Eneti Inc (NETI) 2020 Q2 法說會逐字稿

Hello and welcome to the Scorpio Bulkers Inc. Second Quarter 2020 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 for joining us today. On the call with me are Emanuele Lauro, Chairman and Chief Executive Officer; Robert Bugbee, our President; Cameron Mackey, our Chief Operating Officer; James Doyle, Senior Financial Analyst; and David Morant, who is a Managing Director. Yesterday, after the market closed, we issued our second quarter earnings press release, which is available on our website. The information discussed on this call is based on information as of today, Tuesday, August 4, 2020, and may contain certain 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 and www.sec.gov.

Call participants are advised that the audio of this conference call is being broadcast live on the internet 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. On the call today, there will be a short presentation with slides. The slides are available at www.scorpiobulkers.com on the Investor Relations page under Reports & Presentations. If you have any specific financial modeling questions, you can contact me later and we can discuss them offline.

Now I'd like to introduce Emanuele Lauro.

Thank you, Hugh, and good morning or afternoon, everyone. Thank you for joining us on the call today. I think it goes without saying that this quarter is a very, very important one for Scorpio Bulkers. Probably the most significant quarter since we launched the company back in 2013. It marks the beginning of a new transition, a transition into the renewable energy space. I'd like to be clear at the outset. We've thought carefully about this move. It is a move that combines all the strategic strength of the business, our history of innovation and of managing complex new build projects, and it's aligning it with a high-growth attractive market. It is evident to us that wind installation is a multiyear growth story as offshore wind power has become one of the most cost-efficient sources of clean energy. We believe that the infrastructure need to support the rapid growth in this space creates a very attractive opportunity, particularly for those like us that can move now. We think this is the right opportunity at the right time for our business, and we are well positioned to capitalize on it. Let me emphasize at the start that the company has a strong liquidity position and as well as many options to fund this transition process. There is no current plan or need to raise equity, nor for that matter to sell part or all of our remaining Scorpio Tankers share position. Importantly, due to a tail-heavy payment schedule, we have nothing material to pay on this contract until 2022. And as you know, like many new build contracts, favorable price and payment terms mean that the largest payment will be on delivery.

So whilst we are embarking in this transition, looking elsewhere in the company during the quarter, we raised significant equity. We've delayed our bank debt amortization. This is a topic which Hugh will return to on his remarks. And the combined action taken over the quarter with the liquidation of a portion of our STNG investment means that our liquidity position is substantial. And as we move into the second half of the year, this balance sheet strength comes with the backdrop of improving dry bulk markets. The charter rates have improved substantially since in the last 8 weeks since the beginning of June.

In our core dry bulk business, we have continued to make progress. Indeed, it is because of the strength of this market recovery and the restored balance sheet liquidity that we feel so confident to present the self-funded transition to the market today. There has been significant progress in the Ultramax and Kamsarmax charter rates as well as the asset values, which have appreciated lately in the last weeks. Over the last 24 months, we've not been immune, of course, from either the global trade tensions or even worse, of course, the pandemic, which we are all experiencing. But that said, we do continue to make progress and can now see the tailwind of the improving order book as well as the normalization in the demand outlook as positive factors for our markets. We've spent time investing to build a modern, high-class fleet, which is attractive to our customer, and we continue to examine ways to leverage the position in which we are in.

Today, I would like to focus, and it is important to remember that as a business, we have been and are constantly evaluating strategic opportunities with the aim to drive attractive long-term shareholder value. And what we have found in this opportunity is exactly that. We believe that the strategic rationale, the financials and the long-term outlook in this area of renewables is highly compelling for our future in -- for the future of our company, really. As you know, we are only at the LOI stage. So it is early stage. It is early days. We will give you some parameters through this call to give you an idea on how to think of this investment. And more will become available over time as things unravel.

For the time being, suffice it to say, we, as a team, are very, very excited about the potential this investment creates for our company. We think Scorpio Bulkers will greatly benefit from present in the renewable space.

We will spend some time later on this call discussing the offshore wind market and our investment in the new wind turbine installation vessels. There is a presentation, which is available on our website, that will be discussed by David Morant and Cameron Mackey. But as of now, I'd like to hand the call over to Hugh Baker, who will run us through his remarks. Thank you.

Thank you, Emanuele. I'd like to refer you all to the earnings press release, the earnings presentation as well as the press release and presentation related to our announcement of a letter of intent for a wind turbine installation vessel. All of these documents have been uploaded to our website. I specifically refer you to the earnings press release, which details our Q2 financial results, our vessel performance in the second quarter, our 1 for 10 reverse stock split, our successful deferral of remaining scrubber installations until 2021, our reclassification of 4 vessels held for sale at December 31, 2019, as no longer held for sale. Our Board declaring an unchanged $0.05 dividend and our publication of our initial sustainability report for 2019.

I'd like to focus on the measures that were taken during the quarter to preserve and generate liquidity as the company encountered one of the weakest dry bulk markets in the last 50 years. During the quarter, we completed the previously announced sale of 2 Ultramax vessels and 1 Kamsarmax vessel for $53.5 million in aggregate, generating $18.3 million in liquidity after repayment of debt.

