Tsakos Energy Navigation Ltd (TEN) 2008 Q3 法說會逐字稿

Good morning. My name is Keisha and I will be your conference operator today. At this time, I would like to welcome everyone to the Tsakos Energy Navigation third-quarter earnings conference call. (Operator Instructions).

Mr. Rozycki, you may begin your conference.

Thank you, Keisha, and good morning, everyone. Thanks for joining us for Tsakos Energy Navigation's third-quarter 2008 earnings conference call. By now, you should have received a copy of the earnings press release. If you have not, please contact Sarah Freeman of CJP Communications at 212-279-3115, extension 244, and she will be happy to e-mail a copy of the release to you.

Again this quarter, TEN is providing a supplemental slide presentation with fleet employment and financial data, which can be accessed from the front page of TEN's website at www.tenn.gr. Please note that this is an informational presentation only and will not directly reflect the flow of management's comments on the call this morning.

As a reminder, this conference call is also being webcast. To access the webcast, please refer to the press release for the Web address, which will direct you to the registration page.

At this time, I would like to read the Safe Harbor statement. This conference call and the accompanying slide presentation contain certain forward-looking statements within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995, and thus there is a caution that such forward-looking statements involve risks and uncertainties which may affect TEN's business prospects and results of operations. Such risks are more fully discussed in TEN's filings with the Securities and Exchange Commission.

With that said, I would like to turn the call over to Mr. Nikolas Tsakos, the President and CEO of Tsakos Energy Navigation. Nik?

Thank you, Tom, and good morning, good afternoon to all of you, the ones on this side and the other side of the Atlantic. We want to welcome you on our 59th -- 60th consecutive quarter of profitability and conference call. I understand at the time, we have about 60 participants on the conference call. This is the highest number of participants we have had, which is old news, but in this depressed market otherwise, people want to hear some good news. And hopefully we can keep on offering good news to all of you, to our shareholders, and let you know how the market is.

Our 60th quarter has been again an operationally record-breaking quarter, with the Company increasing our revenues to about $158 million against $122 million of last year's, and of course, our earnings per share and operating earnings per share to close to $41 million against $18 million of a year ago.

So whereas there is a lot of uncertainty out there still in the shipping, the tanker shipping is performing quite well. Looking in the imminent future, the fourth quarter that we are right now almost halfway through, we expect to have -- to be able to deliver a similar performance. And I am knocking on wood. And hopefully, this year can be another record year for TEN. And looking forward, the Company is well-designed, I hope, to take advantage of opportunities that may arise.

With this very short presentation, I will ask our Chairman, Mr. Stavropoulos, to give us his wise, wise thoughts. And then our COO, George Saroglou, and Paul Durham and the rest of the team will be open for your comments and questions. Thank you.

Thank you very much, Niko, and good morning from me as well. As Nikolas suggested, we've just celebrated our 15th anniversary. It has been a remarkable period, marked by three tanker industry cycles. As Nikolas pointed out, we have been profitable in each and every quarter, despite the ups and downs in the industry.

This consistency of profitability has not been at the expense of growth. TEN commenced operations of four vessels and today has a diversified, young fleet of 50 vessels, including five newbuildings on order.

1994, its first full year of operation, TEN had net income of $2.6 million. By 2001, its profits had grown to $24.6 million, 9.5-fold. During that period, it paid only stock dividends, but its share price increased over 67%, or some 8% compounded.

More importantly, very timely orders, the newbuildings commencing in 1997 during the Asian crisis have provided a base for fleet renewals, fleet growth and very handsome gains from sales. In the aftermath of 9/11, TEN took the bold step to initiate a US IPO, raising $110 million of new capital and a listing on the New York Stock Exchange to complement its eight-years listing in Oslo. This was the basis of further expansion of newbuilding orders in a very depressed environment.

Fast-forward to 2007 -- TEN had profits of $183 million. This year, it has just reported record earnings of $175 million for the first nine months, a 34% gain over the like period in 2007.

