SFL Corporation Ltd (SFL) 2017 Q1 法說會逐字稿

Good day, and welcome to the First Quarter 2017 Ship Finance International Limited Earnings Conference Call.

Today's conference is being recorded.

At this time, I would like to turn the conference over to Ole Hjertaker, CEO.

Please go ahead, sir.

Thank you, and welcome, everyone, to Ship Finance International and our First Quarter Conference Call.

With me here today, I also have our CFO, Harald Gurvin, and Senior Vice President, Andre Reppen.

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

Words such as expects, anticipates, intends, estimates or similar expressions 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 Commission.

The board has declared a quarterly dividend of $0.45 per share.

The dividend represents $1.80 per share on an annualized basis or nearly a 13.8% dividend yield based on closing price of $13.05 on Friday.

This is our 53rd consecutive dividend, and we have now paid nearly $23 per share in dividends or more than $1.8 billion in aggregate since 2004.

Aggregate charter revenues recorded in the quarter, including 100% owned subsidiaries accounted for as investments in associates, was approximately $152 million, and the EBITDA equivalent cash flow in the quarter was approximately $119 million.

Last 12 months, the EBITDA equivalent has been approximately $482 million.

And the reported net income for the quarter was $32 million or $0.35 per share after noncash amortization of deferred charges of $2.4 million relating to a financing arrangement and a $1.5 million positive impact arising from mark-to-market valuations of hedging instruments.

In March, we took delivery of the MSC Viviana, our second ultra-large 19,200 TEU container vessel from the shipyard in Korea.

She immediately commenced a 15-year bareboat charter to Mediterranean Shipping Company, or MSC, the world's second-largest container line.

This is the second of 2 vessels, and we estimate average EBITDA from these vessels of $31 million per year in aggregate.

The financing is by way of a finance lease matching the term of the charter and without recourse to Ship Finance.

Net cash flow to Ship Finance after this financing arrangement is approximately $6 million per year.

In addition, we have two 114,000 deadweight product tankers, also called LR2 type, under construction, with the delivery scheduled for the third quarter, most likely mid-August for the first vessel and late August or early September for the second.

The vessels have been chartered out on a time-charter basis to Phillips 66, with a minimum period of 7 years plus 5 optional years.

The minimum period represents a backlog of approximately $113 million, and the aggregate annual EBITDA contribution from the vessels is estimated to approximately $11 million on average.

There has been a technology shift in the container ship segment, where the new vessels are significantly more efficient than the previous generation vessels.

And in the logistics operations, like the container market, efficiency is everything.

We have, over the last few years, invested in these new design container vessels between 9,000 and 19,000 TEU, and most of our vessels are chartered to the world's 2 largest container lines.

We have discussed the new 19,000 TEU container vessels already.

And in addition, we took delivery of 3 new 9,500 TEU vessels to Maersk Line last year.

The year before, we took delivery of 4 similar 8,700 TEU vessels to Hamburg Sud, which will now be acquired by Maersk Line in a transaction to be completed later this year.

Of our 22 container vessels, only the 2010-built 1,700 TEU vessel SFL Avon is operated in the short-term charter market.

There were signs of a firming short-term charter boat market for container ships earlier this year, but this is now softening in most of the feeder trades.

The SFL Avon is currently chartered to a subsidiary of Maersk Line.

In April 2017, the 2003-built 1,700 TEU container carrier SFL Europa was renamed MSC Alice and commenced a higher purchase lease to MSC for a period of 5 years before the ownership is transferred.

The net bareboat charter is $1,600 per day, and the purchase price at the end is $1 million -- $1.75 million.

This vessel is debt-free, so there are no financing expenses.

This vessel was previously trading in the spot market and was detained in the port of Chittagong in Bangladesh for a period due to monies owed to the port by Hanjin Shipping, the prior charterer of the vessel.

We took all legal steps against this unlawful arrest, and the vessel was released in March this year and is now generating positive cash flow again.

In addition, we have 2 car carriers, the Glovis Conductor and the Glovis Composer, which have charters that expire later this year, and we intend to look for new charters for these vessels relatively soon.

Owning a significant fleet of vessels also means that we will have to continuously renew and diversify the fleet.

We have now agreed to sell the 17-year-old VLCC Front Scilla and the 20-year-old Suezmax Front Brabant to unrelated third parties.

The agreed net sales price is approximately $27 million for the Scilla and around approximately $12 million for the Brabant, including compensation for the early termination of the charters for Frontline.