In May, we sold 2.25 million shares in Scorpio Tankers for $42.7 million in aggregate. I'd like to note that we retain ownership of 2.16 million shares in Scorpio Tankers. In June, the company raised net proceeds of $82.3 million through the public offering of 4.7 million shares. And in July, the company agreed with all applicable lenders to permanently reduce its minimum liquidity covenant from the lower of $700,000 per vessel and $25 million to a lower of $500,000 per vessel and $25 million.

As such basis, the current 49-vessel fleet, our minimum liquidity covenant is now set at $25 million. In consideration for this, the company made an advanced principal payment of $7.7 million that would have been due in the third quarter of 2021. The second component of our debt restructuring was that the company agreed with certain lenders to reduce principal repayments by approximately $29.8 million in exchange for making an advanced principal repayment of 50% of this amount, $14.9 million. The remaining $14.9 million of principal repayments will be added to the balloon payments of the respective loans.

In addition, we are in discussions for deferring $8 million of repayments in exchange for prepayments of $3.4 million of debt. And this is expected to close within August. If you have any questions about these debt restructuring initiatives, which are explained in detail in the earnings press release, please feel free to reach out to me off-line.

The dry bulk market experienced a significant improvement at the end of the second quarter, and the company has booked an average time charter equivalent of $8,585 per day for its Ultramax fleet and $865 (sic) [$8,655] a day for its Kamsarmax fleet for the second quarter to date -- sorry, for the third quarter-to-date.

In the context of this improving operating environment, I can mention that as of today's date, the company has $41.6 million in cash and $90.8 million in available and undrawn liquid -- capacity under revolving debt facilities. We also retained ownership of $2.16 million Scorpio Tankers' shares, which are worth $29 million at prevailing market values. In total, this equates to the company having approximately $161 million of liquidity. This strong liquidity position gives many options to fund our new wind turbine installation project, which has a tail-heavy payment schedule. So we have nothing material to pay until 2022. Like many new build contracts, favorable price and payment terms means the largest payment portion is due on delivery. We're confident we can meet these near-term commitments through ongoing earnings and existing cash reserves, after which we are confident we'll be able to secure bank financing for the vessel.

I'll finish by passing on to David who can talk about the company's recent letter of intent for the wind turbine installation vessel. David, over to you.

Thank you very much, Hugh, and good morning or good afternoon to everyone on the call. I'm going to be referring to the presentation, which, as Emanuele mentioned, was filed on our website last night and leading through the slides. So turning first, from the cover to the Page 3. We're pleased today to state that we've entered a letter of intent for what we believe to be the most advanced dedicated turbine installation vessel in the world. This is following an extensive period of research and customer-centric analysis. This vessel will accelerate time to first power for our customers.

So what have we done and how are we going to execute? Well, the attributes that our customers care about are clearly outlined on the slide. And they break into 5 parts, broadly variable load and deck space, which dictates how much you can carry and your turnaround space out to the field. The depth, and the reason why that's important is that this is an industry increasingly moving into mid-water away from insured waters. The crane, both in terms of its hook height, particularly as turbines grow in size, and its capacity, how much can the crane lift.

Turning on to the next slide. Why is this important? And why is the opportunity opened up for us? Put simply, over the last decade, as you can see in the graph in the chart on the bottom left, the turbine size from the major manufacturers has more than doubled in size. At the same time, the growth in output and in potential power output has grown nearly fourfold. Over the next decade, importantly, we think that the shift is moving to engineering and technical complexity, therefore, a lower increase in the rate of size as a driver of output. But it nonetheless leaves an interesting opportunity for us to deliver a vessel, which is highly relevant and dedicated to this new machinery which our customers are ordering.

I referenced before, the distance from shore that these fields are built -- are being increasingly constructed from. And you can see bottom right on this slide, the average offshore wind farm distance from shore and how we expect that to evolve over the next 5 to 10 years. And it's a substantial increase. Again, meaning that water depths and turnarounds between port and turbine field increase efficiency and become an increasingly important driver of the vessel that we've ordered.

With that, I'll turn to Slide 5, and Cameron Mackey, our COO, will take you through the letter of intent.

Thank you very much, David. What I'd like to do today is really distill our LOI into a few basic concepts around the capabilities of this vessel, which I would summarize as really a combination of precision, stability, capacity and robustness. So as it pertains to precision, really what we're talking about is a vessel with dynamic positioning able to position itself in very fine and close-quartered areas next to the pre-laid foundation. But also the delicate margins of error when it comes to assembling one of these wind turbine generators. Stability equally, because the vessel has to jack-up and effect itself to the seabed, but also be aware of the overturning moments and other stresses that come into play for this type of assembly work. Capacity, because of the sheer size and weight of the components that David mentioned, calls for larger assets. And what I mean by robustness is the ability to operate, not only in water depths and difficult weather conditions but also the efficiency and the value proposition for the customer to be able to install a wind turbine generator in under 24 hours once the vessel is in position and jacked up.

So really, it's these 4 elements in combination in this asset, which make it very special and provide value to the customer: precision; stability; capacity; and robustness. We're excited to have our existing partnership with Daewoo in Korea turn to this new challenge, along with some of the critical suppliers in Holland, Gusto and Huisman when it comes to the vessel design and the crane, respectively. So we have full confidence that this vessel, again, offers a compelling value proposition to our customers. Back to you, David.

