SFL Corporation Ltd (SFL) 2008 Q4 法說會逐字稿

Good day and welcome to the Ship Finance International Ltd.

fourth quarter earnings release conference call.

Today's conference is being recorded.

At this time, I would like to turn the conference over to Mr.

Ole Hjertaker.

Please go ahead, sir.

Thank you, and welcome all to the Ship Finance International fourth quarter conference call.

From the Company today we have the Chief Executive Officer, Lars Solbakken, and my name is Ole Hjertaker, and I'm the Chief Financial Officer.

Before we begin our presentation, I would like to note that this conference call will contain forward-looking statements with the meaning of the US Private Securities Litigation Reform Act of 1995.

Words such as expects, anticipates, intends, estimates, or similar impressions are intended to identify these forward-looking statements.

These statements are based on our current plans and expectations, and involve risks and uncertainties that could cause future activities and results of operations to be materially different from those set forth in the forward-looking statements.

Important factors that could cause actual results to differ include conditions in the shipping, offshore, and credit markets.

For further information, please refer to Ship Finance's reports and filings with the Securities and Exchange Commissions.

Furthermore, this presentation does not constitute an offer to sell, or the solicitation of an offer to buy shares of the Company's securities.

Let me turn to page 3 of the agenda in the presentation.

Today, we will discuss the fourth quarter highlights and subsequent events.

We will also discuss the financial results, and afterwards, we will open up for question and answer session from the participants.

Next page; the Board of Directors has declared a dividend of $0.30 per share.

This represents $1.20 on an annualized basis, were 14% dividend yield based on the closing price yesterday.

After consideration of the market environment, we are currently in, and the wish to build up additional reserves in the Company to also be able to opportunistically take advantage of market opportunities that may arise, the Board decided that it will be in the Company's long-term interest to declare a lower dividend than for the previous quarter.

The declared dividends for the last 20 consecutive quarters has been in total, $9.88 per share.

The net income for the quarter was $48.2 million, or $0.66 per share before mark-to-market of derivatives.

The net income after mark-to-market of derivatives was $3.1 million, or $0.04 per share.

The mark-to-market impact was $45.1 million of which $37.2 million relating to the bond swap agreements we have on our own bonds.

Most of our interest rate swaps are now restructured to hedge accounting, based on strict SEC guidelines.

This means a lower variance in the mark-to-market than we would otherwise see in the market.

There has been a strong profit share contribution also for the fourth quarter.

The profit share was $15.7 million, and it was $111 million for the full-year 2008, or $1.53 per share.

The expectations for the spot market in 2009 is lower than for 2008, but Frontline has sub-chartered several vessels at high rates, and we therefore also expect a good profit share contribution in this year.

Frontline expects to drydock three vessels in the first quarter of 2009, which is in line with the fourth quarter of 2008.

And the drydocking schedule has an impact on the basis for the profit share, as the profit share is calculated on the actual earnings or from the vessels we have on charter to Frontline.

Next page; during the fourth quarter, we took delivery of the second of two 17,000 deadweight chemical tankers.

These are -- both vessels are chartered for 10 years on a bareboat basis at $8,000 per day.

The acquisition cost for the last vessel was $30.1 million of which $24.5 million was raised through a long-term loan facility.

The first vessel was delivered in mid-April, and the other delivered in late October, and the annual net contribution from the two vessels after interest and scheduled installments is $0.02 per share.

In the second quarter, we also took delivery of the two semi-submersible drilling units that we announced during the third quarter.

This is a record-breaking transaction in the maritime industry.

It was a $1.7 billion sale lease-back transaction, and we sourced $1.4 billion in the banking market.

The transaction represents more than $2.3 billion of bareboat charter revenues over the 15-year lease period.

In connection with the financing, we drew $1.1 billion in November, and we drew the remaining $250 million in February 2009, and there were no problems or issues with the banks relating to this very significant loan facility.

Both rigs are now fully -- in full operation and earning the full-day rates.

These units are classified as investment in associate based on US GAAP, and therefore only net income in the subsidiaries appears in our consolidated income statements.

