Safe Bulkers Inc (SB) 2011 Q4 法說會逐字稿

Thank you for standing by, ladies and gentlemen, and welcome to the Safe Bulkers conference call to discuss financial results for the fourth quarter and full year 2011.

Today, we have with us from Safe Bulkers Chairman and Chief Executive Officer Polys Hajioannou, President Dr. Loukas Barmparis, Chief Financial Officer Konstantinos Adamopoulos, and Chief Operating Officer Ioannis Foteinos.

At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. (Operator Instructions). Following this conference call, if you need any further information on the conference call or on the presentation, please contact Matthew Abenante at Capital Link at 212-661-7566. I must advise you that this conference is being recorded today Wednesday, February 15, 2012.

Before we begin, please note that this presentation contains forward-looking statements as defined in Section 27-A take of the Securities Act of 1933 as amended, and Section 21-A of the Securities Exchange Act of 1934 as amended, concerning future events, the Company's growth strategy, and measures to implement such strategy, including expected vessel acquisitions and entering into further time charters. Words such as expect, intends, plans, believes, anticipates, hopes, estimates, and variations of such words and similar expressions are intended to identify forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. These statements involve known and unknown risks and are based upon a number of assumptions and estimates which are inherently subject to significant uncertainties and contingencies, many of which are beyond the control of the Company. Actual results may differ materially from those expressed or implied by such forward-looking statements.

Factors that could cause actual results to differ materially include but are not limited to changes in the demand for drybulk vessels, competitive factors in the market in which the Company operates, risks associated with operations outside the United States, and other factors listed from time to time in the Company's filings with the Securities and Exchange Commission. The Company expressly disclaims any obligations or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company's expectations with respect thereto or any change in events, conditions or circumstances on which any statement is based.

Now we pass the floor to Dr. Barmparis. Please go ahead sir.

Good morning and welcome to our (technical difficulty) to discuss the financial results for the fourth quarter of 2011. Yesterday after the close of the market in New York, we announced our financial results. Before we present them, we will discuss information we realized in relation to our industry.

Our Slide 4, we present the Baltic Exchange Average 4TC for Capes and Panamaxes. Over the past year, the market has driven to be very volatile. After performing at very healthy levels for both Capes and Panamaxes during the course of the fourth quarter of 2011, at the beginning of 2012, markets (inaudible) post Lehman Brothers lows with BDI reaching 647 points. Although at the moment Panamaxes have been recovering slightly, the market is still facing pressure, [keeping] free trades at considerably lower than the historical averages which for the past 12 months are $15,600 for Capes and $13,500 for Panamaxes and for the past ten years, $53,100 and $27,700 respectively.

On the [former] we are assessing the demand (inaudible) which have been the driving forces of our industry.

On Slide 5, we [see] the graph with actual GDP growth, which is a leading indicator for expansion of the global economy. The industrial world in certain areas where the biggest market share in the drybulk commodities import (inaudible) in India.

As it is shown in the graph according to certain analysts, China, although is slowing down, is still growing with the impressive rate of 9% per annum. According to their estimates, it is expected to grow at the same pace for 2015 and 2014. Same for India, which is growing impressively faster at a rate of more than 7% and is expected to maintain the same trend for the next couple of years.

Looking to the actual demand for the main drybulk commodities, we can see that the outlook is very encouraging. According to the graph on the bottom of Slide 5, the demand for drybulk cargoes such as iron ore, thermal coal, coking and coking coal, grain, and other bulk categories is on the rise. In particular in case for iron ore which is the main driver of bigger ships, such as Capes, both Panamax and Panamaxes, the demand for iron ore is expected to increase by 8% for the next three years, and by 14% in 2015. The same applies for thermal coal and coking coal, which is expected to be growing at (inaudible) rate of about 6% and 4% respectively. Based on the (inaudible) macroeconomic data, it is expected the demand for drybulk cargoes and consequently for drybulk ships will continue to rise in the coming years.