Thank you very much, Cameron. I'm turning to Slide 6 in the presentation. And what we want to convey here is really that we have refocused this company towards an exciting secular growth market, which is pretty much insulated from the vagaries of the economic cycle. We've focused on this slide on the numbers in the European Union. And I should stress that this is a proven technology now in the European Union. But also that we see exciting growth opportunities in the Americas, in Asia and all around the world.

Looking at the left-hand side of this, you can see that since the pioneer days of offshore wind and the heavy dependence on subsidies, over the next 15-plus years, we expect offshore wind to become one of the most competitive sources of power from a cost perspective. And here, that's determined by the levelized cost of electricity, if you like, the average net present cost.

On the right-hand side, you can see in terms of the EU electricity supply mix, and this is a pattern we expect to be repeated world over, that wind is expected to be over 1/3 of power production by 2040. And indeed, some people believe it could contribute substantially more as the world chases the requirements of the Paris and climate change accord.

Turning next on to Slide 7. And this, I think, as a slide very much sums up the magnitude of the opportunity in front of us. On the left-hand side, you can see the rapid increase in the number of installed offshore turbines worldwide that will be needed. And by the way, many of these which are already ordered or factored into initial FIDs.

The turbine growth is around 270%, and it's obvious to all of you, I'm sure, the turbine installation market could be expected to grow significantly more than that over the period. At the same time, you can see on the right-hand side, the average output of the new turbines is projected to nearly double. That supply chain is already being assembled and there have been significant announcements over the last 6 months from the various turbine manufacturers. And as well as that, obviously, growing the market for maintenance and repowering of old [deals].

Turning to Slide 8. This all adds up to a material shortage of high-spec wind turbine installation vessels. And interestingly, our analysis shows that this will start to occur around the end of 2024 with our vessel program to arrive sometime in Q3 2023. The supply gap, we think, is significant. It's a classic demand/supply gap and a further doubling of this gap towards the mid-end of the decade.

Turning to Slide 9. And in summary, therefore, we're very excited that we've managed to get an LOI for what is, as I said, we believe, the most sophisticated wind turbine insulation vessel in the world. The project cost we've outlined between $265 million and $290 million with the vessel to deliver towards the end of 2023. We've demonstrated the exciting growth within this market, which we believe is predictable and will shift the company to a more predictable, higher return environment to shareholders. We can see a shortage of wind turbine installation vessels, and we can see the capability gap, which we, as an organization, feel very well placed to fill.

And fourth, but certainly not lastly, the day rates that we see in the current market before this tightening and for the scope to improve, we believe will provide a significant return opportunity for our shareholders as these vessels deliver and the market develops. And with that, I'm going to hand the call back to Robert. Thank you.

I don't have anything else to add. I think it's fantastic opportunity. Clearly, there's a huge valuation gap between the present industry trading -- present proposition trading so much below its net asset value in an improving market and moving towards an industry that's trading at great multiples. And on that note, we'd just like to open up for questions. Thank you.

(Operator Instructions) Our first question comes from the line of Greg Lewis with BTIG.

Robert, I mean, and Emanuele, clearly, this is a bold move by the company. I mean, it looks well timed. I mean today, BP just came out and announced they're going to cut oil and gas CapEx by 40% and shift that into renewables. As you thought about this pivot into offshore wind, I guess, a little -- could you give us a little bit of color around when you started thinking about it? I'm assuming you had a lot of conversations with a lot of potential customers. Kind of just could you give us some of the genesis around the decision to make this move?

Emanuele, would you like to take that?

Sure. Greg, thanks very much for the question. I -- as a group, we started looking at renewables about 24 months ago. And as we looked at the space, we converged into wind, maybe 12, 15 months ago as the analysis went on and we started liking the dynamics that this industry was showing. In the last 12 months, as you rightly pointed out, we've interacted with a lot of the stakeholders of this industry, potential customers, designers, end users, shipyards and decided that this was a good opportunity for Scorpio Bulkers only, though, in the last couple of weeks, in the last few weeks. We think that wind installation is a clear multiyear growth opportunity. And we think that it will provide attractive returns, and we are in a great position to capitalize on it. So as you can see you've mentioned BP, but there is a long list of things that are happening in the world...

Only because they were today.

Sure, sure, sure. But we could name another 10, very simply and easily, right? So what is happening is a transition has started many years ago, is not recent. It is accelerating and is a fact. And you just had to decide whether you wanted to be a spectator or whether you wanted to dive in and play. And we decided that the opportunity was compelling for our company at this stage.

Okay. Great. And then just also, as I think about, Cam, you walked us through the LOI. Clearly, this is something you guys have done a lot of due diligence on. When we think about the LOI, is that just a timing issue? Or like how should we think about -- are there more hurdles that need to be reached before we move forward? Or is that once again back to as you think about the final design of the vessel, it's working with the customers that you intend to employ that vessel with and coming up with what the end product looks like?

No, that's correct, Greg. The LOI marks the beginning of a more deliberate process of negotiation with both the designer and the shipyard but obviously reflecting the needs of our customers. And so that will culminate in the shipbuilding contract, which we expect to be the early part of the fourth quarter.

Okay. Great. And then just one more for me. Clearly, you've had a busy few months here, repositioning the balance sheet. At this point, you mentioned a lot of the deferrals in the back end and the pushbacks. Should we think about -- I mean, obviously, there's always still work that can be done. Should we think -- how should we be thinking about what you plan on -- what is the goal for how liquidity looks like over the next kind of 12 to 18 months as some of these payments start that need to be made for the wind vessel?