Since the March 2002 IPO listing, TEN has paid 13 semiannual cash dividends and split its stock two for one in November of 2007. Interesting statistics, but they don't necessarily produce shareholder rewards. What the acid test for total returns and dividends and share appreciation over the long term indicate is that since TEN's IPO in March of 2002, the Company's shares have produced an internal rate of return -- mark it down -- 25.6%. This compares with a [pre] company peer group of 8.7% and an IRR to the S&P Index 500 -- hold your breath -- a negative 1.5%.

Clearly, TEN has rewarded its shareholders very, very well. The tanker industry has enjoyed six consecutive years of prosperity. What does the future hold? Obviously, serious storm clouds have gathered over the world's economy and no industry is disengaged. However, a demand for petroleum [niche] products is less elastic than most commodities.

Despite evidence of some demand disruption as a byproduct of the recent record high oil prices, overall consumption has remained fairly stable. As a result, oil has not experienced the much wider swings in demand as have other commodities, which has severely impacted the dry cargo and container segments of the shipping industry.

The major contributor to this is the pristine credit standard -- standing of most major industry shippers. Therefore, they are not reliant to the same form of letters of credit and other assurances of payment as are some of the other participants. I think TEN's management has wisely equipped boats and crews with all-weather gear, as you will hear the story about the employment strategy, etc. If 2009 produces less calm seas, then I am confident that they will nevertheless give us safe passage.

Niko, on behalf of the Board of Directors, I wish to congratulate you, your management group and the entire Tsakos team, which has once again produced record profits. Thank you, Niko.

Thank you, Chairman, and thanks for your good words. We are determined to make things even better, even in a difficult environment. And now, Mr. Saroglou, our COO, is going to give us the analysis of what has happened in the last quarter and some information of what has happened after that and what has happened so far in 2008. George?

Thank you, Nik, and thank you, Mr. Chairman. It is my pleasure to speak with all of you today to provide you with the details of another commercially gratifying quarter, the best third quarter we've had so far since the Company inception in 1993.

TEN operated a fleet of 44 tankers during the third quarter in comparison with 43.6 during the same period last year. We operated this fleet in a much better freight rate environment in comparison to the third quarter of 2007. In the third quarter, which is typical in any third quarter, we expect a typical slowdown in demand for oil transportation and subsequently shorter freight rates. However, with the exception of August, where average rates were, however, above the typical trend, both July and September were good months, with July being the strongest month of the quarter.

With October behind us and despite the negative financial environment in which the world operates, rates, especially for crude tankers, continue to be good, above September levels, setting the stage for what we believe will be a good fourth-quarter and year-end finish, making 2008 another strong year for energy transportation, and we hope another record year for TEN.

Highlights from the third quarter -- we operated a fleet of 44 tankers at 96.2% capacity. 40 tankers had their employment dates secured through a combination of fixed, variable time charter with profit-sharing, and Contract of Affreightment, while four tankers operated in the spot market. With an almost equal amount of operating days and vessels, TEN generated almost 30% higher revenues than in the third quarter of 2007. Extended for two more years, the employment of aframax product tankers Proteas and Propontis at similar terms with Neste Oil and strategically placed the third sister vessel, Promitheas, in the spot market, extended for three more years the timecharter of [Delk].

Our energy tanker, Neo Energy, completed during July the first phase of her employment to a major energy concern, took the time to perform warranty item repairs in repositioning from the Far East to West Africa, and [cycle months] in October had two years, option 1 -- option 1 timecharter extension to the same client.

Paid on October 30, 2008, a dividend of $0.90 per share, which represents a 9.1% increase over the dividend paid for the October of 2007 of $0.825 per share. Continued our share repurchase program, with the only difference being that from August 2008, all shares repurchased are no longer canceled, but kept as treasury stock.

In the third quarter, we acquired 352,900 shares at an average holding price of $31.50 per share and $11.1 million invested. We continued our share repurchase into October, taking advantage of the SEC Special Authority that ended on October 17, and acquired an additional 329,700 shares at an all-in cost of $8.4 million or $25.77 per share.

Since the beginning of 2008, the Company has repurchased in total 1,075,000 shares. Since the beginning of the program in 2005, we have repurchased 3,476,580 shares at an all-in average cost of $22.13 per share, a $76.07 million investment.