There will most likely be a small booked loss relating to these sales, but the exact number is still not clarified.

The vessels are expected -- and then, of course, booked in the second quarter.

The vessels are expected to be delivered to their new owners in the second quarter this year, and Ship Finance will then have 10 crude oil carriers remaining on charter to our subsidiary Frontline, which includes 9 VLCCs and one Suezmax.

This is down from nearly 50 vessels at the peak in 2004.

The profit share arrangement on these vessels gives us interesting leverage to the tanker market and kicks in already from $20,000 per day for the VLCCs.

In 2015, we also changed the profit split calculation basis from annual to a quarterly basis, adding optionality value for us.

In the second quarter of this year, Frontline today guided $25,000 per day for 64% of their VLCC capacity, which also includes their newer vessels.

We, therefore, believe earnings on our vessels could be close to the profit share threshold this quarter, depending on how the remainder of the quarter will be.

In addition to these vessels, we also have the dividend potential from our $11 million Frontline shares, with a dividend payout of $1.65 million to us due in June this year based on the $0.15 dividend announced today.

In total, we will then have received $17.7 million in cash dividends from Frontline since 2015.

In addition to the Frontline vessels, we also have exposure to the crude oil tanker market through 2 modern Suezmax tankers, which are traded in a pool with sister vessels owned by Frontline.

For these vessels, the average charter rate in the second -- first quarter was approximately 21 -- $28,100 per trading day compared to our breakeven level of approximately $17,000 per day after interest and amortization for the vessels.

In 2017, we have covered nearly 3/4 of the vessel days with a combination of charters with a floor rate and profit split for these vessels, which will create a buffer if markets stay soft and still with some upside if and when the market strengthens.

And in addition to these crude oil tankers, we have 2 2008-built chemical carriers chartered until 2018 and the previously mentioned 114,000 deadweight product carriers to Phillips 66, which I have mentioned before.

We now have 25 dry bulk vessels in the fleet, with 15 larger vessels chartered out on a long-term basis and 7 Handysize vessels traded in the spot market.

One of our long-term objectives is to combine stability and predictability in cash flows with optionality, as we have seen over time that market volatility can generate super returns from time to time.

So when we negotiated the deal with Golden Ocean for 8 Capesize bulkers in 2015, we included a 33% profit split in addition to the base rate.

At the time, not much value was attributed to the profit split due to a soft chartering market, but we now see charter fixed [serves] as level close to our base rate of $17,600 per day.

Going back in time, and even if we include -- if we exclude the Chinese super cycle for bulkers from 2008 -- for 2008, we have seen charter rate levels well in excess of our base rates.

And while we did not expect it to happen so soon, we would not be surprised to see market rates move upwards later this year.

The profit split will be based on actual performance by these specific vessels, so we cannot guide you on if and when a profit share will materialize on the Capesize bulkers.

But as the profit share is calculated and payable on a quarterly basis, we believe there is good probability for profit shares over the remaining 8-year charter period.

For the 7 Handysize bulkers we currently trade in the spot market, the rates achieved this quarter were approximately $7,000 per trading day, which is up from the previous quarter.

There are indications that market sentiment may be gradually improving for this segment, and we intend to continue trading these vessels in the spot market until long-term rates improve.

Since the downturn in the energy sector began several years ago, many market participants and focused -- have focused on our exposure to Seadrill, one of the world's largest owners and operators of offshore drilling rigs.

However, I would like to start with our 2007-built jack-up drilling rig Soehanah, which was redelivered to us earlier this year after Apexindo completed a full special 10-year special survey at a very significant expense.

We have not had revenues on the rig since the first quarter last year, but at the same time, not had any running costs or stacking expenses either, as all costs were covered by Apexindo.

The rig is also debt-free, so there's no financing expenses relating to the rigs.

We have now agreed to bareboat charter out the [2007-rig] to be employed under a drilling contract with a national oil company in Asia for a period of 12 months with an option to extend the charter by additional 12 months.

This is through Apexindo, who knows the rig very well, and there is also a purchase option at the end of the charter in order to qualify for local requirements.

The rig is now being mobilized, with expected start-up in the drilling operations in June, when the bareboat revenues will start accumulating at a net rate of approximately $10,000 per day.

Switching back to Seadrill.

We have 3 drilling rigs chartered to a fully guaranteed subsidiary of Seadrill.