Good question, Greg. I think we -- as we discussed both in my remarks and in Hugh remarks, the liquidity position of the company is strong. We have many options to fund these projects, and we're confident we can meet this near-term commitment through existing cash reserves. We've mentioned that the material payments start to come in 2022, and until then we are comfortable of our position.

Our next question comes from the line of Turner Holm with Clarksons Platou.

I just wanted to say welcome to the renewables market.

Thank you, Turner.

So I just wanted to pick up on some of the discussion from Greg's question and sort of the transition that you're making. I guess, the BP announcement today is one, as you mentioned, Emanuele, of many of the sort of larger oil companies that are transitioning from being the sort of IOCs to sort of broader energy companies. I think BP specifically called that out today. So maybe in that sense, the move is definitely bold, but certainly in line with like what your customers are doing. And on that point, I wonder if there's any meaningful customer overlap, from, say, the Scorpio Tankers part of the business where you're dealing with a lot of these oil companies that are now moving to be broader energy companies. Just wondering how that dynamic could play out.

I think it's a good question. I'll start answering, and then my colleague can dive in. But at this stage, Turner, as you say, and as you know, this is an LOI, we're starting to entering into this space. We are focused on preparing and doing things right. And we have studied the market before we actually started talking with the overlap customers that we may have in the tankers space together with the renewables energy space. So our focus has been in making sure that we get there and that we get there in a reliable way and that we are credible and that we show the right commitment. And with -- together with -- coupled with a quality asset and the deliverability of such assets to our customers. So we are looking and preparing to sort of go on the marketing going forward once the contract will be signed, and we have our ideas on how we will be able to overlap. But we haven't had many discussions yet with the oil major companies, for instance, we went and meet -- and met with the renewable energy specialists so far. David, I don't know if you want to add anything to this? Or...

Yes. Thank you, Emanuele. If you look at, Turner, as I mentioned in the presentation, we spent a good amount of time making sure that this project is highly customer-focused and customer-centric. There are significant innovations going on all the way along the supply chain in this industry. And that's really created the dislocation, which gives us an opportunity, we believe, to build a best-in-class company. What I would add to that is, as you referenced in your question, as an organization, might I add a sort of 8,500-person organization within the broader group, we face demanding charters like this every day of the week. We have a safety culture and a proven track record of delivering complex newbuild vessels on time and on budget. And I think when you put all those things together, we feel this is actually a natural progression for us in line with developments in public policy with where our investors are going, and as you referenced, where our actual clients are moving as well. And I think in time, this is certainly something which our shareholders will see substantial benefits from as we move to more predictable, less cyclical and higher returns for the company.

And one more question for me, and that's really just on the organization and sort of your plans to build that out. And maybe if you could touch on contracting strategy? And sort of how you're thinking about playing the market eventually as you get a little bit closer to delivery and payments? I guess, as you may be aware, there have been a number of other assets that have been ordered new in this wind space, not many, but a few of them, and I guess some of them have received contracts relatively quickly after being ordered. A little bit different and maybe those were sort of long-established players in the wind market and you guys are a little bit new to it. But how are you all thinking about building out the organization and how do you think about contracting?

Cam, do you want to take the organization part?

Sure. Thank you. So Turner, there's no question that there are specialist competencies involved as we think about how to deliver the service to the customers. Just not only when the vessel is being constructed, but obviously, after delivery. And those might entail things like jacking engineers or project engineers, crane operators, heavy lift specialists, et cetera. But beneath that, there is a very clear endorsement from these customers that we have the HSEQ DNA required to credibly compete here and deliver that service. And what I mean by HSEQ, is the health, safety, environmental and quality backbone, the mindset, the policies, procedures, which really are a prerequisite to any sort of contract or any relationship or entry into this space. So while we know we have a fair bit of work to do in building out the organization, we enter from this point with a fair bit of confidence that at least we have the resume, the credentials to be on the same stage as very credible, long-tenured incumbents. And so we'll start embarking on building out that organization with some of the specialists.

But also, as you know, and it pertains to the second part of your question about contracting, we start today with the prequalification discussions with those customers in order to be in a position to tender for contracts, say, within the next 12 months or so. And then really, it's a commercial decision on what our risk tolerance is against the tightening market, when exactly we want to try to contract the vessel.

Your next question comes from the line of Liam Burke with B. Riley.

You highlighted your competencies and reasons why you could manage this new wind business. But could you give me detail on how this mix is with the core dry bulk business and why it fits so well or it fits as a good addendum to that business?

Sure, Liam. Well, look, dry bulk fundamentals are improving. We're well positioned to benefit from this. That said, in this changing market environment we're living, we believe that there are higher quality and more stable returns in the growth market of offshore wind, which we also believe we're well positioned to capitalize on. So we just thought that this was the right opportunity for us to take. The world is transitioning into cleaner renewable energies. And this is our chance to actually step in and go in the direction as well.

And how do you envision the contracts flowing out? You look at multiyear contracts? You look at service contracts? Or when you're looking at the potential revenue drivers from an individual vessel.

David, do you want to talk to this?

