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Edited Transcript of GESHIP.NSE earnings conference call or presentation 8-Nov-19 11:00am GMT

Q2 2020 Great Eastern Shipping Company Ltd Earnings Call

Mumbai, MAHARASHTRA Nov 10, 2019 (Thomson StreetEvents) -- Edited Transcript of Great Eastern Shipping Company Ltd earnings conference call or presentation Friday, November 8, 2019 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

* Bharat Kanaiyalal Sheth

The Great Eastern Shipping Company Limited - MD & Deputy Chairman

* G. Shivakumar

The Great Eastern Shipping Company Limited - CFO & Executive Director

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Conference Call Participants

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* Ankit Panchmatia

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

* Chintan Sheth

* Deepak Poddar

Sapphire Capital Management LLC - Portfolio Manager

* Jeet Gala

* Nirav Shah

* Ranjit Kothari

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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 GE Shipping earnings call on declaration of its financial results for the quarter ended September 30, 2019. (Operator Instructions)

I now hand the conference over to Ms. Anjali Kumar, Head of Corporate Communication at the Great Eastern Shipping Company Limited to start the proceedings. Thank you, and over to you, ma'am.

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

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Thank you, Aman. Good afternoon, ladies and gentlemen, and very -- a warm welcome to you for our Q2 FY '20 conference call. We have already sent the results to the stock exchange quite some time back and also by that time, hoping that all of you would be in possession of it.

Without much ado, let me just hand over the call to our CFO, who will take you through the significant happenings of the quarter and followed by Q&A after that. Mr. Shivakumar?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [3]

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Good afternoon, everyone, and welcome to the results conference call for Q2 FY '20. Let's look at what the markets did in the last quarter.

First, looking at the tanker market. While it wasn't at very strong levels, the tanker market in H1 FY '20 was much better than in the corresponding period last year, which you will probably remember, was the weakest batch that we have seen in many years. And as you can see in our press release, our average TCYs for the crude tankers, around 16,000, 16,500 in Q2, up from -- marginally from 14,800 in Q1 FY '20 and probably from 11,000 in H1 FY '19. Product tanker TCY was up very marginally on a sequential basis, but much more up on a corresponding half year basis.

LPG carriers are up sharply, though not as much as the spot market because most of our ships are on time charter. And on dry bulk, again, the news was that the BDI recovered from the extreme lows of -- which we saw in Q4 FY '19 and moved up very smartly to more than $35,000 for the Capesize bulk carriers.

In the -- within the quarter itself, the crude tankers did much better in September than they did in July and August. So the market was showing a strengthening trend even before we had the runaway market that we saw in for a couple of weeks in October. We'll come to that later.

With regard to currency, the rupee depreciated about 2.5% during the quarter and had the usual negative impact on our P&L due to the evaluation of our dollar swaps -- dollar loans and swaps. The values of ships, both bulkers and tankers, remain more or less flat during the quarter ended September. And remember, this was before the crude tanker freight rates spike of October. As a result of the rupee depreciation and cash flows from the business, the stand-alone NAV moved up by about INR 10 per share during the quarter to about INR 393 per share.

In the offshore business, the improvement in utilizations and day rates are not reflecting in the asset prices or even in sentiment, and we can see that in the stocks of various-listed offshore players. The sentiment for investment is quite poor. As a result, broker valuations have marked on our rigs by about $10 million each. As a result of consolidated NAV, it stays in the range of 447 to 472 because that impact of those downward valuations of the rigs has offset the impact of the shipping NAV improvement.

As a result of the crude tanker freight rates spiking in October, it's expected that 2 kind of values have probably gone up, but there have not been many transactions since the market is in a state of flux.

Now coming to the fundamentals which drove the market during the quarter. And in fact, the same probably holds true for the 6 months and the first 9 months of this calendar year as well. Oil demand has been very weak in the -- in H1 FY '20. Oil demand is -- world oil demand is expected to have been flat to marginally lower, reflecting the weak patch that the global economy is going through. So the crude trade actually fell. The refinery runs in the first quarter were pretty low. They are expected to have stayed low during the second quarter, though it improved a little bit Q2 over Q1, but still at pretty low levels compared to a year ago number. As a result, the crude tanker trade actually had negative growth on a TAM basis. And of course, then in September, you also had the Saudi Aramco attack as the uptake field, which took out quite a few cargoes from the market.

Despite that, it's surprising, the crude tanker market was reasonably firm and much better than the previous year. Ship supply for crude tankers grew by about 4.5% during the 9-month period, which are expected even at this time last year, we were saying that supply is going to be a concern for -- at least for the first half of 2019. And it did grow. In fact, scrapping was lower than we expected because most people were fairly positive on the IMO 2020 impact on the tanker market, and we're very reluctant to scratch ships -- scrap tankers, especially crude tankers.

Scrubber retrofitting, which we'll expect it to happen in the last quarter, has probably got postponed as a result of the strong market. And it will come in later on, probably at Q1 and Q2 of calendar year 2020.

Looking at the product tanker fleet. It grew by a relatively modest 2.5% to 3% during the period. But again, trade growth was quite weak. Very weak light distillate products demand, that is gasoline and NAFTA, and a lot of refinery maintenance resulted in poor trade growth for product tankers. As a result, they were not very strong.

In October, when the spike happened for crude tanker rates, we also saw, for a very short period, probably a couple of days, a big spike in product tanker rates, especially the large product tankers, the LR2s and LR1s, but it lasted for a very short way. Some of that is probably also a result of some switching of LR2s to the trade because they can also trade as Aframaxes and carry crude oil and because the Aframaxes were running much more than the LR2 product tankers.

Going forward, we expect that our more related middle distillate demand end higher -- or higher is due to scrubber treatment will probably support freight rates. And on the positive side, the crude tanker order book is currently at under 9% of the fleet, while the product tanker order book stays at below 7% of the fleet, which is a low of the last 20 years.

We have seen that there seems to be a reluctance among shipowners to order ships because of a lot of concern about what is going to happen on carbon regulation. People are not very sure whether the ships that they order now is the -- our conventional fuel-driven ships, whether those will be banned in 10 years' time and everybody will move to LNG ships or some other new technology that comes in, if there's a carbon emission cap and therefore, people are not very keen to order ships. The few orders we've seen have been a few LNG power ships. But again, because that's significantly more expensive than a conventional ship, those are quite -- they are -- those orders are quite few and far between.

The LPG market continued to be strong through this period. U.S. LPG exports have been very strong and expect -- and is expected to grow further as well because we think they look sustainable, booming, at least in trade group. So current LPG spot rates are probably around the $45,000 to $50,000 per day. Of course, our LPG ships are -- 2 of our VLGCs are on time charter, which -- and they come on-time charter in the first quarter of next calendar year. One of our ships came off charter and went -- and we put it onto a new contract at a higher level. 2 midsized gas carriers, both are running on-time charters. The order book for the VLGC sector is currently at about 12%.

In the dry bulk sector, (inaudible) Chinese steel production has grown very significantly year-on-year. And significant recovery in Australian and Brazilian iron ore shipments with the restart of Vale, 30 million tons per annum (inaudible) mine, provided a strong timeline pickup. And this restart probably got charters offguard and the sudden upsurge in the (inaudible) to China overtrade, which is a very strong time line trade, led the Atlantic market significantly shortened Capesize tonnage and therefore, rates really shot up. And aiding that was continued coal -- strong coal imports into India, Vietnam and China, which supported a smaller size of our ships. While the fleet grew by about 3%, it is reported that more than 1% of the fleet, which is mostly Capesize, so a lot of service during the quarter for scrubber treatment, which restricted available tonnage supply.

