Golden Ocean Group Ltd (GOGL) 2018 Q3 法說會逐字稿

Good day, and welcome to the Third Quarter 2018 Golden Ocean Group Limited Earnings Conference Call.

Today's conference is being recorded.

At this time, I would like to turn the conference over to Ms. Birgitte Vartdal, CEO.

Please go ahead, ma'am.

Thank you.

Good morning, and good afternoon.

Welcome to the Third Quarter 2018 Earnings Release for Golden Ocean Group Limited.

My name is Birgitte Vartdal, CEO of Golden Ocean Management and together with me, I have Per Heiberg, CFO of Golden Ocean Management.

We are pleased with our results for the third quarter.

The results reflect the strong rate environment in the quarter and our significant operating leverage through periods of market strength.

Following the third quarter, however, the market in the fourth quarter has obviously been a bit more challenging so far and the reasons for that, I will discuss later on the call when I comment on the macro environment and our outlook.

Per, will first take you through the company update.

Thank you, Birgitte.

Third quarter was not that eventful, kind of, on corporate transactions for Golden Ocean, but we reported a net income of $35.3 million and earnings per share of $0.24 for the third quarter.

This is compared to $9 million and $0.06 in the second quarter of 2018 and the adjusted EBITDA ended at $78.8 million, up from $54 million in the previous quarter.

The company had, in November, declared 4 options to install scrubbers on Capesize vessels, which come in addition to the 16 contracts previously announced.

In August, we completed the sale of Golden Eminence and received a net cash proceed of $5.8 million.

Average TCE for the entire fleet was $7,730 (sic) [$17,730] per day in third quarter compared to $15,215 per day in the second quarter of 2018.

The company also utilized the strong Q3 markets to add some extra cover for 2019.

The company announces a dividend of $0.15 per share for the third quarter, up from $0.10 in the previous 3 quarters.

Moving onto the P&L.

The total operating equivalent revenue increased $4.1 million, compared to the previous quarter.

This increase is mainly due to stronger active rates, by our fleet of Capesize vessels that also reflects a good contribution from short-term physical trading activity.

The increased trading activity is also reflected in the $2 million hire -- charter hire expenses.

Ship operating expenses decreased by $2.5 million compared to last quarter.

The reduction is primarily the result of fewer dry dockings as we only had 1 docking in the quarter compared to 3 in the previous quarter, and the company expenses all cost related to these regular dry dockings.

We also had slightly lower running operational costs in the quarter.

Apart from the impairment of $1.1 million booked in the second quarter in relation to the sale of Golden Eminence, depreciation is at the same level in the quarter compared to previous quarter due to no further fleet changes in this quarter.

Net financial expenses were stable quarter-over-quarter and the company booked $1.7 million in gain on derivatives and other financial items for the quarter.

The gains mostly related to further profits of interest-rate swaps and broker hedges, somewhat offset by losses on FFA hedges.

The company achieved a TCE per day of $7,730 (sic) $17,730 per quarter, significantly up from $15,215 in the previous quarter, mainly due to the increase in Capesize rate as mentioned earlier.

This TCE was significantly above the company's long-term cash breakeven levels, including full debt service on both recourse and nonrecourse debt resulting in a strong positive cash generation for the quarter Adjusted EBITDA came in at $78.8 million for the quarter.

The cash flow we have illustrated by this -- by the graph on the slide and the company entered the quarter with $321.7 million in cash and generated a positive cash from operation of $63.6 million.

We drew down the last $17 million on the new $120 million loan facility in July and delivered Golden Eminence in August, generating a net cash after debt repayment of $5.8 million.

In addition to debt paid on Golden Eminence, the company paid down further $21.9 million in debt in the quarter.

Of this, $4.8 million is related to buyback of the company's convertible bond.

As for the 2 previous quarters, the company paid $14.4 million in dividends during third quarter, and that ends the quarter with $368 million in total.

For the balance sheet, the company ended the quarter with, as I said, with a strong cash position and we include short and long-term restricted cash in this number.

The book value of the company's vessels decreased by $37.5 million due to delivery of Golden Eminence and an ordinary depreciation of the entire fleet.

