Eneti Inc (NETI) 2017 Q4 法說會逐字稿

Hello, and welcome to the Scorpio Bulkers Inc. Fourth Quarter 2017 Conference Call.

I would now like to turn the call over to Hugh Baker, Chief Financial Officer. Please go ahead, sir.

Thank you, operator. Thank you, all, for joining us today. On the call with me are Emanuele Lauro, Chairman and Chief Executive Officer; Robert Bugbee, our President; and Cameron MacKey, our Chief Operating Officer.

The information discussed on this call is based on information as of today, February 5, 2018, and may contain forward-looking statements that involve risk and uncertainty. Actual results may differ materially from those set forth in such statements.

For a discussion of these risks and uncertainties, you should review the forward-looking statement disclosure in the earnings press release that we issued today as well as Scorpio Bulkers' SEC filings, which are available at www.scorpiobulkers.com.

Call participants are advised that the audio of this conference call is being broadcast live on the web and is also being recorded for playback purposes. An archive of the webcast will be made available on the Investor Relations page of our website for approximately 14 days.

Now I'd like to hand over to Emanuele Lauro.

Thank you, Hugh, and good morning, everybody. Thanks for being with us today. I'll start with a few introductory comments and then turn the call back to Hugh who's going to go through a couple of slides.

So we are at the early stages of the dry bulk market recovery. The continuous measured but steady improvement of the freight environment over the past 8 quarters has allowed us to consolidate our steps in providing financial flexibility both to the company and its balance sheet. This reaffirms a greater potential for shareholders returns and value creation going forward.

In the latter part of last year, we were reinstating principal repayments to their original form on the debt front. This was in -- over the summer, July or August. We have been introducing a dividend distribution of $0.02 a share in October for the third quarter. We've been acquiring 10 vessels at attractive prices during the fourth quarter using cash and shares, and we have also repurchased 1.5 million shares under our buyback program.

Now at the beginning of 2018, we are watching the improved market conditions in what is usually the weaker quarter of the year from a rate perspective; we had a share price higher than our purchases; and we are in no rush to increase debt buyback position. We have maintained a $0.02 a share dividend distribution as per the previous quarter, which as I have mentioned in the past, we are looking at making a sustainable one. We have taken delivery of 9 out of the 10 new acquisitions, which at current rates, are generating positive cash flows. We have one delivery of a Kamsarmax vessel over the coming summer and we expect to be fully financed very, very shortly. We have a good cash position and are ready for what we expect to be a continued improving market environment and the transition into profitability.

With this, I'd like to turn the call back to Hugh.

Thank you, Emanuele. I'd like to refer all of you to the presentation that we have uploaded to our website in respect to today's earnings release. This presentation supplements the earnings, the information already provided by the earnings press release and is definitely worth you reading.

In the fourth quarter, it was a positive quarter for the company and we saw a material increase in rates, which was the seventh consecutive sequential quarterly increase in rates since the first quarter of 2016. In that quarter, we earned rates of $12,605 per day and $10,886 per day, respectively, for our Kamsarmax and Ultramax vessels. And as of 30th of January, we've booked and guided you in our earnings press release that we've booked 74% and 63% of the first quarter at $13,300 per day and $9,800 per day for our Kamsarmax and Ultramax vessels, respectively.

During the fourth quarter, we made a net loss of $1.1 million, which is a loss of 1% per share. However, EBITDA was $22.9 million, which is an increase from Q3 2017, which was just $12.4 million and just $1 million in Q4 '16.

As of last Friday, the company had $69 million in cash, and that is one of the reasons why we're comfortable that we can sustain and meet our -- the dividend that Emanuele just talked about of $0.02 per share.

During the quarter, we purchased 10 vessels for a total consideration of $232.5 million, of which partial payment was made in stock. We currently have no further CapEx planned.

Of the 9 vessels purchased in Q4, we've -- over 10 vessels purchased in Q4, 9 of them were delivered and 9 of them are being financed. We have 1 more vessel to deliver, which should deliver in early -- in the second quarter of 2018, and that vessel is going to have finance put in place for it shortly.