Next page; after the West Taurus -- which was the second semi-submersible drilling rig -- completed a three month mobilization period to Brazil, we have the full cash flow effect from mid-February 2009.

The combined bareboat charter revenues from the three ultra-deepwater units we now have in operation, is in aggregate of $98 million per quarter.

The growth in the year has been very substantial, and also demonstrates our ability to execute transactions.

The aggregate charter backlog is currently approximately $8 billion, of which 30% or $2.4 billion was added through transactions in 2008.

On top of that, we of course had significant revenues in 2008, and after the delivery of the ultra-deepwater drilling rigs, only $48 million of the remaining installment -- sorry, of net investments remaining are expected to be used -- sourced through the Company's liquidity reserves.

In December, we filed a so-called ATM Program, or At Market Offering Program.

This is in -- for the Company, a backstop facility where we can source additional equity capital if we wish to.

This can be sold in the market from time to time at the Company's discretion and without any specific deadlines.

The filing was made in December in order to utilize our status as a so-called well-known seasoned issuer, or WKSI with the SEC.

Due to our -- the market capitalization of the Company which came down, and therefore required us to make a filing in order to have a shelf registration statement whereby we can easily register capital market transaction, if we wish to.

We made this filing in December, and to date, no shares have been issued and sold.

The next page; the dividend declared of $0.30 per share will be paid in cash, or at the shareholder's election, in stock.

The stock dividend alternative will be offered pursuant to a prospective supplement which will be filed with the SEC shortly.

The stock dividend alternative will be based on market price prior to the ex-dividend date less a 5% discount, and there will be a mailing to all shareholders of election cards on or around March 15th, with payment of the dividend in cash or shares on or around April 17th.

Our largest shareholders, Hemen Holding and Farahead Investments, representing 41.4% of the shares, and indirectly controlled by Mr.

John Fredriksen has told the Company that they intend to take stock as dividends.

Next page; we have lease accounting and the full finance lease breakdown for the quarter, and also the forward four quarters, are illustrated on Slide 24, and we will also comment on the operational performance of the Company separately.

We have very significant investments in associates which are three ultra-deepwater units and also a Panamax dry bulk vessel called Golden Ocean.

And these vessels are -- and the net income from these subsidiaries appear in the P&L statement under "results in associate." The numbers in the quarter was $15.2 million in net income generated in these subsidiaries.

As we have lease accounting for most of our assets, not all of the charter revenue is included in the total operating revenues of the Company.

In the profit & loss statement, we have therefore for illustration purposes included at the top, charter revenues from operating lease, and charter revenues from finance lease, and then subtracted out the part of the revenues that are classified as repayment of investment in finance lease under US GAAP.

For our consolidated subsidiaries, this was $45 million in the fourth quarter, and there was also a very substantial amount which was accounted for in our investment in associates, a total of $49.2 million, which does not appear in this statement at all.

The ship operating expenses has been fairly stable over the last periods, and we see the fruits of our deliberate avoidance of taking on operating expense risks.

All vessels to Frontline, which constitute the majority of the vessels we have on time-charter, are subject to a fixed-rate operating expense agreement at $6,500 per day, including drydocking.

We noted when Frontline reported their numbers earlier today that they reported $12,000 per day on average operating expenses for their overall fleet.

So there is a significant value to the Company in this agreement.

The depreciation amount is also fairly stable from quarter to quarter increased by -- from $7.3 million in the third quarter to $7.5 million in the fourth quarter, which is primarily due to the delivery of the second chemical tanker in mid-October.

The next page; as I mentioned, with the three subsidiaries holding very substantial assets, classified as investment in associates, the equity portion of this is recognized as investment in associate under long-term assets.

We have for information purposes included full earnings balance sheet and cash flows for all the subsidiaries at the end of the press release to enable our shareholders and analysts to see the full details and the full breakdown of this.

If you look at other current assets on the balance sheet, we see that of other current assets of a total of $180 million, $174 million represents repayment of investment in finance lease, which is the current portion of the leases.

The next page; as we have very substantial investments in associates, you will see the effect on our consolidated cash flow statement under the heading called Investments in Associated Companies, under the heading Investing Activities.