The current portion of the company's long-term debt increased by $13.5 million over the quarter as we expect to pay down the full cash-sweep of $11.6 million related to the Quintana debt during fourth quarter of 2018.

The full outstanding amount of the convertible bond is also booked as short term since it matures at the end of January 9, 2019.

At the end of the quarter, the company's book equity was close to 51% and the value-adjusted equity is around 45%.

The graph for the OpEx is so year-to-date average daily OpEx for the remaining 2 vessels classes as we merged the Supra into the Panamaxes since there are only 2 of them left.

The cost include fully burdened cost of dry dock and show the OpEx is table at around $5,200 per day on average.

And this goes across both the remaining vessels classes.

During the third quarter, the company dry docked only 1 Panamax vessel and we expect to dry dock 1 more vessel in fourth quarter and this will also be equipped with ballast water treatment system in order to be compliant with U.S. regulations.

The graphs on -- graph on the right side of this slide shows an overview of our vessels with and without ballast water treatment system, and as you can see, more than 50% of our vessels already have these systems installed.

The cost of the remaining installations is spread out from this year until 2023 with a total estimate cost of around $35 million.

In the third quarter, the company exercised options to install 4 scrubbers.

This follows the prior agreement to install 16 and in total, the company has committed to install 20 scrubbers on its Capesize vessels and maintain option to purchase additional 5 scrubbers.

We believe we will drive significant economic benefits from the scrubber installations, specifically, using fuel spreads based on current [curvature] and modern vessel scrubber is expected to consume approximately $5,700 less fuel on a daily basis compared to a vessel without a scrubber.

Scrubber installation schedule on our fleet is shown in the graph to the right, and all committed scrubbers, installation will coincide with scheduled vessel dry docks in 2019 and 2020.

Moving on to the fleet deployment.

The company's fleet consists of 77 sailing vessels, of which 46 are Capes, 16 are Panamaxes or Kamsarmaxes, 12 are ice class Panamax and 3 are Ultramaxes.

We took advantage of the market strength and volatility in the third quarter and entered into some additional cover through the winter seasons for the ice cloud Panamax fleet and some longer-term cover for the Capesize fleets.

Current fixed rate cover for our Capesize fleet for 2019 is the equivalent of 3 vessels at a gross rate of $20,965.

This has been achieved by converting one of the index-linked vessels to fixed rate and selling some FFA contracts.

In addition, we have entered into 5 floor and ceiling contracts for 2019 and 2 for 2020.

This secures the downside at approximately $15,000 a day by giving away the upside about -- approximately $29,500.

The settlement of these options are based on monthly averages.

On the Panamax fleet, 13 vessels are sorted out on fixed-term contracts for the winter securing the majority of first half of 2019 at an average rate of $17,220.

6 of these contracts last for a longer period and expire during 2020 and 2021 at an average rate of $20,500 per day.

The company continues to employ a dynamic commercial strategy that provides both, strong operation and downside protection in certain cases.

Looking at our credit facilities, on Slide 11, this shows that the current debt profile for the company.

Regular asset-backed recourse debt amount of $980 million in addition to the $170 million nominal outstanding under our convertible bond at quarter-end.

Nonrecourse debt relates to the fleets acquired from Quintana in 2017 and as said earlier, we expect to pay the full outstanding amount of deferred installment of $11.6 million on this debt during the fourth quarter.

The convertible bond mature late 2019 and the going plan is to repay the debt in full at maturity using cash already at hand.

Total debt at the end of the quarter was then $1.4 billion and with a cash position of $368.4 million.

The company has no further capital commitments than those related to scrubber investments, ballast water treatment systems and regular dry dockings.

Going forward, the regular quarterly amortization of the recourse debt is around $16.6 million while the nonrecourse debt in the non-amortization -- with the non-amortization until June 2019 is $5.8 million if you look at it on account of an ongoing or regular basis.

That ends my presentation.

I hand over to Birgitte, who will take you through the most recent market development.

Thank you, Per.

during the third quarter, we saw strong Capesize rates, which coincides well with an estimated utilization of 87% in the quarter.

Normally, the summer can be a slow period, but this year, utilization improved by 2% from the second quarter resulting in a stronger-than-expected third quarter.