Together, the 3 rigs contributed $0.50 per share in quarterly distributable cash flow in the first quarter, which is equivalent to about 1/3 of our annual announced quarterly dividend of $0.45 per share.

One of these rigs, the West Linus, is sub-chartered to ConocoPhillips on a charter originally set to expire in May 2019, but which was recently extended until 2028, adding significant backlog for Seadrill.

Our other 2 drilling rigs chartered to Seadrill, the West Taurus and the West Hercules, are currently sitting idle.

The West Hercules is a harsh environment rig that has been upgraded for Arctic operations, and it was operating for Statoil in Canada until last year and is now idle in Norway and being marketed for new contracts in the North Sea region.

The other semisubmersible rig, the West Taurus, is idle in Spain.

Ship Finance acquired the West Taurus and the West Hercules in 2008 at an approximately cost of $850 million per rig and commenced 15-year charters to Seadrill upon their respective deliveries.

We structured the charters such that half of the aggregate charter rate was received over the first 5 years of the charters, with the balance spread out over the remaining 10 years.

While around 7 years remain on the charters, around 70% of the aggregate charter payments have already been paid to us.

The average net payable charter rates for the West Taurus and West Hercules is approximately $150,000 per day on average, which is only 40% of the initial charter rate.

This gives Seadrill a relatively low breakeven rate compared to where we started.

At the same time, Ship Finance has amortized more than 55% of the loans associated with the drilling rigs chartered to Seadrill.

The initial debt of the 3 rigs of $2 billion has been reduced to around $850 million, and the amortization continues at a rate of approximately $8 million per month.

Of this aggregate outstanding loan balance, only $240 million, or 28%, is guaranteed by Ship Finance, reducing to $235 million in June.

Seadrill is in the midst of negotiating a comprehensive restructuring plan and last week announced that they are in advanced discussions with certain third-party and related party investors and with secured lenders on a comprehensive recapitalization.

The company has stated that they are in receipt of a proposal from these investors, which remains subject to further negotiations, due diligence and documentation.

The company further stated that any comprehensive restructuring plan may ultimately involve Chapter 11 bankruptcy proceedings or similar schemes or arrangements, and we have discussed the related risk to Ship Finance in greater detail in our 2016 annual report filed on Form 20-F in April.

While the outcome of these discussions and negotiations is unknown, Seadrill has never missed a charter hire payment, and it is continuing to pay us the full charter rate as per contract.

According to the company, their business operations remained unaffected during this period, and they expect to continue to meet their ongoing customer and business counterparty obligations.

In the meantime, Ship Finance continues its deep reschedule -- scheduled repayment profile on our loans associated with these drilling rigs.

We believe it will be in all stakeholders' interest to have a financially stronger counterparty and is engaged in a constructive dialogue with Seadrill to find a sustainable path going forward.

This will in due course also include discussions with the banks that are financing the 3 rigs in order to find a balanced solution.

We intend to be as transparent as possible with our shareholders relating to this, taking into account the sensitivity of the matter regarding these complicated, multilateral negotiations, but cannot give any more details at the moment.

If we then switch to our performance last 12 months, the normalized contribution from our projects, including vessels accounted for as investment in associates, the EBITDA, which we define as charter hire plus profit share less operating expenses and general and administrative expenses, was $482 million in the period.

Net interest was $101 million, or approximately $1.10 per share, and our normalized ordinary debt installments relating to the company's projects was $182 million or nearly $2 per share in the 12-month period.

This is excluding prepayments relating to sale of other assets.

Net contribution after this was $197 million or $2.11 per share over the last 12 months.

For the same period, we have declared dividends of $1.80 per share or $168 million in aggregate.

And with that, I will give the word over to our CFO, Harald Gurvin, who will take us through the numbers for the first quarter.

Thank you, Ole.

On this slide, we have shown a pro-forma illustration of cash flows for the first quarter compared to the fourth quarter.

Please note that this is only a guideline to assess the company's performance and is not in accordance with U.S. GAAP.

For the first quarter, total charter revenues before profit share were $143.8 million or $1.54 per share, slightly up from the previous quarter.

VLCC and Suezmax revenues were slightly down in the quarter due to the sale of the VLCC Front Century in March and lower revenues from the 2 Suezmax tankers trading in a pool with 2 sister vessels owned by Frontline.

Liner revenues were up in the quarter due to a full quarter of earnings on the 19,000 TEU container vessel delivered in the end of December and delivery of the second 19,000 TEU container vessel in March, both with 15-year charters to MSC.

