander and the Genco Trader sale to pay down debt, 100% of those proceeds. As far as a debt to value, without going into specifics, it's significantly below our pro forma debt to cap today. So I think there's plenty of room for us to do additional acquisitions.

Sounds good. Thanks, Peter, Gerry and John.

Omar Nokta, Dahlman Rose.

I just have a market-related question regarding the iron ore costs and the transport costs between Brazil and Australia. Looking at the all-in delivered contracted iron ore costs from Australia, it's definitely underperformed that from Brazil, something like maybe, I don't know, $30, $40, $50 a ton. I'm just wondering if you guys know what's behind that. Are the Brazilians ramping up iron ore production at a faster pace than Australia? Is that really what it comes down to?

I think so, yes. And I also think there may be a difference in the grade of ore from the Brazilian ore to the Australian ore, but it's definitely ramping up, yes.

Keep in mind, Omar, most of this year-on-year growth, the majority of it has actually come from that Brazil-to-China trade route. Australia being a major contract business is for the most part sold out. Where you are having incremental demand is coming out of Brazil as well as India, to some degree.

I see. And going into next year, we know the Australians and Brazilians are both ramping up. Do you know if that's leaning towards one, or is it basically 50-50?

I'm sorry. Can you repeat that, Omar?

Oh, yes, I'm sorry -- just the amount of production coming online next year between the Brazilian and the Australians, do you know if it's weighted towards one country?

I don't know.

No.

(Operator Instructions). Natasha Boyden, Cantor Fitzgerald.

I just wanted to follow up from John's question regarding growth. Do you have the capacity to also raise a dividend, or are you focused more on growth, or can you do both?

We can do both.

You can?

Yes.

Do you have a particular preference? Obviously, you've made a number of acquisitions over the last few months and your balance sheet is strong. Would you prefer to add more assets and then raise a dividend, or you don't really have a preference there?

We don't have a preference right now.

Okay. And then we've also been hearing pretty much overall that some of the shipping companies are maybe having some trouble getting their credit facilities approved by the banks and some hesitancy on the part of lenders. I know you have yours all sewn up, but is that something you've heard or have been hearing?

We've heard that, yes.

And would you just attribute that to the general sort of meltdown in the subprime sector of the U.S., or is there, do you think, any concern regarding shipping itself?

No, I don't think there's any concern regarding shipping. I just think that you've had this general, like you said, meltdown of the credit markets in the U.S., and I think it has spooked some people. But it's not something that we are concerned about.

Great. And I'm not sure if you actually did address this point earlier, but are you still seeing charters looking for five-plus-year contracts? Is that still pretty much in demand by them?

Yes, we still see it.

I'm sorry, Peter?

Yes, we still see it.

Okay, great. So that hasn't been moderated down to two or three years at all.

No.

Urs Dur, Lazard Capital Markets.

Great quarter. Thank you for a nice release. I guess a lot of the good questions, again, have been asked, but this, I guess, mostly is for Peter, but all of you -- you mentioned that there are a lot of opportunities out there and things have gotten richer. Who is selling and what are the myriad of reasons why? Are these sellers getting out of shipping or are they asset trading? Can you give us a rundown? Because I guess some people are interested in the motivation at this level in the market and trying to understand where things are going forward.

I think based on my 20-year history doing this, there's always a different reason with every deal. Someone bought the ships very cheap. They are the only assets they have and now all of a sudden they're worth a lot of money. Another one is a conglomerate that has many businesses and is looking to get out of one business. Another one is a family dispute. I'm not using these as specifics. These are the types of things that we see. So I think it could be any of the above.

Very good. Thank you very much. Considering this week's volatility, some of it seems to have been spurred by some volatility in the FFA market, and specifically it's rumored that a number of individuals who are not specifically traditionally involved in shipping are now involved in the FFA market, and we've seen that develop. Do you have any specific concerns about FFA volatility affecting share price going forward, or do you think that market will continue to mature and have less impact on near-term share prices?

No, look, I think there's always a concern that the volatility in the one will affect the other just because it's so easy to index. It's much easier to go and sell an FFA contract than it is -- or to buy one than to charter a bulk carrier. So if someone is getting nervous about the market one way or -- getting nervous, they will sell it or if they are getting excited they will buy. So I think you'll see that volatility. I just think people should be careful where they get their information from and who they listen to, because you see people making decisions based on rumors and bogeymen.