The Cape market and the rival market in recent weeks has dropped significantly for a couple of reasons. One is the case are down to 20,000 from the high end, I think, 37,000, 38,000 a couple of months ago. Spot rates around 20,000, (inaudible) spot rates are down to about 11,000, and Supramax were also somewhere on the 10,000, 11,000 range. And while the offshore market continues to be challenged, there are visible signs of improvement in rates on both rigs and offshore vessels. We also see -- we mentioned last time that we got a contract award for a rig, our Greatdrill Chaaru, which is coming off contract next year. And she has a 3-year contract starting in second quarter of calendar year 2020, which is at a significantly improved rate from the last damages done about -- around this time last year.

Utilization for the effective fleet. So the fleet of jackup rigs in the world is about 520. Of which, about 70 rigs are all rigs which are cold stacked. So what we would call effective suppliers, 450 rigs. Of this, currently, there are about 350 to 360 working rigs now. So we now have utilization of -- effective utilization of rates, at almost 80%. And on the total headline number of rigs, our utilization is in the high 60s. However, this is still not resulting in a big increase in rates. We had that 1 bump up in rates. We are hearing headline (inaudible) in other regions in the region of $70,000 to $80,000 per day. Again, their operating costs are very different, but this is an increase probably of $20,000 to $30,000 from the lows in those areas.

Vessels utilization has improved. We have managed to get a couple of short-term contracts in the international markets at reasonable rates. And we are happy to report those contract awards. These are short-term contracts for a couple of months at a time. But again, it's our intention that we have our vessels marketable internationally. And therefore, we are trying to go over a short-term content because we have a lot of long-term contract coverage in India.

As I mentioned, this is not reflecting the uptick in the market. It's not reflecting in asset prices, our asset valuations. And rigs are actually getting marked down. Rig values are actually getting marked down.

Coming to the recent action, which happened -- excitement, which happened in the market, the improved tanker market, specifically in the month of October. The trigger ostensively was that for another -- Let's move back. We had 1 small bump popping crude tanker rates when the Saudi Aramco event happened. Reportedly, some of the charterers decided we're worried about getting their supply from Saudi Aramco and therefore, decided to value source oil from elsewhere. Now as we have pointed out in the past, the swing producer of oil and aspect (inaudible) for oil is in the U.S. and therefore, a lot of ships had to be chartered to bring oil from the U.S. This is, again, high 10-mile demand. And thereon, it takes a long time to get to the U.S. if you were otherwise planning to load in ag. And therefore, rates moved up. But they did not move up in a huge way. The big trigger really was probably the cost of sanctions, which effectively that the U.S. government put sanctions on the Chinese shipping company, which controls about 3% -- or which owns about 3% of the world [VLCPP] and some reports say that they control 5% of the world VLCPP. And as -- again, as we pointed out several times in the past, the market moves on 1% to 2% changes in demand and supply. Our trade markets move on very small changes in the demand-supply balance. As 3% of the fleet got taken out, there was a worry that this would get taken up. There was a lot of panic fixing by charters, which took rates up and rates doubled overnight and more than doubled and went up to a peak, I think, for a VLCC probably went past $200,000 per day for us nice probably went to 200,000 plus per day. Again, it did not last very long. It lasted a couple of weeks. Some of the very high rates, which were reported, finally did not get done because the charters took the ships on subjects, but then dropped them later because that is part of the standard contracting method.

So it actually went up from earnings, say, $15,000 to $20,000 a day to maybe $30,000 a day by end of September, and then rapidly went up to close to $100,000 a day by 20th of October. Currently, they're probably trading somewhere in the $30,000 to $40,000 per day range in the spot market. We have managed -- we had all our crude tankers open in the spot market. We have managed to get some of our voyages in a decent numbers, which, of course, will reflect on the Q3 and later numbers. We had -- in fact, we had planned for some of our ships to be in the yard. You know that we are fitting scrubbers on 4 of our Suezmaxes. We have planned for scrubber installations in the fourth quarter. We actually withdrew -- decided to postpone the scrubber installations because of where the spot market is. And we decided to continue trading those ships. We will do the scrubber installations later. We now expect that we will do those cover installations in H1 calendar '20, probably towards end of Q1 or in Q2.

We have already completed a scrubber installation for 2 of our ships: one is an LR2, the Jag (inaudible); and one is an Aframax, the Jag (inaudible). We also have -- apart from these 4 Suezmaxes, we have 1 gas carrier, where we proposed to install a scrubber, which will also be done in H1 calendar '20.

Coming to product tanker markets. They saw a very brief spike, but those markets have dropped off again, so we are back to where we were in September or early in October. So not much excitement. The one disappointment for the market, for the tanker market, is that we haven't yet seen the spike from IMO, which we should be seeing any time now. It is possible that because the underlying base demand growth of 1 million barrels a day has not happened, the market is not as tight as one would have expected it to be. But having said that, let's wait and watch. You'll never know what's going to happen tomorrow or next week.

So with that, I'll finish my prepared comments, and we are very happy to take questions and discuss the company and what we see in the market.

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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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Thanks for the very detailed opening remarks. And congrats on a good set of numbers. I have a few questions, sir. Firstly, on the NAV, you mentioned about the NAV at INR 393. That's as of September end. And you also mentioned that although the market was a very illiquid, prices supposedly are slightly higher. So just to get a ballpark number, I mean, what would this INR 393 look like as on date? I mean a range would also do.

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [3]

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Hi. Good evening to you. That is a very, very, very speculative question, and I'm just going to be doing guess work. So there's no point doing that. The crude tanker fleet is about 20% of our fleet by value, and you can just extrapolate from that. But yes, this is -- we don't even know. So even to do guesswork, whether they're up by 5%, 10% or 20%, we just don't know. And it's -- there's no point even trying to speculate on this because we don't even know if those values will be there.

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Nirav Shah, [4]

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Second question on the jackups. You've mentioned that few contracts at $70,000 to $80,000 have happened across geographies. So had it been, say, we got to do our contracts not in June, but as on date, what kind of upside could we have seen just on that 3-month period of -- (inaudible) to you.

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [5]

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So these are -- again, as I mentioned, yes, the OpEx is very different. So this one, we can do a calculation on it. But OpEx is very different on these. So while the headline rate is $70,000 to $80,000, there's a lot of customization, which has to be done for specific contracts and there are mobilization costs as well. So I don't think we are worse off by having done our contracts as well as pending contracts, which I was referring to $70,000 to $80,000. Maybe marginally, but not by much.

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Nirav Shah, [6]

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Technically, the cycle in the offshore lasts pretty long, I mean, both on the upside as well as on the downside. So what is the average duration? I mean when the red market does because you've mentioned that of the available fleet, the utilization is close to 80%. So how long? And as we have experience what have shown, how long can an up cycle last because we might be possibly in the very early stages, the distributor sense on the cycle duration?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [7]

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Yes, yes. I like your positive approach of thinking about an upside. So yes, we think we're probably in a -- we have bottomed out. The large strategy of cycle start was 2003, '04. It lasted all the way up to 2014 and then collapsed there. So it was a strong 10-year period, with the minor blip in 2009 when we had the global financial crisis. So -- but it's difficult to draw conclusions because it's -- again, it's not a market. We've just seen many cycles raise and drop. In shipping, you can draw some conclusions on the nature of cycles than the duration of different phases of a cycle. In offshore, not really. So -- but just to give you an indication, that was a 10-year up cycle, and we are now 5 years into the down cycle currently. And the last down cycle was probably 15 years, which is from the late '80s to the early 2000s.