The second vessel will have full earnings effect in the second quarter.

Offshore revenues were slightly down due to fewer days in the first quarter compared to the fourth quarter and a scheduled reduction in the bareboat trades for West Taurus.

We recorded a profit share of $5.6 million under the 50% profit share agreement with Frontline, down from $6.8 million in the previous quarter.

The crude oil tanker market remained relatively strong in the first -- into the first quarter, but softened towards the end of the quarter and continued downwards into the second quarter.

We also recorded a profit share of approximately $60,000 relating to some of our other vessels.

So overall, this summarizes to an adjusted EBITDA of $118.7 million for the quarter or $1.27 per share, down from $120.6 million in the previous quarter.

If we look at the cash flow mix from the segment and compare it to the mix 2 years ago, the liner vessels have grown considerably relative to the other segments and is up from 16% to 26%, while offshore is down from 44% to 33%.

The tanker segment is also lower as a consequence of sale of older vessels and lower profit share and was 23% this quarter compared to 29% in 2015, while the dry bulk segment is up from 11% to 18%.

We then move on to the profit and loss statement as reported under U.S. GAAP.

As we have described in previous earnings calls, our accounting statements are slightly different from -- than those of a traditional shipping company.

As our business strategy focuses on long-term charter contracts, a large part of our activities are classified as capital leasing.

As a result, a significant portion of our charter revenues are excluded from U.S. GAAP operating revenues and instead booked as revenues classified as repayment of investment in finance leases, results in associates and long-term investment and interest income from associates.

If you wish to gain more understanding of our accounts, we will also, this quarter, publish a separate webcast, which explains the finance lease accounting and investment in associates in more detail.

This webcast can be viewed on our website, shipfinance.bm, under Investor Relations and Webcasts.

Overall for the quarter, we report total operating revenues according to U.S. GAAP of $97 million, which includes the profit share from Frontline.

The 2 19,000 TEU container vessels delivered in the end of December and March with a 15-year bareboat charter to MSC have been accounted for as finance leases, with revenues split between charter revenues - finance lease and revenues classified as repayment of investment and finance lease.

The repayment part of the lease is deducted from our operating revenues, but included in our cash flow statement.

The corresponding 15-year lease financings have also been accounted for as finance leases, with the interest expenses under the leases included under interest expense in our income statement, and the installments under the leases included under repayment of lease obligation liability in our cash flow statement.

A full breakdown of these leases can be obtained by using the contact form on our website, shipfinance.bm.

Total operating expenses were $57 million, resulting in an operating income of $40 million.

Interest expenses were up in the quarter, mainly due to a full quarter of interest expense under the lease financing for the 19,000 TEU container vessel delivered in December.

We also recorded a positive noncash mark-to-market of derivatives of $1.5 million during the quarter and $2.4 million of negative noncash amortization of deferred charges.

So overall, and according to U.S. GAAP, the company reported net income of $32.3 million or $0.35 per share.

Moving on to the balance sheet.

We show $62 million of consolidated cash at the end of the quarter, excluding amounts freely available for draw down under revolving credit facilities.

The 19,000 TEU container vessel delivered in March is included under investment in finance leases, with the corresponding lease financing included under other long-term liabilities.

Stockholders' equity was approximately $1.1 billion, giving a book equity ratio of 37% at the end of the quarter.

Now looking at our liquidity and capital expenditure.

The company had total available liquidity of approximately $254 million at the end of the quarter, which includes approximately $192 million freely available under revolving credit lines.

Available for sale securities of $125 million includes the investment in senior secured bonds and other securities with a fair value of $51 million at quarter end and also our 11 million shares in Frontline with a market value of approximately $62 million based on the closing share price Friday.

Moving on to the CapEx.

We have 2 new building product tankers under construction at quarter end, with scheduled delivery during the third quarter of 2017.

The remaining CapEx before financing is approximately $33 million per vessel.

We are in advanced discussion with respect to the financing of the vessels and expect to secure a competitive financing before delivery.

Then to summarize.

The board has declared a quarterly cash dividend of $0.45 per share for the quarter.

This represents a dividend yield of close to 14% based on the closing share price Friday.

Net income for the quarter was $32 million or $0.35 per share.

The second of the two 19,000 TEU container vessels with 15-year charters to MSC was delivered in March and will have full earnings effect in the second quarter.

