SFL Corporation Ltd (SFL) 2010 Q4 法說會逐字稿

Good day and welcome to the Ship Finance International fourth-quarter results presentation.

Today's conference is being recorded.

At this time, I would like to turn the call over to your host today, Mr.

Ole Hjertaker, CEO.

Please go ahead, sir.

Thank you very much and welcome, everyone, to the Ship Finance International fourth-quarter conference call.

My name is Ole Hjertaker and I am the CEO in Ship Finance management and with me here today I also have our new CFO, Eirik Eide, and Vice President Magnus Valeberg.

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

Words such as expect, anticipates, intends, estimates, or similar expressions are indentify 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 (inaudible) markets.

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

The Board of Directors has declared an increased cash dividend of $0.38 per share this quarter.

This is the fourth dividend increase in 2010 and represents $1.52 per share on an annualized basis or 7.5% dividend yield based on closing price yesterday.

We have now declared to dividends for 28 consecutive quarters and $12.5 per share in total aggregate cash dividends.

Net income for the quarter was $30.5 million or $0.39 per share.

The fixed-rate charter revenues in the quarter, including subsidiaries accounted for as investment in associate, was $190 million or $2.41 per share, excluding any profit share contribution.

The EBITDA equivalent cash flow, including profit share, was $170 million or $2.14 per share.

The profit share contribution was lower than the $5.8 million in the third quarter, but we still generated $2 million despite a weak spot tanker market in the quarter.

According to Clarksons, the spot market so far in the first quarter has been in line with the fourth quarter.

Clarksons reported average modern VLCC earnings of $27,700 in the fourth quarter and $26,500 so far in the first quarter, but on a rising trend with $37,600 per day indicated last week.

We would like to note, however, that the numbers from brokers such as Clarksons do not factor in waiting time for cargo.

And what we typically see in a weaker market environment is prolonged waiting time and, therefore, correspondingly lower actual earnings for the vessels.

Many of Frontline's vessels have been sub-chartered on profitable terms above our base rate and will provide a positive contribution to profit share calculation irrespective of the spot market.

The base rate for VLCCs is approximately $26,000 per day and the profit share generated in the fourth quarter was, as mentioned, approximately $2 million.

In total, more than $500 million in profit share has accumulated since 2004 in addition to the base charter rates.

In addition to the three 57,000 deadweight tons Supramax bulk carriers we announced in August last year, we increased that by another two vessels in November 2010.

All the vessels are of so-called dolphin design and built at reputable yards in China.

The 2009 built vessel, SFL Hudson, was delivered to us in early October 2010 and the newbuilding, SFL Yukon, was delivered from the shipyard in December.

We expect to take delivery of the new building, SFL Sara, early next week and the remaining two vessels are then scheduled to be delivered in the third quarter of 2011.

The charterer for all five vessels is Glovis, an investment grade, Asia-based logistics company with a market capitalization in excess of $5 billion.

Average net charter rate is approximately $16,800 per day for all five vessels and we estimate operating expenses of approximately $5,300 per day per vessel.

There are no purchase options attached and we have now secured financing for all five Supramax vessels at very attractive terms.

In the quarter, we also secured five-year charters for our remaining four Handysize bulk carriers and the charterer for these vessels is [Hong Seong] shipping, which is part of [Yan Long Group], a privately-owned Chinese industrial conglomerate.

The vessels are scheduled to be delivered later this year and early next year, and with these charters all our newbuildings have been chartered out.

In the quarter, we replaced an $84.6 million senior unsecured bond in the Scandinavian market with maturity in April 2014.

The closing took place in early October so this financing is fully reflected in our accounts for the fourth quarter.

This loan is denominated in Norwegian kroners but all payments have been swapped to US dollar and the fixed interest rate is 5.32% per annum.

In January, we agreed to acquire a 2007-built jack-up drilling rig, Solana, from Apexindo, which is Indonesia's largest independent drilling contractor.

The agreed purchase price is $151.5 million of which $146.5 million will be paid on delivery and $5 million will be paid only if the current sub-charter to oil company Total is extended until March 2013.

The rig is expected to be delivered to us within the next two weeks and will be chartered back to Apexindo for seven years.