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Nirav Shah, [8]

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Got it. And, sir, lastly, on the debt. Stand-alone debt has gone up by around INR 200 crores sequentially. So this is largely due to the buyback and the dividend and the scrubber CapEx that we would have done?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [9]

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(inaudible) why -- did you say stand-alone debt has...

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Nirav Shah, [10]

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Stand-alone net debt. Net debt. I'm not talking to gross.

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [11]

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Okay, okay. Yes, yes, yes. They are probably because of the dividend and the buybacks. Also, we got into about INR 200 crores.

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Nirav Shah, [12]

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And some CapEx would be there or -- I mean...

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [13]

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About very little (inaudible) of CapEx. We didn't do a nice CapEx. Now of course, we have the requirement to put the cash flow, so we have the cash flow statement as well. We have very little CapEx.

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Nirav Shah, [14]

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Okay. And just a final question from my side. How many vessels would we have -- I mean, which would have gone off contract in the month of October or early November, which are, again, redeployed?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [15]

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Yes. So we run our (inaudible) assets. So those are (inaudible) after that. It will be run on Aframaxes and put on time charter. So otherwise, Suezmaxes, [5] of them were repriced in the month of October. (inaudible) 2 current.

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Operator [16]

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The next question is from the line of [Virtu Bagsatya] from Athena Investments.

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Unidentified Analyst, [17]

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And sir, I have a question on the debt. It went back to (inaudible) be comfortable. And basically, what is the upper side in which you will say that you may now -- you might want to raise some equity? What is the right comfortable level?

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

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Yes. So a couple of things. One is the comfortable is, again, a function of what we have done with the money, the debt that we've raised. We are probably getting close to the limit of our comfort. We are probably close to that. Maybe a little bit more of that, maybe a hundred -- a couple of hundred million dollars of debt max. Now when it comes to raising equity, you know that we haven't raised equity now for 25 years. And the last real equity is when we have made some rights issues, et cetera. But the last real market equitations we did was 26 years ago, in end of '93 or early '94. So we are not really much for equity issuance. In fact, we act more in the opposite side because the equity -- because it's fundamentally underpriced, right? If the NAV is INR 390 and the stock is at INR 300 EBITA, it's unlikely that we will do much issuance. There's no -- if we need to raise cash, it's better to sell ships to raise the cash. But we look at book value.

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Unidentified Analyst, [19]

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Got it. But I was coming on perspective of the lender. Even lenders always look at some correlation of a lot of (inaudible) vendors. Once their equity go up, you will (inaudible) some time.

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

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We are far from that, (inaudible).

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Unidentified Analyst, [21]

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Yes. But what I really wanted to know, like what would be -- what is the limit?

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

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Yes. Very, very far from the limit. It's well in excess of 1. H2, 2:1 debt-to-equity ratio. We have no any other. Before, the lender has a problem, we'll have a problem with it, too. It's our own internal risk that prevents us from doing that type.

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Unidentified Analyst, [23]

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Okay. But even on just the (inaudible) previous question in terms of development after this accounting change that has not been (inaudible) there, because of some macro factors here and there, there can be fluctuations, shifts on backlog. And I hope that you work around (inaudible) into your (inaudible)?

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

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I think that already happened. And the network changes have already happened.

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Unidentified Analyst, [25]

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Yes. I'm not saying (inaudible) power (inaudible). The (inaudible) effect.

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [26]

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Okay. Yes.

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Unidentified Analyst, [27]

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Yes. So (inaudible)?

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

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Well within the (inaudible). I mean, [10%] of our covenants. [5%] of equity. At anywhere close to these levels.

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Unidentified Analyst, [29]

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Okay, got it. And lastly, you took on a long, long time. The -- and if I look at the (inaudible) initiative on (inaudible) retail (inaudible). But even if I -- and maybe obviously, they don't look at profit that comes make on -- even then -- and then it doesn't look like (inaudible). So what I was saying, whatever (inaudible) problem in LNG? Or has that have to go up to justify the (inaudible) with the shipping company? Where is the problem? Is there a problem in the [menu] or problem in check?

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

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Yes, okay. That's an interesting point. Yes, you don't make fundamentally a very high return on your NAV over a long period of time, okay, unless you get the cycle right. So -- and you're judging it on the basis of 10 years, which have been quite poor for shipping. And extra volumes, we have had 1 really good year, 2 probably okay years and so the years have been quite poor, okay? I think it's not quite the right time to do a look back at the last 5 or 10 years and say that it hasn't added much value. So it's a cycle, and the cycle plays out and you get -- and the whole idea of a cycle is you get poor years and you get good years. Now your question would be justified if we went through a good patch and then there is no return, okay? So that is -- but if you -- and if you go back a little bit in history, over the last 20 years. So the first 10 years of the last 20 years, we look at spectacular returns. So we're talking of 30% to 40% return on equity kind of numbers. And in the next 10 years, as the cycle turn, becomes a poor phase. So it is a cyclical business. It's important to -- again, managing the cycle is very important.

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Unidentified Analyst, [31]

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Yes, I understand that, but that's why where we are exactly in that point of cycle?

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

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So we are in sort of the low-ish part of the cycle. So the results as of September reflect earnings in the lowest part of the cycle. So for instance, if you have $16,000 for your crude tankers, it's a pretty poor market. It's not a great market. It's only good in comparison to what we were doing previous year because it was a terrible market. So it is still not a great market and therefore, it's not the right time to look at another right point. I wish you'd say this little business that doesn't get much better.

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Unidentified Analyst, [33]

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Right. Yes. And I understand that at any point of time, the earnings have go to [below] the level in relation to the investments that's been done.

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

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That's right.

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Unidentified Analyst, [35]

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So if somebody is trading now at this price and getting this (inaudible), still -- is it notable to make -- able to make returns? So the way to outweigh returns is basically just to buy ships at lower prices, as you actually did, and all of that in. So I just wanted to try to -- trying to understand if is this the case, which can happen in the future?

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

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One of the basic principle is correct, but I don't see the conclusion that you're right. So you have to judge it in a good market. So whether your purchase of ships in a broad market has served you well, you have to judge in a good market. So in any case, this will be a very fundamental and long discussion, So we can have that separately.

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Operator [37]

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(Operator Instructions) The next question is from the line of [Ensam Raj] from [Duarta] Wealth Management.

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Unidentified Analyst, [38]

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I just wanted to ask you. I was -- I monitor Hellenic shipping news, and they were of the opinion that these high freight prices, which spiked up, because of this Costco problem -- sanction. It could remain from -- right up 'til next year and beyond also. So basically, the freight rates announced for the tanker market, especially there seem to be about twice or thrice what it was in the last year. So how would it -- going forward, how would it impact our EBITDA?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [39]

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I'll put a number on how it would impact EBITDA because, okay, you need a specific number. It will improve the EBITDA if the rates stay at this number, then obviously, we'll have significantly better EBITDA. The -- again, I'm not going to comment on what the market outlook is because we don't know. We do not expect that Suezmaxes would be earning $60,000 to $80,000 a day in October and therefore, we can't even (inaudible) gets us to what they will earn next week. All we know is what we think is our ship's set.