During the fourth quarter, we also purchased 1.5 million of our shares for a total consideration of around $11 million. Incidentally, I'd like to disclose something that is not disclosed in the earnings press release, but it will be disclosed in our 20-F, which is that during the fourth quarter, we were concerned about rising interest rates so we actually purchased 3 interest rate caps, which have capped $300 million worth of our debt until December 30, 2020, at LIBOR rates of 3.5%. As a result of these caps, 51% of our debt for the next 12 months is now fixed.

With that said, I pass the call to Robert.

Good morning, everybody. I'd just like to stress that we are really confident in this market recovery, but we're not cavalier. As Hugh and Emanuele has pointed out, we've managed to -- the discipline that we've shown during the second and third quarter allowed us to do what we did in the fourth quarter. This quarter is very much a transitional quarter. It's the worst quarter that we expect in the year. Traditionally, the worst quarter. Once the Chinese New Year is finished within 2 or 3 weeks, we and the rest of the industry expect things to move upwards. At the same time, we consider it transitional. We're not ready for the dividend at the moment. We are not buying anything. We're just sitting in a great position is where we are. We think we're at the very early innings of a dry bulk market recovery. And most important now, we can see that dry bulk now is in a whole of a shipping market, the entire shipping market, we think is due for a great recovery. We've seen the -- following the dry bulk, the normal procession of the container market as being the next market to do very well. Gas is doing better. And the fact that across all shipping, values are up in every sector.

And this is very important because it means that the company, primarily company's balance sheets, are doing so badly at the moment. It means that cross-shipping that even in the sectors such as the products market, even though rates aren't very high, they are well above OpEx and interest. So this means that despite earnings not being very strong probably for most of the product tanker companies, it means net asset values have improved substantially in the last 3 months as a result of prices going up. And this is another thing that's happening in the dry cargo market, too, this double thing happening of cash generation plus asset prices are rising, and that's really exciting.

And as Hugh pointed out, we're not afraid of inflation. Inflation is great for us. SALT's really, really in a fantastic position going forward here. We -- inflation as a result of demand for the commodities we carry, an increased world GDP is fantastic. And steel values are being improved by inflation.

The other part of things is that we're really well placed. We don't have much CapEx here. Brand-new fleet, low operating CapEx, and we're already very well prepared for the [word about], and by definition, we have lower fuel consumption. So we're in a great position for the [higher asset] rules, too.

So we really look forward to later in the year. The curves are all in nicely placed. The forward freight futures are in Contango 2 today. The time charter markets are in Contango 2 today.

And with that, we'd just like to open it up for questions.

(Operator Instructions) Our first question comes from Herman Hildan of Clarkson's.

Just kind of -- I mean, there's no secret that you've been fairly active at the yards for the last couple of years. And Robert, you mentioned the, call it, higher asset prices. Could you give some color on the dynamics, where they're at, at the moment? And then kind of how you see the position of the yards at this point?

Well, I'll just start, and then Cameron and Emanuele, feel free to add. But the yards have, first of all, less capacity. They've done some kind of cutbacks in the big downturn. Secondly, they've done different financings. And thirdly, the input costs are moving upwards, whether that's labor or the actual commodities to buy things. Plus they've been getting -- they've been starting to get over the change, the shock of the markets being lower. So consequently, prices have moved upwards, and they've moved up quite a lot, probably anywhere. I'm not -- I'll leave that up to Emanuele and Cameron. But I mean, what I'm reading, you're seeing up to 10% or so in the biggest ship sizes, too.

Yes, because that's -- I mean, I'm not sure whether you have kind of entertained the thought of ordering more ships or not.

This is across the board. This is where -- but we're hearing it in generic sense. I mean, we're not actually as active as we once were in the shipyards themselves. So we're hearing this in terms of reading what you're reading and generally just talking to you all. So -- and you can see what people have been declaring, ordering the newer vessels more recently.

And kind of if you look at your investor day and you compare it to the part of the fleet that's 20 years and older, it's quite low net fleet growth over next couple of years. Have you kind of entertained the thought of ordering more ships? Or are you going to be more focused on having (inaudible) in the years ahead?