The agreed purchase price is very attractive compared to estimated charter freight values of approximately $180 million to $190 million for the rig.

The bareboat charter rate will be $72,500 per day initially, increasing to $75,000 per day if and when Total declares the extension option and we pay the seller's credit of $5 million.

At the end of the bareboat charter period Apexindo will have the option to purchase the drilling rig for $70 million plus an amount equal to 25% of the difference between the $70 million and the prevailing charter free market value at the time.

The rig is expected to be accounted for as an operating asset and, net of estimated depreciation and interest, the rig is expected to contribute $0.03 to $0.04 of earnings per share per quarter and slightly more in distributable cash flow.

In February, we placed a $125 million convertible loan in the European market.

The marketed range was 3.75% to 4.25% coupon and an initial conversion price of 30% to 35% above previous day's close.

We closed the books after only 90 minutes and achieved the lowest coupon and highest conversion price, and we are quite happy with that result.

We think terms are attractive and the coupon is significantly lower than the dividend yield on our stock.

We can choose between stock and cash settlement, and there is also a soft call option after three years depending on share price movement in this period.

We are continuing also our reduction of single-hull vessels.

Following the sales announced today, there will be only three vessels remaining, of which one is a double-sided vessel.

These vessels are sub-chartered by [Front] there for a longer period and we therefore don't expect to be able to sell these three vessels for some time.

The net proceeds to Ship Finance for the two vessels we announced today will be approximately $14.5 million after prepayment of debt and a $5.8 million compensation to Frontline.

The compensation to Frontline is reflective of the very low charter rate for these vessels until the end of the charter period.

The vessels only generate $1,000 per day net after operating expenses, and for us this is effectively locked up capital until 2014 to 2015.

We are, therefore, better off -- better served by releasing this capital now and can hopefully reinvest with much higher returns.

One of the very important features which Ship Finance is our long-term charter portfolio that gives us a very transparent and predictable cash flow.

Ship Finance is in a different league than most other shipping and offshore companies with more than 11 years weighted average charter coverage.

We have a total of $6.7 billion fixed-rate backlog or equivalent of $85 per share, and the locked-in EBITDA equivalent is approximately $5.9 billion or $75 per share.

These numbers are before profit share and does not include any rechartering at the end of the current charter period.

We do provide a full breakdown on an asset-by-asset basis on the backlog upon -- and you can receive that by sending us an e-mail at ir@shipfinance.no.

If you look at the segments where the cash flow will be generated, we see that offshore is the largest with $3.3 billion while tankers, where the Company started, is now only approximately 36% of the backlog or approximately $2.4 billion.

Over time, we expect to balance these four segments but it is, of course, more important for us to do the right transactions than to focus on a specific percentage per segment.

We have recently added to both the offshore and the drybulk sectors, but we see interesting opportunities for growth across all four segments.

Our key focus is on building our portfolio with accretive transactions.

Another key feature of the Company is the quality of the charter or charterers we have and the tenor of the charters.

We have a total of 13 customers and 95% of our charter backlog is with public companies.

This gives us, and our investors and stakeholders, a very good opportunity to monitor the quality of our backlog.

Close to 50% of the portfolio is with companies with a market cap in excess of $5 billion and more than 90% is -- or sorry, and close to 90% is with companies with a market cap in excess of $1 billion.

Also, the charter tenor, as indicated per segment in the previous slide, is quite unique with 75% of the portfolio in excess of 10 years and only 5% shorter than five years.

If we look at normalized contribution from our projects, and this includes vessels accounted for as investment in associate, the EBITDA, which we here define as charter hire plus profit share less operating expenses and general and administrative expenses, was in excess of $700 million in 2010.

Net interest was $162 million for the year or approximately $2 per share, but more importantly were normalized ordinary debt installments relating to the Company's projects was more than $400 million or approximately $5 per share.

We have approximately $3.6 billion of net interest-bearing debt, including all assets accounted for as investment in associate, and this loan amortization above indicates a repayment profile of nine years to zero.

This compared to our weighted average age of the fleet of less than 5.5 years.

If we continue at this rate, we will then effectively be debt free when the vessels are on average 14 years, while estimated commercial life for these vessels and rigs is between 25 and 35 years.