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Unidentified Analyst, [40]

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Okay. So it is now about, what, 3 to 4x what it was? At least 2 or 3x what it last year, definitely?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [41]

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Last year, also, we had a sort of strong period from November to December, so it was already strong. And yes, it is stronger than the previous year.

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Unidentified Analyst, [42]

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About how much of it will get twice?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [43]

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How much is -- it depends on the day that you're asking. If you asked me last week, when Suezmax were earning 55,000 to 60,000, it's different from asking me this week when they're running 30,000 to 40,000. And these things change on a daily basis. So all I can say is it's stronger than it was last year -- this time last year. And now...

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Unidentified Analyst, [44]

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If you take the moving averages, then how would it...

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

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The moving average over what period? So okay.

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Unidentified Analyst, [46]

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Last [year].

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

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The average for calendar 2020 is higher than the average for calendar 9 (sic) [2019].Calendar 2019 is higher than the average so far for calendar 2018 for crude tankers. Similarly for LPG ships as well.

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Unidentified Analyst, [48]

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By -- so any number on that? And how...

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

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No, I don't have a number on that because that's not really how we are following. Okay, what you can do is look at our crude centers because our crude tanker exposure is mostly spot. We give the quarterly T/C-wise. If you -- and it will be in our presentation. You can look at the average T/C-wise of a crude tanker fleet and you can draw your conclusions from that.

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Unidentified Analyst, [50]

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Okay. And then now I just wanted to ask you what is the current premium between the 5% sulfur fuel oil and the 0.5 IMO-specified oil right now? Because I think it can go up from $300, right up 'til $60 premium when I last saw in August. Now what is the premium?

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

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You see -- okay, there's -- now it makes sense to -- there's no point looking -- in August, it didn't make sense because nobody needed 0.5%, okay? So there didn't need to be any spread at all, okay? So now it will start making sense because people have to start stocking up on 0.5% fuel. Yes, the current spread is probably around $200 per ton. The -- but what you need to look at is what is the power spread. The power spread for calendar '20 is probably in the region of 230 to 250 plus minus. So it stays within that range, and that's where the spread is. It hasn't moved that much in the last 6 months, the forward spend.

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Unidentified Analyst, [52]

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So it never came down to $60? The (inaudible) thing?

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

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The spot $60 is meaningless. Even though the product which you don't need. Why would you need 0.5% fuel?

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Anjali Kumar, The Great Eastern Shipping Company Limited - Head of Corporate Communications [54]

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There is not enough price discovery of a commodity which is not actually being bought today in the physical market.

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

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So if we are a shipping company, we can use $300 per ton fuel. Why would we buy $360 per ton fuel which gives us no benefit for the extra $60? Except for testing, we have used -- we have done some testing in these fuels. But that's the only reason we would buy it. There's no other reason to buy the low-sulfur fuel in the month of August, I'm saying.

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Unidentified Analyst, [56]

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Okay. Because many of the shipping companies were saying that in -- for the fuel tanks, even the fuel is stored in the ship, that has to be washed off and therefore, from October, people would start using the low-sulfur content...

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

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Yes. So it's partly true in October, more likely to be true in November and very much true in December. So yes, people will start doing it. We are also doing it, the cleaning of some of our tanks and filling them -- filling in low-sulfur fuel oil. But again, it's not a huge amount of demand.

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Unidentified Analyst, [58]

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So how much...

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

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Again, the spread is $200 per day.

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Unidentified Analyst, [60]

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So how much has the -- or what are -- how much would the overhead increase now when you're going to do the shifting, sir? How much would that overall overhead increase? And how would it affect the margins going forward? Or will we be able to pass on the...

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

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So the market will price. You see, everybody is doing the same rate, so all competitors are doing the same thing. Everybody who was using $300 fuel, they'll now have to do $500 fuel, except for the scrubber people. So it's -- it gets priced into the freight rate. And if it gets priced, this -- the freight rate will get priced based on the demand-supply balance of ships.

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Anjali Kumar, The Great Eastern Shipping Company Limited - Head of Corporate Communications [62]

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As long as the markets remain reasonably calm, almost all of it will get passed through.

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Operator [63]

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The next question is from the line of Ranjit Kothari, (inaudible).

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Ranjit Kothari, [64]

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So my question is regarding the low-sulfur fuel oil. So what is our strategy regarding the same? Like are we going to stock it up in a floating tanker? And at the present, able we going to procure it very well when needed? I don't need the risk or strategy (inaudible).

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

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So probably I'll give you the exact strategy. Also, we'll buy when it's needed. Thank you for your question. We'll buy it when it's needed. We are not going to take a call and put our bankers to a storing fuel for assets. So we'll procure it when it's required. We are talking to suppliers to ensure that we have the supplies when we need it because we are in the business of buying and selling fuel oil ideally to take a call on that.

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Unidentified Analyst, [66]

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Okay, sir. And other question is regarding -- sir, as we are aware that around 3% of the fleet is going to go off from December onwards from (inaudible), right?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [67]

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Yes. Continue.

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Unidentified Analyst, [68]

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And so is there any way that those ships can come again in the market by corporate restructuring or something, like they have have done for LPG?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [69]

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Okay. I don't know what they have done for LPG, but let's go through this. The 3% ships are already off, okay? All that the treasury has given, they're given a waiver for some time. They have said you have time until 20th of December, some time in December, to wind down existing transactions, which means that if you have, so what? Just to give you an idea of what happened. Charterers who had loaded fuel on a [BosCo], ship and this is a report we had in the market, may or may not be true, but it's possible. The people who have loaded fuel actually said, "I don't want to fall off sanctions." And therefore, they went and actually said that not loaded, full loaded a cargo and a ship. They actually went and said, "Let's discharge this cargo and I can't take that ship now."

And that's what probably led to the panic because people then said that I need to find something to leave this cargo immediately. So all that will happen is now you don't have to worry if you have a ship in the middle of a voyage. It does not mean that you can take a ship for a new voyage, necessarily. Again, all this is subject to interpretation. So as it stands, it means that from December, what you said is correct, that those ships are out. Now finding a way to [route] this and a lot of people will -- charterers, for instance, because a charterer is basically putting in a crude tanker -- he is putting 2 million barrels of cargo, okay? That's $110 million to $120 million worth of cargo. He's not going to take a risk on that cargo getting stuck. So doing this routing and shifting, changing names, et cetera, that it's not going to be very much acceptable to the charterer. It's possible that people try it, but it's not going to be easy.

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Unidentified Analyst, [70]

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Right. Sir, can I ask one more question through...

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [71]

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Yes. Yes, go ahead.

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Unidentified Analyst, [72]

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Sir, what is the average life of a crude tanker?

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [73]

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You mean the useful life?

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Unidentified Analyst, [74]

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Yes. Yes.

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [75]

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Okay. On our books, we take 20 years. We have run 20-year-plus ships also in the past. Technically, they can run forever. There is no regulatory scrapping requirement. It just depends on how much it cost you to keep them running.

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Unidentified Analyst, [76]

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Right. Sir, actually, I wanted to understand the -- I mean, what is the strategy going forward? Because I think we have around 3 ships that are like 19-year old and 4 ships around 15 to 16 years old?