Yes.

I think you are in this market, you are in this business, we understand the risks -- the physical market has continued to be strong, despite the volatility in the FFA market, and we're not going to make long-term decisions because of one afternoon's bad trading.

One final one, more on the broader market. Are we having -- I mean, we're seeing that mining capacity is increasing, that export capacity is increasing in terms of the volumes of cargo available to be moved. How is port capacity increasing? What's the view long term, especially for Capes -- not long term, but for next year, especially for Capes, but also for every size of ship on congestion globally, not just in Australia? How is port capacity growing along with production capacity?

I think the answer to that is, it's not growing at the same rate. Therefore, long term, if the countries are going to meet their export demands, then we will see more congestion.

Okay, well, great. That's good, because I don't think that's been clarified by many. I appreciate that. Thanks, guys. Great quarter. Congrats.

[Scott Burke], Bear Stearns.

Listen, following up on the port congestion capacity, do you guys have any kind of estimate or internal idea of how much of the fleet would be tied up in waiting in the ports right now?

No, not at this point, no.

We know Australia is in the low 40s, Scott.

Okay. But in terms of the total fleet, we've estimated like somewhere between 1% and 2%. I just wondered if you guys had any --

Yes, it's tiny, it's a tiny number.

Okay. And then I also wanted to kind of probe the Chinese iron ore question as well. Back at the end of 2005, it looked like China slowed their pace of increases in iron ore imports. And that looked like it was in an attempt to influence the price negotiations. First of all, do you see -- when you look at the inventories that China has, if you have a good view into that, do they have the ability to kind of slow their pace of iron ore imports over the next few months in an attempt to influence negotiations?

Yes. And you know, I'm sure they could slow them somewhat, but you hit the nail on the head -- for the next few months. So you might see them slow for a couple of months, but I think, again, we're not in this for a couple of months. Over the long term, we think this is only going to continue to grow.

And based on the -- what kind of inventory levels are you guys hearing about in China, in other words, days of coverage for consumption?

Scott, it's John. We've been hearing anecdotally that levels are very similar today as to where they were at the end of last year. And keep in mind that steel production is up 18% year on year. So I would call them moderate. At least that's what we're hearing. So I don't think they have a tremendous amount of capacity, as long as steel production continues to whittle down their inventories.

And then could you go through, on the fleet employment table, just a couple of questions on the numbers. The fleet employment table in the back, you've got the revenue and the cash daily rates. Could you kind of go over the difference between those two and how that will be reflected in the earnings and cash flow statements going forward?

Well, the cash rate is just that, and the revenue rate is just that. The reason for the difference is on the Capesize vessels, which had below-market charters when we bought them, we have to, just like we did on the Genco Muse, when we bought the ship with an above-market charter, we had to amortize the difference between the current market rate and that charter. The same holds true for the Capesize. It just has an opposite effect of increasing revenues over the cash numbers.

That's what I thought. Just wanted to confirm. And then the last question is, could you just run through the cash breakeven numbers you mentioned in your comments, John?

Yes, we are actually going to, as I said, put out individual categories for the fourth quarter, and we will do that over the next few weeks once we have firm delivery dates for the Evalend ships and the Genco Titus. But as I said, for Capesize vessels, we're running, at least on the operating expense side, around $4900 per day per ship. And then for the three Supermax vessels, we are expecting from delivery through the end of the year, which is a short period of time, $4325 per day, and for the three Handysize vessels coming from Evalend, $4100 per day. What is included in those figures, and they are probably a little higher than what 2008 is going to be, what is included in there is some preoperating, predelivery costs.

Charles Rupinski, Maxim Group.

Congratulations on the quarter. I just had a quick question on yard capacity and supply. We've seen in the press a couple of articles about doubletime newbuildings, like, for STX for '09 delivery. Do you have a view on whether this could be a start of a trend, or what is going into the fact that there may be some vessels that are at least planned to be delivered earlier than one might think?

No, the deliveries we see are up to 2011, 2012. So I don't think it is a trend.

I mean, there might be one that pops out here or there. But I think you are not going to see -- I would say for '08, '09, you're not going to see the number of ships come out change materially. And when I say materially, you will see maybe they are off a couple here or there.

At this time, there are no further questions.

Great, thank you. That concludes our call. We look forward to seeing you next quarter. Thank you.

This concludes the Genco Shipping & Trading Ltd. conference call. Thank you and have a nice day.