Celebrated our 15th year of existence as a public company. We have no vessel additions or disposals to report during the third quarter. In deadweight terms, TEN operated [four point million] deadweight tonnes with an average age of 6.1 years, which compares with the industry's average of 10.7 years.

As we have said numerous times in the past, the sales and purchase are an integral part of our operational philosophy of the Company. We are looking for opportunities to invest in modern tonnage and divest from the older tonnage of the fleet, especially the three older tankers we currently operate, which were built during 1990 and 1991, in order to maintain fleet modernity.

Although the credit crunch has been underway for over a year, the period since September 15 has seen the intensity of the storm that is surrounding financial markets increase. If Hurricane Katrina made landfall as a Category 4 hurricane, the world is currently facing a Category 5 financial hurricane. We have witnessed daily announcement of banks under pressure with falling share prices, writedowns and losses, mergers and acquisitions that would otherwise have not been -- that would otherwise have been unthinkable under normal circumstances, bank bailouts, financial rescue plans, capital injections from central banks and governments, and the dramatic cut of interest rates across the world.

The rising cost of credit, and more importantly, the reduction of its availability, are affecting newbuildings and sales and purchase activity. While in other shipping sectors the market has stagnated, in tankers it is business as usual.

The general consensus is that as the period of [financial] liquidity is gone, we are going to witness a big number of newbuilding orders -- options, [and orders] will expect a delivery after 2010 to be canceled because of the credit crunch.

This is going to be good for the overall tanker orderbook. The newbuilding front will also present opportunities in the form of presale contracts that will grow out of distressed sales as stop-loss for us to cement whatever profit remains for the owners or the shipyards that are building the vessels. Well-capitalized and liquid companies like TEN will seize these opportunities, as we have done in the past.

In the meantime, our newbuilding program continues. Following the delivery of Maria Princess, a Sumitomo DNA 105 deadweight tonne aframax tanker, on October 21, we expect to take delivery of her sister vessel, Nippon Princess, on November 12, following which we will have four more sister vessels to take delivery from Sumitomo through 2010, one in the third quarter and one in the fourth quarter of 2009, with the last two ones, one in the first quarter and the last one in the second quarter of 2010.

We have already reacquired the 2002-built suezmax tanker, Cape Baker, from the German K/G company on October 6 and expect to reacquire her sister vessel tomorrow or the day after tomorrow, November 11 or 12.

Cape Baker has been renamed Decathlon, her original name, and the same happened to Cape Balboa, which we will rename Pentathlon. TEN repurchased these tankers at a preagreed price of $47.5 million, which was at least 50% below the vessels' market value. The debt portion of the two-vessel acquisition was $55.4 million and was financed at LIBOR plus 50 basis points.

On the commercial front, our blue-chip client base, which includes foreign majors, refineries, state oil companies and major independent oil traders, and the profit-sharing arrangements in the majority of our time charters allow the Company to protect the top revenue line against the volatility and any weakness in the freight market while at the same time guarantees the Company's participation and share of market [values] with our clients.

As of today, we have fixed 90% of the available remaining fleet operating base of 2008, 70% of the days in 2009 and 43% of the days in 2010. We have currently 39 vessels with fixed timecharter rates, time charters with profit-sharing and CoAs with min-max out of an operating fleet of 45 tankers. And assuming only the minimum rates, TEN has accrued 780 months of forward employment, or 20 months per vessel, and around $572 million in minimum gross revenue.

If we want to look at the number until from now until the end of 2009, this is $330 million in minimum gross revenues. At present, only the four spot vessels out of the 45 tankers we operate are directly exposed to any potential employment risk through the four CoA tanker, whose earnings are market related, and especially the two with no min-max rate cap have all secured 365 operating days.

As we speak and following the delivery of Maria Princess to the fleet, TEN's market-related exposure continues to be 31 tankers in an operational fleet of 45. Of these, 23 are in profit-sharing arrangements and eight in spot-related contracts, CoAs and pure spot.

