Genco Shipping & Trading Ltd (GNK) 2016 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Genco Shipping & Trading Limited fourth-quarter 2016 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 is 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 by dialing 888-203-1112 or 719-457-0820 and entering the passcode 9740251.

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 pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements use words such as anticipate, budget, estimate, expect, project, intend, plan, believe, and other words and terms of similar meaning in connection with the discussion of potential future events, circumstances, or future operating or financial performance.

These forward-looking statements are based on management's current expectations and observations. 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, 2015, and the Company's reports subsequently filed with the SEC.

At this time, I would like to introduce John Wobensmith, President of Genco Shipping & Trading Limited.

Good morning and welcome to Genco's fourth-quarter 2016 conference call. As outlined on slide 3 of the presentation, I will begin today's call by reviewing our fourth-quarter 2016 and year-to-date 2017 highlights. We will then discuss our financial results for the quarter and the industry's current fundamentals and then finally open up the call for questions.

Turning to slide 5, we review Genco's fourth-quarter highlights. During the fourth quarter, we recorded a net loss of $24.5 million or $3.35 basic and diluted loss per share for the period ended December 31, 2016.

While our fourth-quarter results continue to reflect a challenging rate environment relative to historical averages, it is important to note that during the quarter, the Baltic Dry Index increased from all-time lows registered earlier in the year. And that during the quarter, we have undertaken strategic initiatives on both the commercial and technical side of our business in order to improve the Company's ability to take advantage of a potentially rebounding market.

During the fourth quarter, Genco took important steps to strengthen its balance sheet, increasing the Company's liquidity position to $169.1 million as of December 31, 2016. As part of our success in strengthening our balance sheet during the fourth quarter, we closed on a $400 million credit facility which refinanced a majority of the Company's credit facilities. The new facility provides Genco with a more favorable amortization schedule through 2020, a reduction in minimum liquidity requirements, and significant relief under the collateral maintenance covenants.

With the goal of further improving Genco's liquidity and balance sheet, we completed the sale of an aggregate of $125 million of Series A preferred stock during the fourth quarter. On January 4, 2017, all 27.1 million shares of Series A preferred stock were converted into common stock.

In addition, we made -- also made significant progress in advancing our plan to sell 10 of our older vessels. As detailed on slide 5, we have sold or agreed to sell the remaining nine vessels identified to be sold for total net proceeds of approximately $27 million.

On slide 6, we have outlined Genco's significantly strengthened market position. The important steps we have taken in 2016 and into 2017 have served to reposition Genco to capitalize on a potential market recovery.

Notably, we have significantly enhanced the Company's leading and sizable operating platform. First, we have transformed our balance sheet and capital structure through the completion of the $400 million credit facility on the $125 million capital raise, which I discussed earlier.

Second, we have optimized the profile and strategic deployment of our diversified fleet, strengthening our ability to take advantage of improving drybulk fundamentals. In addition to improving the age profile of our fleet, our chartering strategy continues to focus on deploying vessels primarily on short-term charters with staggered contract expirations.

To this point, we have had a significant portion of our Capesize fleet on contracts that will be expiring within the next several months which we believe will put Genco in a strong position to capture the upside potential from this vessel class throughout the course of the year.

We have also been opportunistically repositioning select vessels to the Atlantic Basin to balance the Company's Atlantic and Pacific exposure as well as to better position the fleet to take advantage of a potential improving drybulk market. We believe this strategy, combined with a fleet that transports both minor and major drybulk commodities, positions Genco well to capitalize on a strengthening freight rate environment.

Third, Genco continues to be a leading low-cost operator, having achieved considerable vessel operating savings since 2014. Since 2014, we have consistently reduced our operating expenses. Our 2017 estimated budget is estimated to be $4,440 per day per ship as compared to our daily vessel operating expense figure of $5,035 that we had in 2014.