No. I mean, we really have a -- look, we have a great fleet. We have a fantastic fleet in the quarter. We've worked really hard to do this. Insiders in the company bought stock in the last quarter. We have a very strong equity position. We want to make a great return out of this. We've taken the risks. There's no need for SALT to go out and take new orders. If we -- we could have done that, and if we had that intention, we would have done that in the third or fourth quarter as opposed to buying assets that were effectively in the water or soon to be in the water. Because we're seeing this market. This market, the consistent message at all our conference calls the last 6 quarters is the market has done better than what even we have expected, and we've been bulls. So I think you really want to have assets in the water for the rest of this year after Chinese new year, which is basically from March, and you want it definitely in '19 and definitely in '20. You want it on the water because you've just got a demand side that's really accelerating now in its growth, and a supply side that is slowing very quickly in its growth curve with not that much on order with a number of serious regulations that are going to affect it even further.

And kind of -- I mean, starting off what seems to be a more favorable recovery in dry bulk with net fully invested leverage below 50%. Can you kind of give some comments on whether you've debated a more dynamic dividend policy or kind of what...

Look, I think that it's pretty clear. It's pretty clear that as we're expect -- every day, as you have this underlying strength under assets and positive cash flow that every day you get stronger. And yes, you pointed out that the recent rise in values in the last 3 months has probably put us in an even stronger position than we thought we'd be in 3 months ago and our total leverage is being -- coming down. But as we said earlier, we're just not anxious. We've made the big risks. We can have this quarter as a nice transactional period. We can have a delay of gratification. Everything's good. There's no need (inaudible) we just want to be confident. Really, we're really confident, but we don't have to be cavalier and we can wait. And remember, in July, we got a lot of criticism for going back onto normal amortization schedules from some analysts. We believe in more criticism in October for reinstating a dividend. I think it'd be lovely to have those analysts begging for shareholder return. That would be great.

And our next question comes from Fotis Giannakoulis of Morgan Stanley.

You talked about your confidence about the improvement in the market, and I've heard the same confidence from a number of other ship owners. I was wondering, what is the view of the charterers? And if you see this outlook, this positive outlook for the dry bulk market to be shared by your customers and to be willing to sign period contracts?

Sure. We're not out there to sign -- look, we really believe in the improvement in this market. So we're not out there to negotiate longer-term charters. But we've done in the last, I don't know, 10 days, 2 weeks, 3 fixtures, 2 in the Kamsarmaxes. Basically delivering from March onwards for 4 to 5 months over that summer period at $15,000 a day for both ships. That's a substantial tick up, I would think we would all agree on the present rates and the present published rates in Clarksons or whatever. And we've just done one Ultramax that is delivering in far east for 5 to 6 months, and the Far East is a very weak area, and that's fixed at 13.5. Again, a substantial tick up, almost 30%; 40% above the guidance we've given for this quarter for the date. So the customers are clearly showing in those physical fixtures that they expect the rates to improve. The -- and as I've said, we haven't been out there to either time charter in long term or to try and charter out long term. But I can see the paper curve is up and I would imagine the forward 2-year, 3-year charter rates, too. I can't imagine any owner would want to give their ships away right now. Also, if we look at key customers, look at what's out there. If you look at the rhetoric we're hearing from the public markets here. Think -- what's happening with Cliffs Resources talking about the inventories at the docks in China not being the iron ore that is actually of value, we see what's happening with customers on the coal side, the grain. We're seeing this potential acquisitions, merger and acquisitions involving people like (inaudible) I mean, the customers are by and large here, showing in their reporting or showing in their actions that they are very confident in the growing demand for their commodities, and therefore, the transportation by sea of their commodities. I mean, if you take Caterpillar, I mean it's extraordinary to me that people can understand that Caterpillar has used more to take the stuff out of the ground, but it's not like this stuff is left right there after Caterpillar dug it up. I mean, you have to then actually ship it. So again, this is what the customers are doing.

Can you comment, if possible, about the reports that China is maybe (inaudible) electric arc furnace capacity? If you think that this is a real concern for the dry bulk market or it's something that has been overplayed the last few weeks because of the seasonal weakness?