In the fourth quarter, the net amount was $296.6 million, which represents the equity investment in the two latest ultra-deepwater drilling units, net the cash that we took out from the subsidiaries classified as investments in associated companies.

Also under "investing activities," the first line called "repayment of investment in finance leases" is where you will find the portion that does not -- of the charter hire that does not float over the profit & loss statement.

The next page; Ship Finance generates a very significant cash flow per quarter.

This overview includes all 100% owned vessels, and also includes assets classified as Investments in Associate.

A popular measure for dividend payouts is contribution after interest, or EBITDA less interest versus dividends paid.

As we can see, we had a total EBITDA excluding profit share in the fourth quarter of $2.22 per share, and the EBITDA after accumulated profit share was $2.43.

In the quarter, we paid $47 million net interest, or $0.65 per share, which is up from $34 million in the second quarter, primarily due to the new ultra-deepwater units.

The average interest rates were fairly stable in the quarter, but there is limited impact on Ship Finance anyway, due to our very substantially hedged portfolio.

In the fourth quarter, the contribution after interest for Ship Finance was therefore $130 million or $1.78 per share.

We paid ordinary installments, loan installments of approximately $63 million, or $0.86 per share in the quarter, which gives a net of $67 million, or $92 per share in the quarter, which is similar to the contribution in the third quarter.

The main changes from the third quarter to the fourth quarter was that the first of the ultra-deepwater units, West Polaris, a drillship delivered to us in July 2008, was in a transit during most of third quarter, and came on full charter rates at approximately $350,000 per day in the fourth quarter.

And in addition, we also have had full rate on the first of the semi-submersibles called West Hercules of approximately $383,000 from mid-November, and a lower rate on West Taurus from approximately the same time.

The second chemical vessel, as I mentioned earlier, was also delivered in October, but as we can see, the overall impact on that -- from that vessel is relatively low compared to the drilling rigs.

From the fourth quarter to the first quarter, we will have a full quarter of Hercules -- West Hercules and West Taurus, and also the West Taurus will have increased charter rates starting from mid-February, when the mobilization period to Brazil ended, and will earn the charter rate of approximately $320,000 per day from that period.

Next page; Ship Finance started as a pure tanker company, where all the OBOs were trading in the tanker market.

The growth in other segments during the last two to three years have been fueled mainly by profit share payments for Frontline, and also the sale of single hull vessels.

The investing amounts in 2009 includes the remaining $250 million investment in West Taurus, which is fully covered by a $200 million debt financing.

And after the two drilling rigs have been delivered, and these have been paid, we have a relatively marginal remaining investment program compared to our overall fleet size.

Net of the sale of two Suezmax tankers that we have agreed to sell, we don't estimate -- we estimate that the net investments by Ship Finance for the year 2009 will be approximately $16 million, and there will be a net investment approximately of $32 million in 2010, which gives a total investment in this period of $48 million.

In certain projects such as the five container vessels to be delivered in 2010, 20% of the contract price has been paid in as equity, and a portion of the remaining capital commitments are expected to be funded by borrowing through banks, or export credit solutions.

Of course the exact timing of the delivery of the vessels under the contract is always uncertain, and timing of the investments will therefore -- may therefore also be adjusted over time.

The next page; we have a very substantial loan portfolio of approximately $2.6 billion, including approximately $0.5 billion bond loan.

In addition, there is $1.8 billion of loans in subsidiaries that are accounted for as investment in associates.

We have more than 25 banks in our syndicates, and have very good access to capital.

The rig transactions we did in 2008 demonstrates our ability to source capital in an otherwise difficult financing market for most companies.

Also with our portfolio of long-term charters are strategies to hedge a substantial portion of our interest-rate exposure.

This is done through swaps, fixed interest, and also interest compensation through charters.

We increased the levels of hedging in 2008 due to an attractive interest rate curve, and currently approximately 80% is effectively hedged.

Most of the new projects are -- have been made with limited recourse to our balance sheets.

As an example, for the transaction with five container vessels to Horizon Lines, we don't guarantee anything.

For the jack-up drilling rigs we have on, we guarantee between $10 million and $20 million per rig, and for the ultra-deepwater units, we only guarantee $100 million per unit of $700 million financing per rig.