Yes. No, I will. Thank you for the question. The art here, as with all shipping is managing rate and utilization. And that's clearly something we do all the time. That said, as Cameron mentioned, we're moving to contracts with tender processes, which typically run in a 6- to 18-month period, depending on the size of the work and the size of the field that's being built. So over time, particularly given the lead times in these fields, it's possible to build a book of those contracts, and we believe, therefore, to give a multiyear potential visibility of revenue opportunities for the business. And so managing rates and utilization and giving reasonably good visibility as the contract and revenue opportunity is a large part of this transition. And we would expect, obviously, over time, therefore, the market to look at what we're doing in the context of book-to-bill and other contracted revenue ratios as that book of contract grows out.

Your next question comes from the line of Omar Nokta with Clarksons Platou.

Congratulations on the strategic shift. You guys obviously -- you accomplished quite a lot during the quarter, as you highlighted with your bank agreements. And you've raised a good amount of cash and you now stand with much stronger liquidity. Of course, I would still like to focus, however, on the offshore wind investment. Clearly, renewables and offshore winds, in particular, is a growing area and one that even we've seen in low commodity price environment is continuing to gain more and more market share. As we think about the strategic shift here at SALT, and you made it very clear that the transition has now begun. And I know you spoke a little about this, Emanuele. Can you give us an overview of what made you choose the SALT platform, in particular? I know you made the decision over the past couple of weeks, but what about SALT? Why did you just decide to do it with SALT?

Look, it's a good question. We think that it is an opportunity for a company like SALT, which why is a mature comfortable company in the space in which it operates. It needs to sort of look at what the future holds. And there is nothing uncertain about the global energy transition to renewables. So this is the time in which you either hop on or stay and remain an observer. So we've chosen to take the opportunity to actually dive in with this step because we think that providing more visibility in the growth in a multiyear growth market provides attractive -- an attractive opportunity for the company.

Yes, that makes sense. And Liam asked this, I'll sort of ask it as well. How do you think about operating the dry bulk business now as you transition into the offshore wind space, which will take some time as the vessel delivers here in the next 3 years. How are you thinking about the dry bulk business? How do you operate that? And then also, is that sector a source of capital going forward?

I'll give you an -- I'll answer your question in the following way, Omar. There is no responsible parent which at the birth of the second child, ditches or disregards its first child. So if you're looking at wind as our second child, and dry cargo as our elder son or daughter, which is in a mature stage and has finished high school, maybe also university, and now it's self-sufficient, and we don't have to pay her rent anymore or her tuition fees. So it is quite obvious that the tuition fees and the scholarships or the rent for the dormitory has to go towards wind, towards our younger child. So that's as far as we go, but we remain committed to dry cargo. We have a great customer base. We have a great fleet, the most modern out there actually, which allows us actually to not have any questions on do we have to renew our fleet or reinvest or -- our average age of the vessels is the youngest in the industry. They are all modern. They're all working perfectly, and we're very happy with what we have.

Okay. That's very clear. And I guess this sort of drives with what you said in the release of how you've reclassified the 4 Ultramaxes that were initially held for sale. Okay. Well, I'll leave it there. Thanks, and congrats again on this new path forward.

Your next question comes from the line of Jo Ringheim with Arctic.

I also have a few questions regarding the offshore wind announcement. And first, in order to understand how you are looking at the economics, the returns will, of course, be subject to estimates. But what kind of return hurdle or payback requirement would you typically have on a project like this?

David, do you want to talk to this?

Yes. Thank you for the question. And of course, we're not going to be specific here on the returns, but we can give you enough pointers. We've been very clear on what we believe the contracted cost. And I stress again, this is an LOI, but the range for the contracted cost. As you'll see from the last page of the presentation, we've also given you the current day rates that are being achieved in the market, and these are generally private arrangements, but I think we've had support from various brokers like Clarksons and Arctic that these are rates which are realistic in the current market, before the tightening which we projected for '24 and '25. And then against that, you play with an OpEx, which depending where you're operating, is generally around $30,000 a day. So I think I'm not going to go any further than that, but you can probably use those integers to calculate the zone of return that we should be achieving on one of these vessels, once fully delivered and operating.

And also long term, would this be a transition towards a completely new business segment for SALT? Or do you expect to combine on a wind turbine insulation vessels and bulkers.

As we said, it is going to be a transition, how long this transition is going to take, time will tell. As we said, we're comfortable with our dry cargo. We are happy with where we are there, but we certainly want to grow into the renewable space. So whether today, we have 50 dry bulk, medium-sized vessels and 1 turbine installation vessel, and it's -- that is a fact today, whether we're going to have 4 wind turbine installation vessels in 5 years' time and a fleet of -- the same fleet of dry cargo or 5 ships less or 10 ships less, I don't know. We're always active on the S&P market of any segment in which we operate, for example. But today, in dry cargo, we are not more buyers or not more sellers than we were 6 months ago, 12 months ago or 24 months ago. So it is clear that our exposure will grow, and this is what we want to do into the renewable space and more specifically, into the wind turbine installation vessels. But the opportunities on the dry cargo side are going to be set by the times in which we will operate.

And then a final one from me. Could you elaborate on the choice of building yard? And where you see the vessel be employed geographically?

I think Cameron can speak to the choice of the yard and the remainder of the question. Cam?