On an annualized basis, this equates to savings of $13 million. These cost savings have been realized also without sacrificing our high safety and maintenance standards. Our ongoing commitment to cost management further solidifies our strong financial foundation, and together with the favorable terms of our $400 million facility has contributed towards significantly reducing our cash breakeven levels to $7,189 per vessel per day, making it among the lowest in the industry.

Finally, Genco has the financial flexibility to capitalize on compelling growth opportunities as we seek to further enhance our leadership in the industry. In pursuing this important objective, our focus will be on maintaining a disciplined approach, ensuring a commitment to best-in-class transparent operations, and creating long-term shareholder value.

Moving to slide 7, we provide an overview of our fleet. Having delivered 8 of the 10 vessels identified to sale to buyers to date entered into agreements to sell the 2 additional vessels in 2017. Genco's fleet now consists of 62 dry bulk vessels made up of 13 Capesize, 6 Panamax, 4 Ultramax, 21 Supramax, 3 Handymax, and 15 Handysize vessels with a total carrying capacity of approximately 4.8 million deadweight tons. We intend to continue to utilize our modern diversified fleet to achieve the highest operational safety and environmental standards for leading multinational charters.

Before turning the call over to Apostolos, I would like to thank our dedicated team of professionals for their tireless efforts over the past year. The hard work of this experienced and committed team has enabled the success we have had further strengthening Genco's leading drybulk platform.

Apostolos Zafolias, our Chief Financial Officer, will now discuss our financials.

Thank you, John. Turning to slide 9, our financial results are presented. For the three months ended December 31, 2016, the Company generated revenues of $43.9 million compared to $35 million for the same period in 2015. The increase in revenues is mainly attributable to higher spot market rates achieved by the majority of the vessels in our fleet during the fourth quarter of 2016 versus the same period last year.

For the year ended December 31, 2016, revenues declined to $135.6 million compared to $154 million for the year ended December 31, 2015. The increase in -- the decrease in revenues is primarily due to lower spot market rates achieved by the majority of the vessels in our fleet during the first half of 2016 versus the same period of the previous year.

For the fourth quarter of 2016, the Company recorded a net loss of $24.5 million or $3.35 basic and diluted loss per share. This compares to a net loss of $49.5 million or $6.86 basic and diluted loss per share for the fourth quarter of 2015.

The net loss for the year ended December 31, 2016, was $217.2 million or $29.95 basic and diluted loss per share compared to net loss of $194.9 million or $29.61 basic and diluted loss per share for the year ended December 31, 2015. Basic and diluted net loss per share for both the 3-and 12-months periods have been adjusted for the 1% reverse stock split of Genco's common stock, which was affected on July 7, 2016.

Turning to slide 10, we present key balance sheet items as of December 31, 2016. Our cash position including restricted cash was $169.1 million. Our total assets were $1.6 billion, which consist primarily of the vessels in our fleet and cash. Our total debt outstanding excluding $11.4 million of unamortized debt issuance costs was $524.4 million as of December 31, 2016.

As John mentioned earlier, during 2016, we took steps to improve our liquidity position. In November, the Company successfully closed on a new $400 million credit facility. [Costage] of the new facility were used to refinance all of Genco's existing credit facilities into one facility, with the exception of the $98 million credit facility and the 2014 term loan facilities.

The new credit facility includes an improved repayment schedule with no significant fixed amortization payments until 2019. It also provides more favorable financial covenants, including the elimination of collateral maintenance tests through the first half of 2018, the elimination of the maximum leverage covenant, and a reduction of the minimum liquidity requirements.

Moving to slide 11, our utilization rate was 98.2% for the fourth quarter of 2016. Our TCE for the fourth quarter was $6,659 per vessel per day. This compares to $4,711 per vessel per day recorded in the fourth quarter of 2015. The increase in TC was primarily due to higher spot rates received by the vessels in our fleet during the fourth quarter of this year versus the fourth quarter of 2015.