I think a lot's been overplayed in China, right? I mean, in October, we were told Wall Street freaked out about the Bloomberg article, about how China was going to close and steel capacity because of pollution, et cetera, et cetera, and it started selling stocks, selling paper only for the fiscal markets just to continue higher and higher and be stronger than they were before. So generally, with -- generally, I think that we just have to accept that China's economy is growing. They are using this stuff. And until real physical notice, we're still very bullish on China.

And our next question comes from Poe Fratt of NOBLE Capital Markets.

Robert, you sort of answered my question a little bit on the Ultramax lag versus the Kamsarmax. But can you give us a little more color on the divergence and rates in the fourth quarter and sort of how you're looking over the rest of the year on Ultramaxes versus Kamsarmaxes?

Look, (inaudible) I think Ultramaxes are going to -- they have some special things happening to them very shortly in the Atlantic with the grain and vegetable seasons in South America coming soon. And they will benefit from the different roots and different triangulations, et cetera. So I think that from time to time, whether they're capes, whether they're Panamaxes, whether they're Ultramaxes, from time to time, one might be trading at a better position than the others. Capes right now are a little bit depressed over Kamsarmaxes or Panamaxes. But overall, we just see strength going forward into this. So we're not -- we don't want to be very enthusiastic about one sector that might be momentarily doing great. And we don't want to be overly negative about one sector that might be doing relatively worse than the other one for that moment.

Great. And then on the sale-leaseback you did in the fourth quarter, should we view that as a one-off or sort of what's the -- are there additional sale-leaseback opportunities out there that you think might be attractive?

Paul, it's Hugh. There are additional opportunities out there. I think it remains to be seen whether they will be attractive. That specific sale-leaseback was very much driven by very low cost of capital that was given to us by the Japanese financiers. We ended up getting 10-year money at 4.25%. And if you adjust that onto a floating rate basis, it works out about LIBOR plus 1.85%. So we did that because it was a high advance rate, very, very low-cost financing. And it also diversifies our group, our funding group away from the traditional Western European banks. But we are -- the traditional Western European banks are definitely open for us. We're finding as a general point that the cost of financing is going down slightly. We will announce the financing for our 10th -- the last vessel, our only unfinanced vessel. And the terms for that will be certainly an improvement on last (inaudible). So we're generally very positive about the financing markets, but quite frankly, we don't have a lot to finance now. So it's not a huge interest to us. We'll keep watching it. If good opportunities come out of Japan, then we'll take them, but otherwise, I wouldn't expect anything.

Yes. And then Hugh, did I hear it correctly that you've capped -- you've set a LIBOR cap at 3.50% until December 2020?

That is absolutely correct...

On $300 million?

On $300 million of our debt. And that was simply because I think the company felt that interest rates are rising and have been rising in the last, certainly in the last month or so. And it's not a material amount in terms of what we're in the money at, but we're obviously very slightly in the money on those derivatives, which are mark-to-market. But I think the key thing is that it emphasizes the fact that we are really trying to make sure that we're ready for the road ahead and we're prepared for whatever the market throws at us.

I mean in general, shipping does really well in times of inflation. And in general, you'd be very happy to sacrifice 2 or 3 interest percentage points for a good dose of inflation, just like you've seen with asset values across all the shipping in the last 3 months. So you may have had a little drift up in LIBOR rates, but that's been more than compensated by the cross-shipping, the underlying inflation under the assets. But this is -- you're just doing something that's financially, you're able to do, and I think that's great.

Our next question comes from Jon Chappell of Evercore Partners.

Robert and Emanuele, just one strategic question for you. I'd say we're kind of in line with the way that we think about the market, optimistic about the rest of the year, early innings of the recovery. But I really appreciate the commentary about not being cavalier about it. I'd say the one criticism we get in shipping sometimes is that the early signs of a recovery, there is either an influx of orders at the shipyards or maybe very aggressive uses of capital structure to buy assets before the prices rise. Sometimes that works; sometimes, it doesn't. So as you kind of balance your views on the market with trying to be anything balanced as well with how you manage your balance sheet and your fleet. If we think about how you're approaching 2018, would it be fair to say that this is going to be a year where you continue to kind of maximize your current fleet, maybe march up the dividend, delever the balance sheet and keep that fleet right around the 56, give or take? Or is this a year where you feel like you need to be aggressive and accumulate assets in the early innings for the longer term?