We continue our fees renewal with the sale of 2 additional older tankers.

We have a strong liquidity position and limited remaining CapEx.

And with that, I give the word back to the operator who will open the line for any question.

(Operator Instructions) And I'll take our first question today from Magnus Fyhr of Seaport Capital.

I just had a question on kind of the opportunities going forward.

I mean, you guys have been pretty quiet as far as the acquisition front, which is understandable with the Seadrill restructuring hanging over you guys.

Can you talk a little bit about where you see opportunities on the different segments?

Is the container segment the best area of future investments?

Or what are you guys seeing currently?

Yes.

Thank you, Magnus.

We are, call it, currently looking at opportunities, I would say, across the board or in terms of our sort of market segment focus.

We still -- we do think that container ships are interesting.

Of course, in the near term, there is, I could say, a relative soft chartering market for container ships.

There was some improvement earlier this year.

That has softened off a little bit.

But we think, longer term, certainly for the new, call it, more efficient type vessels, we believe there are -- there could be very interesting opportunities also going forward.

But we also see good investment opportunities, or call it project opportunities in our other segments.

So we are looking at deals potentially on the tankers side.

We're looking at deals on the dry bulk side.

And also in the gas carrier business, there could be opportunities.

I would say we would be a bit careful, at least now in the near term, in the offshore space so certainly, one could say -- when we still have the Seadrill restructuring going on.

But at the same time, if we have the right type of counterparty with the right type of asset, we could also look at opportunities there.

We have a decent capital available.

We had around $250 million of cash at the end of the first quarter.

Of course, we believe it's, one could say, sound to have a solid balance sheet and -- but we hope to also deploy some more capital going forward.

We are taking delivery of 2 -- our 2 last vessels in the new building program later this year, with a relatively small net investment.

And I think we are well positioned for new opportunities.

Okay.

And the ConocoPhillips contract was extended -- a longer backlog, but at slightly reduced rate.

I guess, has there been any discussion there with Seadrill regarding that rig?

Or is that going to be part of the bigger restructuring package?

We have not discussed that rig in particular relating to the charter specifically.

Of course, it's very positive that in the context of a relatively soft drilling market, a quality operator like ConocoPhillips, who has had the rig on charter for 3 years now, that they want to extend the charter for that rig until 2028.

It demonstrates both that this asset is performing well and also that ConocoPhillips has confidence in the, we'll call it, ability to Seadrill to continue operating that asset for them with a quality standard and efficiency standard that they, of course, would expect.

That rig is drilling at the Ekofisk field in the North Sea, where you have a very long drilling program lined up already.

There are some -- there is a market adjustment factor kicking in from 2019.

So exactly what the rate will be down the road is not known.

But of course, this is a harsh environment specialized type of rig, so we do expect that the rates in this area will be higher than for, I would say, generic standard type jack-ups in the market.

But relating to Seadrill, we still have that contractual charter with them, where we have a rate -- one rate until 2019 and then stepping down thereafter.

But as I mentioned in -- earlier, when I discussed the whole drilling segment, we are in a discussion with Seadrill relating to the 3 drilling rigs.

So -- but can, unfortunately, not give any sort of specifics on what our discussions are relating to the individual rigs.

But of course, it's clear that there is certainly a need for this rig in -- for the long run.

All right.

And it's good to see that you guys extended the contracts -- or the Soehanah is going back to work.

Can you -- is the option period there -- I guess, it was $4 million during the fixed period.

Can you provide any color on what the option -- is at that same rate?

Or is at a higher rate?

It's at the same rate.

And of course, this is at the oil company.

It's at the oil company's option to extend.

So we have not, call it, included that in the -- sort of in the guiding or backlog.

But we believe it's very positive that the rig is going back to work.

Having a warm rig is always better than having a stacked rig.

One thing is that, of course, you stay -- you save the stacking costs, but the other is that seeing -- looking through this downturn in the drilling market, we believe when the market does come back, we believe the warm assets will be clearly preferred by the oil companies.

And therefore, despite the charter rate here not being as high as one could wish for, we believe that it also -- it positions the rig well for what we hope will be a recovery in that segment.

(Operator Instructions) We'll now move on to our next question, which comes from Fotis Giannakoulis, calling from Morgan Stanley.

Ole, I want to focus again on the Seadrill relationship.

Can you clarify, what is the -- what happens in a scenario of a Chapter 11?