Going into the fourth quarter, which normally is a seasonal high, rates continue to improve for Panamaxes early in the quarter but declined sharply for Capes and down to levels, I would say that, no one in the dry book market expected ahead of the quarter.

Still, if you look at average rate over time, we see that we remain on the same improving trend and average rates for this year will likely end up better than the average rates for last year.

Demand numbers continued to improve in the third quarter and reached the highest number observed in any prior quarter.

Among the various commodities, imports of iron ore and coal were both up quite strongly quarter-over-quarter, while other bulks and agribulks were both slightly down, but relatively stable from the previous quarter.

Moving onto steel.

Steel production continued to increase also during the third quarter showing strong year-over-year growth in China in particular.

The rest-of-the-world also had growth in steel production although the growth pace has slowed down.

To growth trend in steel production has held up well and stockpiles of steel are at modest levels in China, which is an indication that the steel that is being produced is also being consumed.

Moving onto steel margins and iron ore prices, steel margins were strong in the third quarter, but over the last few weeks, we have seen a significant drop due to drop in steel prices without the corresponding drop in iron ore prices.

In fact, the iron ore prices is moving upwards currently.

Due to the decline in margin and also the weakening Chinese yuan versus the U.S. dollar, we have seen a drawdown on stockpiles of lower quality iron ore as the steel mills try to reduce their input cost to improve margin.

The winter push to reduce pollution from steel production has also been less pronounced this year than last year, and it looks like the use of higher quality iron ore to reduce pollution have not been that prioritized.

That can also be seen on the air quality around the big cities so the question is whether there will be a change in policy later on.

The use of lower quality ore can also be seen on the price spread between the higher quality ore from Brazil and good quality ore from Australia, as the spread is narrowing at the moment and we also see that port stockpiles that comes from Australia are lower than port stockpiles from Brazil.

Looking at the export numbers, the third quarter saw an increase from Brazil versus Australia, which helps to explain the strong rate in the quarter.

For the fourth quarter volumes, we still expect to see a push towards the end of the year from Brazil based on Vale's latest guidance.

The BHP train derailment did not significantly impact export in volumes.

This is seen in the fourth quarter but was a headline that added to an existing negative sentiment currently.

Looking at 2019, Anglo's Minas-Rio should come back into the market as well as continued ramp-up of [S 11D] which should be positive for tonne miles and the market competition for vessels out of per se.

If you combine the growth in steel production at around 6% in China with a flat-to-slightly declining iron ore volume year-over-year, there is an indication that the additional demand for iron ore in China, based on 50 million tonnes of steel production, should be around 75 million to 80 million tonnes of iron ore.

We believe that part of this has been taken from the stockpiles import where we also have data and another important source is probably the stockpiles at the mills where there are no official dates and it has to be estimated.

And then the last part is an increased use of scraps based on old furnaces that have been closed down.

If you see that these elements turn around with restocking, that should be positive for the seaborne demand of iron ore.

Moving on to coal.

The coal volumes were also strong in the third quarter, in particular, imports into China improved.

Part of this has led to increase in Chinese stockpiles, which are now back at healthy level.

This increase may have been in anticipation of the recently announced import restrictions for rest of the year and cargos may have been taken earlier than usual.

India, on the other hand, has also kept a good pace on the imports, but do not have the same level of stockpiles and currently, we see good volumes on Capes into India.

For the balance of 2018, we expect to see muted coal imports into China before import restrictions are likely to be removed at the start of 2019.

This will probably have a negative impact on rates in the short term, particularly on the Panamax vessels, although import restrictions can also add to congestion.

Looking at the Chinese electricity production, the third quarter is seasonally lower than the summer and winter period, but still up 6% from the third quarter of last year.

This is also a period of high hydropower production, which is expected to slow going forward.

Thermal power has therefore also been a lower part of the energy mix in the latest months, but this should increase from here and into the winter.

Domestic coal production is also up in the last few months and as opposed to earlier quarter, the growth has outpaced the growth in consumption for the last month.

Moving on to grain, which is one of the commodities that had been more directly impacted by the trade war.