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [77]

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Yes. So those ships will run, so long as we can run them, so long as they're acceptable to our customers. So long as we can maintain them at a good quality. In short, too expensive to maintain them at the quality that we require because we have certain quality standards. We will continue to run them. At some point, it may become too expensive to do that, and then we will -- and then we scrap that. So we will sell them most likely.

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Unidentified Analyst, [78]

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Okay. Sir, is there any plan to enter into (inaudible) going forward?

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [79]

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Everything is based on getting a good ship at the right price.

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Operator [80]

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

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Unidentified Analyst, [81]

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This is Sanjeev Pandiya. You talked about double disruption a while back in one of your comments, and we are also seeing that anybody who becomes a potential buyer of ships for any reason will look at 2030 norms and try to decide on the -- on what kind of fuel or what kind of technology to buy. And that is going to create another kind of mini disruption. Could we have G's opinion on this one? Do you think it is going to make a real and material difference? And to what extent will it sort of shift the demand-supply balance?

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [82]

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Okay. Do you want our opinion on what is likely to happen to carbon regulation?

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Unidentified Analyst, [83]

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Yes.

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [84]

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(inaudible) to carbon regulation, we don't want to have it, I guess. We are just happy that it's -- there it's -- if it's stopping people from ordering ships, we are happy. So that's all we look at because that's how we -- we cut the rest of it, we can't forecast. We don't know how regulations are going to pan out. 2 years ago, we didn't think that a large part of the industry didn't think that IMO 2020 would come in from 1 January, but it did, or it is going to. We can't forecast regulations, so we don't try to do that.

Yes, it's okay for us that this is potentially there in 2030. In any case, we are not big on ordering newbuildings, and we are fully capable of transacting in the second-hand market. In fact, we found that better returns on many second-hand ships.

So we -- bottom line is, we can't forecast it, but we are happy that it's preventing -- if it is preventing people from ordering too many new ships because that's the only thing that's permanent in our business. New ships, which stay, they stay for 15, 20, 25 years. That's the only problem in our business.

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Unidentified Analyst, [85]

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But what is your opinion of the way people will forecast when they look at this 2030 norms. Do you think it will materially slow down ship ordering?

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [86]

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Yes, it has. It has and apparently -- and that's sort of anecdotal evidence, and people talking to people and saying that this is what I'm hearing and this is what people are worried about. But it has -- it is much slower now to -- ordering is much slower.

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Unidentified Analyst, [87]

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Okay. Okay. The next question is, if demand-supply was the seesaw, then what kind of imbalance achieves what kind of price delta. So let's say, if there is, let's say, a COSCO event takes away, let's say, 1% of supply. We've seen some idea of what happens in the short run, and some idea of what happens in the medium term after the market sort of recovered from a supply short like that. So one is, what is your opinion of where the segment by segment, the ship market is balanced between demand and supply just now. And what kind of price delta you would expect? Let's say -- my next question would have been slow steaming would have an impact of -- I'm speculating, 5% or 6% overall on an effective reduction in supply. So we just want to get some idea about where the demand-supply balance in ships is standing just now?

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [88]

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Yes. So this is a number, which is we don't know and it's sort of unknowable. All we know is that..

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Unidentified Analyst, [89]

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It's just an opinion. That's why I'm asking for opinion.

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [90]

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I think the way you represented it is correct and it's a seesaw. We think in crude tankers, the seesaw is currently slightly tilted in favor of the shipowner. In product tankers, it's probably balanced to slightly tilted in favor against the shipowner. LPG, it is significantly tilted in favor of the shipowner. And dry bulk, probably, again, the opposite, which is tilted against the shipowner. We just -- basically from a reading of where the rates are currently, we don't have a number on how much impact that is for a particular change in utilization. All we know is that it takes 1% or 2% change in utilization or in the demand-supply balance to take rates up very significantly. I think I've mentioned in the past that 2015 probably saw a change in demand-supply balance of not more than 2% for crude tankers and the rates more than doubled in that year, okay?

So that's the kind of impact it can have. We don't try to forecast this. All we do is we say the directional call on is the market likely to get tighter or it's likely to get more oversupplied. And if it's likely to get tighter then we keep our ships open on the spot market. If we think it's going to get oversupply in the market is going to get weaker, then we try to fix some of our share out on time charter. That's all we can do. So all we can say is $10,000 for a Suezmax on the spot market is a terrible rate, and $100,000 is a Great rate. If it's -- if we're getting $100,000, we are very happy to fix as long as possible. If we're getting $10,000 at the end of spot market, we will try to fix as short a voyage as possible. And we only made these directional calls because we can't -- we don't have enough information to make those calls on how much delta of earnings they can be for a 1% change in the demand-supply balance. And we don't even know when there is a 1% change in demand-supply balance. For instance, this COSCO thing. Those ships are probably still out. However, the rates which went up to -- close to $100,000 a day for Suezmax which are now below $40,000. Nothing explains that in terms of demand and supply balance. So it's -- we think it -- there's no point trying to do that number. And we don't try to do it. So somebody told me that there's no point trying to know the unknowable, and the [top side] of it, I think, is a very good principle for going through lifeline markets.

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Operator [91]

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The next question is from the line of Ankit Panchmatia from B&K Securities.

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Ankit Panchmatia, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [92]

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Congrats in terms of a good set of numbers. Sir, just wanted your view due to this October fireworks, which we have kind of experience in the crude market. Have we been -- fixed all charterers on during that period of time, what sort of rates for us, which we can or we have kind of fixed up for this shorter voyages? Any rough math behind it if you can provide us?

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [93]

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Yes. Thanks, Ankit. So we're not -- okay, I don't have the numbers off hand. The one thing that you can see directionally is the backlog that we had, which we put in our presentation. All I'd say is that all our 5 -- 7 Suezmaxes were operating -- that are operating in the spot market. And of them, at least 5 has been repriced after 1st of October. So I'm not going to get into what rates or price, and some of them got very lucky, some of them a little less lucky.

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Ankit Panchmatia, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [94]

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Right. Right. So just to get your view right, as far as your opinion on the (inaudible) were a concern, so you said that although the charterers will extend that rate, the supplier had kind of option to kind of reverse those or after seeing the correction rates, the kind of backdrop from the charterers? Is my understanding correct?

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [95]

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No. No. No, so the -- this (inaudible). Yes. So this is standard part of any shipping fixture. Customer sales -- the customer comes out with an inquiry, saying, I need a Suezmax to load from a particular terminal, on 3rd, 4th of December. So they come into the market, people pay, and they negotiate and accept, say, the lowest bid. However, it is subject to getting a clearance from the terminal. The customer does not own the terminal and the refinery, I don't -- I'm taking the ship on charter. I don't own the loading terminal, okay, which is owned by, say, an oil company. I don't own the discharge terminal necessarily, which is maybe a port or it may be my own terminal. I have to get approvals for all of them. I also have to check the ship's approvals, whether the ship is approved in my system, okay? So this takes typically 24 to 48 hours. And therefore, we call it being put on subjects. It is subject to all those clearances: the receiver's approval, the loading terminal approval, all those are required. And when that happens, then sometimes, this is also -- it's like an option. So in effect, it's not like that. I think the effective -- if we are -- if they're unable to get an approval at that time, you are dropped. It is also acting as an option because if the rates have moved very differently in this time and they have the ability to drop you on the subject.

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Anjali Kumar, The Great Eastern Shipping Company Limited - Head of Corporate Communications [96]

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Just confirmation.

