Genco Shipping & Trading Ltd (GNK) 2008 Q4 法說會逐字稿

Good morning ladies and gentlemen, and welcome to the Genco Shipping & Trading Limited fourth-quarter 2008 earnings conference call and presentation.

Before we begin, please note that there will be a slide presentation accompanying today's conference call. The presentation can be obtained from Genco's website at www.GencoShipping.com. To inform everyone, today's call is being recorded and is now being webcast at the Company's website, www.GencoShipping.com. (Operator Instructions). A replay of the conference call will be accessible at any time during the next two weeks through March 13 of 2009 by dialing 1-888-203-1112 or 719-457-0820 and entering the pass code 5464610.

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 risk 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 SEC including without limitation the Company's annual report on Form 10-K for the year ended December 31, 2007 and the Company's subsequent reports 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 fourth-quarter 2008 conference call. With me today is Peter Georgiopoulos our Chairman; and John Wobensmith, our Chief Financial Officer.

I'll begin today's call by discussing our fourth-quarter and year-to-date highlights as outlined on slide three of the presentation. I will then turn the call over to John to review our financial results for the three- and 12-month period ended December 31, 2008. Following this, I will discuss the industry's current fundamentals. John, Peter, and I will then be happy to take your questions.

During the fourth quarter, Genco once again drew upon its significant time charter coverage with high-quality charterers to deliver strong financial results for shareholders despite a volatile and challenging dry bulk market.

Turning to slide five. For the fourth quarter, excluding unusual events, net income was $48.4 million, or $1.55 basic and diluted earnings per share. Including unusual events, we recorded a net loss of $111.3 million, or $3.56 basic and diluted loss per share, for the fourth quarter of 2008.

During the fourth quarter we took delivery of the Genco Hadrian, a Capesize new building which commenced a long-term time charter with Cargill International SA for 46 to 62 months at a gross rate of $65,000 per day plus 50% index-based profit-sharing component. Through Management's efforts to ensure the timely delivery of the Genco Hadrian to its charterer, we enabled the Genco Hadrian to enter the market at a favorable rate.

During a time when Management had a large number of its vessels secured on attractive contracts with well-known multinational companies, we took active measures to enhance the Company's financial flexibility and ability to emerge from the current market environment as an industry bellwether.

First, we made the strategic decision to cancel the acquisition of six dry bulk vessels during the fourth quarter of 2008. While the Company had the necessary resources to take delivery of these vessels, we believe it was prudent to forego this transaction due to the downward pressure in the market following our original agreement to acquire the vessels. Of note, Genco has repaid the $53 million in debt associated with the deposits for the vessels using our cash flow from operations.

Further strengthening our financial position, we amended our $1.4 billion credit facility last month under favorable terms which provided significant (technical difficulty) [advantage] to Genco, as John will describe later.

Moving to slide six, I will now discuss our time charter coverage in more detail.

Based on our past success in executing our time charter strategy, a large portion of our fleet is currently on charters with an average remaining duration of approximately 17 months as of February 26, 2009. Consistent with our objective to provide shareholders with sizable contracted revenue streams, we currently have approximately 64% of our fleet's available days secured in contracts for the remainder of 2009 and 41% in 2010.

In addition, and excluding the situation with Samsun Logix, our contracts are signed with high credit quality counterparties including our two largest customers -- Cargill International, an international producer and marketer of food and agricultural products with more than 150 years experience; and Lauritzen [Bulk Carriers SA], a 125-year-old ocean transporter of dry bulk cargo.

Some of the top-tier charterers a remainder of our fleet is contracted to include -- NYK Bulkship (Europe); Global Chartering Ltd. a subsidiary of our ArcelorMittal Group; Louis Dreyfus Corporation; Pacific Basin Chartering Ltd.; STX Panocean (UK) Co. Ltd., COSCO Bulk Carriers Co. Ltd.; and Hyundai Merchant Marine Co. Ltd.

Consistent with our time charter strategy, Genco has the option to lock away the three vessels that currently trade in leading spot pools on fixed rates as the market environment improves.

Upon the expected completion of the Metrostar acquisition outlined on a later slide, Genco will own a high-quality fleet of 35 dry bulk vessels consisting of nine Capesize, eight Panamax, four Supermax, six Handymax, and eight Handysize with an average age of approximately 6.8 years, well below the industry average of approximately 15 years.