The net contribution from our projects in 2010, after the above significant repayments of debt, was $146 million or $1.85 per share.

And this compares to the aggregate declared dividends for the four quarters of $112 million or $1.41 per share.

So as you can see, there is a good cash flow buffer also after a very heavy debt repayment.

And with that, I will leave the word over to Mr.

Eirik Eide, who will take you through the numbers for the fourth quarter.

Thank you, Ole.

Moving on to slide 9, we have shown our pro forma illustration of cash flows for the quarter compared to the third quarter of 2010.

Now this is only a guideline to assess the Company's performance and is not in accordance with US GAAP.

For the fourth quarter 2010 the Company had an EBITDA excluding profit share of $167.6 million or $2.12 per share compared to $169.8 million or $2.15 per share for the third quarter 2010.

For the VLCCs, the revenues were somewhat negatively impacted by the sale of one single-hull vessel and two single-hull vessels entering on to the low rate level with their leases with Frontline.

These two vessels have subsequently been sold as announced today.

All the Suezmax tankers and the chemical tankers revenues were in line with the third quarter.

On the container vessels, they had slightly improved earnings due to the delivery of newbuilding container vessels, SFL Avon, in the fourth quarter.

This vessel entered on to a six-month time charter directly from delivery at $8,100 per day with an option to extend at $12,600 per day.

For the drybulk vessels, earnings improved to $17.2 million compared to $15.2 million in the third quarter due to delivery of two newbuildings, the SFL Yukon and the SFL Hudson, in December.

We expect the positive contribution of these vessels to continue in the first quarter with the addition of another newbuilding vessel scheduled for delivery next week.

We expect that this will contribute an additional $2 million in increased revenues for the first quarter for the drybulk vessels compared to the fourth quarter.

Operating expenses for these vessels are, as Ole mentioned, approximately budgeted at $5,300 per day.

On the offshore side, we are expecting increased revenues going forward as we take delivery of the jack-up drilling rig, Soehanah.

This transaction is expected to generate revenues of approximately $6.4 million per quarter going forwards.

For the first quarter this year, subject to the exact delivery date, we expect revenues of approximately $2 million.

The vessel operating expenses were slightly up from last quarter and this is due to the delivery of the three newbuilding vessels.

On the profit share side for the VLCCs for the quarter it was negatively impacted by the soft tanker market we have seen and came in at $2 million compared them with $5.8 million in the third quarter.

So overall for the quarter, we have an EBITDA of $169.9 million or $2.14 per share on a pro forma basis.

Moving on to slide 10, as we have described in previous earnings calls, our accounting statements are slightly different than those of an ordinary shipping company due to the fact that our business strategy focuses on long-term charter contracts.

And as a result of that, a large part of our activities are classified as finance leasing.

Therefore, a significant portion of our charter revenue is excluded from our book operating revenues and instead booked as revenues classified as repayment of investment in finance lease, results in associate, and interest income from associates.

Now comparing the revenues classified as repayment of investment in finance leases for the fourth quarter 2010 with the fourth quarter 2009, as you have in the table above, you will note that the fourth quarter of 2009 figures contains the transaction of one Suezmax vessel with a substantial profit where a large part of that sale was classified as a repayment of investment in finance lease.

The revenues on our subsidiaries that accounted for as finance leases were on budget for the quarter.

On results in associates and interest income from associates, they have changed somewhat from previous quarters due to the equity in these subsidiaries being changed to intercompany loans in order to simplify administration and accounting and forcing cash flow up to the parent company.

From January 1, 2011, the West Prospero will also be included in these figures as we negotiated a put option with Seadrill at the end of the lease, which significantly reduces the residual exposure on the asset for Ship Finance.

Ship Finance can exercise the put option in June 2022 for $40 million, while Seadrill has a call option for $60 million in the same year.

Hence, the accounting for the West Prospero will be reclassified using the same method and it will be accounted for as an investment in associate going forwards.

Note that the West Prospero was included in the P&L for the fourth quarter but is also reflected in the balance sheet as an investment in associate.

Moving on to our balance sheet, we show $87 million of cash at the end of the quarter plus an additional $5.6 million in restricted cash.