On the other hand, turning to Slide 6, the most (inaudible) at the moment has put the market (inaudible) pressure is the (inaudible) supplier vessels. During 2011, there was a significant net increase of the scrapping in the drybulk fleet for about 75 million deadweight [tons]. This then has continued the first month of 2012, (inaudible) in '10 we have about 50 Capes, 39 Panamaxes (inaudible) water. The contracted order book as [amended] by certain market analysts at the moment starts to about 125 million deadweight tons, or about 265 Capes, and the 540 Panamax and post-Panamaxes for 2012.

For 2015 (inaudible) it is significantly reduced, and is expected to range to approximately 45 million deadweight tons, or about 80 Capes (inaudible) Panamaxes and Post-Panamaxes. However, these estimates will be eased if we take into account the cancellation of contracts, slippage, and eventually the non-deliveries of vessels. As it is presented in the graph, this slippage (inaudible) has a range to about 55% for Capes and 30% for Panamax and the Post-Panamaxes. Therefore, the actual size of order book should be expected to be significantly lower than presently (technical difficulty).

In the same direction, the increase of the [bid] will be eased by scrapping currently. More than one quarter of the total fleet is averaged -- is over eight, and the next couple of years is expected to be scrapped especially (technical difficulty) rates remain low and the scrap values remain high, (inaudible) have no incentive to operate their vessels under those conditions. Therefore, the scrapping activity is expected to be accelerated. During 2011, about 24 million deadweight tons, or 71 Capes and 79 Panamaxes -- Panamaxes were scrapped, [reducing] significantly the net increase of the fleet.

On the other hand, the downturn in vessels values is expected to continue as freight trades remain lower and has already (inaudible) certain issues in terms of financing and complying with loan covenants. Financing of new build vessels could be another restrictive factor for the drybulk fleet increase.

In (inaudible) we have sufficient cash flow visibility. Therefore, we feel comfortable with our capital expenditures. We are bordering closing the sale in (inaudible) market and we have the ability and revenues to take advantage of the drop in prices in order to proceed with selective acquisitions to expand and renew even further our fleet with more efficient and late signed vessels.

Our expectation is that as demand keeps growing (inaudible) supply of vessels as shown in the figure (inaudible) is limited, the over-supply of 2012 and the previous years will gradually be used, and the market will reach more comfortable levels.

On Slide 7, we summarize certain information about or company. We are active in this industry for almost half a century. During the extensive period, we have built up relations with key market players, charters, [CPS] banks and insurance. We have been trading since our IPO in 2008 on the New York Stock Exchange and since then we have considerably increased our public float. We have assessed equity to have access (inaudible) markets for additional public offerings in March 2010 and 2011, through sustainable charter [added] management and financial policies we have declared and paid 14 consecutive quarterly dividends since our IPO, $146 million in total and our 15th consecutive dividend is payable on February 29. Our management is active in shipping (inaudible) Safe Bulkers maintaining approximately 64% of Company stock, thus ensuring alignment of management and public investors' interests.

We have gained experience through our fleet, [the monitor], safety (inaudible) which was a cumulative extensive and operational and technical experience. Since our IPO, consecutive payments of dividends throughout the recent financial crisis have been an important element to sustain credibility among public investors. At this point, we need to remind that dividend declarations are always subject to our Board approval based on our dividend policy.

We own and operate one of the world's youngest fleets. The ten-year exclusive management agreement not only provides transparency but at the same time (inaudible) the Company's interest. Operational risks are reduced through our young fleet and the (inaudible) and the technical (inaudible). At the same time, minimization of (inaudible) (inaudible) with major well-established commodity transporters.

We would like to remind you that (inaudible) performed during the last crisis. We maintain a strong balance sheet and cash position to provide us with additional financial flexibility. We believe that we (inaudible) to market (inaudible) sufficiently investing at the right moment, attempting to achieve higher returns on equity, thus utilizing an efficient asset management.

Now Mr. Konstantinos Adamopoulos will say a few things about our Company and about our financial results.

Thank you Loukas. Let's start with a few things about our Company.