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [97]

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Yes, like after confirmation. So I did not mean to say that after they were confirmed that people went back on their contracts. That has not happened. This is only when they were on subjects and they got -- we call it getting confirmed on subjects or getting failed on subjects. It's your fail on subjects.

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Ankit Panchmatia, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [98]

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Counterpoint. So what is the voyages...

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Anjali Kumar, The Great Eastern Shipping Company Limited - Head of Corporate Communications [99]

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(inaudible) have got approved, the subject has been lifted.

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Ankit Panchmatia, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [100]

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If the voyages were kind of confirmed then the day rates were fixed.

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [101]

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Yes, they're all fixed and they got confirmed. And after that, they got confirmed. There is fix then (inaudible) got confirmed.

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Ankit Panchmatia, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [102]

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Okay. Sir, I just want to understand the testing outcome with the scrubbers, how has been your -- or it's too early maybe to ask that question, but just to get your view that...

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [103]

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Oh we mentioned them. So I -- yes, so there were 2 we installed, we've tested them because you have to get them certified as well as working, okay, by (inaudible) classification society. They will -- tested them and they're working fine. Obviously, we're not running them currently, not on a regular basis. But when we tested them after and immediately after installation, which is a standard part that you have to get a certification. They were absolutely fine. Again, how it works out, when you're running on 24/7, 365 days, we will have to see.

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Ankit Panchmatia, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [104]

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True. True. But, maybe just -- that's what I was coming to are negotiation to halt that. Should you feel that slow steaming on the scrubber installed, it would also take place or we would continue to operate at a normal speed versus a charterer, who is using -- lowers the fuel content then they would kind of try to save their cost by slow steaming. And please, I hope you answer my question?

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [105]

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Okay. Yes. So -- okay, let us look at it this way. The optimal speed for a nonscrubber -- okay, what are the factors that go into deciding on your optimal speed? There are 2 things. One is what is the freight rate? And second is what is the fuel cost, okay? So the fuel cost of the nonscrubber ships, let's say, taking a rate of $200 is $600 per tonne. The fuel cost for the scrubber ship is $400 per tonne. The optimal speed for a nonscrubber ship will be lower than the optimal speed for a scrubber ship. So that's all the statement we can make. So if the optimal speed for a nonscrubber ship at $600 is 11 months, the optimal speed for a scrubber ship at $400 per tonne will be some -- and that is standard during the direction, will be 11.5 to 12 months.

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Ankit Panchmatia, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [106]

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(inaudible) But they would be able to operate that because...

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [107]

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There's no technical thing about not being able to slow steam.

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Ankit Panchmatia, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [108]

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Right. Right. Right. And then one more, maybe a forward-looking question. Would we be looking forward to trim our fleet size when we reach improvement in rates sustained for, say, next 6 months? Are we looking out to kind of reduce our fleet changes?

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [109]

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You see there are 2 ways in which we can reduce. So not so much fleet size as exposure. So the exposure comes about either by owning the ship. So it comes about by owning a ship, which is in the spot market. You can reduce that exposure by owning the ship -- continuing to own the ship and fixing it out on time charter. If you can get a good charterer, who will pay you even when if the market falls, you can take it out on time charterer. Of course, the only way to know 100% sure is to just sell it and put the cash in the bank. So trimming the fleet can be in 1 or 2 ways. It basically (inaudible) position, right? You can reduced it by either fixing our own charter for a reasonable period or by selling the ships.

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Ankit Panchmatia, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [110]

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So are we okay to sell...

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [111]

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We are okay to sell ships. You've been following us. 4 years ago, we had 32 ships. So we have 47.

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Ankit Panchmatia, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [112]

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But the NAVs are higher so...

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [113]

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That is a consolidated NAV. The stand-alone NAV are lower than this. We are in a highest stand-alone NAV, I think, for many years.

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Ankit Panchmatia, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [114]

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Managed very well. And so debt to commitments, how -- what sort of debt we would plan to pay over the next half a year on debt and...

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [115]

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There is no plan in this. We have fixed schedule of prepayments. We have paid about $100 million in the first 6 months. We have about $50 million coming due in the next 6 months. Yes, I hope it's a large portion is coming in the next week itself. On a consolidated basis, we have paid down about 30 -- $25 million to $30 million -- sorry, the rate that we paid out, $25 million to $30 million in the first 6 months, and we have a similar payment to happen in the next 6 months. So this year, we are going to r (inaudible) by about $190 million to $200 million. We're also drawing down on a little bit of debt constructs.

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Operator [116]

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The next question is from the line of Deepak Poddar from Sapphire Capital.

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Deepak Poddar, Sapphire Capital Management LLC - Portfolio Manager [117]

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Thank you very much for the opportunity. So I just wanted to understand, like as you mentioned that if the rates, the tariffs of crude tankers or maybe LPG carriers remain at the current rate, what is it do you expect EBITDA margin should improve from current levels, right?

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [118]

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Yes, so current levels reading from last year. Because today's rates, it comes down to a simple thing. The operating costs are not that different from previous year. So if our revenues go up, then it means that our EBITDA will go up.

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Deepak Poddar, Sapphire Capital Management LLC - Portfolio Manager [119]

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Okay. And sir, for this quarter, what rate -- at the current EBITDA margin levels, so what rate goes behind your crude tanker?

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [120]

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So we have that -- we've put that number in the presentation. We are, I think, on average, $16,000 on crude tankers.

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Deepak Poddar, Sapphire Capital Management LLC - Portfolio Manager [121]

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Sir, $16,500, right?

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [122]

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That's right. That's the number we have gone into these results. That's baked into these results.

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Deepak Poddar, Sapphire Capital Management LLC - Portfolio Manager [123]

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And currently, I think the rates are in the range of 30,000 to 40,000?

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [124]

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Yes, something like that. Yes.

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Deepak Poddar, Sapphire Capital Management LLC - Portfolio Manager [125]

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So that still gives a good opportunity that we can see a big jump if those rates have to go to [$15,000] going forward?

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [126]

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That's correct. Product tankers are not so great. Yes, but -- yes.

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Deepak Poddar, Sapphire Capital Management LLC - Portfolio Manager [127]

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So I wanted to understand that what is that EBITDA margin level that you are talking about when you are saying that if this rate has to sustain. What levels we can reach in terms of EBITDA margin level?

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [128]

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Okay. One is not EBITDA margin. The -- we don't even look at these -- because the costs are fixed, more or less fixed with a very small variation. The whole game is in the TCY, which is the day rate, which is absolute. So if the day rates go up, we make a higher EBITDA. So that's all which is there. So all we're looking at is our crude tankers likely to earn more than $16,500 when the EBITDA goes up.

It's so -- actually -- okay, let me put it in a different way. At today's spot, so if we had to price every one of our ships at today's spot rates, in bulk areas, it would be earning lower than this because bulk areas are earning $10,000, $11,000 a day in today's spot market as per the index. I'm not talking about our exchange. Crude tankers are running somewhere around $30,000 a day, which is higher than this. Product tankers are running somewhere around this number, maybe marginally down. LPG ships are running around this number. So overall, because of the crude tanker impact, the EBITDA should be higher, just based on today's rates. I'm not giving you forward-looking statement on our results.

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Deepak Poddar, Sapphire Capital Management LLC - Portfolio Manager [129]

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Hypothetically, we (inaudible)

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [130]

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Yes. But all you have to look at is the results of Q2 FY '20 included crude carriers 16.5, product tankers at 14.9, bulk carriers at 13, and LPG at 20. It's the market and our spot exposure as well because we give that as well. So with that spot exposure, is it likely to be higher or lower. So because you know what's happening in the spot market. So if that spot market is better than that then it's (inaudible) may go up. Again, I'm not taking into account all the currency-related stuff. I'm talking about operating EBITDA.