Stockholders' equity stands at just over $1 billion and that includes the $180 million of deferred equity which is mentioned in the footnote on this slide.

I will also comment here on the investments in associate and amounts due from related parties.

This relates to our 100%-owned subsidiaries that are not fully consolidated based on US GAAP.

You will note that a portion of the investments in associate has changed and moved to amount due from related parties for the same reason as I explained on the previous slide.

The West Prospero has, as mentioned, been moved from investment in finance leases to investments in associates and the book value of the West Prospero was approximately $133 million in the fourth quarter of 2010.

Okay, now moving on to the cash flow statement.

We showed net cash flow from operating activities on the US GAAP [of] $14.2 million in the fourth quarter compared to $12.4 million in the fourth quarter of 2009.

The net positive cash flow after investment and financing activities was $20 million for the quarter resulting in ending cash of $87 million.

I will also comment here that the repayment of investment in finance leases for consolidated assets under investing activities is part of the charter hire from consolidated vessels that are not included in our operating income.

And on the line cash received from or investments in associates there are only a part of the contribution from our subsidiaries and the balance is recorded as interest income from associates and reflected in the P&L.

Moving on to slide 13, this slide shows selected fourth-quarter income figures for each of the subsidiaries accounted for investments in associates.

These are our deepwater units, one jack-up drilling rig, and the company related to the drybulk vessel, Golden Shadow, which was sold in the fourth quarter.

All these subsidiaries have finance lease accounting.

Net income from these subsidiaries appear in the consolidated accounts as results in associated companies and the interest on intercompany loans appear as interest income from associates in the consolidated profit and loss statement.

Our net investments in these subsidiaries is in the form of intercompany loans and equity contribution, which appear in the consolidated balance sheet as investments in associates and amounts due from related parties long term.

Moving on to financing on slide 14, on the financing side, as Ole mentioned, we have approximately $1.9 billion of net interest-bearing debt at quarter end on our consolidated figures.

And then, in addition, our subsidiaries classified as investments in associates have about $1.6 billion of interest-bearing debt totaling approximately $3.5 billion in net interest-bearing debt.

There are no refinancing needs in the short term, and in the fourth quarter we successfully completed an offering of $85 million of senior unsecured notes.

The notes had a floating interest rate in Norwegian kroners, but has subsequently been swapped to a fixed US dollar interest rate.

The notes have, as Ole mentioned, an all-in interest rate of 5.32% per annum and mature in April 2014.

Moving on to the next point, we secured financing on all five Supramax bulk carriers where a bank provided financing for approximately 80% of the purchase price, all vessels with a limited corporate guaranteed.

In addition, we secured up to $95 million of financing for the jack-up rig, Soehanah, and this is a seven-year facility paying down to a balloon amount of $25 million at maturity.

In February 2011, we completed an offering of $125 million of senior unsecured convertible notes and these notes have an annual coupon of 3.75% and an additional -- an initial conversion price of $27.05 per share.

Now with the above transactions, Ship Finance has a strong liquidity position and substantial capacity for new business going forward.

Okay, moving on to slide 15, which talks about our newbuildings and capital expenditures.

We have remaining CapEx at this stage of $347 million in total where $195 million relates to the newbuilding drybulk vessels and $152 million relates to the jack-up rig, Soehanah, which is scheduled for delivery shortly.

We have committed financing in place for $170 million of these expenditures and are in advanced discussions for long-term financing of the remaining drybulk vessels.

The remaining three Supramax bulkers are expected to be delivered in first quarter, second quarter, and third quarter this year while the seven Handysize vessels are scheduled for delivery in the third quarter this year and up until the fourth quarter 2012.

Now moving on to slide 16, talking about the profit sharing agreement with Frontline.

Now even during the weak tanker markets we saw in the fourth quarter where Clarksons reported average earnings of about $27,500 per day, our profit sharing agreement with Frontline provided an additional $2 million in revenue above our base charter rates.

The rates reported by Clarksons, as Ole mentioned, did not include waiting time so the average actual waits are in effect lower than this.

The profit splits in the fourth quarter were negatively impacted by also the low tanker market we saw in the third quarter.

However, we have seen an increase in the tanker rates in the last few weeks.