In addition to owning a sizable and modern fleet, our diversified approach of operating vessels across the dry bulk industry allows Genco to deliver first-rate service to top international charterers.

I will now turn the call over to John.

Thank you Gerry. I will begin my remarks by directing you to slide nine, which presents our financial results for the fourth quarter and 12 months ended December 31, 2008.

For the three- and 12-month period ended December 31 2008 we recorded revenues of $101.6 million and $405.4 million, respectively. This compares with revenues of the fourth quarter of 2007 and 12 months ended December 31, 2007 of $65.7 million and $185.4 million, respectively. The year-over-year increases are due to the operation of a larger fleet as well as the renewal of our time charters at higher rates than those contracted previously.

Operating income for the fourth-quarter and 12-month period ended December 31, 2008 was $7.7 million and $234.4 million, respectively. This compares with operating income for the fourth-quarter and 12-month period ended December 31, 2007 of $65.2 million and $131.7 million, respectively. The full-year increase in operating income is attributable to higher revenues, partially offset by increased vessel operating expenses, general and administrative expenses, management fees, as well as depreciation and amortization associated with the operation of a larger fleet.

Interest expense for the fourth quarter of 2008 was $17.2 million and $52.6 million for the 12-month period ended December 31, 2008. This compares to interest expense of $8.8 million for the fourth quarter of 2007 and $26.5 million for the year ended December 31, 2007.

Excluding unusual events totaling $159.7 million, which I will discuss in more detail later on the call, net income was $48.4 million, or $1.55 basic and diluted earnings per share, for the fourth quarter of 2008.

Including unusual events, the Company reported a net loss for the fourth quarter of 2008 of $111.3 million, or $3.56 basic and diluted earnings -- sorry -- diluted loss per share.

Net income for the 12 months ended December 31, 2008 was $86.6 million, or $2.86 basic and $2.84 diluted earnings per share. This compares to net income of $56.9 million, or $1.99 basic and $1.98 diluted earnings per share, for the fourth quarter of 2007 and net income of $106.8 million, or $4.08 basic and $4.06 diluted earnings per share, for the full-year 2007.

Key balance sheet and other items as presented in slide 10 include the following. Our cash position was $125 million as of December 31, 2008, and our debt to capital ratio was 62.8%.

Our total assets as of December 31, 2008 were to $2 billion consisting primarily of our current fleet, deposits on vessels to be acquired, and cash.

Our EBITDA for the three months ended December 31 was a negative $74.4 million or a positive $85.4 million excluding the $159.7 million loss from unusual events, which represents an EBITDA margin of 84% of revenues.

Moving to slide 11, our utilization rate was 98.2% for the fourth quarter of 2008 compared to 98.6% for the year earlier. For the 12 months ended December 31, 2008, our utilization rate was 98.9% compared to 98.7% in the year-earlier period.

Our time charter equivalent rate for the fourth quarter of 2008 increased 13.4% to $35,304 from $31,140 recorded in the fourth quarter of 2007. The increase in TCE rates was due to higher charter rates achieved in the fourth quarter of 2008 versus the fourth quarter of 2007 for two of the Panamax vessels, six of the Supermax and Handymax vessels, and two of the Handysize vessels in our current fleet.

Further, higher TCE rates were achieved in the fourth quarter of 2008 versus the same period last year due to the operation of one additional Capesize vessel acquired as part of the Metrostar acquisition and the operation of two more Panamax vessels acquired as part of the [Bosamar] acquisition.

For the 12 months ended December 31, 2008, TCE rates obtained by the Company increased 53.4% to $37,824 per day from $24,650 per day in the same year-ago period.

For the fourth quarter of 2008, our daily vessel operating expenses were $4,734 per day versus $3,824 per day for the fourth quarter of 2007.

Daily vessel operating expenses for the full-year 2008 were $4,400 per day versus $3,716 per day for the 12 months ended December 31, 2007.

These quarterly and year-over-year increases are due to higher crew and insurance expenses as well as costs associated with the operation of six Capesize vessels.

As we have stated in the past, we believe daily vessel operating expenses are best measured for comparative purposes over a 12-month period in order to take into account all the expenses that each vessel in our fleet will incur over a full year of operation.

In maintaining an efficient cost structure, we're pleased that our daily vessel operating expenses for 2008 were below our budget of $4,700 per vessel per day on a weighted basis.