I think we've done a lot of work. Last quarter, we did a lot of accumulation of assets. And as we pointed out that we are not working on that right now. So as I said, this is a transitional position to see what's happening out there on the job. We have a large holding in the company, and the idea is to maximize the over time, the value of the shares. And I don't think it would be prudent to maximize that value by discussing in detail how we're going to do that over a conference call.

That's fair. You've shown willingness before to use shares for ships. And as we've seen with some recent filings, those people may not be long for the stocks, so it tends to drive some volatility as well. Obviously, it depends on the trading price of the shares and, obviously, people's views of NAV. We think it's still at a discount, but maybe someone have different views. As you think about going out there and adding to the fleet, whatever the case may be, slowly quickly, is shares for ships still a priority to do that, or?

Well, I think, Poe, you have to look at it in the context of everything, because we were able to basically at that time, issue -- if you go back into the record, we could virtually issue shares at a price that was higher than what we were buying shares. So it's okay. It's also good just to pick up the dimes and cents that are on the pavement. So again, it depends in pricing point. This particular -- right now, everything depends on the relative prices to do anything. But there's no urgency to grow. We did a lot of growth. We have a great fleet. So if you come across something that is going to be accretive, you are not going to rule out that opportunity, okay? If you think the thing is the right thing to do. Now that's both sides of the trade. That's whether you're buying or you're selling.

Okay. I understand. That's very helpful. That's all...

But right now, it's like -- as Emanuele pointed out, as I pointed out, this is possibly the laziest quarter that Hugh has had to date.

Maybe that's not a bad thing.

It may not be a bad thing, exactly.

Keep it up.

Our next question comes from Magnus Fyhr of Seaport Global.

Just one question, a macro question. Coal was a big surprise in 2017 with China increasing their imports. What -- I mean, it's pretty big commodity ship for your Kamsarmax. What are your thoughts on the coal in 2018? What could surprise on the upside there? I mean, India seems to have some issues in reaching their goals but also interesting to hear your thoughts on China.

Magnus, I think, I'll just start that by saying, I think we see Chinese coal stockpiles at record lows at the moment. We shouldn't necessarily read too much into them, but we were pleasantly surprised in 2017, I think there's always a very good chance that we'll be pleasantly surprised again in 2018. The key numbers you need to be aware of is that under 10% of China's coal consumption comes from imported foreign coal. So for the Chinese to use more foreign coal is not necessarily a big decision for them but it's a very, very impactful decision for the shipping industry. So obviously, they're dealing with the different competing dynamics of supporting their domestic coal industry but also trying to reduce air pollution levels in China, which -- and certainly that latter dynamic favors more foreign coal, which is obviously of high quality. So I think that we expect Chinese coal imports to grow, but -- and we do actually think there is room for upside but we're not planning on it.

Okay. And what about India? I think there's some upside there.

There is upside there.

Our next question comes from Randy Giveans of Jefferies.

One quick question. Just looking at your fleet, it seems like recent acquisitions have been focused more on the Ultramax versus Kamsarmax class, so why is that? Is that just opportunistic? Or do you all have kind of a preference for that fleet type?

That was opportunity. It was the opportunity not frank. As we say before -- as we said before, we think that it's difficult to not -- I'm not going to go down future acquisition, there may not be future acquisitions. Okay? So we've remained -- we believe, fundamentally, that we -- that you shouldn't get too cute between Handys, Ultramaxes, Panamaxes, okay. You shouldn't get too cute between safe bulkers, star bulkers and Scorpio Bulkers. All the ships will rise in the tide, all the stocks will rise in the tide.

Sure. Okay. Well, how do you decide between growing through additional time charter inns versus secondhand acquisitions?

It depends on the rates. Right now, we don't have to do anything. We've got a tremendous amount of leverage, the time charter inn rates have moved up substantially. Do you know, they may not be showing up in the front end but in the backend, you can see that, and you don't -- sometimes you just don't decide, is like the message you should really get is we are really not doing much thinking right now. We're having a real rest, doing hardly any thinking at all, just transitioning through from hopefully what has been losses to breakeven to profitability that the company is obviously undervalued in our opinion and that's it. We just do nothing, it's really okay, sometimes. (inaudible) Very simple.