For the fourth quarter of 2016, our daily vessel operating expenses decreased to $4,486 per vessel per day as compared to $4,954 per vessel per day for the fourth quarter of last year. Daily vessel operating expenses for the 12 months ended December 31, 2016, were $4,514 per vessel per day versus $4,870 per vessel per day for the prior year.

The decrease was primarily due to lower expenses related to maintenance as well as crewing and insurance. Based on estimates provided by our technical managers and management's views, our daily vessel operating expense budget for 2017 is $4,440 per vessel per day on a weighted average basis for the entire year for a core fleet of 60 vessels.

Turning to slide 12, we have presented a detailed G&A line item analysis. Genco's general and administrative expense line item has historically included non-cash nonvested stock amortization, third-party technical management fees, and expenses related to financing and refinancing activities for 2016. Excluding these items, our 2016 cash G&A was $16.8 million.

Going forward, we will be presenting non-cash nonvested stock amortization as well as technical management fees as separate line items in our financial statements. We believe providing this additional detail will enhance investors' understanding of our expenses and cash flows.

Turning now to slide 13, as John mentioned earlier on the call, Genco has undertaken a number of the vessel optimization initiatives over the last several years, substantially reducing our operating costs without sacrificing the Company's high safety and maintenance standards. Our daily vessel operating expenses have decreased by 10%, from $5,035 in 2014 to $4,514 in 2016 with further savings expected this year. While Genco is already among the lowest cost operators among its peer group, we intend to continue to focus on maintaining cost-effective operations.

In addition to the savings we have achieved in operating expenses, we have also significantly reduced our fixed debt repayment schedule through 2019. As can be seen on slide 14 of the presentation, our fixed debt amortization for 2017 is $4.6 million and for 2018, $13.2 million.

On slide 15, we have outlined our cash breakeven rates before and after the refinancing. As you can see, our success entering into a credit facility with favorable terms combined with our cost saving initiatives to date has allowed us to significantly reduce Genco's cash breakeven levels.

We estimate Genco's cash breakeven level will decline from nearly $10,000 per vessel per day to $7,189 per vessel per day for the full year of 2017. This represents an estimated 27% reduction post refinancing and following the vessel sales. Further detail on our full-year 2017 and first-quarter 2017 breakeven rates has also been provided in the appendix of this presentation for your reference.

I will now turn the call back over to John to discuss the industry fundamentals.

Thank you, Apostolos. I will begin with slide 17, which represents the Baltic Dry Index. During the fourth quarter, the BDI continued on an upward trajectory with periods of volatility while rebounding from all-time lows witnessed earlier in the year. Specifically in November, the BDI was able to find a support path to 1,250-point threshold for the first time since 2014 before concluding the year at 961.

Turning to slide 18, we outlined some of the market developments influencing freight rate volatility at the end of 2016 as well as the start of this year. We believe that the relative rate improvement experienced during the fourth quarter of 2016 was due to the following factors.

First, the pickup in China steel production, particularly since last March. Second, the stabilization and partial return of the Chinese coal trade after large declines witnessed during 2014 in 2015. And third, fleet growth of only 2.2% during 2016.

To date in 2017, freight rates have been influenced by several seasonal factors, including increased newbuilding vessel deliveries, weather-related disruptions, as well as the Chinese New Year. What has separated the start of 2017 from what was experienced early last year is the stark difference between -- in both Chinese iron ore and the coal trades.

The rise of Chinese steel output has resulted in augmented demand for both iron ore and coal cargoes. China's iron ore imports rose by 7.5% year on year in 2016, a trend that has so far continued into 2017 as January imports grew by 12% year on year to 92 million tons. This represents the third-highest monthly import total on record and only the fourth time that Chinese iron ore imports have exceeded the 90-million-ton threshold.

This concluded a three-month stretch in which China imported 273 million tons of iron ore, the most ever for any three-month period. The rising import totals have also helped propel China's iron ore port inventory, which currently stands at a record 130.8 million tons, 36% higher year on year.