Based on estimates provided by our technical managers and Management's expectations, our full-year 2009 daily vessel operating expense budget is $5,350 per day, per vessel is on a weighted basis.

Moving to slide 12, we detail the unusual events in the fourth quarter of 2008. For the three months ended December 31, 2008, Genco recorded the following. $103.9 million noncash impairment charge related to our investment in Jinhui Shipping & Transportation Limited. More specifically, the Company deemed its investment in Jinhui Shipping & Transportation to be other than temporarily impaired as of December 31, 2008 due to the severity of the decline in its market value versus its cost basis. Prior to reporting this impairment the Company, reflected any gains or losses associated with this investment as a component of other comprehensive income in equity.

Further, a $53.8 million charge to operating expenses related to the forfeiture of the 10% deposit from the cancellation of the six-vessel acquisition as previously announced.

$2.2 million write-off of deferred financing fees associated with the cancellation of the $320 million credit facility

$1.9 million write-off of deferred financing fees related to the amendment of our $1.4 billion revolving credit facility

A $2 million gain associated with foreign currency contracts.

It is important to note that of the $159.7 million in unusual events during the quarter, approximately $108 million consists of noncash charges which have no impact on our operational performance.

Before moving on to slide 13, I will reiterate our limited exposure to Samsun Logix, as previously announced. Genco had only one vessel in the Company's current 32-vessel operating fleet that was chartered to Samsun, which represented approximately 5.35% of revenues for the fourth quarter. In addition, all payments have been received up until January 30, 2009.

While we actively explore our options to collect amounts due to the Company from Samsun, we continue to have a high level of confidence in our diverse group of leading charterers, as all of Genco's remaining customers are current with their charter payments.

Moving on to slide 13, as Gerry mentioned earlier on the call, we amended our $1.4 billion credit facility with DnB NOR Bank and Bank of Scotland. Under the recent amendment the collateral maintenance covenant has been weighed, successfully insuring that Genco's covenant compliance will not be affected by the volatility in current asset values.

Under terms of the amended 10-year credit facility presented here, amounts borrowed begin to reduce on March 31, 2009 at $12.5 million per quarter, and will bear interest at LIBOR plus 2%.

While Genco's dividends and share repurchases have been suspended under the amended facility, the Company will be able to reinstate both programs once it is able to satisfy the collateral maintenance covenant.

It is also important to note that no additional restrictions were imposed on our cash balance while the ability to use the facility for future acquisitions has also been retained.

On slide 14, we present a pro forma balance sheet that reflects the Company's payment of $3.4 million in deferred costs associated with the restructuring of our $1.4 billion revolving credit facility.

As you can see, our pro forma cash position for the quarter is $122 million. As of December 31 to the period as of December 31, 2008, our pro forma liquidity totaled $325.2 million, and our pro forma net debt to total capital ratio was 63%.

On slide 15, we detail the upcoming capital expenditures associated with the payments on remaining vessels to be delivered to Genco. Specifically, we expect to take delivery of three remaining Capesize vessels between the second quarter of 2009 and the third quarter of 2009 under our agreement in 2007 to acquire a total of nine Capesize vessels from companies within the Metrostar Management corporation Group.

In utilizing the undrawn portion of our credit facility as well as cash flow from operations to fund these three vessels and grow the fleet, we plan to further strengthen Genco's industry leadership position and ability to take advantage of the long-term demand for essential dry bulk commodities.

On slide 16 we present our anticipated breakeven levels. As we mentioned a moment ago, we expect our 2009 daily vessel operating expense budget to the $5,350 per vessel, per day on a weighted basis of an average number of 32.84 vessels for 2009.

We expect our daily free cash flow breakeven to be $13,265 per vessel, per day, and our daily net income breakeven to be $20,536 per vessel, per day.

Before I turn the call over to Gerry, I would like to mention that we plan to update our shelf registration statement in the near future. We expect we will no longer be a well-known, seasoned issuer under applicable SEC rules when we file our 10-K given the recent trading price for our stock in the current market. We therefore plan to amend our existing shelf to comply with SEC rules.

I will now turn the call back to Gerry.

Thank you John. I will now take this opportunity to spend a few moments discussing the industry fundamentals. I'll start on slide 18, where we have attempted to explain the major reasons for the significant decline in freight rates beginning during the summer of 2008.