We had $58 million of cash available per the fourth quarter.

This includes $11.5 million in a subsidiary which are not consolidated based on US GAAP.

We have $51 million of profit share payable to us in the first quarter, and we also expect to receive cash from the sale of the Suezmaxes later in the year, in addition of course, to the cash flow from all our performing charters.

The next page; the board of directors have decided to pay a $0.30 dividend, the quarter, with respect to the fourth quarter of 2008.

This represent a 14% dividend yield, and this is based on the consideration of the market environment we are in, and also the wish to build up additional reserves in the Company to take advantage of market opportunities.

Also to preserve liquidity and buildup the investment capacity, our larger shareholder Hemen Holding and Farahead Investments, who collectively own 41.4% of the shares, have also offered to receive the dividend in the form of newly issued shares in Ship Finance, and this we will also, of course, offer to all our other shareholders.

The dividend -- on the trailing four-quarter basis, the dividend declared represents $2.04 for the last 12-month period.

Next page; the profit share agreement with Frontline has been very favorable for the company.

The regional charters were structured at a relatively low level in their tanker market cycle, which also means that there is a lower profit share threshold than we would otherwise see.

On average, there has been approximately $90 million annual incremental cash flow from these profit share payments, over and above the base charters.

And these payments have enabled the Company to fuel significant growth, and based on the market outlook, we also expect it to be a profit share contribution in 2009, despite weaker market expectations than 2008.

Next page; we have a unique order backlog.

Companies with a large charter backlog typically have five to seven year coverage.

And Ship Finance is in a different league with 13.5-year weighted average charter coverage on this portfolio.

The total fixed rate order backlog is $8 billion, or $107 per share on a fully diluted basis, assuming all shareholders elect to receive the dividend in shares.

The EBITDA backlog is $7 billion, or $93 per share on the same basis.

These numbers are before profit share, and on a fully diluted basis, and does not include any re-chartering after end of current charters.

This portfolio of charters, and the cash flow deriving from this is very important for our banks, and with the dark clouds on the near term on the financing horizon, we believe this is a clear strength for the Company.

The next page; this graph illustrates the cash flow, the fixed EBITDA contribution from our charters, and also clearly illustrates that we have two main charter counterparts, which are Seadrill and Frontline.

For the Seadrill charters, which is the orange part of the bar, we have 100% guarantee from the ultimate parent in Seadrill, and all the ultra deepwater units are sub-chartered to major oil companies for a substantial period.

We have also frontloaded the charter rate, and also matched that to loan repayments, in order to take down our exposure against those assets very substantially over the first charter period.

With respect to the Frontline charters, we have a conservative base rate, and the 20% profit split, as I mentioned, has generated very substantial incremental cash flows per year.

In addition, relating to these charters, we also have a $260 million reserve as security for these charter payments.

Next page; therefore as a summary, I can -- we -- I can say that we had a very strong quarter from a cash earnings perspective, fueled by a substantial profit share contribution.

The negative mark-to-market of derivatives of $45.1 million was predominantly linked to the pricing of our own bond that is outstanding.

We increased our fixed rate charter revenues, and we expect a further increase in the first quarter of 2009 when all ultra-deepwater drilling units are on the full charter rate.

We have through the year, demonstrated our ability to structure deals and source financing in an otherwise challenging financing environment, and we will look for transaction opportunities that may arise in this environment.

But of course, our main focus is and will be the long-term interest for our shareholders and to manage the Company in a conservative manner.

Thank you, and then we open up for questions.

Thank you very much.

The question-and-answer session will be conducted electronically.

(Operator Instructions) And our first question comes from Jon Chappell from JPMorgan.

Please go ahead.

Thank you, good afternoon.

Ole, you gave a pretty good detail on the dividend cut.

I just have a couple more following questions on that.

First of all, was there any pressure from the banks at all to retain capital?

No, there is no pressure from the banks.

We are in full compliance with all the loan covenants.

So this is entirely driven by the Company and the Board's view on the market, and the opportunities that we see may arise, and our wish to therefore increase our liquidity reserves to be able to take advantage of this.