Yes. Obviously, there are a number of builders in the world, underlying your question, that could have done this work. We have a great, long-standing relationship with Daewoo out of our conventional shipping business. Like many builders, they are looking for work and quite hungry to develop more complex offshore-related projects. And so between their pedigree in all types of assets and our relationship and the cost competitiveness given that capacity problem that they have or that they face. It was quite natural for us to choose them to develop this project.

And then as far as employment naturally, and I'm not sure we spent enough time speaking to this, but David did mention it. This is really a global marketplace, as you know, with a rather rich demand slate in Asia and in Europe and increasingly in North America. So I think we are going to be agnostic about the first employment of the vessel, factoring in, of course, the positioning requirements that are entailed at that time.

Your next question comes from the line of Randy Giveans with Jefferies.

Well yes, you may have covered this earlier, I just hopped on call, but what is the debt-to-equity split for the $265 million to $290 million required for the wind turbine? And what is the maybe catalyst or determining factors if you order only 1 or up to 4 of these WTIVs?

I think in general, the equity/debt split is 60-40, or debt-to-equity split, 60-40. That is a comfortable position to attain. I think that what is relevant here, and I don't know if Hugh wants to speak to it, but it's that a portion of the debt will come from -- or we expect a large portion of the debt to come from the export credit agencies. We have an established relationship with them. We've financed with them before. Both on the dry cargo, on the tankers, on our container business, on our offshore transshipment business. So we have very established relationship with export credit agencies in Korea and are comfortable that we're going to be able to obtain very comfortably the 60-40 split and potentially and depending on when the vessels will go to contract or will be on contract, a higher percentage towards the 70, 75, I think, is very realistic. Hugh, I don't know if you have anything to add to this.

I do not, Emanuele. I think you covered it very well.

Got it. All right. And then turning to the dry bulk, older child business, for the scrubbers. What is the current premium you're receiving now in terms of dollars per day at $60 a ton spread? And then, I guess, more importantly, you've installed 27 scrubbers, you have 7 remaining. So I guess that's 34 total. However, in your last quarter's press release, you had 22 installed and 19 remaining, so 41 total. So did you cancel 7 scrubbers outright? And if so, why was that? And what was the cost of doing so?

Cam, do you want to talk to the spreads we are experiencing, which is not as expected pre-COVID, of course. And...

Yes, quite right. So obviously, there are a number of factors involved when we decide to either cancel or defer or continue to install a scrubber. It's not simply the spot spread of heavy fuel oil to VLSFO. It has to do with both our forward view, the financing that's available, the dry docking schedule, and of course, the ongoing dialogue we have with the scrubber manufacturers. So you can expect that some of the deferrals would continue, it's not the most attractive use of our capital right now. However, we want to, to the extent we can, retain the option to fit those going forward because, in fact, we do see, whether it's 6 or 12 months from now, we do see a time where spreads will normalize and widen again, and we do see a period of time where scrubbers are, in fact, a very attractive marginal investment for the dry bulk fleet.

Okay. So did you cancel 7?

Deferred, yes.

Deferred, but not planned on your -- on the slide there, correct? So there's no planned date.

Correct.

Okay. And then before I get to my last question, I don't think you've already answered the first one in terms of the catalyst or determining factors for if you're going to order on just the 1 or 4? Like what are some of the hurdles there?

Maybe I could answer that. I think it's a little bit premature to do that. An option is a option. There would be lots of different determinant factors going in. One would be as Turner, the renewables analyst, said earlier is that there's some reason to think that it -- that you may get a contract early. I mean life becomes very easy if you get contracts early. Life becomes -- you could actually declare early is the -- if you release capital from the dry cargo side in terms of generating cash or any other means you can, obviously, declare early too. And so I think that those are more of the determining factors, the actual finance as you get down into #3, #4, as Emanuele indicated, is what would be the finance you get on #1, for example, if you got a contract and suddenly you're able to finance at 80, 85, then that's fantastic. The other part of it is, is general finance. I mean, we can be sitting here. We have a long time in this game. What happens if in 6 months, 9 months that we actually had price inflation. What if the actual value was up 10%. You have a pretty highly geared overall contract base there for very little down. So the exact determinants shouldn't be given at this stage on signing an LOI. It's good enough to know that they are options at the moment.

Sure. A lot of variables at play there. All right. Final question, looking at the equity raise, you initially want to raise, maybe $60 million, ended up raising $82.3 million. So just why that amount? And then why sell SALT shares instead of selling the remaining STNG shares? Is that a view on the investment profile? And from the looks of it, it seems like this cash just went to repaying debt, as your current cash balance, I think, is only $41 million as of July 31. So is that the case?

Well, Hugh, can do to the debt. But I mean, I think the clear reason why you ended up selling more shares in the offering was simply because it was massively oversubscribed. And one of the reasons that I think that we've resolved to put this opportunity into Scorpio Bulkers is because, frankly, when we're owning the majority of the company as insiders, it's terribly disappointing to think that the stock is on a very oversubscribed offering, the market has traded upwards, the market has -- both in spot rate and in value and the stock price is trading at 20% under and still even someone like yourself, writes that there's a danger of a further offering, which clearly isn't the case, that's been stated throughout. Now what you've got is, it will be pretty obvious here that you can basically securitize, you're pretty well securitizing over time the actual net asset value of the company because we have a -- over time, you have a -- whether it is gradual, immediate or 5 years or whatever. You've got a highly liquid sale and purchase market in dry cargo, and you're moving with every incentive, if nothing changes, to a market that gives a multiple on its values because of the more certain cash flow aspect as opposed to a market that generally gives a discount to net asset value, you yourself have 80% targets for even your top picks. So you've removed right now any form of equity raise at this point. You -- it's a fantastic entry point for anybody. And that I would think is the way more important point at this point.