After a continuous increase in rates during the first half of 2008, and the BDI reaching a high of 11,600 points, the freight rate environment experienced the decline mainly due to the following factors.

First, steel mills in Beijing and other Chinese cities where the 2008 Olympics were held were asked to stop operations for 60 days beginning the end of July in order to reduce pollution during the Olympic games.

Concurrently, some of the smaller size mills were forced to halt production due to increasing prices of raw materials, namely cooking coal and iron ore, which limited their ability to continue profitable operations in the short term.

Following the completion of the Olympics and further extended Paralympic cutbacks, Vale's efforts to impose a 10% to 12% incremental increase to already negotiated ore prices resulted in reduced shipments of Brazilian ore to China during September and October 2008.

During October 2008 the emergence of the global credit crisis not only affected worldwide trade by reducing overall demand but also significantly affected the dry bulk industry in particular, since companies found it increasingly difficult to obtain trade credit in order to deliver cargoes, thereby reducing the short-term demand for vessels.

As a result of these events, as well as the announcement from certain Chinese steel mills regarding a 10% to 20% production cut, we saw an increase in iron ore inventories at Chinese ports.

Since the beginning of the year a number of industry-specific factors have had a positive effect on the market as follows. First, decreasing iron ore inventories at Chinese ports signaled a perceived return of demand for the commodity to be used towards infrastructure plants.

Second, as combined with the decreasing iron ore inventories at Chinese ports, we noticed increased Capesize spot as well as time charter activity from the longer-haul Brazil and Australia originating ports.

Lastly, as the credit markets are starting to thaw, letters of credit are becoming more available, albeit not at historic levels, to smaller cargo sectors such as coal and grains, allowing for an increase in Panamax and Supermax rates.

Moving on to slide 19, we summarize the current demand-side fundamentals. As indicated in the graph at the bottom right, Chinese steel production for January 2009 was 41.5 million tons, showing a 2.4% year-over-year increase while 32.65 million tons of iron ore were imported into China for the same period.

It is also important to note that this growth came despite the 28% decrease in world steel production.

Closely connected to the increase of steel production for January of 2009 we also noted increased Capesize vessel activity from Brazil and Australia into China since the beginning of the year along with anecdotal evidence that European steel mills have reemerged as active iron ore buyers from Brazil should bode well for the market.

As mentioned earlier on the call, an increased stocking of iron ore at Chinese ports was observed through the first half of 2008. As evidenced in the bottom graph at the bottom left of the page, iron ore inventories peaked in September and have shown a steady decline in balance through February.

As of the week ending February 20, 2009, iron ore inventories at the 19 Chinese ports tracked here were reported at 58.7 million tons, which we believe is due to not only increased steel production at existing mills but also the reopening of some of the smaller size mills that were forced out of production during the latter part of 2008 because of higher raw material prices and the Olympics.

Lastly, a combination of increased iron ore activity as well as the Chinese New Year holidays resulted in increased port congestion at Chinese ports.

On the grains front, we believe that although the commencement of South American grain season during March should put upwards pressure on the Panamax trades, rumors of anticipated farmer strikes in Argentina could add volatility to the market.

On slide 20, we present our view for the supply side of the equation. Looking at the graph on the bottom of slide, we can see the dry bulk order book through 2013. Although the projected dry bulk order book has increased to over 70% of the existing fleet, it is questionable whether it will be delivered in its entirety.

As presented below, it is important to note that 45% of the new building orders scheduled to deliver in 2009 and 2010 are contracted at newly established expansion or greenfield yards. Established yards that have in the past enjoyed steady growth might also encounter financial difficulties, mainly due to restricted financing as well as substantial profit squeezes.

Lastly, we believe that the effect of the credit crisis is already being felt by shipyards, and large cancellations have placed pressure on completing orders for 2009 and 2010.

If one also considers estimations from industry sources that only 40% to 50% of the current order book has financing in place, we believe it is fair to assume that part of the current new building orders will never be completed.

Lastly, over 30% of the world fleet is 20 years or older. As we have indicated on past calls, bulk carrier scrapping is not mandated. It is more of an economical equation. It is a point of weak spot freight and freight environment that charterers become more selective towards hiring younger vessels while at the same time owners choose to scrap their vessels instead of incurring the cost of repair to comply with the requirements or a fifth or a sixth special survey.