Are you seeing any opportunities now that offer attractive returns, or do you think that maybe there is potential for more asset price declines over the course of 2009, and in the very immediate term, maybe it might be better to pay down some debt with the retained capital from the dividend cut?

Yes, Jon, it's Lars.

I think that we are -- we expected maybe there to be more opportunities.

We already see opportunities, but we expected to be more interesting opportunities a little bit later in the year, and of course, we also want to be conservative in a relative turbulent environment.

And so we reduced the dividend now to build and to -- more cash and to strengthen our financial position, and then to invest when we think the timing is right.

Is there a particular end market that you are expecting to offer better returns?

I know the rig return that you have on this last couple of rigs are very attractive, but that's obviously a huge amount of capital that needs to be put down for those tankers, dry bulk and anything in particular you are looking at?

I think we are pretty open-minded, and we also hope that we -- there may be more defaults in the market later, and you may be offered packages, basically from banks also, including financing, which may be very interesting.

Okay.

Last one and then I'll turn over --

As we have seen in the earlier downturns; I think that is the kind of opportunities that we think can be particularly interesting.

Right.

On the Suezmaxes that you've agreed to sell in 4Q '09 and early 2010, does the buyer have the opportunity to back out of that contract if the ships continue to be delayed?

Of course, there is a cutoff date which is -- it's basically 270 days we have at the yard, plus there's a 50 days extra in the contract with the buyer.

So it's a 320 days after the agreed delivery date.

So we don't expect that to be any problem.

Okay, right.

And what that means is that we will then -- if we see that the yard is so much delayed, we will then have the option to terminate the agreement with the yard, and receive back the deposits paid in before we are in a position where we -- where that deal is terminated with the buyer.

Okay, so either way you're not going to have any massive increase in the capital [payments] from what you've already laid out in the presentation?

No, we don't expect that as of current and we --

And of course, we have also -- of course we have a 15% deposit for -- from the buyer.

Okay.

Thanks a lot, Lars and Ole.

Okay, bye-bye.

And the next question comes from Rick Silva from [Midwest Capital].

Please go ahead.

Good morning, gentlemen.

The prior question answered most of what I had, but I did have one other question regarding the payout.

Why the extra five week delay on the payout of the dividend, which is going to take place in mid-April?

Yes, this is because we want to give the shareholders the opportunity to also to elect shares if they wish to.

And this is based on standard mailing procedures, which is done through our transfer agent [Demelon].

So unfortunately, there is some time because there is a mailing that needs -- there is election card that needs to be mailed out, and there are standards for how long a time that needs to be out with investors, and the reply time before we will know the exact number of investors who elect this alternative.

Okay.

And as it relates to the next dividend payout and the one after that, will you revert back to your normal schedule for your payouts?

I think the dividend is basically decided by the Board on a quarterly basis.

So it's not something that we can basically comment on now.

It's entirely up to the Board to decide depending on how they look at the markets at that time.

Yes, but the payment schedule --

Well, I was referring to the payout dates, not the payout amounts.

Yes.

The payout dates are normally within a month or so from the day of report.

So that all depends on if we want to give, or if the Company wants to give at the time the investors ability to also invest in shares.

And of course we cannot comment on that, and that is certainly not something the Board has discussed or decided.

Just one last question, gentlemen.

Is there -- do you have any comment on the situation at Golden Ocean, as it relates --?

Hello?

We just lost the connection.

Okay.

I'm opening up for Anders Rosenlund from ABGSC.

Thank you.

Could you give an indication on your depreciation level for the first couple of quarters in 2009?

The depreciation level will be fairly similar to what we reported in the fourth quarter.

Because there are no assets coming in, Ole?

Yes, well, the asset came in the fourth quarter of 2008.

So -- and it increased from $7.3 million in the second quarter -- no, sorry, in the third quarter to $7.5 million.

I would estimate that as that asset came in midway through the quarter; we're talking about $1000 or $2000 more.

I don't have the exact number in front of me --

Okay.

-- but it's fairly marginal.

That's good enough.

My other questions were answered, so thank you.

Thank you.