In total, this means that $30.6 million of profit share will be payable to Ship Finance in March 2011.

This is the 28th consecutive quarter with profit share since the inception of the Frontline charters in 2004.

As Frontline now is reporting next week, we are not going to elaborate or comment further on the details of the charter revenues per segment.

Okay, moving then to the summary.

For the fourth quarter 2010 the Board has declared an increased quarterly cash dividend of $0.38 per share.

This is a dividend yield of 7.5% based on the closing share price of February 17.

The quarterly net income of $30.5 million or $0.39 per share and aggregate EBITDA of $169.9 million or $2.14 per share.

Our charter backlog continues to increase with further diversification, and this includes the new drybulk vessels and the acquisition of the jack-up drilling rig in the fourth quarter, which added approximately $190 million to our fixed-rate charter backlog.

And with that, I give the word back to the operator who will now open the call for questions.

(Operator Instructions) Jon Chappel, JPMorgan.

Thank you, good afternoon.

Ole, how have your conversations with the banks gone as you look to finance the drybulk vessels?

And what I mean by that is I know you had the financing for the Supramaxes at close 80%, but the drybulk market is not nearly as strong or the outlook is not nearly as strong as that -- as some of your off-shore projects.

And the charters are much shorter term in nature.

So are you getting stronger pushback from banks, especially as we hear that some of the traditional shipping lending banks are kind of trying to reduce their exposure to the bulk industries?

Well, I think our experience, and you know quite recent experience, particularly linked to these Supramax bulkers, has been very positive.

We see the banks provide financing pretty much in line with what we saw in early 2008 before the market turned south.

At that time, we saw banks willing to extend 80% leverage, which is the same number as we do for these vessels, and with only limited guarantee.

And I think part of the reason why -- there are two factors.

Of course, we are a relatively strong company and we are a fairly big player in the bank market, so many of the banks know us well and what we stand for.

Also, we also have to remember that these vessels now are at almost half the price that they were back in 2008.

So you could say from a banking perspective they provide 80% leverage, but of course 80% leverage on a much lower number.

So their, call it relative exposure, if you have a more cyclical view, is actually not too aggressive.

And if you match that with, of course, a very, very strong counterpart here for these vessels, I think the banks are quite comfortable.

And I think I mentioned that previously when we announced the first deal for these Supramaxes in August last year, we actually had several banks who were calling us the day we announced it who were very interested in providing financing at attractive terms.

So I think the bank market is selective, but as we see it it's definitely there, and we see banks quite supportive.

I would also say that is also reflective of the deal we got for the financing for the jack-up drilling rig, $95 million from one bank.

Right, all right.

So given that backdrop and your strong position with the banks, I have been hearing some talk of the banks kind of quietly placing assets with stronger counterparties as they focus on their own exposure to maybe some weaker ship owners and become a little bit more strict with loan covenants, etc.

You have mentioned that offshore and containers still look good, but this may be the time to be investing in tankers and bulk.

Have the banks been coming to you or has anyone been coming to you with any attractive, quote-unquote, distressed projects in the bulk markets given the weakness in those markets today?

Well, it's fair to say that we try to be fairly active in the market speaking to the different players, and we have looked at projects from time to time.

Of course, we would only do a deal if it makes sense for us and if we believe that it will be accretive to our distribution capacity.

So we wouldn't take on any asset necessarily just to help someone else out.

But we will see what 2011 brings.

I think if we look back, we -- our market view, if you look back two years in 2009 when we saw a lot of uncertainty in the market and we saw a lot of banks being under pressure, we did expect more banks to actually come to -- come out with assets that they might have to replace or find other owners for.

We didn't see that happening in any scale.

And I think the part of the reason then was that the banks themselves had issues with their old capital structure.

And of course, if a bank has taken on a certain asset and a transaction could impact -- that could lead to them having to take a small write-down, that was maybe not the time.

In the meantime, hopefully some of these banks have strengthened their balance sheets and maybe it's easier to also look at such solutions.

But we will, of course, announce any transaction we do whenever we do that, but so far we have not done any of those deals.

Okay.

Thanks for your time, Ole.

(Operator Instructions) John Parker, Jeffries.

Hi.

I noticed your amount due to related parties on the liability side of your balance sheet was jumping around over the last two quarters.