We attempt to charter our vessels (technical difficulty). In Slide 8, we present our chartered covenants in 2012, including existing fleet and (inaudible) consisting of (inaudible). The total number of (inaudible) increasing year-to-year as our fleet expands. The light blue bar represents contracted days providing visibility for our cash flow. The dark blue bars present open days which we expect to charter closer to their respective periods. For the full year of 2012, our chartered covenant is 72%, 59% is for the year 2013, and 32% for 2014.

Over the years, we have long-term relations with well-established companies with long history in the market, some of which are presented in Slide 9.

Our charters, all of which performed during the last crisis, increased their reliability of our future cash flows. We believe we have shaped the [balanced] chartering policy based on a strong coverage by a high quality diversified global customer portfolio.

Slide 10, we compare our time charter equivalent trade with respective quarterly BPI average for the sea. (inaudible) we evaluated the four months of our chartering policy against the market. It is evident that, in most cases, we have outperformed the index.

In Slide 11, we present our fleet (inaudible). Privately, we own a fleet of 18 drybulk vessels in aggregate carrying capacity of 1.7 million deadweight times at an average age of 4.4 years as of February 14, 2012, making us one of the world's youngest fleets. Our fleet is expected to grow through 2014 as a result of the delivery of 10 further contracted new builds, comprising of five Panamaxes, three Kamsarmaxes, one Post-Panamax and one Cape-size vessel.

As seen in Slide 12, upon delivery of the last of our contracted new builds, our fleet will be comprised of 28 vessels having a negative total carrying capacity of approximately 2.6 million deadweight tons. We believe that there will be opportunities for additional acquisitions in the future from well-established yards for substitution order or existing vessel -- or existing vessels. Or (inaudible) further expansion.

On Slide 15, a more detailed overview of our fleet deployment and the contracted fleet expansion is presented. We're working to secure additional charters for our vessels. Please note that all our Cape-size -- all our three Cape-size vessels are targeted for long periods. We believe have a safe balanced chartering policy, strong covenants, and visibility of our future cash flow.

Slide 14 (inaudible) the net debt per vessel has developed since the first quarter of 2009, from leveraging of $20.3 million of net debt per vessel in the part of the period to $15.5 million in the fourth quarter of 2012. At the same time, our (technical difficulty) grew from 13 to 18 vessels, including two Cape-sizes.

On Slide 15, we present the graph as of the December 31, 2011 of our overall liquidity against capital expenditure requirements through 2014. This demonstrates our financial flexibility for the coming periods. On the left in the blue bars, we present our remaining capital expense requirement, net of commissions, for delivery of our 10 new builds amounting to $259.7 million, of which $150 million -- $150.9 billion is scheduled to be paid in this year, $38.2 million in 2015 and $70.6 million in 2014. We anticipate satisfying this capital expenditure requirement for [existing] cash and terms deposits operating cash surplus and term loan facilities by our liquidity on the right in the yellow bars.

As of December 31, the Company had $28.1 million in cash and short-term time deposits, $5.4 million in long-term restricted cash, $50 million in a long-term floating rate note from which we borrow (inaudible) under certain conditions, and $43.7 million available under the existing (inaudible) facilities.

In addition to that, the Company has $135.2 million total undrawn loan and credit facilities and commitments for three existing and one new build vessel. Apart from this contracted loan and credit facilities and commitments the Company will remain with seven debt free brand-new vessels on which additional financing is being contracted by us if it's required upon delivery of those new builds.

The results of additional liquidity through our operating surplus is supported by our chartered covenants which is presented in Slides and 7 and 14. As a result of all our policies, we've managed to maintain a stable dividend policy by paying out the portion of our free cash flow while the EBITDA is expected to be supported by a larger number of vessels.

In Slide 16, we present a comparison of the quarterly dividend with respecting earnings per share.

Let's turn now to our financial results. Slide 17 illustrates a summary of our results in a comparative table for the quarter ended December 31, 2011 and the respective figures of the quarter of -- the last quarter of last year. For the last quarter of 2011, net revenues increased by 4% to $42.9 million from $41.3 million in the respective periods of the previous year. Net income for the fourth quarter of 2011 was $23.6 million, a decrease of 24% from net income of $31.1 million in the same period in 2010.

Weighted adjusted net income for the same quarter of 2011 was $24 million as opposed to $26 million during the same period in 2010.