And the next question is from Richard Williams from [Williams Company].

Please go ahead.

Yes, I am curious why the -- at the end of the conference with Frontline, the CEO indicated it was the second best year that you'd had, yet the dividends are being cut to a five-year low.

And now all of a sudden, this also is being cut drastically; I am wondering why that was so necessary?

The reason for the dividends, and for the decision from the Board to make the dividend and the amounts is based on an evaluation of the market as it is currently.

There is very significant uncertainties in the market.

We experienced very dramatic turbulence in the financial markets.

And therefore to be prudent, and also buildup the reserves in the Company after a very heavy investment schedule in 2008, where we invested in the region of $2.5 billion in new assets, the Board decided to reduce the dividend in order to retain more liquidity, and also then be able to take advantage of some of the opportunities we think may arise out of the financial turmoils in the market.

Do you anticipate in the future you'll go back to a more reasonable -- or what has been reasonable for you -- dividend amount?

Yes, the Board is very committed to shareholders, and of course dividends are always in the shareholders' interest.

But at the same time, they also have to balance that with near-term prospects in the market, and how that capital can be deployed.

Dividends are decided quarter by quarter, so I cannot make any representations as to the Board's decision the next quarter or the quarter after.

But I'm confident that the Board will decide on dividends that are sustainable and are also representable for the cash flow generated by the Company.

Yes, and previous years -- you commented early in the year on committing to a specific dividend schedule?

Well, the Company has never committed to a specific dividend schedule.

We have in the past, shown increasing dividends over time, but we have been quite -- we've told quite expressly that the dividend, [in fact] on a quarterly basis by the dividend, and the Board does not make any forward projections for where the dividend should be.

But I'm sorry; last year you -- you commented earlier in the year that the dividend would be a $1.5 a quarter for the balance of the year.

So that was a forward projection.

Well, I think maybe you refer to Frontline.

We have never paid that much dividend.

We increased the dividends from $0.58 per share to $0.60 cents per share from the second to the third quarter of 2008, and that is the highest dividend we have ever paid.

No, I understand, I'm sorry.

I was referring to Frontline.

But to me you're both the same, so.

Okay, I'm sorry to -- that's okay.

And the next question is from Charles Fisher from LS Partners.

Please go ahead.

Good morning gentlemen.

My question is also on the dividend.

In thinking about cutting the dividend, would you say that you're motivated because you wanted to create opportunities that may arise, or because you really need to because there is a lack of capital to run the business?

And let me just -- the reason I'm asking is, if you were to look to make investments where you would get a return on equity of -- with a current yield of 14%, and possibly more, because the cost of capital is so expensive -- maybe you could talk about that?

I think it's -- and we have commented that a few times now that it's -- we had a very heavy investment program the second half of last year.

And of course -- so we currently have less cash reserves than we historically ever had.

So we of course -- and then we have also a more turbulent market.

We see also -- and expect a softer shipping market.

So we clearly want to strengthen the financial position of the Company, which we think is important when we have more turbulence in the market.

It is also to prepare ourselves, and for taking advantage of the opportunities that we think will be there later in the year.

So it's a combination of both of those.

Okay, and just if you would bear with me.

On the opportunities in the future, assuming that based on my math, you would have to have to at least 20%, 25% IRR kind of opportunities.

It looks like on my analysis, historically, the Company they run between say 13% and 15% on their equity.

That's when you look at your big deal that's kind of what you're earning.

But I'm -- is that a fair assumption that in the future your return hurdles are going to have be much higher than they've been in the past?

Given the cost of capital in the market, that is a reasonable assumption.

But what of course goes into that equation is the risk associated in the project.

For instance, these ultra-deepwater units that we have invested in, in the last year; heavy investments, equity return to us is 15%.

But that is after a very steep repayment profile and a very frontloaded charter rate, and also where we have eliminated the interest rate exposure, and also the operating cost environment.

So in a way, a very protected, only 15% return.

The question is would you do the same deal today, would you -- what kind of returns will you get?

It's difficult to tell.

All investments are different, but I think it's fair to say that in the current environment, and from what we expect that we may be able to achieve later on in the year, we think returns should be higher than they have been historically.