Soybean's volumes were strong out of South America for longer than what is normal this year.

The Chinese imported as much soybean as possible ahead of the implementation of tariffs and before the grain season commenced in the U.S. As expected, volumes out of the U.S. have dropped significantly now that the season is starting, and the latest numbers indicate year-on-year decline of 42% for the first 10 weeks.

There are also rumors that the crops are still in the fields and that they are not even harvested for part of it and that the silos are filling up.

We can expect that if the tariff issue is not solved, the soybean trade will be weak until South America starts up again in late Q1 next year.

Moving onto the supply side.

The pace of deliveries in the third quarter was almost at par as with the second quarter.

This is unusual custom, which we have seen this year where the delivery schedule has been more or less the same in all 3 quarters.

Scrapping was almost nonexisting, hence the fleet growth kept up in the quarter.

Looking ahead, vessels due for scrap are slightly up as of now and deliveries are expected to slow down towards the end of the year.

Thus we expect fleet growth of around 3% for 2018.

Looking to 2019, the numbers for fleet growth are on the high side in this slide compared to some other estimates.

It represents gross fleet growth before any scrapping delay or cancellation.

The total order book is stable at around 11% of the fleet so deliveries in a quarter are more or less on par with new orders currently.

Next year, we also expect the impact by the preparations for 2020.

As part of the fleet and particularly in the Capesize segment is expected to install scrubbers, both in ordinary dry dock and outside of schedule.

This will add 2 to 3 weeks to each affected dry dock.

In addition to switching a fuel, we'll add some congestion and delays around bunkering hubs.

These factors combined with an expected increase in scrapping for where we are today should help to reduce the fleet growth next year.

New ordering plays now at yards, which are not declaration of older options, will likely end in the 2021 order book.

Also, worth noting is the distribution around delivery time for the order book.

Now we're always a bit more between providers of data although most agree that the total order book is equal to around 11%.

Looking at the VMR data, deliveries for 2019 are focused to be lower and as you can see as well, there are still orders due for delivery into 2018 that have not commenced construction, and there are also orders, which will be delivered behind schedule.

Also, orders with scheduled delivery before July 2019 and have not commenced, will likely be delayed.

Moving on to the S&P market, the S&P activity picked up a bit in the autumn after a relatively quiet summer.

Values on average have been flat during the quarter and also into the fourth quarter, but we see a slight premium for modern vessels increasing and we saw a spread in valuation between modern assets and older assets.

It's also our modern assets that attracts most interest in the market, but there are more older assets available for sale.

So to summarize, looking at the market development this year, each quarter has ended up better than expected.

The third quarter was stronger than anticipated due to increased volumes ahead of tariffs and uncertainty, and the fourth quarter has therefore disappointed strongly.

We believe there is a combination of factors that explain the latest drop.

First, due to the global trade picture, there is clearly some uncertainty spreading across industries and the demand outlook is therefore slightly weaker.

Secondly, short-term negative factors are present as previously described.

These include drawdowns of iron ore stockpiles due to lower steel margins, decreased imports of high-quality iron ore, import restrictions on coal, the effect of trade tensions on grain volumes out of the U.S. and fluctuations in exchange rate.

These are all factors that are expected to diminish at some points and the more temporary factors.

The third factor and the one that causes the greatest degree of volatility is the market sentiment that intensifies any change in rates.

We, like almost everyone else, had expectations for a good Q4.

When that did not materialize, the rate downturn intensified to a degree greater than what the underlying fleet utilization would otherwise reflect.

The risk factor remains almost the same as in earlier quarters and looking through the current weak and volatile markets, the fundamentals have not changed that much and we still expect the market will continue to gradually improve on average rates.

Additionally, upcoming regulations to cell permissions are expected to have a positive impact on the markets, as older less fuel-efficient vessels are a disadvantage and may ultimately be phased out.

We believe we are very well positioned in that regard.

Setting aside the market's volatility, we believe that our continued focus on low cash breakeven levels and a strong balance sheet, provide us with good downside support during periods of market weakness.

We are also pleased with how we have executed our commercial strategy, which has secured some cash flow through a combination of time chart to cover and floor-ceiling structures while maintaining significant exposure to market upside.