What is the relationship between you and Seadrill?

And how does the intermediate companies, the single-purpose companies that own the rigs work?

Yes.

I mean, the relationship we have with Seadrill is what we think, call it, the structure of it is that we have chartered these 3 rigs on individual charters to 3 subsidiaries of Seadrill, but they're all fully guaranteed by Seadrill Limited.

So we have outlined in our 20-F report various, call it, risk scenarios relating to, call it, Chapter 11, the potential Chapter 11 proceedings, as Seadrill has indicated when they reported earnings last week, that they -- that a restructuring could include such, call it, features or that.

We are -- of course, on our side, there are 2 things.

I mean, one, there are -- the institution of Chapter 11 is to ensure that the commercial part of the company continues while the financial part is being restructured.

And as we've just talked briefly earlier here about the West Linus, which now has been extended for a long period, which is of course very positive, I would say, in any of the restructuring discussion.

We cannot discuss specifics on, what you could say, what we are talking to Seadrill about.

Seadrill did file in January, they filed some documents relating to the discussions they had in the fall, and they haven't given any more specifics to date.

So I can, unfortunately, not be specific on that.

We do of course take our own, call it, legal advice relating to whether it's Chapter 11 or other call it potential situations.

And our objective here is, of course, to maximize risk adjusted return for us.

We do believe that having a stronger, call it, Seadrill is a benefit for all and I would say all other stakeholders in that company.

So our intention is to contribute in a positive way.

And we also -- if you look at the structure, we have the -- these rigs on charter.

We also have financing, where we have limited guarantees.

So you could say that while the loan amounts associated with all these 3 rigs, including the West Linus, is around $850 million, in aggregate, our guaranteed exposure, you could say that Ship Finance, the financial exposure, is in a worst-case scenario, is limited to $240 million, reducing to $235 million in June.

So this is all factors that we will take into any discussion or consideration when we look at what solution could come up.

So let me understand this.

So is there -- there is a possibility obviously to restructure the leases.

What is the possibility of canceling completely the leases?

And how -- what is your relation -- are you a secured lender to Seadrill?

Or you are an unsecured lender?

How would you be treated in a situation that leases are being canceled?

Of course, this is a very hypothetical setting, because the -- they are performing 100% of the charters.

And so this is just relying on, what you would say, what they have communicated to the market relating to their financial structures.

So -- but you can look at the -- I mean, these are bareboat charters.

So from that perspective, of course, there are charter arrangements.

At the same time, they have -- they are very long term and have very, call it, financial features relating to them, including the purchase obligation at the end of the charter period.

I cannot give any sort of specifics on what our current thinking.

I hope you appreciate that, I mean, as we are, what you say, in some certain discussions, we do not want to be too specific -- be specific on what we believe, call it, an outcome would be.

But we are, as I mentioned, focused on maximizing of course our, call it, position in the -- in that restructuring.

And we believe, if you look at the assets -- test we talked about the West Linus, we also have the West Hercules, which is currently idle in Norway, but which was operated for very significant amounts just a few years ago and is now fully winterized for Arctic operations with all features.

Of course, if you look at it, there's been quite a bit of activity in that market segments.

You've seen a few charters in there.

So we believe that segment could be, call it, well represented in that -- in the drilling segment, maybe one of the earlier subsegments to pick -- where the activity could pick up and where there are relative few assets available.

So then you can sort of look at the various charters and you could say, in certain scenarios, you could say that maybe we could even take the rig back, and then that could be a benefit for us.

I'm not saying that, that is what we are discussing at the moment.

I'm just saying that there are various options, call it, available to us, and we want to, of course, maintain our negotiation flexibility.

Thank you, Ole, for the detailed answer in an impossible-to-answer question.

I want to go a little bit on your liquidity.

Your liquidity is very strong, and it's relatively unchanged compared to the previous quarter.

I wonder, there are certain refinancings that they are coming due, the 2 car carriers that you mentioned that you are looking for redeployment.

And I was wondering, these 2 car carriers, the -- how the refinancing is going?

And also, the maturities of the Norwegian bond and the remaining convertible, how are you thinking of refinancing this?

I think -- this is Harald here.

I think if you look at the 2 car carriers, those have a very limited balloon payment at the end of the loan in December.

So that's something we will look into once we have more clarity the on deployment situation of the vessels.

So that's a very manageable situation.

If you look at the Norwegian bond, that's, of course, coming up in October.

That market is definitely open for us.