Well, sure, because otherwise you could just buy your shares back and earn a 15% cash flow yield day one, correct?

Exactly.

Or buy the bonds.

Okay.

Thank you.

Thank you.

And we have Rick Silva back for his questions.

Please go ahead.

Hello again, gentlemen.

I guess I got cut off at the tail end of my last question.

Yes.

I just was wondering if you could comment about the Golden Ocean situation with their -- their credit situation and how if any it's affecting you people?

I think we are not able to comment on Golden Ocean.

Of course we -- as we have reported earlier, the two capesize vessels that we had agreed to buy from Golden Ocean was cancelled.

And that was due to the fact that there was substantial delays, and they were not able to meet the number of requirements in the agreement we had.

All right.

Okay, as far as -- how many ships currently have you leased out to them?

Is it just one or --?

Only one -- only one vessel and this is the kind of $20 million type of investment.

And also, I want to add to that.

That investment was -- is made in a single-purpose subsidiary of ours, and we have only guaranteed $2.3 million of the loan obligation in that subsidiary.

So our financial exposure relating to Golden Ocean is quite marginal compared to our overall charter profile.

It is very -- we have a very low exposure in this investment that was made before the dry bulk values started to increase.

Very good.

Thank you very much, gentlemen, for the information.

Okay.

Thank you.

Thank you.

(Operator Instructions) And we have our next question from C.J.

Baldoni from Evergreen Investments.

Please go ahead.

Yes, hello.

Can you talk about the container ships and the counterparty risk that you see with Horizon Lines?

Are they -- are those vessels being fully utilized right now?

Those vessels are operated by Horizon Lines under US flag, in the line that goes from the US West Coast through Hawaii, Guam, to the Far East with a slot program with Maersk.

We have the vessels on bareboat charter, and therefore we don't have our people onboard the vessel -- our crew onboard the vessel.

We charter it out without crew.

We -- of course we have a regular dialogue with Horizon Lines, and -- but we can of course not comment specifically on Horizon Lines, other than that we have a very good relationship with them.

There have been no issues relating to payment of charter hire or otherwise.

Their vessels are very well maintained, and we are very happy with that relationship.

In terms of the structure of that deal, we have -- those vessels are owned in the single-purpose subsidiaries of Ship Finance.

The deal was originally structured with $210 million of loan financing, and we invested $70 million of equity.

The loan financing is fully without any recourse to Ship Finance.

So we don't guarantee any of debt associated to those vessels.

But as I said, we are very happy with the arrangements we have, and charter hire is coming in punctually.

So if there were to be a problem, you would just get your vessel back?

Yes, we own the vessel.

So if there was a breach in the contract, i.e.

-- for instance, if they should not -- if they should discontinue paying the charter hire, we could take the vessels back and we will then -- and this relates to all our charter contracts -- we would then of course have a claim against that specific charter.

But no indications or seeing those or whatever that will -- may or will occur with the Horizon or others.

Okay, thanks for that clarification.

With respect to the Frontline vessels, the $216 million in cash that backs up the performance under the charters, that amount was reduced from when the deal was originally done; is that because of the sales that have occurred?

Yes, that is because of sales of vessels.

Okay.

So it's a $5.3 million per vessel.

Of course, as these leases now are -- we've had them on for five years, and there is a very significant remaining lease period, but the reserve is static, so that you can say that the reserve increases relatively to the outstanding on the -- of the remaining lease payments over time.

Okay.

Also with the sub charters that Frontline has -- have on those vessels, even in a weak market environment, we expect there to be a positive profit share, i.e., no need to eat into that cash reserve for quite sometime even if the market should be dramatically weaker than they currently are.

At this point, is it possible to say what your expectations are for profit share?

No, we don't make any representations as to the profit share.

The profit share is based on what these specific vessels generate in revenues over the calendar year.

Of course, that -- that's impacted everything from -- from the drydocking cycle, positioning, drydocking, et cetera.

But as we are talking about 39 vessels in total, on average the profit share has been very substantial, but can unfortunately give any guiding as to what it will be in 2009.

And that cash reserve that sits on Frontline books; is that right?