Charterers continue to fix [contracts] for longer periods. We have recently announced the expansion for three more years of the employment of the 2004-built handysize tanker Delphi at the same South American state oil company. The charter rate is expected to generate in excess of $22.6 million of gross revenues over the life of the charter. Nippon Princess, which will be delivered this Wednesday, has been fixed in a similar arrangement like Maria Princess, [ex-shipper] to a major oil trader for a period of minimum 30 to maximum 90 days at $50,000 per day. The vessel will reposition in the Atlantic Basin, [Ormet], which we expect to be the vessel's [waiting period].

The tanker market continues to operate in an environment that seems to be insulated from the global economic malaise that since September 2008 has become part of the world's daily repertoire. Most spot and period markets remain strong, despite the customary weakness of the third quarter. We are already in the typically strong fourth quarter, and freight rates continue to be good.

As an indication, in the time charter markets for one, three and five years, we're seeing the following rates -- for VLCCs, one year $60,000, three years $55,000, five years $50,000; for suezmaxes, one year $44,000, three years $40,000, five years $35,000; for aframaxes, one year $32,000, three years $29,000, five years $27,500; for [LL1 quoted] tankers, one year $30,000, three years $27,000, five years $24,000; for MRs, 47,000 deadweight, one year $23,000, three years $21,000, five years $20,500; for 37,000 MRs, one year $22,000, three years $20,000, five years $19,000.

Please bear in mind that the current spot market is higher than the above-listed period rates and that these period rates are in line or higher than the other period rates during the period 2003 to 2007.

The resilience of the tanker market to the prevailing negative economic sentiment and the conditions that surround it can be attributed to the quality of the charterers and the fact that tankers remain the most economic means to move energy around the globe. [Our straight rates] constitute a small part of the overall value of the cargo. The world economy, on the contrary, after years of strong growth, entered into a major downturn. Many advanced economies are close to or moving into recession, while growth in emerging economies is also weakening.

The top priority of government and policymakers around the world is the stabilization of the global financial environment by injecting liquidity, restoring faith in the system and nursing economies through this period of turmoil. Overall demand following the International [Holiday Span's] recent global GDP assumption is now expected to average 86.5 million barrels per day in 2008, which is higher by 400,000 barrels over 2007, and 87.2 million barrels per day in 2009, which is 700,000 barrels higher than 2008.

The WTI crude oil price fell by over 53% from its all-time high of $145.29 per barrel in the closing of July 3, 2008. OPEC decided in an emergency meeting on October 24 to cut production by 1.5 million barrels per day effective November 1. The level of compliance to this production cut and its effects on energy transportation, together with the response of non-OPEC producers, remains to be assessed. The geopolitical conditions and associated risks, primarily on the production and supply of oil, will continue to play a major role in the tanker freight environment.

Developing economies around the globe, like China, India, Russia and Brazil, cannot postpone for long their economic expansion progress. China's announcement over the weekend of a 586 billion stimulus package is a positive indication that the Chinese government would like their economy to keep growing above the 9% level that was recently reported and which is the lowest Chinese GDP growth in the last five years. This is considered a positive development for shipping and energy transportation.

Based on the current demand for crude oil and petroleum products, primarily from the developing regions of the world, and the appetite of charterers for long-term [fixtures] at healthy rates, that always makes us believe that the impact of the current financial turmoil for the tanker [deliverers] will be manageable.

The Company continued its impressive growth and profitability for the 60th consecutive quarter. We paid a dividend of $0.90 per share on October 30, which compares to $0.825 we paid in October 2007. Our dividend policy continues full speed ahead, raising the distribution every year since the cash dividend payout was introduced in 2002. Since inception, we paid back approximately $254 million in the form of dividends and repurchased 3,436,580 shares worth a little over $76 million at an average cost of $22.13.

TEN continues to [perform] better than the major US indexes, which have been battered especially since mid-September. We still have a long way to go. We believe that we're well capitalized. We have a strong balance sheet and the necessary liquidity and banking relationships to take advantage of whatever growth opportunity this market will present us with.