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Operator [131]

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The next question is from the line of Chintan Seth from Sameeksha Capital.

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Chintan Sheth, [132]

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If you look at the presentation, shipping revenue in stand-alone, our PCI rates, obviously, has increased quite a bit across the category, shipping category. Our revenue days has gone down 10% on a Y-o-Y basis. Revenues are marginally down on a Y-o-Y basis primarily because of the spot mix between these 2 periods are different? Is the right understanding? I mean...

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [133]

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Actually not. The revenue days have come down because we have sold a couple of ships. We sold 1 gas carrier, which was delivered out in May this year. We sold 1 bulk carrier, which was delivered last year. We sold 2 bulk carriers, actually, it will deliver. Okay. Actually, 1 was delivered in July. So that already was not there in Q2 FY '19. But before 1 bulk carrier, which was delivered in Q3 FY '19, so it's just those ships have come off, and we (inaudible)

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Chintan Sheth, [134]

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Yes. So -- but that will reflect in the revenue, whatever ship trading you do of 9 months selling, that gets reflected in shipping days?

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [135]

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All I'm saying is that we have less ships than we had last year. And therefore, the revenue days came down.

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Chintan Sheth, [136]

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Yes. So 10% was because of that 10% drop in your revenue (inaudible)

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [137]

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So actually revenue days also is a function of how many ships are in dry dock at any particular time. So if you have a lot of bunching operators then you'll have lower revenue days as well.

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Chintan Sheth, [138]

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All right. Okay. So that's maybe (inaudible) the has a couple of reasons why revenues are flat or slightly lower, even though the rates were higher?

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [139]

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Yes. No, again, there is a fuel cost impact in this, so you'll have to look at it net of fuel cost. So again, if you're looking at...

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Chintan Sheth, [140]

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I'm not looking at EBITDA. I'm not looking at EBITDA. I'm just looking at (inaudible) revenue number.

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [141]

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The revenue, meaning, you're looking at the top line, right?

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Chintan Sheth, [142]

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Yes. Yes, (inaudible) fuels costs.

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [143]

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See, that is the fuel cost. If you want to do an analysis of it, I suggest you look at the TCY level. Because the fuel is a pass-through, but it appears in our accounts and separate line items. So we account for it on a gross level, and then we have fuel costs.

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Chintan Sheth, [144]

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Okay. Okay.

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [145]

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So okay. Also, that 10% reduction, basically 4,285 came to 4,040. So it's a drop of 240, which is a 6% reduction in the -- 4% to 6% reduction. Don't think the inchartered tonnage is -- the inchartered tonnage is, basically, we had an opportunity to take in and give -- so that is a bit trading, which was done. Again, it's a contract which we had, we took in shifts from outside.

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Chintan Sheth, [146]

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Right. So even that 6% drop resulted in a slightly lower revenue. Remember, (inaudible) sharply higher compared to the previous year's same period?

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [147]

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Yes.

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Chintan Sheth, [148]

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Okay. So I was just disconnected between the rates are higher. There was slight lower revenue days, but revenue was kind of flattish overall slightly lower than your same quarter. I just wanted to understand why it was.

And secondly, in terms of our cash flows, if I look at INR 580-odd crores, we are not -- as you already mentioned, that the debt levels have almost at your comfort level, you can add another $100 million of (inaudible) numbers, if you find a good effort to buy in the market right now. So we are not looking very heavy CapEx because already, you said that you've shifted your scrubber CapEx next year in first half. So it will come in Q4 or Q1 of the next year. So the CapEx will be lower. Overall, this year. Are we looking at further buybacks or any dividend payout (inaudible) because there will be net of it add cash?

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [149]

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So couple of things. CapEx is governed by 2 things. One is the availability of funding of money to do investment. And second is the prices at which assets are available to buy, okay? So both have to come together for us to do CapEx. Currently, assets are not really at a price where we would like to buy. So that's one.

Second is coming to other opportunities. The buyback is already going on, as you know, and it started in June and it gets over in December. Now we cannot start another buyback for 12 months after we close this buyback. So that's out of the question, at least in the short term.

On the third point on dividend, that's something that the Board will consider when we get a clearer idea on what the P&L is likely to be.

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Operator [150]

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The next question is from the line of [Surabh Sharma]. He's an investor.

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Unidentified Shareholder, [151]

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Sir, I have a question about IMO impact that you said hasn't really come in to the (inaudible) come into play as yet. What would be the key [monitor-ables] according to you, which would signal to you that IMO-related demand is starting to come in and there's been a (inaudible) in the prices? I mean, will the price be only monitor-able?

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [152]

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No, actually, one of the things that you will get is, what is happening to refinery runs. So what is the IMO impact? The IMO impact is that in order to produce the extra low sulfur fuel, which is required for this effect on first gen, the refinery runs potentially has to increase in order to produce more of the middle distillates which will be used in blending or which may be used directly in ships. And therefore, refinery runs have to go up. And that's one of the reasons why we had a very weak market during the last 2 quarters because it if the refineries were quite poor. So one of the indicators will be when refineries run start picking up. We've already seen the reports from oil research front, saying that they're expecting that with the quantity of flows which have been fixed so far that refinery runs in Asia are probably up 1.5 million barrels a day on November, and they're expecting 2 million barrels a day for December. If that happens, then you should have a mild -- a tightening of the tanker market. One, they'll have to be crude going in, and then there will be refined products coming out. So that is the monitor really like what is happening with the refinery runs.

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Unidentified Shareholder, [153]

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And the -- in addition to the tanker market, (inaudible) also expected to have an impact on the (inaudible) drivers, markets in gas -- other markets as well?

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [154]

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Yes. So IMO will have, in the tanker market, it is on account of the demand for ships itself, then there is no cargo likely potentially to be carried in order to ensure that the IMO demand is met or the change in specifications is met. In the case of all ships, there could be an impact because of the higher cost of fuel. Now one thing is for sure is that the new fuel, whatever is used, will be more expensive than (inaudible) procurement. When the cost of fuel is higher, the optimal speed is lower in order for us to maximize TCY, okay? Our function always is to maximize the time charter yield of our ships. So when prices of fuel become higher with effect from December or January, so then we have to use more expensive fuel. The speeds are expected to drop in order to meet the optimal speed. It will affect all kinds of ships because all of them work on the same basis.

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Unidentified Shareholder, [155]

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Sure. I understand. Okay. And just one other question. In addition to the IMO, you -- I could gather one additional thing, which you mentioned was the shifting from conventional fuel to say LNG or maybe alternative fuels in the future. Other than these 2 factors in the longer term, let's say, leading to long term, let's say, more than 5 to 10 years from now, do you see any [inspection] guidance for the shipping market to sort of tightening up or -- I mean, the price for them. I was just trying to get through a downturn that was in the -- that has been in the market for the past 10 years now, like you said. So any other long-term drivers for the market to change?

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [156]

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No, nothing that we can see as of now. Again, regulations are coming in all the time. So one thing which is sort of we are fairly confident of is that there will be a lot of regulations coming in. And therefore, people who are looking to make investments, will think long and hard before making any investment in very long life assets. So if the order is shipped now, tanker, it will come in 2020 or 2021. 2021 most probably. You expect it to run until 2041 at least. And if you have a worry about what can happen to regulation in 2025 or 2030, then obviously, you'll have to think quite a bit before you make that CapEx decision. But we don't see any other -- so we don't know what regulation is going to come up.