A decrease in net income is mainly attributed to the following factors. Net revenue of $42.9 million compared to $41.3 million; vessel operating expenses of $7.2 million compared to $6.3 million loss of deliveries of $0.2 million compared to a gain of $4.9 million; depreciation of $6.6 million compared to $5.4 million. This (inaudible) quarters in 2011 and 2010 respectively.

EBITDA was $31.7 million for the fourth quarter of 2011, a decrease of 16% from $37.9 million in the respective period in 2010. Adjusted EBITDA $32.1 million for the fourth quarter of 2011, a marginal decrease from $32.7 million in the same period in 2010.

Earnings per share and adjusted earnings per share for the fourth quarter of 2011 were respectively $0.33 and $0.34 calculated on the weighted average number of shares of around 70.9 million, compared to $0.47 and $0.39 in the fourth quarter of 2010, calculated on a weighted average number of shares of 65.9 million.

For the definition and reconciliation of EBITDA and adjusted net income, EPS and EBITDA, please refer to the following slide on Slide 19.

In the second table in the bottom of Slide 17, we see that the total debt as of December 31, 2011 decreased by 2% compared to December of 2010, amounting to $484.3 million and compared to $494.7 million.

Slide 18 presents a comparison of selected three-month financial key points of our performance. During the fourth quarter of 2011 as compared to the same period in 2010, our net revenue increased by 4% to $42.9 million. Our adjusted net income for the fourth quarter of 2011 decreased by 8% to $24.0 million from $26 million. Our adjusted EBITDA for the fourth quarter of 2011 decreased by 2% to $32.1 million from $32.7 million during the same period in 2010.

Our daily running expenses increased marginally by 1% to $4487 from $4463. Adjusted EPS for the fourth quarter of 2011 was $0.34 compared to $0.59 in the fourth quarter of 2010, calculated respectively on a weighted average number of shares of 70.1 million and 65.9 million.

Moving on to Slide 19, we will present the operating highlights for the fourth quarter of 2011 and 2010. As of December 31, 2011, we owned and operated 18 vessels and we achieved the utilization rate of 99.1% compared to 16 vessels and the rate of 99.2% during the same period of the previous year. The average daily time charter equivalent rate per vessel for 2011 was $26,330, compared to $29,395 for the same period of last year. For the fourth quarter of 2011, daily running expenses increased by just 1% to $4487 compared to $4463 in the same period of the previous year.

In Slide 20, you can see a reconciliation of our adjusted net income, EPS, and EBITDA from net income.

Let's now move to Slide 21 where we present, as of February 14, yesterday, the Company's contracted expected growth through 2014 as of year-end in this case for the respective years as well as future charter covenants year by year.

If you turn now to Slide 22, the Company has declared for the fourth quarter of 2011 a cash dividend of $0.15 per common share payable on or about February 29, 2011 to shareholders of record at the close of trading on February 24. This is the 15th consecutive quarterly dividend since our Company's IPO more than three years ago.

Let us now move to Slide 23 and summarize our presentation. As management, we actively manage our business and have established long-term relationships with leading yards, banks, and charters, which all result for us in an insight to the underlying demand for commodities and achieving repeat business. We have a long history and reputation of operating excellence, as reflected in our consistently high utilization rates. We maintain a young and modern shallow drafted fleet of 18 drybulk vessels, all built post 2003, and we have contracted for significant growth with 10 additional new build vessels. We'll carefully monitor market conditions, seeking to optimize our charter coverage with blue-chip customers, efficiently managing the upside potential.

Our liquidity (technical difficulty) balance sheet provides us with financial flexibility. At the same time, we follow a prudent dividend policy for the long-term benefit of all our stockholders in our Company. Our proactive management team is fully aligned with public shareholders implementing and optimizing our basic plans.

Now we have come to the end of our presentation and we are ready to accept questions. If you want to contact directly, you can find (inaudible) in Slide 24.

We will now begin the question-and-answer session. (Operator Instructions). Christian Wetherbee, Citigroup.