Iron ore demand in China has been satisfied by augmented volumes out of Australia and Brazil. Australian iron ore exports in 2016 increased by 5% year on year, while Brazilian iron ore exports grew by 2% year on year.

Furthermore, in January, ore shipments from Brazil rose by 15% year on year, supported by additional output from Vale's S11D mine that came online during the month. Miners have seen the price of iron ore rise to a 30-month high of over $90 per ton as there remains firm demand for high-grade iron ore in the seaborne market.

Turning to slide 19, we highlight global steel production. After contracting in 2015, China's steel output grew by 1.2% in 2016 to reach 808 million tons, which still remains below the record of 523 million tons reached in 2014. However, year-on-year increases have occurred in every month since March of 2016. That continued to be the case in January of 2017 as China's steel output rose by 7.4% year on year.

Production has been incentivized by improving margins and the sustained strength of steel prices, which are currently just below the three-year high registered last December. However, increased production has also helped build China's steel stockpiles, which have increased significantly over the last several months and currently stand at 16.4 million tons or nearly 40% greater on a year-on-year basis.

Moving to slide 20, in addition to rising steel production in China and other key factors impacting the drybulk market has been the relative strength of the Chinese coal trade. After increasing by 25% in 2016 year on year, that strength continued into January, as imports totaled 24.9 million tons or a year-on-year rise of 64%.

Since June of 2016, China's coal imports have exceeded 20mn tons during each month, which is something that only occurred once in all of 2015. During peak winter demand season, imports have risen to the highest level since 2014. Reduced coal availability domestically through lower production as well as declining stockpiles has helped lead to the rising import. The NDRC may also look to reinstate domestic coal production restrictions, which would cap operating days at mines to 276 from 330 days.

Another potential positive for seaborne coal shipments is the recently reported ban by China of coal imports from North Korea, which totaled approximately 22 million tons in 2016. Most of this was carried inland, but it remains to be seen whether this will lead to more seaborne imports or whether domestic output will make up for the lost tons.

Looking ahead, catalysts of the drybulk market could potentially be the onset of the spring construction season in China as well as the ramp-up of the South American grain season. To that point, the USDA has again revised its forecast for global grain trade upward and now expects an increase of 8% from last year's level.

Additionally, the Indonesian government has relaxed its mineral ore export ban, which could lead to increased minor bulk cargoes, while additional iron ore shipments from India could reemerge after a significant slowdown in recent years.

On slides 21 and 22, we outline current supply side fundamentals. The drybulk fleet grew by 2.2% in 2016 after taking into account scrapping of older tonnage, which was the lowest pace of fleet growth since 1999.

As is seasonally the case, newbuilding vessel deliveries surged at the start of 2017 as January recorded the highest amount of tonnage delivered since the first month of 2013. Scrapping has slowed as well when compared to the record pace set during the first half of 2016, although the full year 2016 was the third-highest demolition year on record.

With the lack of ordering, the order book as a percentage of the fleet has fallen to 9%, the lowest point since 2002. The order book remains heavily frontloaded towards 2017 as 45 million deadweight ton or 61% is currently scheduled to deliver by the end of this year. Of this amount, it still remains to be seen how much we'll actually deliver, considering that the 2016 slippage rate was approximately 50%.

In conclusion, with regard to the industry's current supply side fundamentals, we believe scrapping, slippage, and cancellation are all essential components of reducing supply growth, which could lead to a more balanced supply and demand equation going forward.

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

(Operator Instructions) Douglas Mavrinac, Jefferies.

John, I just had a few follow-up questions for you after your prepared remarks, with the first one being just a real big picture question. Late last year, you guys were very busy. You closed out on that $400 million credit facility; you did the capital raise. So you guys are in good shape seemingly into 2019. So you've got a good couple years' worth of runway.

So as you go down that runway, how do you balance -- or what is just the -- maybe the strategic focus of Genco in terms of taking advantage of your strengthened balance sheet versus maybe deleveraging. So how do you kind of balance those two maybe competing priorities?