We have a four-vessel newbuilding program which we expect to integrate in the Company's fleet until the second quarter of 2010, which guarantees the fleet's modernity and expansion. We are also monitoring the cost side of the business, managing the challenges and the risk of the environment in which we operate and run the business [within] together with our shareholders since 1993.

We celebrated in October our 15-year anniversary, and expect, with the Board of Directors' guidance, to continue growing and building value for our shareholders, as we have done, particularly in difficult times, like in the period of 1997-1998 and during 2001-2002.

We would like to take this opportunity to thank all our shareholders for their support, all our [tee firers] and the on-land personnel and Tsakos management, Tsakos Shipping & Trading, for their able and constant service 24/7.

Without further ado, I would like to turn the call over to Paul Durham, who will give us an overview of the financials. Paul?

Thank you, George, and thank you all for joining us today. A summary of selected financial data is included in the press release. And now I'd like to say a few words on the significant items occurring in quarter three and the nine months.

TEN earned net income of $41 million in the quarter compared to $50 million in quarter three 2007. However, there were no vessel sales in quarter three this year, while quarter three 2007 included a gain of $31.8 million. Excluding last year's capital gains, therefore, TEN's net income was 125% higher than in the previous quarter three.

For the nine-month period, net income was $175.3 million, including a capital gain of $34.6 million, compared to $131 million last year, which included capital gains of $38.2 million, an increase in net income of 34%, or excluding capital gains, an increase of 52%. Revenue for the quarter increased by 30% to $159 million compared to $123 million in quarter three 2007.

The average number of vessels was 44 compared to 43.6 vessels in quarter three 2007, while fleet utilization was slightly down from last year at 96.2%, although utilization for the nine months was 97.3%. During much of quarter three, as George has mentioned, the LNG carrier undertook a lengthy repositioning voyage, and that was at our cost, to take her up to her new employment in October. The Hesnes undertook her [survey] drydock in quarter three, continuing into quarter four, and then Maya was also in drydock for repairs, but most of the lost higher-end repair cost was insured.

Average charter rates for the suezmaxes and aframaxes were again significantly higher in quarter three than in the third quarter 2007. But the market for the smaller product carriers remained relatively soft. The average daily TCE per vessel for quarter three 2008 was $33,700 compared to $26,500 in the previous year's quarter. For the nine months, $34,900 was achieved compared to $29,200 last year.

During quarter three, two VLCCs, two panamaxes and two handysize product carriers with six-month profit sharing arrangements were accounted for at minimum rates only. Any determined profit-sharing will be calculated in quarter four for the prior six months.

Total operating expenses in quarter three amounted to $34.9 million compared to $28.1 million in last year's quarter three. The daily average operating cost per vessel increased from $7507 to $9244 in quarter three 2008. This increase, as discussed in our previous call, was due to material crew salary increases, the impact of the weakening dollar, and extra repairs and maintenance performed during the drydocking.

But quarter three did begin to see some strengthening of the dollar. In addition, we continue to see from our technical managers greater economies in the running of our vessels without, of course, jeopardizing quality and safety. We believe the combined effects have contributed to a reduction in quarter three operating costs per vessel by 7% from quarter two of this year.

Total overhead expenses for the quarter -- that's G&A, management fees and stock grant amortization -- were $5.2 million in total compared to $4.7 million in quarter three last year due to extra professional fees and to management fee increases, offset by lower amortization of stock grants.

Total finance costs in the quarter were $17 million, down from $23.6 million in quarter three 2007, due to a reduction in average loans outstanding between the quarters by (technical difficulty) [$7 million], lower interest rates and the much-reduced negative valuation of nonhedging swaps, an $800,000 charge this quarter compared to $4.8 million last year, all offset by a reduction in capitalized interest by $1 million.

At the end of quarter three, we drew $28 million from an existing credit facility to part-finance the repurchase of the suezmax Decathlon in October, and during the quarter we made repayments of $11 million. At the end of quarter three, therefore, we had outstanding loans of $1.41 billion, bringing our net debt to capital ratio to 52.6%. Our leverage based on vessel values we still believe to be under 40%, although clearly in the absence of recent valuations we can't confirm this.