Our modern fleet improves our earnings potential and our spot exposure provides strong leverage to the market.

Despite the short-term volatility and uncertainty created by the political climate, I would underscore that the longer trend is still gradually improving.

All factors considered, we believe the upside potential outweighs the downside risk and maintain our cautiously optimistic outlook.

We continue to focus on returning value to shareholders through dividend, and for this quarter, the board has declared a dividend of $0.15 per share, a reflection on the strong third quarter results and good cash flow from operations.

We aim to find the right balance between returning value to shareholders and other use of cash flow, including deleveraging and potential investments.

And this ends our presentation for today.

Operator, we are open to answer any questions that the audience may have.

(Operator Instructions) We'll now take our first question from Fotis Giannakoulis from Morgan Stanley.

Birgitte, you mentioned about all these factors that have put the Capesize marketing particularly under pressure expressing your view that this is going to turn around early next year.

I want to ask you about any concern that you might have on the Chinese growth.

What is the scenario that you envision as your base case about Chinese steel demand?

If Chinese steel demand and the steel production actually stops growing, can the dry bulk market remain stable and at a profitable level?

If steel production is flat in China, I don't think you will see a lot of growth in import of volumes, but you have a potential from the temporary factors of stock draw et cetera.

Of course, the downside risk to our market if China stop growing or -- and the question is, how they approach the current issues around the trade war and whether there will be additional stimuli coming back into the economy if they are not able to grow.

But I think, we will definitely see a rebound from the levels we are observing currently.

The question is how large of tonne it will be?

What I'm trying to understand is, there is -- the outlooks about the major commodities about coal and steel and iron ore were very uncertain.

I was wondering if the minor commodities you mentioned book side, you mentioned other small commodities, grain that is growing.

If the minor commodities are sufficient given where the fleet growth is and the order book is, to help us have a profitable market?

And if you see any changes in the trade in terms of tonne-mile expansion that despite lack of growth in major commodities, we can still see the market to tighten?

I think on coal, for instance, you see more volumes going long haul already, like from the U.S. to India as one example.

So I think what we see in China now is more a swing factor.

You've seen it in the past, they build up stockpiles, then they eat up the stockpiles and then the import again.

And don't forget that Chinese coal is like less than 10% of their -- or Chinese coal imports are less than 10% of their production.

Then I also think there is some upside to India.

Bauxite is an interesting trade particularly with the investments that the Chinese have done in Guinea and the increase in volume.

This is just -- is almost the longer trade than Brazil round.

So it's very supportive.

And the difference from before is that they have built a Cape port so the volumes are increasingly going on Cape so that's an interesting positive trade.

And then on top of that, you have the minor bulks in grain as you say.

I think dry bulk is growing with GDP growth so and particularly on the minor bulks as well, which are linked in that.

So it depends on how you view the world going forward if you believe in a meltdown in global GDP growth then of course, dry bulk is also challenging, but then don't forget that there has hardly been any scrapping for a good while then you will not see much new ordering.

And you will have, 2020 will come anyway.

And talking about 2020, is there a way that you can help us quantify the impact of 2020?

A lot of people are talking about vessels staying out of the market and even starting from next year for scrubber installations or logistical problems with the supply of the vessels and slow steaming?

Is there a way that you can give us your estimate of how much the supply-demand can be impacted by the IMO 2020 factor?

Well, it's a bit of a circular reference, some of these elements so -- but if you just take the Cape fleet and you assume that around 300 Capes will install the scrubber next year, then maybe you can assume 20 to 30 days off.

Of course, part of this is done through ordinary dry dock, partly it's done outside.

But then you are, let's say at 1/5 or 1/6 of the fleet, and not to forget that a lot of the larger vessels like the Valemaxes, et cetera, are also installing scrubbers so it's more on a capacity than on a number of the vessel.

So let's say, 1/5 of the fleet is out, 1/12 or 1 month, it's probably not totally correct, but then it's 1.8% on the supply for next year, give or take, for the dry dock.

And then you can add probably some delays and concerns around bunkering and congestion, et cetera so that there will be less efficiency ahead of 2020, I think, it's pretty likely, but this is my best estimates as such.

