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Edited Transcript of SBLK earnings conference call or presentation 21-Nov-19 4:00pm GMT

Q3 2019 Star Bulk Carriers Corp Earnings Call

ATHINA Nov 23, 2019 (Thomson StreetEvents) -- Edited Transcript of Star Bulk Carriers Corp earnings conference call or presentation Thursday, November 21, 2019 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Charis Plakantonaki

Star Bulk Carriers Corp. - Chief Strategy Officer

* Hamish Norton

Star Bulk Carriers Corp. - President

* Nicos Rescos

Star Bulk Carriers Corp. - COO

* Petros Alexandros Pappas

Star Bulk Carriers Corp. - Founder, CEO & Director

* Simos Spyrou

Star Bulk Carriers Corp. - Co-CFO

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Conference Call Participants

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* Amit Singh Mehrotra

Deutsche Bank AG, Research Division - Director and Senior Research Analyst

* Benjamin Joel Nolan

Stifel, Nicolaus & Company, Incorporated, Research Division - MD

* Christopher Warren Robertson

Jefferies LLC, Research Division - Equity Associate

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Presentation

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Operator [1]

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Thank you for standing by, ladies and gentlemen, and welcome to Star Bulk Carriers conference call for the third quarter 2019 financial results. We have with us Mr. Petros Pappas; Chief Executive Officer; Mr. Hamish Norton, President; Simos Spyrou and Mr. Christos Begleris, Co-Chief Financial Officers of the company; and Mr. Nicos Rescos, Chief Operating Officer of the company. (Operator Instructions) I must advise you that this conference is being recorded today.

Let me now pass the floor to one of your speakers today, Mr. Spyro. Please go ahead, sir.

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Simos Spyrou, Star Bulk Carriers Corp. - Co-CFO [2]

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Thank you, operator. I am Simos Spyrou, Co-Chief Financial Officer of Star Bulk Carriers, and I would like to welcome you to the Star Bulk Carriers conference call regarding our financial results for the third quarter of 2019. Before we begin, I kindly ask you to take a moment to read the safe harbor statement on Slide #2 of our presentation.

Let us now turn to Slide #3 of the presentation for a summary of our third quarter 2019 financial highlights. In the 3 months ending September 30, 2019, TCE revenues amounted to $131.3 million, 1.6% higher than the $129.2 million for the same period in 2018. Adjusted EBITDA for the third quarter 2019 was $72.2 million versus $80.1 million in the third quarter 2018. Adjusted net income for the third quarter amounted to $17.3 million or $0.18 earnings per share versus $30.5 million adjusted net income or $0.35 gain per share in Q3 2018. Our adjusted EBITDA and adjusted net income figures include an adjustment of $8.5 million for the accelerated dry dock expenses brought forward from 2020 to 2019. Overall, we have decided to accelerate to 2019, the dry dock schedule for the vessel that had work due in 2020 in order to complete works concurrently with the scrubber installation and have fewer stoppages in 2020, maximizing our scrubber return. Our time charter equivalent rate during this quarter, $14,688 per vessel per day. During the third quarter of 2019, our average daily operating expenses were $3,693 per vessel per day. In terms of fleet update, as of today, we have taken delivery of all our newbuilding vessels and have agreed to sell 2 of our older Supramax vessels as part of our fleet renewal. The vessels are expected to be delivered to their new owners by the end of this month. This leaves Star Bulk with a fleet of 116 vessels going forward.

Total cash as of today stands at $130 million, with net debt at $1.48 billion. Regular debt amortization, including scrubber debt principal repayment for 2020 will be at $197 million with current projected interest expense at approximately $72.5 million next year.

In Slide 4, we discuss our new dividend policy. We are happy to be announcing a cash dividend for the quarter of $0.05 per share as well as establishing a transparent dividend policy, under which the company will distribute dividends once our quarterly total cash balance exceeds the set thresholds presented in the slide. We aim to gradually increase the quarterly cash thresholds over the next 8 quarters, reaching a final threshold of $2.1 million per vessel in Q3 2021. We believe the policy safeguards our strong balance sheet, whilst creating value by returning cash to our shareholders.