Our next question comes from Gregory Lewis of Crédit Suisse.

I guess, in Q1, your bookings versus Q4, it looks like the Kamsarmax market is improving, the Ultramax market is sort of weakened. Could you talk a little bit about why there was that divergence? Was that a functional of location or any kind of color around why we saw (inaudible)

I would say, Ultramax earnings have been understated relative to our Kamsarmax earnings, primarily because of the delivery of the ships that we purchased, which were mostly delivered in Asia. So I wouldn't look to -- in too much detail. You've got a very small data set over a small set of time a company taking 10 of 1 type that were in not great positions.

Okay. Great. And then, Robert, since you mentioned that we're talking about transactions and deals being accretive. Could you just talk a little bit about how you think about capital allocation and sort of what -- how do you view transactions? Is it on the NAB basis? Is it on a cash flow basis? And just really, I'm trying to understand as we think about 2018 and I believe people have been trying to ask it in a lot of different ways and previously on this call, how should we be thinking about the willingness of the company to plow those potential cash flows into the buyback?

Well, listen, as Emanuele started off, but we're not too urgent to do anything. As I've stressed, we're kind of zoning right now. The company was brought back from the dead. We had a pretty good recovery last year. We then pressed down hard on the accelerator just before Christmas, before you had this big rise in asset values, bought a little stock back where it was massively depressed and we have this first quarter, which traditionally is your weakest quarter and we are genuinely I mean, there are not many times where a company's executive says, we are being idle, being lazy, doing nothing, not thinking, just chilling and letting some time pass during this transitional period. At some point, we will start to sit down, later, maybe in a month or 2 and start answering those questions ourselves with the board or having discussions with the board about that.

Our next question comes from Ben Nolan with Stifel.

I actually have a couple of questions. And the first one maybe for you, Robert or Cam. But we've seen oil prices rising, I think, $380, it's close to $400. You guys, it used to be a big deal a few years ago that your ships were a lot more fuel-efficient and obviously, when oil prices fell, it didn't -- it was less important or not as much of a talking point. But prices are a lot higher now. Any sense of sort of your earnings potential relative to less fuel-efficient assets at these levels? And are you seeing a strong level of inquiry from charters for your assets relative to things that might be 5-years older?

Cameron?

Thanks. Ben, there's a couple of different ways to answer that. I think absolutely our answer remains the same, which is at any price point of fuel, our ships will be somewhere between 5% and 7% more efficient than legacy or older generation tonnage out there. Simply translating that into our TCE is a bit of a trick, however, because there are so many factors which go into your TCE generation. So I guess, one way to look at it is, at any position, we will get the benefit of a first phone call, and that helps not only in raw revenue on a latent passage but also in -- as importantly in getting those good positioning cargoes and being able to bring ships back from the east to the west or having a shorter ballast leg at any point in time. And that's value, comes is partly fuel efficiency, which we, in theory, share with the customer, partly from other attributes of having a modern fleet. It's more desirable to first-class charters gets us where we can earn the most money, the greatest returns at any point in the cycle. So the answer is yes, but not as easy to break out in a detailed way.

Okay. And when I'm thinking about that, is it fair to assume that the bigger impact would perhaps be on the Kamsarmax as they -- our bigger ships consume more fuel and the delta is more meaningful?

Yes. And generally, longer passages as well. So yes.

Right. Okay. And then switching gears a little bit, maybe for you Robert, and I appreciate that having done the acquisitions in the fourth quarter, you're kind of stepping off the accelerator, at least. But I'm curious just in the market because I'm sure you get a look at things that are being done or offered. Is there much in a way of call it, sellers, block sellers of modern assets today, relative to what it was in the fourth quarter or the third quarter when you're looking at them. Is it -- is there still -- are there still deals to be done right now comparatively?