We are -- and also the same with the convertible coming up in February next year, where we took out a good chunk when we did the convertible in October last year.

So -- but if you look at the Norwegian bond, of course, that's something we can also cash out with our liquidity if we want to.

That's exactly what I'm trying to model here is, are you going to take it out with your cash position?

Or you are thinking of refinancing at the same amount or even higher amount with maturities?

I'm talking about issuing a new convertible for the remaining kind of maybe $5 million in a new -- in a small Norwegian bond of $65 million?

What we always try to maintain is flexibility.

So yes, I mean, you -- as you know, we have -- we have now 2 convertibles with 2, I would say, distinct different features attracting, I would say, a different investor base.

One with a higher conversion, call it, a higher dividend adjustment factor with lower coupon and the other with a higher coupon with a lower dividend adjustment factor, which is really tailored because we wanted to attract maybe different investor audiences.

We believe the bond market is open both in Europe and in the U.S. So we would -- we could look at both those opportunities.

And also if you look at the convertible we have coming due in 2018, you could argue that with the dividend we have just announced, and if the investors believe we can continue to pay dividends, we -- some would argue that maybe that would also be converted effectively -- to equity by the investors.

We also have a feature there where we can trigger conversion to shares for most of it at the time if we want to.

Again, it's all about building flexibility for ourselves.

So I think we have a pretty robust financing situation and flexibility with what I would say limited and very manageable refinancings coming due in the next few months.

Ole, one last question.

I want to see how you are thinking about the acquisition opportunities in -- across the different sectors.

Your tanker exposure is being reduced -- has been reduced significantly the last few years.

And it seems that with the exception of the 2 older -- the 2 new building vessels, unless you invest additional capital in this segment, is going to become a very small portion of your exposure.

Do you see additional opportunities in this sector?

Any potential sale and leasebacks that you can rebuild your exposure in the tanker sector?

And how do you view -- if not, how do you view the dividend going forward, given the fact that the profit share is reducing, given the lower market and the sale of the older assets?

Yes, well, the -- we have a tanker fleet, which is correct, that is reducing, which is really a consequence of the original deal done back in 2004, so more than 13 years ago.

And as we all know, vessels have a finite life.

So you have to make sure that you continuously, call it, renew the fleet if you want to have a sustainable model.

Our -- we started with all our assets in one basket.

We had only tankers in the fleet at the beginning.

So our objective, then, earlier on was to make sure that we diversify effectively away from only tankers to have resilience to market volatility.

We are looking at opportunities, I would say, also in the tanker market, a couple of opportunities as we speak.

But we -- what we prefer to, one could say, we prefer to announce deals when we do them and not, one could say, be too specific on dollar amounts, potentially to be invested or timing.

It's all about doing the right deal and not necessarily have to do a deal because you have promised, call it, promised the market.

So we will have to come back to that.

If you look at the dividend that we are paying and have paid, typically, that the dividend is set -- or I would say, generally, which is what we always say, the dividend is set by the board quarter-by-quarter.

And what they have guided is that when it's at -- it's not linked to specific earnings in one specific quarter.

It's typically a perspective on expectations for long-term distribution possibility.

So you could say that the long-term dividend, call it, we can pay will of course also be depending on -- depend -- a little bit dependent on how we can deploy our capital in an accretive manner going forward, in addition to renewing the fleet, as we have continuously done over the years.

So does this mean that even if the profit share goes away in a -- for a short period of time, you would be willing to support the dividend using your existing liquidity?

I cannot give you specific guiding on that.

As I said, this is set by our board.

So I'm not -- I cannot give you specific details on that.

But as I said, the profit split has varied.

Some quarters, it's been very, very high.

Other quarters, it's been lower.

And the dividend has previously not been directly linked to the profit share from the tankers.

We also, of course, have a profit share from bulkers that could potentially kick in.

It hasn't done it so far and didn't do it in the first quarter, but over the year, we have -- still have 8 years remaining on those charters to Golden Ocean, with a 33% profit share calculated on a quarterly basis.

So over time, as we see the various segments go, I would say, sort of up and down in a relatively cyclical manner, and hopefully, we will also see some profit share coming out of those assets.

We'll now move on to our next question today from Richard Diamond of Strait Lane Capital.

Can you address the subject of Chinese leasing capital coming into the borrowing markets for shipping?

They seem to be providing significant financing right now, and I just wondered if you could give your opinions on their degree of discipline.