The above has been evident through the last quarter of 2008 as well for the first months of 2009. As illustrated on the graph at the bottom right of this page, 70 vessels have already been scrapped year-to-date as compared to approximately 80 vessels scrapped in 2008, a number which is heavily weighted towards the end of the year.

Turning to slide 21, we note that, as visually illustrated on the graph at the bottom of the page, the main engine of growth for the Chinese economy has been fixed asset investment as opposed to consumer spending.

Although industrial production growth slowed down 11.4% through September 2008 as opposed to 16.3% through June 2008, we believe that part of the hold-back has been due to the Olympics as well as the current financial crisis and its effect on the working capital.

Outlining the country's efforts to boost economic growth through the fiscal policy, the Chinese government announced during 2008 a stimulus plan totaling $586 billion in long-term projects which concentrate on housing and transportation infrastructure which includes approximately $244 billion to be spent towards rebuilding earthquake-stricken provinces such as Sichuan.

Moreover, $292 billion investment has been earmarked for railway expansion, aiming to double the existing railway network from approximately 48,000 miles to 75,000 miles by 2010.

Although half of the funds have already been committed, we believe that the overall plan provides some support to continue growth through infrastructure investments in China.

It is also important to note that about one-third of the stimulus plan, or $195 billion, is expected to reach project level by the end of quarter 1, 2009, and 186,000 miles of rural roads are planned to be paved through the year.

Whether the recent bounce in rates is due to the effects of this economic stimulus plan is hard to tell. However, the fact that $237 billion of new loans were made in China through the first month of the year is an encouraging measurement, especially when compared to the same number in December of last year.

And last, I point out that the Chinese government is urging domestic lenders to boost lending and assist its financial stimulus plan. We expect to see a larger number of small to medium-sized steel mills returning to operation as credit availability for working capital requirements return.

This concludes our presentation. I'm going to -- happy to take your questions

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

I just had a few questions for you-all this morning. First -- and you touched on it a little bit, but I just want a little bit of clarity. Over the past couple of weeks, since a competitor announced that two of its counterparties have not performed on its time charter contracts, there seems to be a resurgence in the equity markets related to worries of contract cancellations as though there's been this resurgence in contract cancellations. And I believe you mentioned this, but I just wanted you to confirm it, that all of your counterparties with the exception of Samsun Logix, which you provided an update on a while back -- that all the other counterparties are current on their payments, and whether or not you've even received renegotiation requests from your other counterparties as it relates to the terms of their contracts.

No, everything is current, and we've received no requests for a renegotiation.

Additionally, let me just say one other thing, because you know we do a lot of credit work, and we're very picky with who we charter our ships to. The Samsun charter was a charter that we inherited when we bought a fleet of ships. It was a charter that someone else had negotiated. So it's a charter that probably, if we had done it ourselves, would not have put the ship onto. It's just when you buy a package, you've got -- the other ships were charter free. This one had a charter on it. We took it with the package.

Right, right. And Peter, if I'm not mistaken, is that the one that you mentioned that you may have been a little worried about because you inherited it -- during the third-quarter earnings call?

Absolutely. So if you think about it, we've been telling you for a long time that we've been worried about this one, and we kept our eye on it. So if -- we're here to keep you informed, and as you just said, we did it during the third-quarter call.

If we were concerned about something else, we would be telling you that today, and we're not.

Great. Thank you. And then just a few other questions before I turn it over. The second one has to do the vessels that have yet to be chartered for '09. You guys are I think in a good position because you have a significant amount of that contracted cash flow. Your CapEx is already funded, and you have minimal debt repayment obligations. How do you think about chartering out those ships that have yet to be chartered, in terms of the timing given the -- really the lack of not needing to do it any time soon? So the timing, the contract duration, your counterparty selection, etc.?

I think it's all a matter of -- in this kind of market of trying to be opportunistic. If we do see a blip-up in the market and there's an opportunity to put things away at a number -- we would do it -- and it was a good number, we would do it for as long as we could.

As you know, we've always been a little bit conservative, and that's why in this downturn the Company is still very strong and in good shape. And with our debt we got ahead of that curve. We're not like other companies who are right now trying to renegotiate their debt. Ours has been fixed for awhile now, so we try and get ahead of all these things. And that's why we think that we will have smooth sailing for the rest of the year.