And one last question about the fuel cost impact on speed of the vessels.

You already have models that they are optimizing the speed of the vessels, especially on the ballast leg.

I was wondering if fuel increases for the majority of the fleet, let's say, $200 or $300 per tonne, what would be the impact on the average speed of the fleet?

What would be the optimal point that the vessel will operate?

Well, in theory, the average speed should almost be lower today than what it is, but I think, you will see part of the fleets potentially speeding up.

You will see part of the fleets potentially speeding down.

So due to the waiting, I would guess that you see slightly slower speed on average for the fleets depending a bit, which segment you are in and how much the scrubber uptake is.

But also remember, if you get different pricing on various vessel types due to the pricing of the fuel, you can have shift of commodities between vessel classes to a certain extent.

The fact that you are speeding down is optimizing your revenue, which again, you will speed up.

So there are -- again, it's not one easy number, but you can talk to the direction.

(Operator Instructions) Our next question comes from Lukas Daul from ABG.

Regarding the dry dockings in 2019 for scrubber installation, can you say how much time you estimate you will spend in the dry dock for each particular vessel?

Well, 1 vessel is to be in the estimate.

And our regular dry dock takes approximately 14, 15 days.

I think the estimates that there now is that it will -- maybe double or, let's say, 25 to 30 days of the service for 1 vessel.

So 35 to 40, all-in?

No.

No, no, no, it's 25 to 30, all in.

You can do, part of the work you do in parallel in the regular docking and then you extend the period so it's 25 to 30 in total.

10 to 15 basic.

Okay.

Okay.

And then you, sort of, entered into some TCE coverage for the '19 and some even beyond that.

Is that something you have sort of done very recently?

Or how should we read into that?

Do you want to sort of hedge to downside or was it just take advantage of the higher rates?

This was done a bit earlier when the rates were higher so it, kind of, the follows the strategy to add some cover when we find that opportunistic and good priced, but then to keep the majority of the fleet in the spot market.

And then I think the floor ceiling structures, I think, it's a good structure for us, 5 vessels on that.

It's the average month -- average index of the month that is compared to the rate.

And as they are above -- just around or above cash breakeven levels, on the floor, it provides a good protection against the downside.

And then if the market on average is $30,000, I think we can live with giving away part of the upside.

And then you increased the dividend in the quarter, and obviously, you had strong cash flow and good earnings, but how do you think about that going forward?

Is that sort of -- is that a new floor?

Or are you going to, sort of, consider that on a separate basis for every quarter going forward?

I think it's important to say that the dividend policy is a quarter-by-quarter, and you look at the result in the quarter and the cash flow in the quarter, but you also look ahead at what is coming ahead of you.

So we can reduce the dividend as well if we find that correct.

So I think you can expect it more to be floating with how the result is developing than that we aim at a fixed dividend policy.

We don't think that works very well in our business when you have high spot exposure as we have.

Our next question comes from Magnus Fyhr from Seaport Global.

Just a question regarding the recent weakness that you're seeing in the market.

Has your game plan changed at all or is it too early in regarding your priorities as far as returning cash to shareholders versus potentially take advantage of opportunities in the market?

You mentioned that activity has picked up in the S&P market, but asset values have been relatively flat.

Well, we haven't seen any drop in asset prices yet.

So I think, for the moment, we would -- we will remain with our strategy.

We obviously consider various projects that we are cautious to see that if it's into our portfolio.

So I think our strategy remains.

Obviously, we have to see going forward how the cash flow develops and if the market rates return as we expect, but I think our strategy balancing the various aspects will remain.

We are pretty happy with the leverage that we have at the moment.

So I think, from that point of view, ordinary repayments and convertible bond downpayments is sort of taking care of, of the deleveraging part.

So on the upcoming convertible, you're going to use cash and they have to pay that down or any recent development there?

That's base case.

Yes.

Yes, that's the plan.

All right.

Just one more question then on the time charter market, I mean the spot market has been very volatile.

Has there been increase in the interest from some of your customers on taking on vessels longer term?

I mean, I guess, the time charter market is a better indication of where the real market is.

Yes.