Can you explain why that happened?

If you don't have the answer now, we can do it later.

Yes, are you now -- are you now thinking of if you compare to the 2010 number to the 2009 number?

No, third quarter was almost zero and then it jumped back up to almost $33 million in the fourth quarter.

It seems like something happened in the third quarter.

Yes, that has to do with the investment in associates and how money flows out from those associates.

So this has to do when capital has been taken out of those.

It will then also appear here in amount due to related parties.

Okay.

I am happy to go through that.

It may not be of interest to all.

(multiple speakers)

Yes, I will call Eirik.

So we are happy to go through that.

So it's effectively matched by a similar number on the asset side relating to investment in associates.

Okay.

And then did you repurchase about 9 million bonds in the fourth quarter?

Yes, that is correct.

Okay.

And then with this scrapping deal which you just announced today, it seems to me that it must have been initiated by you, right, because if it was initiated by Frontline they could have broken the leases in 30 days.

So I guess the first question is the -- do you know, are the ships going to the scrap yards or do you know if they will continue to trade?

And then secondly, on the remaining single-hulls, could you approach Frontline with a similar deal?

Or I think you mentioned they are locked up on longer-term charters and they would not be willing to work on such a deal.

Yes, just to comment on the last first.

I believe the remaining single-hull vessels are locked up on charters that last for another three to four years.

So unless that sub-charter was willing to break those charters I wouldn't expect those vessels to be available.

You are absolutely correct; it has been initiated by us.

The reason why we think it does make sense to sell those assets and even pay Frontline compensation is that for us after these vessels came down on their low charter rate in -- and this was with the full effect in the fourth quarter -- we only earn a net $1,000 per day per vessel.

And the reason why was that the single-hulls earn essentially the same base charter rate as the double-hulls all the way from 2004 through 2010.

So you can say that, in effect, we amortized those vessels down in that period.

So when we only earn effectively around $360,000 per day net for these vessels and we have several million dollars locked up in each of them.

For us that is dead capital and we much rather prefer to be able to reinvest that capital and hopefully earn a premium return.

So that was the background.

And of course, the compensation is reflective then up Frontline's, you could call it, option to continue chartering these at $1,000 per day.

And as we know, single-hills may not have a very active trading life as regular tankers but they are used extensively as storage vessels.

Of course for Frontline, even at $1,500 per day it's a plus and of course they would then continue to keep those vessels.

So the compensation, we think, is a fair trade for us for getting the capital released now.

And do you know if the vessels are going to go in to be scrapped or do you not know?

These vessels are being sold to third parties so we are not scrapping them directly.

But I cannot comment on what these third parties may or may not do with the vessels.

And then finally, you have a few box ships or container ships on short-term contracts.

Are you looking at placing those on longer-term contracts or are you more waiting for a market to get a little stronger for long-term time charters?

And have you had any inquiries about long-term time charters on your container ships?

We have had to increase for longer-term time charters.

We have two 1,700 TEU container ships on shorter-term charters.

They are six-month charters with a relatively lower charter rate.

One vessel, it's the newer vessel, is at $8,100 per day the first six months, but with an option which is well in excess of $12,000 per day if exercised after that period.

From our side, the reason why we put it on a short-term charter was that we believe that market is strengthening and will strengthen.

And we will wait until we see a better market before we lock them up for a long period.

I cannot give you any specific guidance on when that will be, but I think -- I don't think -- I would say it's not our business strategy to trade these vessels in the short-term market.

So it's really more an opportunistic positioning of these assets to hopefully lock them in at better charter rates.

Would you consider selling them if the S&P market were attractive?

We are always opportunistic.

So if someone came to us and were willing to pay the right price and we felt that we could reinvest that capital at a premium rate, of course, we would evaluate that.

But our primary objective is, of course, to own assets and keep them employed long term and hopefully generate a nice contribution to our distribution capacity.

Okay, that is all I have.

Thank you very much for your help.

Phyllis Camara, Pax World Funds.

Hi, thank you very much.

Can you give us some indication of what you might want to do with your bond, your 8.5% bonds that are outstanding that are callable?

Yes, as you may recall, we -- in November last year we initiated a process where we looked at refinancing those bonds with another bond.