Yes, and it's pledged to the bank as security for the financing.

So this is --?

But if -- when -- if they need they can dip into that and subsidize the charter rates.

To us.

So it's structured in what's been called bankruptcy remote subsidiaries of the Frontline, and the cash can only be utilized to pay us in case the revenues from the market was too low to pay our base rate.

And -- but of course Frontline cannot take up any money from those subsidiaries where we charter in all these vessels until that reserve is restored again.

Right.

It's been a long time since the deal came, so thanks for the clarification.

And we've never ever dipped into the cash reserve during this five-year period.

Okay, that was my next question.

I thought that to be the case.

And then right now, are there any unencumbered or unpledged vessels within your fleet?

No, the vessels on the water have all very long-term charters and have financing, which are then matched to those charters.

We have not arranged any financing for the five container ships newbuildings that we have an order in China.

We expect -- so the yard installments there have been paid in as all equity.

We expect that there will be opportunities to arrange some financing on these, but as there is still quite sometime until delivery, scheduled late 2010, we have not arranged this yet.

Thank you very much.

Thank you.

And the next question is from [Marc Rising] from [Sinovet Funds].

Please go ahead.

Good morning, I'm sorry I tuned in a little late.

Could you just repeat how much the dividend is reduced, what the dividend payment will be per quarter, when the record date is, and if it's payable out of the cash flow, expected cash flow of the Company?

Yes, the dividend declared for the fourth quarter is $0.30 per share, which is payable in cash or at shareholder's election in newly issued shares.

This dividend is a reduction from the previous dividend of $0.60 per share, which is based on evaluation by the Board of Directors where it is believed that the Company can create more long-term value for shareholder by retaining additional cash and also by deploying capital opportunistically to capitalize on new market opportunities.

The dividend will be paid on or about the April 17th, and the reason for the late payment date is that we will send out an election card, after we file a prospective supplement, whereby investors can elect to receive the dividend in shares instead of cash.

The record date is March 9th and the ex-dividend date will then be March 5th.

And do you expect that that will -- the reduced divided is payable out of the cash flow?

Yes.

Or will you have to go into reserves?

No, we have very substantial cash flow from our projects.

So that is payable out of -- payable for the projects.

Very good.

Thank you very much.

Thank you.

And we have a follow-up question from Anders Rosenlund.

Please go ahead.

Yes.

The vessel sales in 2009 and 2010, could you just quickly remind us which quarter those sales are taking place and the gains which will be realized in your P&L?

Yes, currently based on our own estimates from our team at the shipyard, we estimate delivery of these vessels in the fourth quarter of 2008 and the -- fourth quarter of 2009 and first quarter of 2010.

This is after the -- we call it the base contract date, well within the permitted window from the shipyard.

We have a yard contract price of $71 million per vessel, whereof 60% of that is payable on delivery.

The agreement to sell the vessels is with immediate delivery after the delivery from the shipyard.

The buyer and we have -- and the net purchase price will be $108.5 million approximately after broker commissions.

The buyer has paid in around $16 million per vessel in cash deposits, and the balance is then payable on delivery.

Yes, sorry, and you also asked about the gains.

I don't have the exact number in front of me.

We estimated the gains when we made the press release, when we announced the deal.

I believe we -- I believe the extra gains is in the region of -- is the region of $68 million.

But I may find it --

Sounds familiar.

Yes, I think it's in that level.

Great.

Thank you.

Thank you.

We have no more questions.

Yes, so thank you all for participating in this fourth quarter's earning release call from Ship Finance.

We appreciate that you took the time to listen in.

And also for those who participated, thank you for the questions.

In the presentation, at the very end of the presentation, we have an outline of the finance leases with also forward four quarters.

We will have available for investors and analysts on a request basis, the full lease schedule on a vessel-by-vessel basis throughout the leasing period, to make it easier for -- which will also have a breakdown on the different components, and where that appears in the profit and loss statement, in the cash flow statement.

And this is made available to make it easier to analyze the Company and make projections going forward.

So thank you all.

That will conclude today's conference call.

Thank you for your participation.

Ladies and gentlemen, you may disconnect now.