This is actually Seth Lowry in for Chris. If I could just start off touching on your chartering strategy for the six vessels that are coming to deliver this year and the four or five that are up for contract renewal in the next six months, can you give us a sense of how close you are to signing contracts on those deals and how long you think the contracts might run for, especially in light of just the current rate environment?

This is Polys Hajioannou. I'm from Tokyo and connecting on this call to answer a few questions. Now, some of the ships that are coming this year they have charters. The one comes from (inaudible) has a charter for two years of $15,250. And the Cape-size that is coming towards the end of the year, it has a ten-year charter of $24,800. The other four ships we are seeing similar ships doing something around for the year (inaudible) of around $11,000 a day. We are not happy with these numbers, but it should be numbers of -- we should lock in fixed rates. We know that the current spot market is below that, but last month was above that number. So we will wait for a couple of months to pass, you know, this February and possibly March, and then we will start considering possibility of employing them more likely on a short period business, something like three to five or four to six months.

Okay, great. Thanks. I guess I'll just follow-up. Just given where the spot market is, and this is just speaking to the industry in a broader sense, but I mean what is -- what are you guys seeing on a day in/day out basis as far as idling? I think we are hearing reports that ships are being backed up at the ports because the rates just are too far below cash breakeven for the older vessels. Do you see this near-term bounce? I know it's only been a few days, maybe a week of bouncing off the bottom in rates, but what are your expectations in the very short-term for this rate bounce?

Yes. The current rates are for Panamax around $7000 to $8000 a day on the spot market, down from $13,000 or $14,000 that they were in December of last year. So we expect in the spring that rates will move above $10,000 on the spot market.

The old ships, you know, the new ships are running now in February $7,000, $8,000, it means the old ships they could hardly get $3000. So what we see are and we are experiencing at the moment is a lot of more scrapping and a lot of more owners sending the old ships towards scrapping areas in anticipation of a sale to a scrap yard rather than holding the ships for -- out for chartering.

The new ships, you know, some owners, they are fixing this level of $7000, $8000. We have to do the same for a month or two and then hopefully we will go for the short period charters, possibly in the $12,000, or $10,000, $11,000, $12,000 per day.

Okay. Thank you. I'll turn it over.

Michael Pak, Clarkson Capital Markets.

Yes, hi. Good afternoon everyone. I was hoping I could get some insight from you guys on the useful life of the drybulk vessel, like for a Cape, Panamax, [Handy]. It appears to me, from our studies, our research, that the useful life has been increasing. I wanted to get your operating advice on the useful life of these vessels.

Yes, as a standard rule, you should calculate at 25 years. In a good market, we have seen this expanding to 30 years. In the bulk market, we have been seeing these reducing to 20 years. It's always been like this. So as an average, you should use 25 years as an economic life (inaudible). It would not surprise us in the current environment if we will see ships of 20, 22 years old going to the scrap yard. It's happening on the tankers already. I think you will have seen even ships younger than 20 years old, maybe 97 or 98 big ships, which is ships, you know, hardly 15 years old going to the scrap yard simply because the owners, they decide that secondhand sale is not far off from scrap levels and why to keep an extra ship in the markets. But the tanker owner are more big players than the drybulk owners, so there are many more smaller companies on the drybulk. I don't expect younger than 20 year old ships to be scrapped, but we could see ships 20, 22-year-old going to the scrap yard if this market prevails for another three or four months.

Great, I appreciate the explanation. What would you say are the sort of 20, 22 year kind of residual values for a Cape, Panamax, roughly speaking?

Roughly speaking, it's $500 -- you should calculate $500 scrap rate with a $12,000 light displacement of the Panamax and $22,000 on the Cape-size. So it's around $6 million on a Panamax roughly, roughly talking, and around $11 million on a Cape-size.

Great. I appreciate that. Just one last question from a strategy standpoint, given the contracted growth that you guys have over the next this year and out to 2014, what is your thinking on the acquisition front further fleet expansion, given your balance sheet and your already existing contracted obligations?