Look, Doug, at this point, we think this is one of the strongest balance sheets in the industry now, considering you've got a breakeven rate of $7,200 a day.

One of our main focuses right now is where do we go from here in terms of growing the Company. We still think from a historical asset value standpoint, these are very attractive prices on vessels. And we also think the industry is in need of consolidation going forward. And we want to play a major role in that.

Got you. And you touched on two things, John, that I was going to get to. And so I'm glad you brought them up. So first, you mentioned your low run rate. And obviously on that front, you guys have done a lot of work both in terms of cost-cutting on OpEx as well as G&A -- especially G&A.

So when we look at those reduced run rates, is that about what we should expect going forward in terms of implementation of some of the cost-cutting efforts that you all have done?

Yes, I think on the G&A side, we have cut costs on the G&A, but we've also hopefully made very clear what our true cash G&A is by breaking that out as a separate item on the income statement. I think there was confusion as to what that number was because there was inclusion of the restricted stock amort. So hopefully that is very clear to folks going forward.

On the operating expense side, as we pointed out, we have a budget now of $4,440 a day for 2017. There are additional items that we are implementing for -- during 2017, so we believe there is room for further reduction on that in 2018 as well.

All right, got you. That's all very helpful. And then the second follow-up to my first question was when you talked about the opportunities that exist. And my question is coming at it maybe from a different perspective, but probably getting to that same conclusion is that we are in this world where you have this backdrop where commodity prices, whether they be iron ore, coal, or whatever, they have been strengthening. And economic expectations seem to have improved finally.

So when you look at that backdrop against, say, the drybulk market, have we seen similar or even any improvements in drybulk asset values? And if the answer is no, is that the opportunity that -- where you see this disconnect between things getting better and yet dry cargo asset values for one reason or another haven't improved yet?

No. I actually think we definitely have seen an improvement in asset values. If you look at what has happened in the smaller vessels, the Ultramaxes and the Supramaxes, you have probably seen a 20% to 25% improvement of asset prices off of the lows probably going back to first quarter of 2016.

The Capesize numbers have also improved, though not as much. Probably in maybe the 9% to 10% area. And that -- we actually think that is a pretty attractive segment because it hasn't yet had large movements in asset prices. And we do expect a recovery or a greater recovery on freight rate from the Cape sector, and hence, values will most likely continue to move up.

Right. And I guess that was -- the tricky part is that it hasn't been as even -- I guess the increases, but then also it's off of a very low base. And so it's have they increased enough to where they're maybe reflective of how good maybe the environment could be? And it sounds like the answer is there is probably still some upside in certain segments from your opinion.

Oh, I believe so. Look, we have been saying that this is still the early stages of this recovery. And it is clearly going to still be bumpy and volatile. But I think it's fair to say that we look at this year as going to be a better year than last year.

But more importantly, continuously improving as we get into -- in the fourth quarter of 2017. And then you start to look into 2018 and the very, very low projected supply growth and I think things could get interesting at that time.

Right. And actually, that's the transition to my final question. That is the order book and the outlook. And in your prepared remarks, you mentioned how 2017 was basically the year where you are seeing the majority of the deliveries that are reflected in order book.

And so when you look at how this year could unfold, I would imagine that the bulk of those deliveries in 2017 are probably going to be in the front end of the year, such that you don't just wake up on January 1 of 2018 and see nothing coming. That you are going to kind of drift lower towards that in the second half of this year.

So is that about how we should expect the delivery profile to evolve? And then as a consequence, for getting hardly any fleet growth, is it fair to say any of the demand catalysts that you described should result in better utilization for the existing fleet if the fleet is not getting any bigger?

Yes, look, taking your first part, yes, we expect the fleet growth to be heavily weighted towards the first half of this year. We actually still expect to see cancellations come to the table. Cancellations that have probably already happened but haven't actually been removed from the order book.

We still expect a pretty high slippage rate. You are still seeing delays and people push some of these orders out. So yes, I think in general -- and we saw this -- we did see this last year, but I think it will be more pronounced this year, deliveries more heavily weighted towards the first half.