Please turn now to Slide 5, where we summarize our operational performance for the quarter. Operating expenses were at $3,693 per day per vessel for the quarter and $3,876 per day for the 9-month period of 2019. As many of our vessels are close to or have performed a dry dock recently, they usually spend less on OpEx. Investors should be looking at our 9-month OpEx figure as a better guidance for the expected OpEx levels going forward.

Net cash G&A expenses were reduced to $828 per day per vessel for the quarter, and $931 per vessel per day for the 9 months 2019 period. We expect that our daily vessel net cash G&A expenses going forward will be in the range between $950 to $1,000 per day per vessel.

The combination of our in-house management and the scale of the group enable us to provide our services at very competitive costs, complemented by excellent ship management capabilities with Star Bulk consistently ranking among the top 5 managers evaluated by Rightship.

Slide 6 highlights that Star Bulk is the lowest cost operator among our U.S. listed dry bulk peers, with operating expenses approximately 21% below the industry average based on latest publicly available information.

In Slide 7, we are providing an update on our scrubber retrofit program. As of today, we have 88 scrubber towers installed across our fleet, 50 of which are already commissioned. We are working to have approximately 106 scrubber towers installed and 83 commissioned during the turn of the year. We believe that having the majority of our vessels scrubber fitted in advance of 2020 will create significant commercial and operational benefits for the company, minimizing the payback period for our investment. Out of the remaining 31 vessels to be commissioned during 2020, 14 vessels will be in the shipyards at the turn of the year, finalizing works and class certification, another 14 vessels have existing time charters that finished during the first quarter of 2020 or are part of the Delphin fleet that had been acquired earlier this year.

Slide 8 has an overview of the total CapEx payments for our scrubber program. Our total expected CapEx for the scrubber project is estimated at $209 million, with approximately $150 million of secured debt financing in place. As of November 20, the remaining CapEx is at $74.6 million, out of which, $70.6 million will be from debt financing, and only $4 million is the remaining equity CapEx.

The graph in Slide 9 illustrates the current estimated scrubber tower installation schedule broken down by vessel segment and by quarter based on expected future milestones. As of today, we have installed 88 scrubber towers and commissioned 50.

Slide 10 summarizes our future dry docking schedule, estimated dry dock expenses and total off-hire days for the forthcoming quarters for dry docks as well as scrubber installations. This is based on current retrofit planning, vessel employment and yard capacity. We provide this slide to give guidance about our future expenses relating to our accelerated dry dock program. These figures incorporate our current understanding of present and future shipyard congestion, but shipyard congestion is significant, and we cannot be certain that these figures will not increase.

Slide 11 provides Star Bulk's employment coverage for the fourth quarter of 2019. We have fixed employment for approximately 68% of the days in Q4 2019 at TCE rates of $16,284 per day per vessel.

I will now pass the floor to our CEO, Petros Pappas, for a market update and his remarks.

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Petros Alexandros Pappas, Star Bulk Carriers Corp. - Founder, CEO & Director [3]

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Thank you, Simos. Please turn to Slide 12 for a brief update of supply. During the first 10 months of the year, 35.2 million deadweight were delivered and 7 million deadweight were sent for demolition for a net fleet growth of 27.9 million deadweight or 3.3%. During the same period, a total of 18 million deadweight has been reported by Clarksons as firm orders. The order book currently stands between 10% and 11% of the fleet, the lowest level since 2002.

During the third quarter, scrubber retrofits accelerated and are estimated to have absorbed approximately 2% of the total fleet, and especially on Capesizes, up to 6% of the fleet. As of October, approximately 9% of the dry bulk fleet is estimated to have been fitted with scrubbers. The average steaming speed of the dry bulk fleet currently stands at approximately 11.6 knots, an increase of 0.2 knots to the first half average. During 2020, the fleet is projected to expand at a pace of approximately 3.3%. However, after accounting for off-hires related to scrubber installations and then an incentive to slow steam, effective supply is unlikely to expand by more than 2%.

Let's now turn to Slide 13 for a brief update of demand. Following a series of trade disruptions during the first half, the dry bulk market surged to multiyear's year highs during the third quarter. According to Clarksons, dry bulk trade during 2019 will expand by 1.4% from 2.8% growth in 2018. Iron ore trade during 2019 will decline by 1.3% and 3.2% in tons and ton miles, respectively. China crude steel and pig iron production has increased by 7% and 6.2%, respectively. China iron ore imports have contracted by 1.5%, due to strong supply disruptions in Brazil and Australia at the start of the year, and the combination has led to a 20 million reduction of port's stockpiles. Brazil iron ore exports have contracted 12% or 40 million tons because of the Vale dam accident. The strong increase of iron ore prices during the start of 2019 hit steel margins across the globe and has led to a 1.8% decrease in crude steel production outside of China.