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Operator [157]

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

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Jeet Gala, [158]

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Sir, could you give us your opinion of the value chain if there is a sudden spike in new build orders, how the shipyard capacity will kind of do -- can they even pick a big spike in orders? How many of them you've already told us that mothballed shipyards can't come back. But exactly how much spare production capacity is aligned with the shipyards? Just give us a sense of...

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [159]

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Yes. So a couple of years ago, the order book has probably had been 50% higher than it is today. So what you're seeing at 7% and 9% for tankers would probably have been in the teens or maybe higher also. So that capacity -- a lot of that capacity is there. If you had to -- wanted to order a ship today, you could certainly order. You will certainly get -- find a slot to order a ship, and that would be delivered in 2021 and probably in the first half of 2021. So -- but capacity will be a function of what the prices are. And so -- but for now, let's just say that there is enough capacity to build the ships that are ordered. So if you come on the major yards, which are the survivors, there is enough capacity.

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Jeet Gala, [160]

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If we were to just theoretically get a repeat of those 2008, '09 spike, some 30%, 35%, 40% of global capacity gets ordered, do you think the industry can take it?

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [161]

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No, industry can't. That it cannot take. So I'm not looking at U.S. order.

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Jeet Gala, [162]

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Could we get a number? How much do you think the industry can take? And how much do you think it can't take?

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [163]

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So if you had an order book, it went up to 25% of current, it means that the market is extremely strong. Now you need to look at not just capacity by itself, but what can drive that capacity. It means that ships, values have gone up very significantly. It also means that not just second-hand ship, but newbuilding values are down significantly. The odds of a shutdown and inactive or even dry docks at big yards, which are still operational, they just reduce their capacity. They have 9 dry docks. They're just -- image they were building ships. They're building only in 7 because they wanted to reduce their capacity. To reactivate those 2 dry docks at backyard at that major shipyard company, will not take too much time. It is a function of the price that is being paid, if VLCCs, which are today at $95 million, newbuilding, went to $120 million, you will get more capacity back. So it's all an iterative thing, which is at what price will you get one capacity.

Again, you will only see it when it happens. But suffice to say that at 20% higher price, you will get more capacity coming in. Because owners will be -- and again, because owner behavior will be different, and they will be keen to order because the market is so strong. But again, the worry about what can happen to regulation and technology is going to be there all the time. So if you have a very strong year, next year. I suspect you will not get the same ordering spike that you saw in 2015, '16 for crude tankers because of the worry about regulations.

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Operator [164]

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The next question is from the line of [Deep] from (inaudible) Financial Consultants.

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Unidentified Analyst, [165]

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I just wanted to understand, so the scrubber installations you mentioned could have been delayed because of the high rates prevailing in the last 2 months. If your order ships going for scrubbers into this year or early next year, wouldn't that lead to sort of more tightness at the time when the IMO regulation actually kick in?

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [166]

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Yes. Thank you. That's something that I should have touched on, and thank you for asking the question. Yes, you're absolutely correct. The tightness, what has happened is that there should have been tightness in this quarter, and we were expecting there will be tightness in this quarter because of ships going into the yards for scrubber installations. And that capacity getting taken out. Now as capacity got taken out by the sanctions. And as a result of which, the market went up anyway. And the scrubber ship has got postponed. So that's still line in reserve to help us at some point in the future. And that's going to happen sometime, hopefully, in H1. And as you very correctly pointed out, that's the time when you'll have a disruption of IMO and potentially more trade flows and maybe less ships, which are available to carry those cargoes.

So it is sort of -- I don't know if it really gets much tighter, but at least it is a sort of safety net, which is if the rates drop to very low levels. Let's say that the Suezmax goes back to $10,000, which we saw in the summer of 2018. Go down to 20 -- $10,000 at the end of the spot market. Ships will rush towards all the scrubbers, and people who intend to fix scrubbers will go towards the ship yards to make the scrubbers. And again, you'll have a sales-correcting thing because supply will get reduced. And again, the rates go up again. Now how much do they go up? Better they go from 10% to 30% or 10% to 60%, we don't know. But yes, that is something which is still there in reserve.

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Unidentified Analyst, [167]

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And how long do you think that could play out for like would be it a or 2 quarters?

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [168]

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A couple of quarters, I suspect. The scrubbers (inaudible) are done in -- if the market is weak. Again, it's a sort of look because, certainly, let's say that we put one of our ships in March. Okay. And then, everybody is putting their ships in March and then the rates pick up to $50,000. Then we postpone the next ship going in because we want to earn $50,000, which then postpones that and then that goes later on. So it's a sort of -- there's a feedback loop there. But let me know how it plays out. Again, it's going to be interesting.

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Unidentified Analyst, [169]

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Sure. And secondly, on the product tankers? So if the tightness in crude actually plays out, wouldn't this spillover also benefit the product tankers? I know you mentioned that currently, there is more in favor of the (inaudible) growth. (inaudible) to understand what happens on the diesel -- on the product side?

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [170]

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Yes. So the products and a lot of people are expecting that product rate would pick up very significantly by now. Okay. Again, it's a function of refinery runs. Refinery runs, as I mentioned, have been poor. And therefore that means less cargo for product tankers to carry. Product tankers get affected by crude trade to the extent that when Aframax rates are very strong, LR2s, which are basically Aframaxes, which can carry clean products, they switch to carry crude oil, which means that their supply of product tanker shrinks to that extent. And then it takes that market up. That's the only commonality common shift between the product tanker space and the crude tanker space. So it's disappointing that product tankers haven't started doing well by now, but let's see if refinery runs are actually picking up in November, then you should start seeing that impact.

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Unidentified Analyst, [171]

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So that would be the only below impact. I mean, if you require both for ships that don't have scrubbers, and then the demand for product tankers itself also go up eventually?

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Bharat Kanaiyalal Sheth, The Great Eastern Shipping Company Limited - MD & Deputy Chairman [172]

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Yes, yes, it should go up. Again, a lot of people -- so if you announced 6 to 9 months ago, most people were saying we go to gas oil, which is diesel basically rather than low-sulfur fuel oil, because we are worried about the quality of low sulfur fuel oil. So some of it will be blend, some of it will be straight run. You don't know what that quality will be. We still have concerns about the quality, and we'll have to do a lot of tests before we start using it. But it appears that more people are getting comfortable with the idea of using low sulfur fuel oil. So I think that there will be more gas oil transportation demand, which means that product tankers should have more carry.

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Operator [173]

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Ladies and gentlemen, that was the last question for today. I now hand the conference over to Ms. Anjali Kumar for closing comments. Thank you, and over to you, ma'am.

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Anjali Kumar, The Great Eastern Shipping Company Limited - Head of Corporate Communications [174]

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Thank you, Aman. And I'd like to thank everybody for actively participating in this call today. As usual, the transcript of this call will be up on our website in a few days time. For any other information, please feel free to connect with our corporate communications team. We are here to answer any queries that you may have. Thank you so much, and good evening.

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Operator [175]

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Thank you very much. Ladies and gentlemen, on behalf of The Great Eastern Shipping Company Limited, that concludes today's conference. Thank you all for joining us. And you may now disconnect your lines.