Okay. Great. Thank you Peter. Then a final question -- we've seen not only stabilization in the dry bulk shipping market but actual improvement in the market given the lack of destocking -- we've done with that, and now we are actually seeing demand picking back up. Can you share with us how you have seen that translates in terms of asset values for dry bulk vessels, if they have shown that -- a similar stabilization and improvement?

Yes, I think they have. If you think about what happened during the fourth quarter and the way the stocks went. Every day you would come in and you would see big chunks down in the market. You saw the same thing with asset values. I think that in the first quarter that has sort of stopped, and we've actually probably even been seeing a little bit of a bounce. Ships that maybe we had looked at let's say a month ago I think are probably 10% higher today? So -- 8% to 10% higher.

And there's been liquidity coming back on the market, Doug. There's obviously been vessel transactions that have been done, which is possible. (multiple speakers)

This is just sort of secondhand. You guys can go check this out. But there was a ship finance conference in Germany this week, and both HSH Nordbank got up and [Deutsche] Bank publicly, and said that in both cases more than 50% of the Bank's business is international shipping. That's what they are in the business to do, and there have been big injections from the German government into both of those banks, and we should start seeing the effects of that liquidity entering the market this year. So again that's anecdotal, but it's something that we heard this morning, and you guys can go run down that story.

Urs Dur, Lazard Capital Markets.

Actually the main question I had really was about credit and just seeing where you are. Thank you very much. I'm all set.

Natasha Boyden, Cantor Fitzgerald.

I just wanted to follow up on Doug's question about vessel values. Do you find them attractive at these levels, or would you be potentially using your cash to perhaps focus on retiring debt here?

Again, I think -- we think vessel values are attractive. But the way we feel right now, I think we would only be doing it if there was a good long-term charter attached to it. I don't think we're just going to go out there and buy spot ships and increase our debt capacity, our debt levels. I think what we would do is, if we found an attractive deal with a good charter that added a lot to our cash flow, we would do that. Otherwise, I think we're just happy to just pay down debt and be conservative.

Great. Okay. And then again just to clarify something that you said earlier with Doug, with the chartering strategy that you have right now with some of the open ships coming open and the new-build Capes, with the rates being where they are, did you say that perhaps you would look to put some away, or would you focus more on perhaps short-term charterers? With rates were they are. I just wanted to clarify that.

No, I think we would stay short-term until we saw sort of a -- you will see these blips. We think over the next year you will see these blips in the market, and we'd try and put something away at that point.

Okay, great. I have some questions on some of the things you said on the industry section. I know China has obviously got the stimulus package. But with some of the money going in towards some of the shipbuilding sector, with Chinese government potentially supporting some of the sort of nonprofitable greenfield yards, do you think this may potentially stop some of the deliveries being canceled that we previously thought might be canceled given that they might support some of these yards?

They're not going to -- the government has come out and said that they are not going to support the greenfield yards. What the government has said was, they're going to support some of the big yards, the big, government-owned yards. I think that those greenfield yards are not going to be -- I mean, not that I think they will not be supported by the government. And from our calculation, we think half the new buildings in China are in those kind of yards.

Okay. Well, hat's helpful. Then lastly, a trend we've kind of been seeing is that China has been sort of investing -- they have recently invested nearly $20 billion in Rio Tinto, and then Fortescue recently agreed to sell a large stake to Hunan Valin. What kind of effect do you think this might have on dry bulk shipping, if any? Do you see it [carrying] as a result of increased shipping -- increased Chinese control of mining companies or even the sort of iron ore supply chain?

Look, I think it's very smart for the Chinese to be doing that. I mean, let's think of it not as a country but as a business. They've got a lot of money. They need iron ore. We know that. And to us it's just a restatement. It's a strong statement of what we've believed in, that they need this iron ore.

So why should they go pay the crazy numbers that Rio Tinto and [Valin] and these other charterers were asking last year? Why not this year where people are suffering, go buy the mine. So we think it's very smart business for them, and we think it only reinforces our thesis that China is going to continue to need iron ore, and whether they are -- they own the mine and are shipping it to themselves or someone else owns it and is shipping it, we think we will be somewhere in the middle there.

Chris Wetherbee, Merrill Lynch.