Got it. And I guess just in terms of SALT or STNG, looking at my screen, they're literally both trading at $13.17. And so why sell SALT shares instead of STNG shares? Is it just a discount to NAV? Or what's your thoughts there?

Well, I think you remember with SALT that most of the actual book itself in SALT went along with the offering. So to that degree, you are maintaining your investment in the opportunity in improving dry cargo market at the time, which is definitely happening. And I think we have to be fair in this. The management of SALT is pretty cognizant of what is going on in STNG. And the pretty obvious statement is we think that STNG is a really good investment. And that's been restated today in the opening statements. There's not much we can say, though, about that as we have earnings on STNG coming on Thursday.

Yes. I am bullish on the STNG shares. Hugh, can you answer that in terms of cash and debt?

I'm not sure what the question is, Randy. But I mean, I think we're in a terrific position at the moment because as a result of the very sort of dynamic liquidity raising measures that we took in the first half of this year. We're in a very good company -- we're in a very good position. We raised over $80 million of equity. We deferred $21 million of scrubber payments until 2021 and beyond. And we've, obviously, had reached agreement with our lenders. And so we're really looking at a position where we have a very strong liquidity position, totaling around $160 million. We have limited payments of bank debt and any other scrubber CapEx in the next 12 to 18 months.

And obviously, as Emanuele said, we have a wind turbine installation vessel investment that has very tail-ended payment terms. So we're really looking -- I'm feeling pretty comfortable about our financial position right now.

Your next question comes from the line of Ken Hoexter with Bank of America.

So I presume you to prepare for this on the wind turbine side. You've done some background research into the sector. Maybe you can give us some color on the competitive space as you see it on the offshore wind energy sector? And then further to that, the idea of the useful life of the vessel you're buying?

David, do you want to speak to this?

Yes. Thank you, Emanuele. And Ken, thanks for the question. Let me be clear, we have huge respect for the competitors in this space. There's some of the best-regarded engineering companies, offshore companies in the world. And I'd also add that as well as being competitors in our particular space, a lot of these companies because of the contract structure could well be our customers as well. So this is -- there's no deficiency at all we feel in the [performance] of our competitors. Since you've asked the question, and I do appreciate there's some folk on this call who are new to the space. Very broadly, we see our competitors effectively divided in 2. I mentioned the Benelux players who are some of the best-regarded engineers and foundation and construction companies in the world and have a substantial and well-respected pedigree in this space, generally private companies. And then very broadly, the other players would come from more of an offshore pedigree, generally, Scandinavian pedigree. And as I said, very, very creditable companies. We feel we've got something to bring. We feel we've got something to add and a very big space to move into which, as I think we said earlier on this call follows the move in public policy, but as importantly, and more importantly, leverages our competences, our clients, and we believe also the direction our investors are moving in. So that's probably the best way of summarizing our position in terms of the competition.

I think you asked the second question, Ken, I must apologize, if you could repeat it, I'd be grateful.

Yes. No, the second was just the life of the vessel?

Sure. So look, I think maybe I'll hand that over to Cameron, but I do want to say just on this, we're very confident that we've ordered one of the most modern advanced vessels that will be on the water to deliver turbine installation services. We've worked very hard at understanding our customers' needs and how those are going to evolve over the next 5, 10 and up to 20 years. And the installed base, obviously, grows every single year that goes past. We've ordered best-in-class vessels that have some proven engineering quality along with innovation and added value to our clients. Cameron, do you have something to add to that in terms of Ken's specific question?

I would just say -- thank you, David. I would just say, look, there's been a fair bit of study on the progression of wind turbine generators and fixed to the seabed and how large those generators can get before they hit different constraints. What we know today is that there is a huge gap in installation capacity and infrastructure around the world's plans to install wind turbines of the, say, 8 to 15-megawatt size. And that there are a number of manufacturing and logistical constraints that make further growth in this space unlikely, not impossible, but unlikely. And so therefore, the size of our vessel and its capabilities, as David is saying, we expect to take us well into the next decade.

Okay. So there -- but do you have -- I guess, just like in the shipping world, is there a set life of vehicle at 25? Or you just -- it's unknown duration?

Correct. It's the same. It's 25 years.

Okay. Now maybe talk about management expertise in the sector. Obviously, we know your expertise on the dry side, on the product side, particularly your history and Robert's history with both crude and product maybe is this just ramping up? Or does this say, we're going to take our shipping expertise and move into a new area where we see the next-generation of energy developing? And it's shipping -- and shipping, maybe just give thoughts on that. And then lastly, your view on returns on these vessels.