Well, yes.

Thank you, Richard.

That market is significant.

And you are absolutely correct, there's been quite a bit of activity in that market.

We, ourselves, have just recently taken delivery of 2 very large container ships financed with effectively Chinese lease capital.

The benefit we saw there was cost-efficient, call it, capital; full 15-year maturities, so we don't have refinancing risk during the, call it, the charter period or -- and the financing period, and also without recourse to Ship Finance.

So for us, it's -- we think it's what you could say, in addition to our other various funding sources, it's certainly a market that we will continue to look at.

That doesn't mean that it works for all, and so you really have to look at it from case to case.

And also, there are certain asset types, and this is generally for various, call it, capital providers, some banks prefer one type of asset, other banks prefer other types of assets.

So from time to time, you have assets that you feel fit well with this capital provider, and then you can make it work.

But I think, generally, the Chinese capital market has been quite active, and we believe it will continue to be active.

We've seen the Japanese market also quite active.

The classic shipping financiers, the typically the European banks, have not been that active the last couple of years, I would say partly I think -- I'm sure due to, call it, the volatility on the offshore space.

But I am confident that most of the bigger banks also in the European market will continue to be there and support the market.

For us, it's important to have a diversification in our, call it, funding sources and not to be dependent on one single, call it, financier.

So that's why we have in our portfolio, we have lease financing, we have Sinosure type backed financing, we have traditional bank financing in the European market, and we are looking at one could say various financing options for our assets to both diversify and also optimize our capital.

Is it fair to say that these international markets favor the larger, more sophisticated borrowers over the individual traditional ship owners?

I mean that -- absolutely, absolutely.

You are 100% correct.

What we have seen, I would say, it started I would say more in the traditional fund bank financing market, the clear focus are the large listed entities with multiple, call it, with access to multiple markets.

That's also why we have a couple of bonds in the European market.

We have a couple of convertibles in the U.S. market.

Again, it's all -- we set out to ensure that we have access to various sources of capital.

And if you are a bank financing in the shipping market and you know that underlying markets are from time to time very volatile, you have to ask yourself the question who is the, effectively, lender of last resort?

What many banks have experienced in the past is that they've lent out to a certain asset market for whatever reason has gone down, and the bank has to come up with more money to effectively save the rest of their investment.

What they prefer are companies who have more resilience and therefore, over time, can be more robust in the market.

So they clearly prefer the larger listed entities.

And Ship Finance now we have a 13-year history.

Our stock is one of the most highly -- most-traded shipping stocks in the U.S. market.

We have a relatively wide shareholder base, and multiple products fit straight in the sweet spot, I would say, for what the banks ask for or wish for when they look at their client base.

At this time, there are no questions in the queue.

(Operator Instructions) We'll now move on to our next question from [Paul Gate] from Walter Meadows Investments.

I was just wondering if the company is considering acquisition of any other leasing -- ship leasing companies or maritime leasing companies that are out there with a share price that's depressed relative to their book value?

Yes, thank you.

I mean, yes, we are always on the lookout for what we could say, accretive opportunities, whether that is specific vessel acquisitions or one could say companies with portfolios of assets.

Of course, our first and foremost focus would be on the asset portfolio and what you could say, even -- you could say that even if a share price -- even if share prices come down, that doesn't necessarily mean that the company is cheap.

It all depends on the quality and what we believe are long-term cash flow characteristics of their assets.

But yes, it's certainly something we would look at.

And for us, it's really long-term accretion per share on a risk-adjusted basis.

But of course, you could say that in certain situations, if you have competed for deals, say for an asset type, and someone were willing to take it at a lower rate than we felt was appropriate, of course, then we wouldn't go around and buy that company later at a premium.

So we -- so that also -- so far, we haven't been able to find situations where we believe -- where we have seen that we could buy companies in an accretive manner.

But we are, I would say, constantly evaluating situations, and we wouldn't hesitate to do that if we had the opportunity.

(Operator Instructions) There appear to be no further questions over the telephone.

Therefore, I would like to turn the call back to the speakers for any additional or closing remarks.

Thank you.

And I would like to thank everyone for participating in our first quarter conference call.

If you have any follow-up questions, there are contact details in the press release, or you can get in touch with us through the contact pages on our web page, which are www.shipfinance.bm.

Thank you.

That will conclude today's conference call.

Thank you for your participation.

Ladies and gentlemen, you may now disconnect.