And yes, again, as you get into next year with low projected fleet growth, any of these improvements on the demand side will have incremental gains. And the one -- the real interesting thing I find here right now is on the iron ore side.

And you look at a lot of the growth on the iron ore volumes have come out of Australia over the last couple years. And Australia has actually taken away market share from the Brazilian miners.

But starting this year and going into next year, a lot of the growth is now coming out of Brazil; it'll be out of Vale. And So Vale is attempting to take market share back. And obviously from a ton mile demand standpoint, there is real leverage on that trade because it is double the amount of days to get to China.

Yes, yes, yes. That's actually very helpful, John. And that's all for me. Thank you.

(Operator Instructions) Magnus Fyhr, Seaport Global.

I guess to follow-up here on -- maybe ask a little bit differently. You have a pretty well-diversified fleet. You've sold -- I guess you have agreements to sell the last two ships that you had mentioned.

And you still have a couple of 1999 built Panamaxes left in the fleet and a couple Handysizes. You have plenty of operating leverage in your fleet, but maybe you can walk us through how you think about these ships as they get close to 20 years of age and also with water ballast treatments -- regulations coming up?

Yes, look, it's definitely an active analysis. You look at the 10 ships that we had identified last year to sell. There was a strategic decision on those ships because the dry dockings were coming up. And we felt that we did want to tear down some of the older ships.

Now, from an opportunistic standpoint, we wanted to wait to sell the majority of those in the fourth quarter because we did think it would be a stronger time period. I will say we are positively surprised on how positive that fourth quarter was and the values that we were able to achieve in those sales.

So that was good. And we will definitely continue to assess the older Panamaxes and some of the older Handysize with knowing that ballast water treatment systems will eventually have to be installed.

Having said that, right now I don't see us having a need to actually put a ballast water treatment system in place probably until 2019 on the earlier ship right now based on our fleet. But it is a -- very much a financial analysis, looking at what we believe that ship can earn, how much CapEx needs to go into that ship, versus what you can sell the ship for today.

Okay. And just as far as the fleet composition currently well diversified, is there any areas where you think it looks more interesting than others -- Capesizes versus smaller ships?

Again, from a value standpoint, we haven't seen the run on Capes. There is probably more upside in the Capesize sector based on current values than maybe some of the smaller classes. But as you know, these things are highly correlated. So as the market recovers, we expect all asset values to move up. Probably a little bit more on the Capes, which we have seen historically as well.

But if you look at what Genco is trying to do from a strategic standpoint, we are very much focused on the major bulks, which is predominantly the Capesize sector. And then the minor bulks, the Ultramaxes on down. So I think within that grouping, that's what you will see us concentrate on, both from a -- whether it's an M&A standpoint or a commercial strategy.

Okay. And just a last question on -- you know, there's been a lot of activity in the time charter market here recently. Some pretty decent rates. I know you are primarily a spot player, but maybe you can just talk a little bit about your strategy going forward as far as spot versus time charter.

Yes, absolutely. I mean, I -- if you look at what we have been doing, the Capes -- we really didn't have too much coming open until recently. We now have several Capes coming open. We have been -- I would say less maybe raw-index-spot focused and more focused on five- to seven-month time charters in the Capesize sector.

We just did one for 5- to 7- at $10,500 a day, which would then allow that ship to be open sometime in October, which again we think is a -- should be an advantageous time to -- from a seasonal standpoint to hopefully get a higher rate.

So I would say on the Capes, it's been more focusing on shorter-term fixtures in sort of that maybe four- to seven-month range. But also making sure those ships are not coming open in the first quarter, but rather coming open in the second quarter and later in the years going forward.

On the smaller sizes in the minor bulks, we have taken a very active approach of splitting the fleet. So we have a more balanced fleet in the Atlantic Basin, which historically has been a stronger area to be. And then -- but also keeping a decent presence in the Pacific.