I think that the -- I think that clearly, the stressed opportunities have gone, okay? I mean, even in the fourth quarter, we were able to -- especially early on in the fourth quarter, we were able to look at a few potentially stressed opportunities. And I think that they're always going to be some exceptions, there would be 1 or 2, I'm sure, somewhere around maybe the weaker tonnage or whatever. But the stressed opportunities have now gone. So it's a big market. So you're going to see in a very dry cargo, it's a huge market. So you will see data points where you -- every week, every 2 weeks, you're going to see ships bought and sold, but that's much more in terms of the ready course of business. So the question will -- really will swing to what the people want to do, how will companies with older tonnage work out how to acquire newer tonnage to be relevant for the future, how will -- whether within the public companies, where the people will move to increase their market caps, whether the privately controlled tonnage will -- would do different things. But the idea of distress in terms of large fleets has now pretty much disappeared.

And just out of curiosity, structurally, as you're mentioning kind of how things might change. Any prognostications as there sort of how that limited availability of capital or, however, you might want to think of it will eventually change the landscape of the market over, if at all?

Well, I think what's changing is, it was interesting here and again, this is the cross shipping, it's the thing that we haven't had for a bunch of years now, which is asset values going upwards. So when asset values are going upwards, yes, of course, we've been talking ourselves in conference calls about less bank debt or equity markets not willing to fund the speculation. But as asset values drift upwards supported by rates that are above operating cost and interest, obviously, the value of companies, and as I said, that's even happening in tanker companies and product tankers, go move upwards. And if you then have markets that improve significantly, which is where we think the dry cargo is going to go, they start to get self-generated positions then because the gaps open up as one commentator. We're not being sarcastic. We're being genuine that we are resting, we're transitioning. We will ourselves start to look at different opportunities as time goes by. But we are very conscious right now of this dynamic whereby our own freedom of our own balance sheet has increased dramatically simply by virtue of asset values moving upwards. And when these companies were -- if you look at some of these shipping companies, there are 70%, 60%, 50% in terms of debt or long-term values of debt to value, a 10% movement up in asset value is huge, anywhere between 20% and 35% on their freedom, their real equity in the company.

So does that slow down the push for consolidation, you think?

It might not. It might not. It may enable certain people to do deals that previously they couldn't because there is bank debt there. It takes away the crisis. I mean, the first stage, people consolidate because like they have to. Then they can consolidate and we've seen part of that in dry bulk last year. I don't think in the gold motion case that anybody had to do that consolidation. They just chose that, that was a pretty smart thing to do. So you then get to the second stage where you can do consolidation because you want to.

Our next question comes from Noah Parquette of JPMorgan.

Just one question. Can you guys just give -- maybe for Cameron, give us an update on when you guys are planning to shake out for the sulfur regulations? I assume, given your fuel efficiency, avoid scrubbers, but nothing wrong there. And then how do you think the lighter dry bulk market will respond?

Thanks for that question. I think -- let's see. I think regulators are understandably responding to global sensitivity and thoughtfulness to the environment. It is ironic therefore that decarbonization can be left up to a ship that is out of sight and out of the reach of many regulators. So in other words, I think it is only a matter of time before these regulators revisit scrubber solution and realize that a scrubber takes emissions, and instead of putting them into the air actually puts them into the sea. So we are -- we have a healthy skepticism that regulations, as they are now, will not be changed or modified, and that's one of the greatest risk that any ship owner, not just us, has an undertaking an expensive capital project against things as they now appear. It's the risk that regulations change, either in implementation or around the technology. And this, by the way, is proven to be true with the recent misadventures in ballast water treatment regulation. So number one is, we -- and most ship owners would be naturally quite skeptical that the regulations don't change. The second part of skepticism or cynicism is that the technology is actually adequately designed and resilient, and there are tales and case studies of those who have installed scrubbers already in the cruise industry and some of the short sea shipping industry that indicate that this technology, even as it is currently, may not be adequate to address the objectives that the regulators are putting out there. So again -- and then there are other questions in our minds. So we are not foreclosing on the possibility that we might entertain scrubbers at some point, but these risks are so great that it would be really full hearty to undertake that type of investment now. The final big risk, of course, is relative pricing and availability of the different fuels once you get to 2020. So these 3 things really standing in the way of making any sort of mature long-term decision right now. I think that probably describes the way most ship owners are looking at this at the moment. It may change as 2020 gets closer, but that's the way it is now. Now we are in a privileged position, simply as you pointed out because of the nature and the fuel efficiency of our fleet. So again, going back to what I said earlier, at any price point for fuel, we will be earning a greater share or greater TCE than most of our competitors. So we're not relaxed but I would say we are skeptical and we're taking our time to make sure that any decisions we might make, and that includes do nothing by the way. Any decision we might make is thoughtful and takes into consideration these various risks and how they might change.