I can take the first part of your question. And respectfully, I think we covered this at some length earlier in the call. If we look back on the history of the group, and our associated activities, we believe we've been able to respond to customers, trends and desires and the demand for service delivery of our customers. So even conventional shipping, some might see it as a financial asset, which is fair enough. But bear in mind that the customer requirements, again, back to my comments on HSEQ are very, very high and getting higher all the time. So there has to be a confluence of different factors which drive us into a new space. Many of those are financially considered and say that's the preeminent consideration. But there is a very close relationship between that and being able and having the confidence to provide what customers are asking for. And so here, we have a financial opportunity against, let's call it, an operational or technical demand that we feel we have the pedigree to address. Again, there will be certain competencies we have to fill, and we're in the midst of doing that assessment, she started some weeks ago. But the underlying aptitude of being able to execute, we feel we have that. And again, we've been asked to get engaged in this by customers. So we -- again, we feel confident that we're heading in a very, very attractive direction and one that we can execute on.

And Ken, just on your question on returns. We don't want to just spoon feed this, but I think if you look at what we've given you on this call, between the cost of the asset, the leverage that we can apply to it, the day rate and the OpEx. I think you can understand that the returns, we believe that we can generate from this asset are substantial. And that's really because of the barriers to entry that there are here, which we believe we have the key to enter this market and be successful. But we also believe that it generates great returns for our shareholders. And that's a key driver, a key part of our motivation in this announcement and the decision today.

Your last question comes from the line of Ben Nolan with Stifel.

I wanted to get back to maybe the question of not necessarily why SALT, but in the past, Scorpio as a group has done things on the private side and sort of created special silos of assets. And I think for a lot of SALT shareholders, the value proposition here is a recovery in the dry bulk business, whereas with the addition of this vessel that sort of clouds that story a little bit. Could you maybe talk through why you didn't sort of keep things siloed and maybe do something on the private side and maybe eventually have it available as a public vehicle in its own right versus kind of deciding to combine the 2.

I think -- Ben, thank you for the question. I think it's a good question, and thanks for allowing us to talk about this. In general, we are very respectful of our shareholders and investors. We're very respectful of ourselves. And we know that with change comes criticism. However, that's not a valid enough reason for us to just sit back and not act. If we look at the way the stock is trading, clearly, the buying interest into a dry cargo recovery, maybe I don't understand it, but I don't manage to see it in our stock, and in many other dry cargo stocks as well, by the way. So one -- when you are able to capture an opportunity you do your homework, you make sure you prepare, you make sure that you analyze things in a dispassionate manner. You make sure that you are respectful of your shareholders, stakeholders. And then you have a discussion. And if the analysis and the discussion at the Board level tells you that this is what is in the best interest of the company, which is what happened with Scorpio Bulkers. This is why we're talking about this today.

Okay. And then you touched on this a little bit earlier, but can maybe you walk through what are LOI at the moment. And I think Emanuele, you said sometime early in the fourth quarter, you expect to convert it into a firm order. What are the hurdles or the steps that need to happen between now and then? And in your mind, is this pretty much a done deal? Or is there some chance that it doesn't actually materialize?

It is just some technical aspects of the specification of the vessel, which need to be finalized and for which nobody wants to rush, and this is customary in this industry, both the builder and in this case -- and the buyer, in this case, ourselves. We do not want to rush into things because this is not a conventional vessel that we're building and the tender process that our customers will use the vessel for differ or may differ substantially between one and the other. So in order to build the right optionality from a technical specification standpoint and arrangements standpoint, it takes time. And whilst we went with a well-recognized state of the art proven design, we have to take the time in order to finalize the vessel to our specification. And this takes -- it can take 6 to 10 weeks, I would say.

Okay. And then...

With COVID as well because no teams from Korea are traveling to Monaco or vice versa to meet. Usually, this happens in the space maybe over 2 to 3 weeks. But with maybe 5, 6, 7, 10 days of face-to-face meetings, which cannot happen today.

Right. And then lastly for me. I appreciate that you said that the majority of any capital outlay would happen in 2022, closer to the end. But is there any upfront down payment? Usually, you see, whatever, even 10% down upon the finalization of the signing of the contract. How should we think about sort of a cash outlay in the near term, short run?

We don't disclose for a matter of -- as a matter of courtesy really, we don't disclose payment terms at this stage. However, for example, the first installment is substantially less than what you had mentioned on percentage terms.

And if you have any other doubts or anything that comes to mind, reach out, we're happy to talk to who likes what we're doing and even more to potentially have a different viewpoint. It's always good and healthy for us to compare notes. So please don't hesitate to reach out.

I am showing no further questions at this time. I would now like to turn the conference back to Robert Bugbee.

Thank you. I think -- look, I think these things are always sort of difficult. It's difficult with so many different moving parts to understand straightaway. But I think we're all going to see much more just over the next 2, 3 months. I think it's -- from our side, it's shareholders first. So we just talk of ourselves as the -- owning the most stock in this. It's an incredible opportunity, a credible optionality, whilst right in this beginning of this dry cargo recovery. And as Emanuele said, you're still able to benefit from that. There's no requirement here to raise equity. You have tremendous optionality, both in dollar sums plus in optionality over time to capture a spread between whatever you want to call it, the old world and the new world. Or industry tied basically to net asset value to an industry that's done on normal means to either sales or EBITDA. So for us, it's very exciting, and we hope over coming weeks, the coming months, the coming years, that what could be difficult for some to work out right now, we'll start -- we'll be able to give you the data to bring you along in the future. And thanks very much, everybody.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect.