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Edited Transcript of GESHIP.NSE earnings conference call or presentation 12-Feb-20 11:00am GMT

Q3 2020 Great Eastern Shipping Company Ltd Earnings Call

Mumbai, MAHARASHTRA Feb 13, 2020 (Thomson StreetEvents) -- Edited Transcript of Great Eastern Shipping Company Ltd earnings conference call or presentation Wednesday, February 12, 2020 at 11:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Anjali Kumar

The Great Eastern Shipping Company Limited - Head of Corporate Communications

* G. Shivakumar

The Great Eastern Shipping Company Limited - CFO & Executive Director

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Conference Call Participants

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* Bhavin Gandhi

Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst

* Dhruv Jain

AMBIT Capital Private Limited, Research Division - Associate of Mid-Caps

* Himanshu Upadhyay

* Jeet Gala

* Lalaram Singh

* Nirav Shah

* Venkat Samala

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Presentation

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Operator [1]

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Good evening, ladies and gentlemen. Thank you for standing by. Welcome to The GE Shipping Earnings Call on Declarations of its Financial Results for the Quarter ended December 31, 2019. (Operator Instructions) I now hand the conference over to Ms. Anjali Kumar, Head of Corporate Communications at The Great Eastern Shipping Company to start the proceedings. Thank you, and over to you.

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Anjali Kumar, The Great Eastern Shipping Company Limited - Head of Corporate Communications [2]

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Thank you. Good afternoon, friends, and welcome to the results conference call for our Q3 results. I hope all of you have managed to get hand of the results that we've announced a couple of hours ago. As you can see from the results, there has been a good improvement in the numbers, largely due to the improvement in the tanker market, which in Q3 of FY '20, was at very strong levels, and product rates, too, has firmed up. As you can see in our press release, the average TCY, which we earned were substantially better in the crude segment. In fact, in the crude segment, we earned $38,800-plus on an average compared to $16,500 in the previous quarter. Product tanker TCYs, too, were up to about $18,555 compared to $14,900 in the previous quarter. LPG carriers were also up to average, up above $22,800, up from the $19,800 in the previous quarter.

On the dry side, market was a little softer, and average at a TCY as what -- $12,900. Coming to asset values, tanker ship values were up approximately 10%, while the dry bulk asset values were marginally down. On the whole, our market value of our fleet was up approximately 7% in dollar terms. As a result of this and the INR depreciation, the stand-alone NAV has moved up to INR 450, up from the last quarter of INR 393. The consolidated NAV that we announced is moved up from the range of -- from the previous range of INR 447 to INR 472, it has moved up to INR 512 to INR 532.

In the offshore segment, broker valuations have been flat, and the -- at least, the declining trend seems to have now halted. Coming to the specific segments. For the crude market, freight rates in the crude tanker market has improved substantially during the quarter. And like most of us by now, know the reasons for it were a couple of the main ones. Firstly, the fact that the U.S. has put a sanction on a couple of the COSCO subsidiaries. This had impacted 26 VLCCs. There was additionally about 29 vessels, which were storing the VLSFO at Singapore. This was done ahead of the IMO 2020 implementation. So this was done through the last few weeks of the quarter.

And of course, there was an entire fleet of the Iranian vessels, which were impacted due to the sanctions. So in total, roughly about 92 VLCCs, which approximately is about 11% of the VLCC fleet, and about 6% to 7% of the total crude fleet, which was impacted. So all of these put together had a tremendous positive improvement on rates. And this is despite the fact that 6% Y-o-Y growth in the crude tanker fleet.

Now coming to the product market. After remaining very weak for most part of the year, product tanker freight rate also doubled sequentially during the quarter. We saw growth in products -- core products demand mainly driven by the middle distillates. Product trade is estimated to have risen by about 500,000 to 600,000 barrels per day during the quarter.

MR trade, in particular, doubled sequentially, mainly led by higher intra-Asian trade. However, in the LR segment, we saw a -- the trade fall by about 4%. Fleet growth in this segment has been about 4.5% in the quarter. Post the December quarter, of course, the tanker rate, as you all know, has come off quite significantly. The effect of the coronavirus on the oil demand and the fact that the ban on the COSCO ships has been lifted, these have been the two main short-term headwinds that have impacted freight rates. Further, there have been some ramp cuts and a lower demand will have had an impact on the product tanker freight rates negatively, too.

But one important point to note for the medium-term is that the outstanding order book is below [20%] in both crude and product. This is at a multiyear low now. So this is an important point to note for the medium term. In -- coming to the LPG markets, this has been strong, due to mainly the U.S. LPG production growth. In fact, as -- the U.S.-Asia LPG trade arbitrage also remained at very healthy levels during the quarter. Imports -- LPG imports into India also has increased almost 22% Y-o-Y during the quarter. And the order book in this segment stands -- currently stands at 14%.

Next, we come to the dry bulk segment. And the dry bulk segment has been very weak through the quarter. Couple of main reasons is that -- the biggest reason, of course, is the fact that iron ore supply was impacted by the violent loss of production. And in fact, just recently, they've announced the results and this production issue continues even in the current quarter. There has also been a negative growth in the global coal trade, which is led largely by the Chinese government's policy to curtail imports. And of course, there has also been degrowth in the Indian coal imports. This is largely because of negative power -- negative growth in the power generation, fired by coal plants.

The supply side situation also has not offered much of a respite as the deliveries continue to increase. This quarter, that is -- the last quarter -- the September -- the October-December quarter has seen the highest delivery since Q4 of FY '17, roughly almost 4% growth. The excessive rainfall in Brazil has -- in the month of Jan as well, has hindered exports of iron ore. And the valid -- therefore, valid production issues have continued, like I mentioned, in this quarter also. And in Jan alone, in fact, Brazilian iron ore exports are down 10 million tonnes after having declined by 7 million tonnes in December.

This has obviously severely impacted the demand for capesizes due to lost of ton-miles. And extended Chinese New Year, amidst the virus backdrop, is also having a huge impact on demand, which is now over and above the seasonal weakness that normally comes at this time of the year.

The order book in dry bulk stands at about 9.1% today. One point on the IMO transition to the VLSFO fuel. It has now been almost 6 weeks, things seem to have settled down by now. By the end of December, we saw approximately 29 VLCCs stored with VLSFO of Singapore, as we spoke earlier. This ensured that there was adequate supply of the new fuel.

Initially, we did see the price of VLSFO jump up, in fact, the sulfur spreads went up to almost $400, but now they have settled down, and now we are just a little over $200. The initial price discussion of VLSFO was also mainly due to the unavailability of barges rather than just the -- just any lack of supply. So it was just a very short-term sort of thing, and that now seems to have settled down.

Coming to the offshore segment. The OSV sector -- OSVs continued its gradual recovery in utilization but, of course, from a very low base. Utilizations in the OSV segment have increased marginally from about low-40s in the -- at the start of the year, calendar year, to about almost 50% at the end of the year. And charter rates has seen some improvement in certain geographies. Especially in the Indian market, charter rates have -- for PSVs, have inched up by roughly about 10% recently. But overall market does still seem to remain a little oversupplied. But the one silver lining is that scrapping has exceeded the new deliveries here so that, in turn, has been reducing the overall delivered fleet.

We have also seen some improvement in market sentiment due to the fact that some of the modern cold spec vessels were reactivated in the year that which led to increased -- increase in the marketable fleet. And currently, order book for the fleet stood at 5% at the end of the year. On the rig segment, the utilization has improved quite substantially. It was 61% at the start of the year -- calendar year, and now it's at about 70%. And if you take just the modern rate, then the utilization is close to about 80%.

As a result of this, charter rate has seen a substantial improvement in this segment. Based on the outstanding tenders and the activity of -- in the rig market, especially in the Middle East and Southeast Asian market, the outlook for the sector looks promising. And it's also supported by the fact that the fleet age profile, which still consists of close to 40% rigs that are greater than 25 years old. With that, I will now show the floor open to questions. And please feel free to ask.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Nirav Shah from GeeCee Holdings.

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Nirav Shah, [2]

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Yes. And congrats on a blow out quarter. I have three questions. First question is I mean there were many vessels, which was supposed to go for dry docking for scrubber installation in the first half of this calendar year, and we've had some disruptions in China. And I believe there will be many dock yards, which would have been utilized for this -- sorry, scrubber facilities. So how do you see that event, I mean, impacting the vessel supply? And maybe on the pricing front, can it give some support to the pricing in the current challenging environment?

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Anjali Kumar, The Great Eastern Shipping Company Limited - Head of Corporate Communications [3]

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I will hand over to our CFO, Mr. Shivakumar, to answer that.

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [4]

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I don't know if you were referring to our own ships, which are going or generally about?

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Nirav Shah, [5]

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Generally.

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [6]

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Yes. So yes, a lot of ships were supposed to go for dry docking in China. It is in fact, we ourselves were intending to go for our scrubber installations on a couple of our vessels in March, April. However, given the situation at the yards, these have been postponed. So we will look for alternatives. There are ships, which are already coming to the supply and how it can disrupt. There are ships, which are already stuck in China doing -- in dry dock, doing scrubber installations or generally, in dry dock itself, which is sort of preventing them from joining the market, so -- which is a small positive for the market. Also, there are ships, which are not able to go in and discharge for various reasons, where they're adding cargo into China. So that is very few and far between. So -- but broadly, in the dry docks, there are ships, which are stuck there because the workforce is not available to complete the project.

And secondly, yes, there are very few people who are going into China currently, given that -- for the dry docks, given that the yards don't have their manpower.

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Nirav Shah, [7]

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Okay. Got it. So it can lend some support, I mean...

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [8]

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No. See, these ships are trading still. They charge and they can trade. So the ships are trading or they will find a dry dock in Singapore or in the Middle East. Except that there's scrubber (inaudible) is a scrubber, is sitting in China, then it's difficult to transport it out of there. So that is a separate problem.

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Nirav Shah, [9]

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Any indication of how much supply I mean would be going to China for the installation of scrubber or?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [10]

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No. Actually, no. See, if they're not yet gone in, you can continue to trade. It's not a -- or you can go into a dry dock in Singapore or in Malaysia, or the Middle East.

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Nirav Shah, [11]

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Got it. Got it, sir. Sir, the second question is on the dry bulk segment. I believe the current rates are -- the way they are quoting, I mean there'll be big cash losses, at least on a spot basis for capesizing and everything. So -- and we've also reduced our exposure to that segment from 16 vessels in March '18 to current 13. So what is our view in terms of, again, scaling up in this segment? And how do you see the demand impacting because is it a demand issue that will prevent this particular segment from reaching, again, the levels of -- which were 2 months or 3 months back? So how do you look at the segment in terms of even scaling up your own operations in this dry bulk?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [12]

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Yes. So a couple of things. One is, of course, it's a seasonal lull. First, there was seasonal lull, which normally comes in the month of December, Jan. That's one. Second is that you have the virus issue, the coronavirus issue, which is obviously affected the economic activity in China, and therefore, reduced their requirement for imports. And therefore, taken demand out of the market. We also have the (inaudible) issue, where they are having lesser exports, due to excessive rainfall in one of their exporting areas. So a lot of it depends on what happens, how this virus develops. And the parallel to this is when they had SARS in 2002, '03, that went up in about 6 to 8 months time. That was -- that grew over, that's it.

Obviously, today, China is much more -- is much bigger as a share of the world economy, as a share of world commodity movement, and therefore, has a much bigger impact. However, last time after the SARS event, everything rebounded very quickly. In fact, the dry bulk market stayed strong throughout that because China was growing so rapidly in 2003. So you could well have that there is a base level of demand, which is not being met currently. And we have already seen talk over stimulus in China. And when it comes in, again, it will just rebound very quickly. This -- we saw this happen with -- in June last year. All the exports that were launched from Vale funnel, suddenly they came back. And then, it's it's like a coiled spring, suddenly, it bounces back.

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Nirav Shah, [13]

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Just your initial and feedback, whatever is the pressure, it's coming back to how things are gradually on the recovering front.

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [14]

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On -- really on virus, we just have no idea what's -- it's going to depend how that virus plays out.

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Nirav Shah, [15]

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Got it. And sir, another question is, have the (inaudible) prices -- how are they moved? Have they moved in line with the way the rates have moved? Or because it's a very short-term phenomena, supposedly, rates are pretty steady for across segments?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [16]

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Yes. Vessel prices are a little soft. Obviously, that confidence in ...

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Anjali Kumar, The Great Eastern Shipping Company Limited - Head of Corporate Communications [17]

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Actually, vessel prices move with a bit of a lag to the rate.

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [18]

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They are a little soft. It softened a little bit, but not a huge amount.

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Nirav Shah, [19]

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Got it. Sir, this is the last question. Just bookkeeping. I mean I just want to reconcile on the net debt front on a stand-alone basis in September quarter that was around INR 1800 crores. And as of date, it's around INR 1536 crores. Our cashflows pretty, pretty strong this quarter, plus we sold -- one Suezmax (inaudible) principle cost would also, we have received. So just want to check why the net debt number has only been down by around INR 225 crores, despite -- with the cash profit of around INR 430 crores plus the principal value of the Suezmax?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [20]

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So you have -- no, we did have CapEx as well. We have been spending money on some equipment. So we have drawn down some debt during the quarter to -- not to buy ships, but to do CapEx on equipment for paying installment on scrubbers and other equipment. We also have, as part of the debt, the derivatives that we have on the MCDs, that is also required to be paid off. We had a big maturity of an MCD in the last quarter. When that is paid off -- and when that is paid off, you have to pay off the derivative MTM as well. So that was about INR 100 crores.

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Nirav Shah, [21]

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Sir, MT (inaudible) was INR 100 crores?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [22]

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That's correct. It was a INR 200 crores MCD, we go down in 2009, '10.

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Nirav Shah, [23]

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This will be the high cost MCD that you were mentioning last quarter?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [24]

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Correct.

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Nirav Shah, [25]

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And just then looking at this gap -- just continuing with this thing so...

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Operator [26]

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(Operator Instructions) The next question is from the line of Bhavin Gandhi from B&K Securities.

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Bhavin Gandhi, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [27]

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Sir, just it seems -- if I look at the headline numbers, although the numbers have been spectacular, but it seems that the headline numbers are weaker than what the market rates are indicating, given that we were on -- mostly on spot as far as (inaudible) are concerned. So any particular reason why those are not reflecting in the charter rates?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [28]

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Yes. See the -- there's always a lag, right? So your earnings are basically the fixtures of September, October, November. You haven't got more than 1, 1.5 months of a strong market in this. So typically, there will be a 1 to 1.5-month lag between the fixing and the TCY in the quarter.

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Bhavin Gandhi, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [29]

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Okay. So will it be fair to assume that some sort of the strength that we saw in the spot rates will also be reflected in the 4Q numbers?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [30]

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Yes because the fixing of December will be -- would have been executed in January and part of February. So yes. So you always take a lag. So if you want to forecast the TCY of any quarter, just start with one month before the start of that quarter, just on a very thumb rule kind of thing.

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Bhavin Gandhi, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [31]

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Got it. Got it, sir. And also on the offshore side, so where -- when does the repricing hit the P&L? We've not seen any sequential change in numbers there as well.

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [32]

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Yes. Yes. Nothing there. For the next, repricing will happen in the -- in March.

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Bhavin Gandhi, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [33]

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In March, okay. Got it.

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [34]

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(inaudible) in march.

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Bhavin Gandhi, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [35]

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Got it, sir. And sir, on the IMO itself, how does -- I mean are the higher fuel costs getting compensated through higher charter rate for, scrubber installed business? How is the equation? How will we see that change playing out for the P&L going forward?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [36]

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Yes. They don't get higher charter rates, they get the same freight rate, and their cost base is lower. So that's on the spot market. In the time charter market, yes, they get higher charter rates. But you're definitely not getting 100% of the gain. If you want 100% of the scrubber savings, you have to run it in the spot market.

So in the time -- let's say that a ship -- a particular type of ship will give you $3,000 per day improvement. In the spot market, you will be able to capture it, assuming you get that spread and you have that consumption. In the time charter market, you will not be offered $3,000 extra.

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Bhavin Gandhi, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [37]

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Okay. Okay. Got it. And sir, how are we looking at our exposure in each of the markets individually now going forward? Would you like to kind of keep the exposure to the same levels that we are seeing right now? Or would you like to cover some of it?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [38]

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We are -- okay. So in gas, we have fixed a couple of ships. In fact, we have fixed -- yes, we've done 2 fixtures in the last 3 to 4 months for the VLGCs, both of which came off contract. We have one more gas carrier coming off contract shortly. We'll have to decide whether to fix or to run on the spot market because the spot market there is quite strong. It's still in the $40,000-plus range.

In crude tankers, not really. We have 2 Aframaxes which are on time charter but the rest, we are running on spot. You saw that we sold one of our 2,000 build Suezmaxes and delivered it in December. So the option to sell is always there. But yes, we are not really there to fix because, again, on -- the 4 modern Suezmaxes, which are the only ones we can really fix some time charter, we are scheduled to have scrubber installation. So we can't go into a time charter and take the ship out then for a dry dock in the middle of the charter. It's a complicated thing.

So we are not likely -- we aren't seeing any great opportunity to go into much more time charters. Product tankers, maybe one here or there. Currently, we have very little power in the product tanker side as well. Out of our 17, we probably have 2 or 3 fixed. So not really looking at doing anything. Again, the market now is not -- it's not really giving very tempting time charter rates. (inaudible) the next time the opportunity comes along. And the dry dock (inaudible) no question of (inaudible) there this market.

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Bhavin Gandhi, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [39]

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Sure. And sir, finally, on the payout side, how should we look at payouts given that we don't have meaningful CapEx lined up?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [40]

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Yes. So -- and even last year, when we had no profit, there was a dividend payout. So the intention of the company is always to pay a dividend. Now the Board will decide eventually on what -- if your question is -- if your point is that you have -- we have a lot of affordability? Yes, you're absolutely right. We certainly have a lot of -- not a lot of cash. We have significant amount of cash build up, and we are fairly light on repayments in the coming years. And as you said, no Capex. So yes, we have the capability to pay a dividend, but the Board will take that call. But yes, we do have the capability. We have cash, free cash.

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Bhavin Gandhi, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [41]

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Got it. And sir, this (inaudible) dividend that -- distribution tax going out, will it have any implications as far as payouts are concerned?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [42]

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Not really. Not really, I don't see why it should.

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Operator [43]

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The next question is from the line of (inaudible) Samraj from (inaudible) Managers.

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Unidentified Analyst, [44]

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Sir, just wanted to ask you, given the spreads, as you have said, is around $200 between VLSFO and high sulfur oil bunkers. How is the economics now currently working, sir, and all are in different segments and tankers and bulk carriers. And all, given the spreads and the current freight rates, are we having a comfortable margin, sir?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [45]

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So we have only committed to put scrubbers on some tankers. On none of the bunkers are we putting any scrubbers. So yes, those projects are still going to achieve that payback. It's obviously, it's a little lower than one would have expected currently, but certainly, they will meet their payback -- their target, which is -- we only did it on the vessels, which would have a payback of under 2.5 years because there was always a worry that the spreads would not be as wide as forecast. So there is a margin of safety there. And so while the returns currently don't look great, they will make back their investment, certainly.

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Unidentified Analyst, [46]

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No. What I was just asking is now, just using the VLSFO without the scrubbers, okay? How are the -- how is the economics working then now? And are we having a margin, given the current softened rates in the different segments?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [47]

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So your question is, considering that the fuel cost has gone up...

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Unidentified Analyst, [48]

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(inaudible)

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [49]

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Are we still able to make money? It depends on which market it is. The tankers sector, we are making money still. The gas carriers are earning $40,000 a day in the spot market. The crude tankers are still earning $20,000 plus, and product tankers are okay, somewhere in the teens. So they're still making a reasonable amount of money in dry bulk because the market is so bad, they are making much less money.

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Unidentified Analyst, [50]

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Okay. But we are breaking even on the running cost per day?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [51]

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Breaking even, meaning what?

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Unidentified Analyst, [52]

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Sir, I mean, we are making up the running costs, the variable costs, and...

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [53]

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No. No. See, there is -- this is not a lab where all other factors can be kept constant and only one factor changes, which is of cost of fuel. We can't control the environment. The environment is a very weak pricing environment for dry bulk. And therefore, the rates have dropped off very significantly just because the demand for dry bulk ships is very poor. So therefore, the cost burden is falling on the shipowner in the dry bulk market.

In the tanker market, if it has been in the old cheaper fuel, they would have been earning $5,000, $8,000 more in a crude tanker. And in this, they happened -- they are making a little bit less. If there's no -- I keep getting asked this question is, who is bearing the cost? It's always part of our cost, which we try to pass on to the customer. And the ability to pass on is based on how tight the market is. The gas carrier market is tight, so the rates remain at $40,000. The dry bulk market is oversupplied, so the rates are down below $10,000.

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Unidentified Analyst, [54]

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I see. Sir, there was a morning report from Morgan Stanley, and they were -- they are predicting that the second -- the following quarter, given the China coronavirus environment, it will be -- that they -- as you were saying, there will be -- their could be a spring back. So they're forecasting a spring back in the following quarter. So what do you anticipate the -- will we be, say, halfway through this particular rate on the crude tankers and what we earned in the first quarter?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [55]

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It's impossible to tell without a crystal ball because we don't know what the rates will be tomorrow morning, frankly.

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Unidentified Analyst, [56]

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Okay. But do you expect it to be comfortable in the next coming quarter?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [57]

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Again, I don't know what the rates can be tomorrow morning. So ships which are running $25,000 today in the spot market, tomorrow morning will be priced at $5,000. The one thing which we have in history is SARS. When it got over, there was a big drop in jet fuel demand in -- during the time of SARS because travel became less. When the problem was over, which was in July 2003, the demand bounced back completely, which is what I suppose the report you are alluding to has spoken about.

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Unidentified Analyst, [58]

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Sir, and during -- yes, just last question. During our -- post of our research, sir, we found out this Shipping Corporation of India, sir, the real estate value itself is about double the current price of this spread. And the fleet value is also almost twice the current value. So I think this question was asked you by (inaudible) also, whether GE Shipping, given its very light balance sheet and asset-light model, would you be going in for this, given that including the marine academy, you have a lot of synergies, except the liner segment?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [59]

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Yes. So it's too early to tell anything. We have no idea what it is. So -- what the transaction is. So it's just too early to tell.

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Unidentified Analyst, [60]

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Got you. Because there's a sheer value in this...

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [61]

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So I know all the points which are there, but it's just too early to tell because we have no idea what the transaction is.

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Unidentified Analyst, [62]

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Okay. So you will be waiting for the expression of interest and all?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [63]

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Like everybody, we are interested in knowing what it is.

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Unidentified Analyst, [64]

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And sir, what is the -- I missed the first part, sir. What is the current broker value of a fleet, sir?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [65]

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You mean the net asset value?

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Unidentified Analyst, [66]

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Yes. The NAV, sir.

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Anjali Kumar, The Great Eastern Shipping Company Limited - Head of Corporate Communications [67]

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Stand-alone net asset value is INR 450. And on a consolidated basis, it's INR 512 to INR 538.

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Unidentified Analyst, [68]

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That includes the offshore rig growth?

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Anjali Kumar, The Great Eastern Shipping Company Limited - Head of Corporate Communications [69]

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That's right.

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Operator [70]

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The next question is from the line of Nirav Shah from GeeCee Holdings.

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Nirav Shah, [71]

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Sir, just the one question. If I look at our cash flow slide in the presentation, from investing activities, we are reporting cash flow of only INR 40 crores. So this would include the sale of Suez or I mean -- or is it captured over here only? I mean, I'm guessing.

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [72]

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Yes. Yes. It is net of CapEx that we've done.

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Nirav Shah, [73]

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Okay. And what was the CapEx in this quarter?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [74]

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The CapEx will be all the dry dock scrubber installations because we capitalize write-offs, right?

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Nirav Shah, [75]

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Any number you would like to give? Or...

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [76]

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No. I don't want to get into that.

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Operator [77]

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(Operator Instructions) The next question is from the line of Himanshu Upadhyay from PGIM India Mutual Fund.

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Himanshu Upadhyay, [78]

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My question is -- one is on the -- we had taken the hedges, okay, the diesel and the HSFO, okay? How are they reacting? And what impact are they having? Are we in the money, out of the money? And what can be the potential impact or current impact? And are those hedges going in the right direction? Or what's the view from here on?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [79]

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We have not taken any hedges. Our overseas subsidiary has done some transactions, which is selling the spread. We have -- so again, this is a market which moves every day. It's like the crude price, right? It moves every day. One month ago, I think the prices -- the spread would have been higher than it -- than the price at which it was sold. Today, the prices are lower than the price at which it was sold.

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Himanshu Upadhyay, [80]

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So net impact would be how much?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [81]

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As of today, it's a positive impact. As of today, it's in the money but with the caveat that 1 month ago, it was out of the money.

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Himanshu Upadhyay, [82]

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And they are medially still 2021 end?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [83]

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No. These are calendar '21 and calendar '22.

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Himanshu Upadhyay, [84]

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Okay. Okay. And one more thing on the offshore side, where we have a net debt of around INR 600 crores. But still, consol means it's around INR 1,600 crores. On the shipping side, we understand the decision that we are looking at the assets or the way we are thinking, it's a much more liquid market. So we will be always looking into that, buy or sell our ships on that side. But on offshore, we have clearly stated that the market has been illiquid, and we are thinking about it. So the strategy, what we have always held on the shipping, does it make similar sense on offshore, having both cash and debt and a significant amount of differences between the cash and debt positions, what we used to -- that we have on shipping? So just to understand what -- why and what would be the thought process there.

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [85]

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You mean, why not pay down the debt and sit on -- and have less cash?

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Himanshu Upadhyay, [86]

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Yes. So it means on the offshore side because...

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [87]

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Yes. Yes. Fair enough. I get your question. Yes. This is an interesting point except that your debt payment is -- it's not very flexible in the sense that if you want to prepay -- it's a loan which goes over the next 5 years. If you want to prepay, you had to prepay the last installment first. A typical term loan, that is a shipping term loan, if you want to prepay the part of the loan, you had to pay the last installment. You can't choose to pay the first year's installments upfront.

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Himanshu Upadhyay, [88]

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Okay. But in future also, would the -- or it means the continuous -- the philosophy on offshore will remain the same as what has been on the shipping side?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [89]

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No. No. So I fully get your point. If you have significant contract coverage, which gives you free cash flow, there is no need to keep too much cash, so long as your cash flow from your contracts is able to meet your debt repayments easily. That is your point, right?

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Himanshu Upadhyay, [90]

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Yes.

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [91]

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Yes. You're absolutely right, and we will -- yes, when we structure it the next time around, yes, we will be looking at that. And your point that it is different from the way we do the shipping business is 100% correct. But going into the downturn, we had to conserve our cash. We did this in shipping as well. We had a lot of -- we took in a lot of debt just so that we could keep cash. We insured a lot of debt, which was in 2009, '10, maturing in 2019, '20, '21, just so that we would have cash and push the repayments further into the future so that we had a runway.

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Himanshu Upadhyay, [92]

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No. I get this point but because -- one second, just a continuing question only.

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [93]

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Yes. Let's just finish this question. Yes.

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Himanshu Upadhyay, [94]

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But in shipping, that the view has been always that there are so varied classes of assets, it will always get an opportunity to invest. And you can -- it means the market is liquid. And again, you can use this current asset across...

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [95]

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No. No. Himanshu, we are not using the same logic as shipping. What we did is we didn't know what you're going to price the next contract at. The next rig when it comes up for repricing, what that will be priced at, whether you will get a contract or not, okay? So you need a lot of cash upfront so that you can ride out the poor market. If your rig is idling, you should be able to ride out that period when the rig is idling and not putting -- having a negative cash flow. And therefore, sometimes you just overcompensate by keeping extra cash on the balance sheet just to ensure survivability.

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Himanshu Upadhyay, [96]

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Okay. And the view on offshore remains the same, that we'll like to wait and further watch out in that segment?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [97]

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Yes. We are riding through the market, and it is -- yes, it's slowly improving. We are seeing pricing improving in the market. And hopefully, it should continue that trend. We are seeing utilization has improved significantly, utilization, meaning the global utilization. Our rigs are employed in any case and are -- in fact, all of our assets are employed currently, including the vessels and the rigs. And pricing has improved significantly in the last year, 1.5 years. So there is an improving trend.

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Operator [98]

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The next question is from the line of Lalaram Singh from Vibrant Securities.

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Lalaram Singh, [99]

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May I know that post the IMO, the developments which have happened, have they been in line with our expectations? Because I think you were expecting some structural changes in the market due to IMO. But it seems that a lot of people have delayed, one, CapEx in scrubbers because of the good market rates. Number two, you were also expecting the routes of product tankers to maybe shift because of some of the refineries may not be able to produce the high-, low-sulfur oil. So just want to know your thoughts on the developments post-IMO.

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [100]

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Yes. Good question, and thanks for asking it. It's probably not gone as we would have expected. A year ago, we would have thought, and a lot of players also thought this, that the fuel of choice would be marine gas oil rather than low-sulfur heavy fuel oil. But what has actually happened is that the -- our fuel of choice has actually been low-sulfur fuel oil, okay? Which then takes you to -- and fuel oil is transported on crude tankers and -- typically transported on crude tankers, and marine gas oil is transported on product tankers. The hypothesis was that there will be a lot of marine gas oil movement, which will lead to a huge demand for product tankers, which has not panned out. And therefore, the demand for product tankers, which was expected for carriage of marine gas oil, has disappointed. So that's to answer that one question.

Second is, it has not gone as expected in the sense of the spread between high-sulfur and low-sulfur fuel. In early 2020, that is maybe the first 10 days of January, the spread went out to $350 to $400 per tonne. Currently, it's at a little over $200 per tonne, which more than anything, it's a little surprising that it's only a little over $200 per tonne. We would have thought it would be much more in the $300-plus range. Again, it's probably a function that the market is oversupplied in just all fuels today because the demand has collapsed for ships and for fuel -- and oil itself has temporarily collapsed due to the coronavirus issues. There is an estimate which says that in the last 2 to 3 weeks, Chinese oil imports have dropped between 2 million and 3 million barrels a day, which is a huge number, as you know. So your spread being low may be a function of that as well because, again, you don't function in a vacuum or in under laboratory conditions, and lots of factors are affecting these outcomes.

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Unidentified Company Representative, [101]

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You go ahead.

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Lalaram Singh, [102]

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Secondly, when do we expect our vessels to go for -- docking for, I think, scrubbers installation?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [103]

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We -- I mentioned a little earlier, we were planning at least one in March and one in -- 1 or 2 in March now -- and they were to go to China. Now we are considering other options because, obviously, the yards in China are not in a position to do those projects. So we are still considering how we can go about it. Yes, we are looking at different options now. So no schedule as of now.

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Lalaram Singh, [104]

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Got it. And also, are we looking to further downsize some of our assets?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [105]

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No. That will be on an opportunistic basis. If we get an opportunity as buyer at a good price, we'll certainly consider it. There is no requirement to downsize. We have significant amounts of cash. We are very comfortable. So there's no real requirement driving us. If there's a market opportunity, we will look at it.

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Operator [106]

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The next question is from the line of Venkat Samala from Tata Asset Management.

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Venkat Samala, [107]

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Sir, I have a couple of questions. So firstly, just wanted to understand how has the scrappage of the shipping fleet panned out this year? And how much as a percentage of the overall fleet was the fleet addition this year?

Secondly, in terms of the refinery shutdown, it has happened prior to IMO. Have -- has most of that completed the -- whatever maintenance was carried out? And have they -- are they now operationalized?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [108]

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Yes. So on the refinery shutdown, yes, they do the temporary shutdown just to do the turnaround and reject dead cells so that they can maximize production of metal distillates. So those refineries have all come back. And with regard to the scrapping, et cetera, then -- see, we haven't had much scrapping last year on the tanker side. In dry bulk, we had a little bit of scrapping, though even that was, I think, less than 1% of the fleet. In tankers, it was very minimal because everybody was expecting the IMO to have a big impact. In this month also, even with this terrible dry bulk market, we haven't -- we've had, I think, 6 or 7 capesizes scrapped, but that is about it because we have only gone a little past 1 month. So -- but 2019 was -- scrapping was less than the -- less than 1%.

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Anjali Kumar, The Great Eastern Shipping Company Limited - Head of Corporate Communications [109]

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In all of the sectors.

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [110]

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In all the sectors, whether it's dry bulk or tankers.

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Venkat Samala, [111]

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Okay. So do you expect that this year, it would be considerably higher than what it was in 2019?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [112]

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Again, it's a function of what happens to rates. If the dry bulk market stays like it is now, which is less than $5,000 per day across all the sectors, whether it's capesize or Panamax or Supramax, then you could see a lot of scrapping. But if the rates move up, as some people are expecting, if there's a bounce-back post or, say, middle of the year, if this coronavirus blows over, then maybe not so much scrapping. So it's all a function of rates purely and rate expectations.

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Operator [113]

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The next question is from the line of Jeet Gala from Centra Advisors.

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Jeet Gala, [114]

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Yes. Sir, going into IMO, everyone in the shipping industry was very much positive that good times are really ahead of them from 1st of January and not anticipating this black swan kind of an event in the form of virus which has happened in China. And which is why many ships, which were probably due for scrapping, probably held back, anticipating good times. And this is why you could see a scrappage ratio of 2%, 2.5% in last quarter. Now this variable of virus, which was not anticipated by everyone, I mean, is this kind of a blessing in disguise for people like GE Shipping, who are last man standing in this game? So how do you basically interpret this entire thing wherein the entire scenario has basically been postponed by 6 months? So do you think the weaker hands will probably still wait for 6 more months or will probably get in for scrappage? And similarly, the enthusiasm on the side of shipyards as well because even those people would be anticipating good times, anticipating good order book, et cetera. So how has this basically played out? And how does it basically affect people like you?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [115]

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Yes. So -- yes, interesting point on how it'll affect people like us. We are waiting for opportunities. We have cash. We are there to buy. We are there to sell, depending on what -- whether the price is high or low. No, so we are not there to buy higher and sell low, so that is the other way around. So the -- we are there. If the market has a period of weakness which gives rise to buying opportunities, we are there to invest. If it's a strong market and it gives opportunities to sell some assets, we are there on that side of the transaction as well.

With regard to scrapping, I don't know where you got the 2.5% number for last quarter because there was no number -- no scrapping like that. Yes. So there, maybe 1 million to 2 million deadweight would have got scrapped. So just scrapping -- again, it's difficult to say how people will react. But yes, 6 months of a dry bulk market like the one we are seeing today will result in significant scrapping. And we saw that 4 years ago in the first half of 2016 when we had 0.5% per month scrapping for the first 4 or 5 months. And then the market started picking up and then you had no scrapping done. So again, it depends on -- it just depends on how you will -- how you see the freight market playing out. But yes, if your question is are we there to buy if the market goes down, yes, you're right. It may be a blessing in disguise because it gives you an opportunity to deploy cash, and we are building up cash because of the strong markets and a couple of sales. Yes, it does give an opportunity to deploy cash, and we will look forward to those opportunities as well.

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Jeet Gala, [116]

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Okay. Sir, in other words, basically, it will put you ahead of others, right? I mean, because there's an unknown variable which has come in.

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [117]

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Yes, I don't know about others because lots of people have collected cash from this market. At least all the tanker operators have -- are generating lots of cash flow. So yes, but at least we are in a decent position if the opportunities come up.

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Jeet Gala, [118]

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All right. All right. And sir, one more thing. Can you shed some light on slow steaming concept, how it has played out after 1st Jan?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [119]

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Yes. The average speeds in dry bulk have come down. In the tankers, not so much when I last saw about a week or 10 days ago, maybe 0.2 or 0.3 knots. In dry bulk, it was almost 1 knot slower. That's the data which we saw about 10 days ago. So it is slower. But again, it's also because the dry bulk market is also weak.

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Anjali Kumar, The Great Eastern Shipping Company Limited - Head of Corporate Communications [120]

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Yes. It's a function of the rates as well.

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [121]

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Because the dry bulk market was just so weak.

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Operator [122]

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The next question is from line of Dhruv Jain from Ambit Capital.

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Dhruv Jain, AMBIT Capital Private Limited, Research Division - Associate of Mid-Caps [123]

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Yes. Sir, I had a question with respect to product tankers. So incrementally, we have the highest exposure in product tankers. But as you said that things have not really moved as per our expectations with VLSFO being the choice of fuel. So incrementally, what is our view with respect to product tankers? Do we continue to remain positive? Or we will move to any other asset class as the opportunity comes?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [124]

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No, they still make a decent amount of money. It's just that not as much money as the crude tankers made in that last little boom that we had.

But product tankers are a little more steady in -- so they don't go down that -- as badly as crude tankers in the bad markets, and they don't go up as much as crude tankers in the good markets. So they're a sort of steady earner. Even in the poor markets, they make positive -- not just cash flow but positive P&L as well, so long as you bought them at a decent time, at a decent point in the cycle. So yes, they're not -- they don't give you the excitement of crude tankers, but they are a good steady earners.

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Dhruv Jain, AMBIT Capital Private Limited, Research Division - Associate of Mid-Caps [125]

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Okay, sir. And just one bookkeeping question. Can you just give us the breakup of spot and time for this quarter, please?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [126]

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Okay. You mean the deals?

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Dhruv Jain, AMBIT Capital Private Limited, Research Division - Associate of Mid-Caps [127]

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No, the percentage of mix.

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [128]

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Yes. The mix of the fleet, right, for the last quarter?

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Dhruv Jain, AMBIT Capital Private Limited, Research Division - Associate of Mid-Caps [129]

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Yes.

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [130]

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So that would be somewhere in the 25% time and 75% spot, voyage.

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Operator [131]

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(Operator Instructions) As there are no further questions, I now hand the conference over to Ms. Anjali Kumar for closing comments.

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Anjali Kumar, The Great Eastern Shipping Company Limited - Head of Corporate Communications [132]

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Thank you very much for joining us today. And I reassure that the transcript of this call will be on our website in a couple of days. And do please feel free to reach out to us if you have any further questions. Thank you. Bye-bye.

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Operator [133]

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Thank you. Ladies and gentlemen, with that, we conclude today's conference. Thank you for joining us, and you may now disconnect your lines.