Yes. We are -- we have a good growth scenario, 10 ships to come, of course two will go this month, so it will be eight technically left after that. Those eight ships are spread between 2012, 13 and '14, so it's the next three years. It's not as if they're coming all in one go. So we have a full book let's say for the next three years. We put out a couple of ships left and right in that window, but generally speaking, I'm of the opinion that, when the market will start to recover, there will be a considerable time lag before the shipyards would be in a position to reverse the trend and switch into increasing the prices. So we are in no hurry, we are in no hurry to add any more ships. Maybe the old ship yes. But we are not in a hurry to add four or five ships in 2012 in our order book, simple because it's easier for us to see the sign of the turn that is coming around the corner, and we will have a time lag between that time and the time the yards will be able to force higher prices. So that's the time for us to move we said in the past and recently New York is starting in six months from today and up to 1.5 years from today. This is a time frame I think that we should plan do something more based on the capacity of our balance sheet.

Great. Thanks for your time guys.

Fotis Giannakoulis, Morgan Stanley.

We saw yesterday and in last few days that the drybulk stocks rallied. It seems like the market is discounting that the worst is behind us and there might be a recovery in the market. What is your view on that? Do you really think that that's the time to get into the drybulk market?

Look, nobody knows. What we know is that where was the market two months ago. Nothing -- not much has changed since that time. I mean, we know January was the drop of the market was overdone, but it was not mainly due to the extra supply of tonnage, which in January was about the same like January of 2011. It was not something unexpected to drop the market from -- on the Panamax of $14,000 down to $5000. So I think that -- we cannot say that the market will go back immediately to $13,000, $14,000 per day level, but I think this rate in the spring is quite possible, is quite possible. Now, why did stocks change that fast and that much? Last couple of days, this -- it has to do also with other matters in the stock markets, etc., etc., how the risk is perceived and how people will consider investing again in risky assets. So of course this is changing sometimes even on a weekly basis. So, we can never say that this is a sign of major change.

I understand you are in Japan right now. You have some discussions probably with yards and with major customers. At this point, what is the value that you think that you could acquire a Panamax vessel and how this has changed since the previous quarter? If you would be able to buy, at the current price, a Panamax vessel, what would have been the return to make if you put the vessel in a two or three year charter?

Yes, basically I just arrived. We didn't come to have talks with the yards, etc. We came basically, we have delivery of two ships in Japan this week and next week. That's why I am here. Definitely, they are reducing their prices and definitely they are becoming more competitive. At the same time, the Chinese are becoming more competitive in reducing their prices, so this couple, $4 million, $5 million between the Chinese Panamax and the Japanese Panamax exists. Of course, Japanese offer you the new technology, much, much better characteristics, much lower fuel/oil consumption.

Now, if the price of Japanese now is at low to mid $30,000s, and if it will reach $30,000 or if it will break $30,00 [towards], some of this remains to be seen. We do not know, we do not know take what will happen.

The returns are not great if you (inaudible) ship today at $11,000 a day, you know it's hardly breakeven even at $30,000 -- $30 million if you get the ship. But of course, the expectation is thereafter that, when the oversupply will get out of the way, these ships will be outperforming.

You mentioned about fuel consumption. You are looking I guess at your future acquisitions to be fuel efficient vessels. What is approximately the saving for a charter in fuel consumption on these vessels, and how much higher rate kind of ship owner earn if invested in this technology?

Yes, I think the Japanese are developing designs now that they would be able to do [14 knots] (inaudible) and (inaudible) on 27, 28 tons consumption. Chinese are around 53 at the moment, so it's a good 5, 6 tons saving at $800 a ton, is around $4000 a day, calculates 70% of (inaudible) days during the voyage, so this could be around $2,500 to $3000 a day, so it's around $1 million a year per vessel. This will be the magnitude of the savings, you know, just for the consumption. Then you have also a saving mostly in the good market from the (inaudible) take on the shallow draft. You can lift 4000, 5000 tons of more cargo on the same draft. So if you -- okay in the bad market is a small freight rate, so maybe it's $1000 benefit, but in a good market, it could be $3000 benefit because a freight rate is much higher for this extra cargo you lift. So if you add all these things over the years, it makes a huge difference to go for an economic ship rather than the older design from China.