Looking into 2020, we expect the gradual recovery of Vale exports and a more competitive price environment for iron ore to support global steel production and iron ore trade. Coal trade 2019 is projected to increase by 1.2% in tons, but the decline by 0.8% in ton miles as shorter distances have been favored during the first half of 2019. China domestic coal production expanded by 5.4%, while thermal electricity generation expanded at a lesser 3.6%, as strong hydropower during the first half of the year since thermal coal requirements. This trend seems to be reversing during the last few months and may support coal trade in the medium term. Coal imports increased 10%, raising stocks ahead of winter and end of the year import restrictions. India and Southeast Asia are expected to be the main drivers of coal imports over the next years. Indian 2019 imports are to increase by 10%, Vietnam by 35% and the Philippines by 12%.

Grain and soybean trade during 2019 is projected to increase by 1.5% and 4.8% in tons and ton miles, respectively, as Brazil corn exports increased by 130% or 20.5 million tons, while soybean exports contracted by 6.3% or 4.7 million tons due to the depletion of stocks during 2018. China's soybean imports have decreased by 8%, due to the dispute with the U.S. and to the 4% reduction of the pig population in an effort by China to contain the African swine fever outbreak.

Minor bulk rate during 2019 is projected to increase by 3.6% and 4.5% in tons and ton miles, respectively. Clarksons estimate for 2020 is for 2.4% increase or around 50 million tons. Bauxite, nickel and manganese ore trade volumes are projected to increase to more than 250 million tons during 2019 from 215 million tons during 2018. The Indonesia export ban on nickel ore is expected to remove approximately 15 million tons from dry bulk trade during 2020. However, due to the small distances involved, we expect the negative effect on dry bulk trade to be minimal.

Finally, as a general comment, we expect inflationary pressures related to IMO 2020 to act favorably for the dry bulk market. On the supply side, smaller sizes are likely to benefit the most from slow steaming incentives due to the lower scrubber penetration within Capes. On the demand side, however, we expect Capes to benefit the most from cargo cascade as the switch to middle distillates will make larger vessels more economical. As a result, we remain optimistic for 2020 as well as 2021 and expect that the combination of supply constraints and recovering iron ore export volumes is likely to surprise us to the upside.

Without taking any more of your time, I will now pass the floor over to the operator to answer any questions you may have.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll now take our first question.

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Amit Singh Mehrotra, Deutsche Bank AG, Research Division - Director and Senior Research Analyst [2]

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It's Amit Mehrotra here from Deutsche Bank. I wanted to ask some specific questions on the numbers related to the new dividend policy. And I'm just trying to understand the walk from EBITDA to what's available for dividend next year. Simos, you touched on it, but I just want to -- just for illustrative purposes, if the company does $500 million of EBITDA next year in 2020, does that translate to $165 million of dividends under your definition? Because I think you said there's $70 million -- a little over $70 million in interest, $177 million in debt amortization, maybe $19 million related to scrubber debt repayments and then there's $69 million of incremental cash flow to get your minimum liquidity requirements.

So just taking all that into consideration, it seems like $500 million of EBITDA would translate to $165 million in dividends. Is that -- am I looking at it correctly or am I missing something?

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Simos Spyrou, Star Bulk Carriers Corp. - Co-CFO [3]

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We said, Amit, not the $177 million, $197 million of debt amortization.

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Amit Singh Mehrotra, Deutsche Bank AG, Research Division - Director and Senior Research Analyst [4]

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But that includes the $19 million of scrubber debt. Is that correct?

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Simos Spyrou, Star Bulk Carriers Corp. - Co-CFO [5]

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Correct.

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Amit Singh Mehrotra, Deutsche Bank AG, Research Division - Director and Senior Research Analyst [6]

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Yes. So it's $177 million of regular way debt amortization plus $19 million of scrubber debt repayment, correct?

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Simos Spyrou, Star Bulk Carriers Corp. - Co-CFO [7]

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Correct.