These bonds have a maturity in December of 2013 so it's still three years until final maturity.

And you are absolutely correct, the bonds can be called on 30-days notice at 101.4 and the call premium reduces to zero from December 2011.

I cannot give you any specific indication on if and when we will refinance that.

The bond loan started at $580 million back in 2003.

We have repurchased approximately half the loan so it's less than $300 million outstanding in the markets currently.

And so, from our side it will be more a question of when we feel the timing is right to do that.

And of course, we also have to keep in mind that we, of course, want to manage also, call it, the negative carry relating to taking out those bonds if the rate is too high.

The coupon on the bonds is around 8.5%.

We have bought back some bonds where we have some attached financing, so our average cost for those bonds are in the region of 7.75%.

So we have to measure that, of course, and the cost of taking them out with -- through the call option versus the coupon we will have to pay for a new bond.

And of course, weighted by the potential maturity for such bond.

As you have noted also, we have been -- we have raised some capital in the Norwegian market back in October.

We just recently raised a convertible note in the European market in February.

So it is our goal to have a diversified, call it, portfolio of capital market instruments and access markets whenever we feel timing is appropriate and we feel in terms are attractive to us.

Okay, thank you.

I was also thinking too that some people are worried that interest rates, especially in the US, or going up at some point, probably not maybe through this year but at some point.

Well, it will probably have to go up from here.

But that also brings the question, as interest rates do rise around the globe what do you guys think about how you can -- how you can finance new acquisitions of vessels going forward?

Do you worry about things like that or --?

Of course, appreciate that.

Of course, we look at that and we follow that market.

I think, if you look at our existing financing portfolio, I believe we have effectively hedged close to 90% of that through a combination of fixed-rate paper as the bond loan through interest rate swaps or through interest compensation clauses with our charters.

And as you point out, there is a fear in the market that there could be also be raising inflation, both in the US but also elsewhere.

I think, if you look at our portfolio, we own a portfolio of 70 vessels and rigs which are employed in the international trade, essentially transporting goods from one region of the world to another.

So you can also argue that maybe also our portfolio is, to a certain degree, a hedge on inflation in the world if -- as we would expect that inflation also would impact the residual value in our portfolio.

As we go forward, we will, of course, look at doing new transactions and new transactions in combination with the charters that we think are attractive.

And if and when assets should be more expensive from a replacement cost perspective, we would also expect that to be reflected in the charter rates obtainable in the market at the time.

So yes, it is something we, of course, look at and we try to have a view on.

But so far we think we are managing that in a relatively conservative manner.

And I also ask too, especially on the drybulk side, what are you seeing or do you get information from Frontline, since a lot of your or most of your ships are chartered to them and other groups, what is going on in the drybulk side as far as the actual flow of goods?

Everybody worries about China, and every time China raises interest rates it seems like the drybulk spot price goes down.

Do you see an actual change in the amount of goods that are being shipped around the world?

Yes, there is always the dynamic in the market for the transportation of raw materials, which is driven -- which of course a significant driver both on the drybulk side and the crude oil tanker side, but also for finished goods, which is more of a driver for the container market.

From our perspective, it's more important to look at our chartering counterparts because when we look at -- when we charter out our vessels we do that on a very long-term basis and, therefore, we have to expect that there will be fluctuations in the market from time to time.

We just have to focus on dealing with counterparties with a structure and a strength who can withstand such volatility in the primary markets.

We are, therefore, not directly exposed to any of these markets directly.

The only exposure you could argue would be in the residual value of these assets, and also through the profit split arrangement we have at Frontline which, as we indicated in the presentation, has generated more than $500 million in aggregate profit shares over the last seven years.

The fourth quarter was $2 million, but of course on year-by-year basis that profit share can never be possible.

So as we see it, it's more an icing on the cake than necessarily cash flows we need to see in the Company.

Okay, thank you.

And it appears we have no further questions at this time, gentlemen.

Okay.

Then I would like to thank everyone for participating in this conference call.

We look forward to speaking to you again in three months' time.

Thank you very much.

Thank you.

That will conclude today's conference call.

Thank you for your participation, ladies and gentlemen.

You may now disconnect.