I understand you mentioned that you're not in any rush to sign any new building contract since you think that asset values might drop further. You also have some vessels which of course compared to the industry and other competitors, they look very modern but compared to your fleet, they are at eight or nine years old. What is the strategy for these vessels? Shall we expect a swap at some point, selling these vessels and buying some new ones?

Just to conclude with my questions, Konstantinos earlier mentioned that after the delivery of all your new buildings, you're going to have seven vessels debt free and additional cash flow. How much debt could you raise from these seven vessels? Based on your leverage strategy, how many new vessels would you be able to acquire with this capacity?

Yes. The old vessels, first of all, the old vessels we are talking, as you rightly said, the vessels out there, the oldest vessel today in our fleet is nine years old, so it's 2003. Initially, the policy was to sell the ships as they approached ten years old or a little bit earlier, of course depending on the market. Right now, we are not in a hurry to sell. We will wait for the rebounded in three or four years' time on (inaudible) prices.

The other reason we are keeping the ships for the next three or four years is, A, they have charters, so they are still performing very well. B, even when their charter expires, they will have very, very cheap financing arrangements from the previous era of something like margin, bank margins of 70 to 80 basis points on their financing, which extends up to 2018. So, it's very tempting to keep those ships from that perspective as well, because if it is a good 2.5% lower than what you could raise money up in today's world, you have to take into account that element as well. So we will not be in a hurry to take those ships out of the fleet.

Now, the seven debt free ships, even if we calculate conservative debt raising in the future for those ships, you know, at 50% leverage, and I calculate, say, $15 million per vessel, it could be around $100 million. So (inaudible) with $100 million and you put as equity, to be used as equity, and another $100 million debt on it, it could be something around six or seven vessels to be added just from this factor alone without calculating the operational surpluses the Company will have.

So there is room to add, but as I said before, we are not in a hurry and will not do it -- maybe the old ship we will do in 2012 but we are not in a hurry, because we will have a very big signal when the market changes possibly next year. It will be a big time lag before the yards would be able to capitalize and be able to raise their prices. So that's the time to move in, the next six months or one year from today.

Thank you very much.

Ken Hoexter, Merrill Lynch.

Hi, thanks. It's Scott Weber in for Ken. Polys, I know you're focused on new builds and you anticipate a good opportunity to grow in the next 12 months. But do you expect to find opportunities to purchase new builds from yards that other owners may be walking away from, or is the growth opportunity just to place new orders and wait for ships to be built according to a traditional schedule? I'm asking because I'm just trying to understand if there is an accelerated growth opportunity for you, keeping in mind your focused on new builds.

Yes. There will be opportunities on the yards. On the Panamax front, it doesn't suit us because, you know, take the ships they are abandoned or the yards may be selling today are all designed, so you know the heavier consumption etc. The only thing we may look, we may look as acquiring from a yard on an already-made ship, it would be possibly a Cape against an employment. If we can find an employment and the yard is selling a Cape at a killing price, etc., etc., then we may go and do one such a ship against the charter. But on the Panamaxes, we are not prepared to consider altering our strategy to go for the latest version of the designs because the ships we will keep to work them in the spot market and fix them at a later stage. But the Cape-size which (inaudible) against employment, we may pick (inaudible) ship Cape somewhere if we can find a half decent charter, you know.

Sure. Then along those lines, what are the shipyards doing right now to entice buyers at this point? Are the payment terms changing a lot, or does it just come down to price?

Yes, I think the shipyards, they are in -- they are very anxious to secure orders and even for 2014 and some of them even in 2013. So they will do -- they will do better terms. They will do terms like 10% or 15% on signing, and then [555] and 65% or 70% on delivery. So they are doing very owner-friendly terms. Remember also this is terms they are doing (inaudible) very low contract prices. So and on (inaudible) put on a Panamax $3 million down and here is a contract. But I mean, it's a situation that I wouldn't like to be in a position of shipyards. Shipyards, because of their huge capacity, they have to understand that only if they reduce their capacities, they would be able to change the trend of pricing. Unless you know the market improves, explodes next year or whatever, and there is something, you know, impressive, and they could change their prices very soon after that. I expect them that they will be for a long, long time in a week position. If we start seeing shipyards closing, or the good shipyards, the efficient ones, reducing their dock capacities, then they have a better chance to reverse prices earlier than later. But if they stay with the number of docks they have right now, it will be many years before they increase ship prices again. That's why I believe that somebody should not be in a hurry right now to place more orders. The old ship yes, but not if you want to do another five, six vessels, do them now. No, it's not the right time.