The following events occurred during quarter four -- the reacquisition of the two suezmaxes with $40 million cash and a further $28 million debt; delivery of the two aframaxes using a further $88 million of debt. All the new debt in September is at a margin of only 50 basis points. There are debt repayments of $12 million; the payment of the dividend for $33 million. There is a six-month property termination on the six vessels mentioned earlier. The Andes, the Parthenon and Hesnes are in drydock for approximately 20 days each.

330,000 shares were brought in quarter four so far for $8.4 million to add to the 353,000 shares bought for $11 million in quarter three. We ended quarter three with cash holdings of nearly $370 million. By the end of the year, even after all these quarter four events, we estimate that we should still have over $300 million cash, thanks primarily to the cash flow generated by a still-strong crude market.

We believe we will be in a strong financial position throughout 2009. Our CapEx next year amounts to $109 million, mostly on the delivery of the two aframaxes. Our drydock schedule includes only one vessel, the Delphi, in September, although we shall try to bring forward 2010's schedule drydockings.

We have not yet arranged finance for next year's aframaxes, nor for the final $85 million required for the two deliveries in 2010, although we're confident from our discussions with banks of raising the required financing. We expect to pay down debt of approximately $93 million in 2009, and this is also factored into our cash flow forecast, which, even if we were to assume a poor trading environment and excluding potential vessel sales, still shows strong cash balances at the end of next year.

And this concludes my comments. Now I will hand the call back to Nikolas.

Thank you very much. And I just want to also state that, as said in the beginning, that we have a slide presentation, and you can refer to it if you are on your computer. So I think that, as the Chairman said and [I think] we are facing a very interesting environment. The tanker market, although the tanker stocks have been battered because of the general environment of the economies and some sectors of our industry, the tanker market is business as usual. We're seeing a significant appetite for employment for our fleet, starting them forward, and we're looking at a healthy 2008 and a healthy also 2009.

So, with these comments, I would like to open the floor for any comments and questions. Thank you.

(Operator Instructions). [Jonathan Chow].

I only have one question for you, but it does have three parts. First, what are the opportunities that you are seeing out there as far as secondhand tonnage or newbuilding slots? Is the lack of financing with some of the lesser-established names creating opportunities for a well-established name like Tsakos to acquire assets?

Second, what do the returns look like in those type of transactions, whether it is secondhand or newbuild? Are returns still appealing, even with the weakening global demand outlook?

And then finally, with your strong cash balance and the fact that you haven't had the debt set away yet for the newbuilds in '09 and 2010, will you be more conservative, at least for the next couple months, as you look at these opportunities, just in case you can't get the debt for the four newbuilds? Thank you.

Well, I think, as Paul stated, the Company is very well planted to make conservative cash transactions and conservative finance. So we still enjoy very good levels of costs on our finance. As I think George mentioned, we just financed our last two acquisitions at 50 basis points. I know that the market has become more expensive since, but because of the Company's reputation we feel very comfortable in looking at acquisitions for the future.

Very correctly, we've been approached by banks, by shipyards in taking over contracts even in major shipyards. These are opportunities that we are examining. The returns, as you know, we need to see 25% return on our equity as a minimum to be able to go ahead. And I think in a recessionary mode, we even look at builds that produce 15%, although we have been producing more than 35% so far.

And with the acquisitions, we are looking -- perhaps the time will be the first quarter, as more shipyards and smaller players are getting nervous. The positive thing in all this is that we are seeing big cancellations of newbuilding tanker orders around the shipyards, and even more positive, a lot of (inaudible) shipyards that would have been a threat in producing overcapacity in the market, are projects that are not going through. So I think this is the silver lining in this cloud. Thank you.

Gregory Lewis.

I guess firstly, congratulations on a good quarter. It sounds like you are pretty optimistic heading towards the end of the year. Do you differentiate between the outlook for crude end products over the next, say, two to three months?

Well, yes. I think we are first of all optimistic because we are operating in an environment that -- a recessionary environment. As our Chairman said, the products, crude end products are much less elastic than other as commodities out there. And on top of that, the way we have positioned the Company, if you look in the slideshow, I think we have a presentation which is on page 6, where you see that the majority of our fleet is fixed forward. And we are getting optimistic because we see major oil companies coming out and offering us business that actually goes down the line for another two or three years. We just did a transaction like this. We have a balanced fleet, so either side, we are optimistic for [both trades] in this environment.