Well, the FFA curve has also dropped the long way this past.

And it's partly, of course, this is because of this past, but I also think there has been some selloffs there and stop losses during the drops.

That is a good indicator for where the time charter market is.

Currently, we are not that interested in fixing out a lot from our side, but there is some interest in the markets.

But then if you do a time charter -- if you charter in the vessel now, you have to pay a lot of carry-on on the first voyage so that often when we see more like a flat relationship between the spot and the curve or a premium, then the activity is higher than when we see the discount on the first voyage as we do now.

Okay, all right.

And just one clarification on the downtime for the dry docking.

What is the repositioning ahead and after your dry docking?

Is that typically 5, 10 days or what should be?

Well, we are lucky on the -- the Capes, in general, often go to China.

So it's not necessarily a lot of repositioning.

We just have to time it between voyages.

Few days can be, but not like significant part.

Our next question comes from [Jay Mehr] from 1953.

I'm just concerned a little bit about the debt that you people take all the time.

You seem very comfortable with debt of $1 billion.

And I was just wondering is there -- do you have a plan that bring that down, maybe by $200 million to $300 million, which would really increase the price of the stock if you brought that debt that down?

I just want to know if you have a plan for that, okay.

I don't think the nominal value of the debt has that much of an impact, but it's -- we target a leverage of 50% to 55%, which in a historical perspective is relatively low.

But we think that that's a level, which is sustainable given the markets that we're in, the volatile market.

We have also have a long profile on our debt, which is 20 at some of the sessions, so we focus on having a very low cash breakeven and that gives us an advantage so that we can -- the way we can survive in a bad market and we can then benefit cash wise on -- in good markets and then return values to shareholders.

So with that perspective, we think the debt as it is now is compared to the fleet and the value of the underlying fleets is actually where it should be.

Then we have, over the course of next year, we will pay down the convertible bond, which is currently around $170 million and then over a year, we have ordinary debt repayments of around $80 million, approximately.

So that together will reduce that debt of $250 million next year at least.

Our next question comes from Espen Landmark from Fearnley.

Just a question on, I mean, it's always tricky to explain these short-term movements in the Capes and let's just say inventories draws, increased scrap usage and steel margins, but there has also been quite a selloff in the paper market with seemingly quite a few traders trading along freight and then getting stuffed out.

Do you think, in any way, this has been amplifying the selloff in the physical market?

I think it has an effect on the sentiments in a way although not the underlying flows of commodity, but it can enhance the effects adding to the negative sentiments to some extent, yes.

And I agree with your analysis of how the FFA market has traded.

Our next question comes from Dennis Anghelopoulos from ABG.

Looking at some of your fixtures that you have done, just paying attention to this Golden Bexley.

When was she fixed at the rate that she is currently at?

She was fixed at around [$15,800, $15,900] per day through '19.

Is that sort of your expectation for '19?

Golden Bexley?

Yes, that's her name.

Through '18, I guess.

It says November '19 on your website, sorry, just...

Okay, then that's an error, our apologies.

It should be around November '18 because that was one of the first vessels that we fixed for 1-year period so we will check into that.

Our next was to come from Fotis Giannakoulis from Morgan Stanley.

Yes.

I wanted to ask about the scrubbers, and if you have already secured slots given the fact that you have given a detailed schedule?

And if you know the company that you have announced scrubbers or they are willing to put scrubbers, if they have the ability to find slots within 2020?

Are you talking about scrubbers slots or yard slots?

I'm talking about yard slots to install scrubbers and if there are plenty of availability in other shipyards?

Yes.

We have secured slots for our installations.

My impression is that, so far, there is availability around yards.

Maybe we should hope for some shipyards going into scrubber retrofit yard instead of building more vessels.

But I mean, it requires more planning, we are much more upfront than we were normally on dry dock.

We just go to the repair yard with shorter lead-time.

I think if you prepare for it, you will find a solution, is my impression, but, yes, I can't speak for the whole market.

(Operator Instructions)

Okay, I would like to thank you for listening in today and also thank you for all the questions.

And wish you a nice afternoon.

Ladies and gentlemen, this concludes today's call.

Thank you for your participation.

You may now disconnect.