And again, that has already paid off. Some of the fixtures that we've been doing in the Supramax and the Handysize sector have been above the index because they've been repositioned to the Atlantic.

Okay. And just one last one. The -- I mean, the -- looking at current market rates are a little bit above -- or around cash breakeven. Going forward, stocks have moved up quite a bit in the last few months, discounting a recovery in the market.

Average rates historically -- the last five years has been barely around cash breakeven, and the years prior to that was the peak China years. So my question is what is really midcycle earnings for an Ultramax vessel or Panamax vessel. What's your thoughts about that?

Look Magnus, I think it's tough to make rate projections in absolute terms. I agree with you: the events that we saw in 2006, 2007, and 2008 in terms of the China boom, we don't expect to see anything like that anytime soon.

Having said that, with where breakeven rates are, particularly for Genco, and looking at where things may go, I'm not sure what a midcycle rate is. But at $7,100 a day or $7,200 a day in a cash flow breakeven, anything -- for an Ultramax, for example, anything above $10,000, $11,000, which we think you should be getting there, starts to really produce cash flow.

And then you look at the Capes. And we have 13 Capes, and obviously, the operating leverage on those is pretty big and you can do the math on that. But it's -- we like the fact that the Company has that diversified fleet, has Capes, where you really can have nice upside volatility, but then also having the Ultramaxes on down, which provides a little more stable cash flow to reduce debt.

Great. Thank you.

(Operator Instructions) Espen Landmark, Fearnley.

I wanted to touch on the page 22 that you have on the supply side. There's 9 million deliveries into -- of demolitions. And then February, I think the number is 3 and 1, so kind of net, you had more than 9 million deadweight tons delivered, which equates to around 1.2% fleet growth for February. Do you think that is a scary number? What is kind of your expectation for 2017 overall?

No, look, again, I think there was a -- as we typically see, you see more deliveries in the January/February time period, just because deliveries that were scheduled maybe for fourth quarter of the year before, people want to get the newer build date. So I think that's a natural thing from a seasonal standpoint to see more deliveries in the first quarter versus the rest of the year.

We're -- our fleet growth that we are projecting is somewhere between 1% and 2% on a net basis this year. And I certainly have seen numbers from analysts that are lower than that. But the 1% to 2% is what we are focused on.

All right. And turning to asset values, as you say, there's been some quite nice increases in especially I guess the Supras. So it's kind of a -- the five year to newbuild, it's actually hovering around 75%. And also for another jump, you would actually need to see newbuild prices moving up. Do you -- how far are we from that scenario?

Look, it's tough to tell. We haven't actually -- fortunately, and I hope we don't see it anytime soon, but we haven't seen any actual large-scale newbuilding orders. I think -- it's tough to tell whether the newbuilding prices that are published right now are real or not.

My view is at those prices, yards are probably still losing money, so I'm not even sure if they would conclude a deal with that. We have fortunately seen the price of steel holding firm. And as you know, there's a very high correlation of that price of steel versus newbuilding prices.

I agree with you, particularly in the Ultramax sector, you are starting to get to parity with a resale versus a newbuilding. But it will be interesting to see if anybody would actually -- or a yard would actually take that newbuilding price.

But I do think -- I'm hopeful that as we continue to see a recovery in the steel industry -- which is, by the way, not just happening in China. We are seeing recovery on the steel side more global now over the last six months than what we've seen in quite a while. But I'm hopeful that we continue to see the price of steel firm, which will obviously push those newbuilding prices up.

Right. And a final one -- on the balance sheet, $169 million of cash. [The call] collateral maintenance covenants is waived. What is kind of the minimum liquidity for you guys? And what is kind of the buffer that you have to work with?

So the actual minimum liquidity of the covenant would be $21.75 million for the fleet. So at -- it's hold steady through 2018.

All right. That's very helpful, guys. Thank you.

Thank you. That concludes today's question-and-answer session and it also concludes today's conference. We thank you for your participation. You may now disconnect.