I guess one big-picture and then a couple, more company-specific, I guess. When you think about China and iron ore stockpiles, obviously there still relatively low. When you think about steel inventory, it seems like maybe those have built a bit. Are you seeing anything on the -- in the forward market as far as softening in demand for Capes for iron ore coming into China, or does it still seem like it's relatively robust?

No, I mean, I think it's -- look, it's come off the last few days in the spot market, but I think overall it seems pretty robust. We've seen a lot of ships come out of lay-up. I think there's a small number of Capes now in lay-up, which is a positive thing. So I mean, look, the volatility isn't going to go away in the short term. But hopefully we have turned the corner from the deep, dark days in December.

And on what you noted about the lay-ups and what we're seeing laid up, are those continuing to be mostly the older vessels that are potentially unlikely to come back into the market unless we really see a pop here, or is it just a mix of vessels now?

I think it's more to do with the older vessels. And you actually bring up a very good point. I've seen some numbers where it could be as high as 6% of the global dry bulk fleet -- Capes all the way down to Handysize that are considered inactive, whether that's because they're simply over-age and the discount that they would have to take to employ the ship doesn't justify bringing it out of lay-up, or two, where there may be a chain of charterers where when you got substandard charterers that have gone bankrupt or stopped paying, and unfortunately, the first-class charterers just don't want to deal with a ship like that. So -- and I think most of those ships eventually will go to the scrap yard.

Okay. And then I guess just looking at OpEx for a minute, I know you put out your target for an increase there. What are you seeing on crew increases, crew wage increases? It seems like a big number, but I know I'm assuming you're also kind of weighting that towards the Capes that come on starting next quarter, and obviously you'll have a higher percentage of those, but what are you seeing as far as crew wage increases going forward?

Crew wage increases are still going up. I mean, the supply and demand equation for the crew is still there. There are still more ships than crew to take them. And even given the number of cancellations and vessels that are not going to come into the market from the new-build market, there are still a significant number of ships going to come in, and there's still going to be a great demand for crew

Now from Genco's point of view, we're consolidating on basically two nationalities -- Chinese and Indians. And we've reached agreements with our crew suppliers that we can cap the wages going forward. So we're very, very confident that going through 2009 that we can control the crew wages as it affects Genco.

And I guess thinking about this from a modeling perspective, you'd expect then that -- the OpEx to ramp up as you move through the year as get more of the Capes online, I'm assuming?

No, I think what I'm saying is that the OpEx figures that we've given out, we're very confident that we can maintain that.

Okay. Fair point. And I guess one final one. I think you touched on it, Peter, earlier about your chartering strategy I guess. The Capes that are coming due, I guess you have a few coming next quarter. Any update on those? I guess we will be hearing relatively soon as to what your plans are with those?

Probably towards the end of -- (multiple speakers)

If I could just jump in here and say that the delivery dates for these three Capes are -- they're not finalized yet. They're bouncing around all over the place, and we don't have a firm delivery date from the yard, but we think it's going to be towards the latter half of the year for sure.

Okay. So not necessarily in the second quarter? Did I miss that in the press release, or --?

Yes. I mean, I think you need to still assume that that first ship is going to be coming at the end of June.

(Operator Instructions). Scott Burk, Oppenheimer.

I had a question about the Cavalier. Have you actually rechartered it at this point, or is it still chartered to Samsun?

It's still technically chartered to Samsun, but it's in a repair yard right now undergoing repairs due to the collision that occurred when the ship was in anchorage.

And would you expect to recharter that? And then what would be the likelihood of recovering anything from Samsun if you end up taking a charter that's below the existing charter?

I think it remains to be seen, Scott. It's early in the bankruptcy process for Samsun. So we have to wait and see as far as how much if any we'll be able to recover. We're effectively an unsecured creditor, so we have to go through the process.

I had a question about the Jinhui stake. What's the remaining value of the stake in Jinhui at this point?

It's probably around $20 million, $21 million, $22 million today.

And is that -- I assume that's included in the equity figures that you had in the presentation, shareholders' equity? So it's been introduced by [a hundred] (inaudible) (multiple speakers)

Yes.

And then does not have any impact -- is there any potential danger on -- for remaining debt covenants regarding shareholders' equity?

No, no, no, no. Because Scott, keep in mind we have always had that investment marked to market in equity. The only thing we're doing is really moving it geographically within equity. It's moving from other comprehensive income, running through the income statement, and changing [into earnings]. So the balance sheet is the balance sheet.