Okay, terrific. That's some great color. I don't know if you would tell us, but I have to ask you. You said you'll be able to see it turn in the market when it happens. Can you tell us what you will be looking for?

No. When we see -- I don't know when it will be, but when we will see the turn in the market, let's say the current $8000 per day goes about $15,000 or above, $16,000 or above $17,000, which the good market starts reappearing, you have the cushion and the benefit of a time lag between that time and the time that the yards subsequently will be able to raise their prices. So, we will know that the good time has come from the freight income point of view, but the yards will not be immediately able to raise their prices at the same time. So at that time is the time to move, but you know that you would start securing some decent freight rates and some decent charter rates for one-year charters at $16,000 or whatever, etc., etc. But still the yards, they will be giving away very cheap prices. So, that's what I was meaning to say that we will have the warning bell and we could move in at that time.

Terrific, okay. Great. Thanks for the time.

Noah Parquette, Cantor Fitzgerald.

Thanks. Most of my questions are answered. Could you talk a little bit -- I mean, with rates where they are, is there any sort of premium from the Post-Panamaxes and the Kamsarmaxes over regular Panamax rates?

Yes. The Kamsarmax, they get, a good Kamsarmax gets 5%, 6% higher rate than the Panamax. The post-Panamaxes unfortunately, in the spot market, they are not able to achieve their full potential, which is a good 15% higher than the Panamax, simply because that, in the low market, there are too many ships competing for cargoes and the charter says, okay, you're worth more because of your size, etc., etc., but if I book your ship, I am more restricted on the number of ports I can call. So since I have so much plethora of ships to choose from, why to go and stick myself by fixing one ship that I will lose let's say 10% of the ports because of (inaudible). So this is not the good time for post-Panamaxes, when the freight rates are so low. When the market is over, $13,000, $14,000 per day, Post-Panamax are doing 15% above the Panamaxes. But (multiple speakers) the way they are doing about the same like a Kamsarmax or Panamax.

So you see that returning once the market recovers over time to 15%?

Yes. It is 15%. When we have a market around $15,000 a day, you get the 15%.

And then just wanted your thoughts about the VLOC situation with China banning Vale's ships from its ports, and then Vale operating the trans-shipment hub this week. How do you see that whole thing playing out in terms of the Cape-size dynamic?

Yes, I don't think that Vale will make any sense out of the trans-shipments because, you know, they will have to [discharge] their cargo there and there is one facility who's doing the [discharge] and it's not 19 facilities. It's one converter, one converter that they brought in. Thereafter, they would have to load two Cape-size bulkers to carry or 2.5 to carry the cargo, the Vale Max has (inaudible). So from a market point of view, I think it's a positive and is not -- Vale is not, you know, succeeding to reduce the market even further like that, because out of the Philippines or whatever is this trans-shipment, they have to fix 2.5 Cape-sizes to carry the cargo to China, and then to come [in ballast] back to the Philippines to pick up the next cargo, which is around a voyage of around 15 to 20 days.

What do think is the possibility of (multiple speakers)

I mean, it's a way out of the problem, yes. It is a way out of the problem. But financially I don't think it makes much sense for them.

What do you think the possibility of Vale chartering doing like a sale-leaseback with a Chinese owner?

Everything is possible. I think that also with some ports they are trying now to bend the Minister and the ban that he imposed on the ships more than 350,000 deadweight. So at some ports, they are trying to say that they are losing income and they are trying maybe to come to an agreement with Vale and hence going (inaudible) Ministry to get special permissions, so everything is floating. Any sort of cooperation between Vale and Chinese owners is possible and this could change the game, but I mean we cannot forecast how this will develop.

That's very helpful. Thank you.

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