Okay. That's interesting what you said about transferring the emission into the water surveyor which seems strange to me. Do you know of any formal study or any appeal (inaudible) around that? And can you remind me like how far along can we be before extension is no longer an option?

It's a great question. I don't have a good answer to that. What I would say is, there is technology that involves keeping effluent on board the ship. But the amount of water and chemicals that this entails is a very different solution than one being talked about in industry analysis, there's a difference between an open-loop scrubber, which takes -- again takes most of that carbon and other emissions and puts them into a fluid state and pumps them into the sea and a closed loop scrubber that keeps it all on the ship for some time to then be discharged to shore, to a facility, which by the way, doesn't exist at the moment. We don't really have a clearer picture of how or whether this could change. We just feel it the theme of -- or the trend in regulations will take us in that direction, inevitably, in that direction. So we're waiting to see.

And our next question comes from Amit Mehrotra of Deutsche Bank.

I guess, all the questions have pretty much been answered. There may be just a couple of quick ones for me. One is on the recent equity offering that was contemplated or pooled. Any -- I joined the call a little bit late. I don't know if someone already asked it but any color on the thinking there in terms of issuing equity for ships or acquisitions, just given where we are in the cycle, the balance sheet and the fact that the company itself is buying back stock? Just any thoughts there in terms of what the thinking was? And why that makes sense?

I think that's been answered earlier on. For it's been a long call, so I think we'll leave it at that.

Okay. I'll ask a couple more. I'll go back to the (inaudible)

But we appreciate you holding your -- I think it was useful what you were doing earlier on your dry bulk things.

Well, let me -- can I ask one more, I mean it's still been under an hour, so it hasn't been that long.

Robert, you talked about a rising tide with sold boats and the distinction between companies, I guess, is not as relevant. But I mean, I do think like over the last year or 1.5 years, there has been dry bulk companies that above-performed and underperformed relative to other companies and I think that just reflects to some degree, the asset classes and the leverage that they have sort of the volatility of the market. So with that being said, if I look at your fleet profile, the company's fleet profile, with Ultramaxes, Kamsarmaxes, you're not as exposed maybe to the upside in volatility and the trading ranges both in asset values and rates is relatively more narrow, which is obviously great in bad times, when we -- maybe not where you want to be exclusively in multiyear periods of strong markets. So can you just talk about that in terms of, I know you're happy probably with your fleet profile today, but maybe the company is leading some money on the table by not being exposed a little bit more to the places where you do see that upside volatility in stronger markets.

I think I need to -- Emanuele, here we'll be delighted to have that problem, so we'll be delighted to see a market that puts us in a position where we're thinking, damn it, we're missing out on a Cape rate at $50,000 a day because I can guarantee you that if the Capes are $50,000 on Kamsarmax giving us extreme satisfaction in a rate environment, in the same rate environment. So it's very difficult to depict in the side and be always at the right point. And have the perfect fleet et cetera. I think that where the company is today, we have the most modern fleet out there in the segments in which we operate. We are in the Ultramaxes and the Kamsarmaxes, which are the workhorses of the dry cargo market, and happy to be where we are and we're not so concerned of the miss out opportunity, I mean, for the volatility that the Capes bring. Because then, I think that once we would be enjoying that opportunity or volatility, your question probably would be how are you going to cater for the downside, now you're making $50,000 a day, but you know, you could actually be stretching it and now you're thinking about protecting your side because the Capes are the most volatile than the downside as well. So you cannot always win. We feel we are well positioned and hope actually we're going to "miss out on the great results of the Capes".

And ladies and gentlemen, this does conclude our question-and-answer session. I would now like to turn the call back over to Hugh Baker for any closing remarks.

Thank you, operator. We have no closing remarks. Thank you all for your time on this call, and we look forward to speaking to you all soon. Thank you very much.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.