We've also -- as part of the amendment, we carved out a noncash impairment charge so that it will not be measured in our net debt to EBITDA covenant as well. So this will not affect any covenant calculations within the credit facility.

Oh, okay. Very helpful. Let me ask you this -- vessel values have dropped -- have come down -- come off quite a bit. Could we see -- can we expect to see some vessel write-downs in the -- during the first quarter? And how do you go about determining whether or not you have -- need to take write-downs there?

We did a full vessel impairment analysis at the -- in the fourth quarter year-end audit. We're comfortable with what's on the balance sheet, and obviously our auditors have also signed off on that calculation. So no, I don't see an issue with that.

And then maybe you can just talk broadly about -- you talked about some of the positive signs coming out of China. And the implication is you guys think this is hopefully more of a long-term change, but there's been a lot of discussion in the industry about this being kind of a head fake, a restocking issue that we've seen in terms of the surge in rates the last couple -- or the last several months.

We didn't say there's a long-term trend. We said that there's been some restocking. We think that things are better than they were in October or November/December. But we're not saying that this is some boom in the market. We think that it's come off the bottom. There's been some restocking. But we're -- A, we don't think it -- we haven't said anything like what you just said; and b, yet we don't think it's a head fake. We think things have gotten a little bit better than they were.

I mean, Scott, there are sort of two near-term things that people should be focusing on. One are the iron ore negotiations and how those come out as far as pricing. I think everyone expects a 15% to 25% reduction in the price of iron ore, which I think will be very favorable as far as steel margins are concerned and hence dry bulk shipping.

And then the second thing is watching the -- hopefully the money flow from the Chinese government and getting the infrastructure spending up and going, which unfortunately does take some time. It's not immediate.

Kevin Sterling, Stephens Inc.

Just one quick question. Most of mine have been answered. It's more of an industry question. With a large amount of the new building cancellations that we're seeing, do you guys think we'll see a secondary market created for new building slots? And would that be something you would look at as well, along with making maybe some secondary vessel acquisitions?

I don't think that's going to happen for some time, if at all. But I don't know, maybe somebody else has got more (multiple speakers)

Yes. I mean -- and Kevin, also think about where those cancellations are coming from. As Peter said, a lot of those are going to be from greenfield yards. They're never going to get up and running anyway. So those slots won't even be available.

Okay. Good point. Thank you. That's all I had.

Charles Rupinski, Maxim Group.

I had a really just -- most of my questions have been answered. I just had one quick question on arbitration versus going into court for the various potential recovery of any monies from Samsun or any other potential -- and I know that you're very up-to-date on your charterers and they are all up-to-date.

Assume -- just trying to get my head around how long it can take for arbitration versus going to court, sort of a range depending on the various types of default or renegotiations. Do you have any sort of a frame that we can maybe think about that?

No, I think -- look. First of all, going to court is really not an option. It's arbitration. That's what's required under most of these time charter contracts. That's what we're doing with Samsun. We're hoping for a speedy decision on that, and then we'll go from there as far as what we do with that judgment.

Overall, keep in mind arbitration is the last thing you want to be going through. There are plenty of other ways to deal with nonpayment of freight.

I just wanted to follow up really quickly. On arbitration, I've heard of this -- potentially it could be dragging out for years. Is there sort of a range on how quick a speedy resolution is versus how quickly a more prolonged one is just, based on history?

The court cases -- I mean, come on. Court cases -- Exxon just -- is still fighting the Exxon Valdez from 1990. So court cases can go on for years too.

No, I'm not arguing that. I'm just trying to get an idea; that's all. I mean, arbitration -- what sort of is the range that you've seen in the market (multiple speakers)

We've been in arbitrations that have been done in less than a year. We've been in some that have been a couple of years. Right? Wouldn't you say, Gerry. I mean, you've been (multiple speakers)

Yes, I think in this particular case you got to look at it a little bit differently. The arbitration that we may be talking about is revolving around the charter party, but then the bankruptcy, which is -- and that arbitration is [under] English law for the charter party. And then you've got the bankruptcy case, which Samsun is involved, and that's in Korean law, so you've got two jurisdictions here. As far as we're concerned, this arbitration that we're looking for a decision from an arbitrator now, we think that will come pretty quickly.

With no further questions in queue, this does include today's Genco Shipping Company conference call. Thank you for joining us, and have a wonderful day.