Okay. Now, I guess at the end of last month, South Korea announced that it was going to potentially release about, I think, 10 million barrels of oil from its SPR to its local users of oil. Has that sort of filtered through the market yet? Have you seen any indications that they have -- that South Koreans have been pulling back from oil?

I think we have seen a reduction, first of all, because of the OPEC caps. And we are seeing households and governments being more skeptical in spending and using their oil reserves if they have to. However, on the other hand, we have had more than a 50% reduction on the price of oil in the last six months. So that, I think, gets countries that are low in their inventories a reason to go out and fill up the tanks before the winter season.

Okay. And just to follow up on that, you have a couple vessels using CoAs on employment. Has there ever been a thought about potentially using FFAs to sort of secure those contracts, secure revenues?

We have a rule in TEN, which is keep it simple, stupid. We do not -- we have very large fleet of ships. We have never, ever involved ourselves in complicated derivatives, more importantly even FAAs, which are our business. So I think you will not see this Company participating in anything like that. I think we have the size of the fleet and the flexibility of our charter [package] to just take advantage of the markets with our existing physical fleet.

So, again, this is something that we have kept for a very long time, so I think it is something that we will not -- you will not be seeing us participate. Our shareholders can go out and do it themselves if they want to, but I think that TEN will not be participating in something like that.

Okay, great. And then just moving on, the Cape Balboa, when is that option that's going to be exercised?

Tomorrow or Wednesday, we're buying -- this is a very interesting, again, deal. These are ships that we actually built ourselves, sold them for a handsome profit to German K/G. At the time, we had an option to purchase them back at something that looked ridiculously priced. Today, this price looks ridiculously low. So we are buying the ships back. I think the IRR on that is about 35% for the five years that we have operated the ships. And the ships are chartered out to Petrobras, or the state oil company of Brazil, for another three to four years at a very healthy rate. So these are ships we are buying back, which are actually the ships that we have sold in the first place.

And it looks like those vessels are going to be purchased with about 57% to 60% debt. Is that sort of the equity/debt ratio we should expect for the newbuildings that are going to be scheduled to deliver in 2009?

Well, our whole policy has always been not to have debt more than 60% and 70%. And I think because of the Company's strong cash position, we do not think that we should have -- yes, we are keeping it conservative, 50% to 60% debt to equity right now. And I think this is something similar we will be looking at in the future.

Okay, so the Nippon Princess that is going to be delivered -- well, actually --

Maria Princess was delivered, but the Nippon Princess will be delivered on the 12th, but she has already been financed and chartered.

Okay, so I guess the question I'm trying to get at is, the $48 million that's remaining for that vessel, what sort of debt -- how much of that do you expect to be debt?

Of the remaining final installment at delivery, it is about $44 million. And that is exactly the debt that we have taken on.

Yes, because the initial payment was cash.

(multiple speakers) in the past, about 30% of the cost of the vessel in equity.

(Operator Instructions). At this time, there are no further questions. Are there any closing remarks?

Well, as I said, we want to thank our shareholders for their support. As the Chairman said, TEN has navigated through [value cycling]. We have, if you look on the slide presentation that is accompanying our results, on page number 8, you see that all our newbuilding program has taken advantage of a downturn in the market. We started, because of the Asia crisis in 1997, then in 2002, the effect of the 9/11 in the world economy, so that is how we [greased] our newbuilding program. And I think we're looking at the opportunities now that might arise because of the subprime crisis. So the Company is well funded. We are looking -- we are optimistic that our business will continue to grow. We are used to the ups and downs of the market, and the Company comes stronger out of this.

So with your support, I think this is going to be another exciting period of growth for the Company, and I would like our Chairman to close this with his thoughts.

My only closing remark, Nikol, is keep up the good work. It is remarkable to date, and you have spoiled us, and we're expecting more of the same. Thank you.

This concludes today's conference call. You may now disconnect.