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Petros Alexandros Pappas, Star Bulk Carriers Corp. - Founder, CEO & Director [8]

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Correct.

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Amit Singh Mehrotra, Deutsche Bank AG, Research Division - Director and Senior Research Analyst [9]

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Okay. So aside from that, there's $69 million and $70 million related to cash build and interest expense, respectively. So other than that, are there any other moving parts that get to your definition for dividends?

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Simos Spyrou, Star Bulk Carriers Corp. - Co-CFO [10]

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No.

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Amit Singh Mehrotra, Deutsche Bank AG, Research Division - Director and Senior Research Analyst [11]

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Okay. So it just seems like under $500 million of EBITDA, the company will pay a 16% dividend yield next year and I think even with that payment, basically, will delever the balance sheet next year, right? Because you're paying $200 million of amortization that includes $200 million of amortization, right, debt repayment?

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Simos Spyrou, Star Bulk Carriers Corp. - Co-CFO [12]

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Correct. Correct.

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Petros Alexandros Pappas, Star Bulk Carriers Corp. - Founder, CEO & Director [13]

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Correct.

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Hamish Norton, Star Bulk Carriers Corp. - President [14]

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We are counting on the Mehrotra family to import a lot of iron ore to Queens next year.

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Amit Singh Mehrotra, Deutsche Bank AG, Research Division - Director and Senior Research Analyst [15]

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Okay. Can you -- I think it's important, because the way you guys talk about dividends. Now we have to pay more close attention to the quarterly cadence of cash flows. And so: one, I wanted you, Christos or Simos, to help us with the -- is there any lumpiness in the cash calls in 2020 related to interest or debt repayment? And then in the fourth quarter, I think you've got some CapEx related to the scrubbers. So I don't think we should expect a big dividend in February, but I could be wrong, if you could just help us with that?

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Simos Spyrou, Star Bulk Carriers Corp. - Co-CFO [16]

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No, Amit, I don't think you're wrong. As you correctly said, we have update in our presentation the CapEx schedule for the following few quarters as well as dry dock expenses for the fourth quarter. And then, effectively, we don't have any dry docks for 2020. We don't have any maturities in 2020 that we will need to use our cash balance. And therefore all things -- all other things being equal, our cash flow should be, on the expense side, relatively smooth and predictable.

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Amit Singh Mehrotra, Deutsche Bank AG, Research Division - Director and Senior Research Analyst [17]

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Even the interest payments will be smooth over the quarters?

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Simos Spyrou, Star Bulk Carriers Corp. - Co-CFO [18]

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Yes.

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Unidentified Company Representative, [19]

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Yes.

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Simos Spyrou, Star Bulk Carriers Corp. - Co-CFO [20]

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$72.5 million can be broken down evenly between the 4 quarters. And that's on the basis of the current LIBOR curve, right? The current sort of 3-month LIBOR curve.

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Amit Singh Mehrotra, Deutsche Bank AG, Research Division - Director and Senior Research Analyst [21]

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Right. And then the other thing I had -- and I'll hop off soon, just to get off the queue, but when you guys pay down the $200 million of debt next year, your interest expense goes down as well, right? So is that $60 million in 2021? Is that how we should think about it? Depends on interest rates, I guess, but?

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Simos Spyrou, Star Bulk Carriers Corp. - Co-CFO [22]

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Yes, that's correct. I mean interest will go down, effectively, in 2020, it goes down to approximately to $66 million on the basis of today's LIBOR curve. And then in 2021, it would go down to $55 million. So it reduces by approximately $11 million per year.

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Amit Singh Mehrotra, Deutsche Bank AG, Research Division - Director and Senior Research Analyst [23]

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Okay, that's helpful. And just last one for me, if I could, for Hamish or Petros, just more conceptual. I think this is obviously -- we think it's very positive in terms of the company is committing now 100% of surplus cash flow to shareholders, but you have had instances in the past where shipping companies have had a variable dividend policy and then walked away from that.

So I just want to understand what your commitment is to this policy. Are there any checks and balances it's -- in case there's something that you think is more accretive that comes along that a year from now, we might be looking at walking away from this policy. Just talk about your commitment to the policy in the context of maybe some other more accretive opportunities in your mind coming along.

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Hamish Norton, Star Bulk Carriers Corp. - President [24]

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Sure. Look, we've designed this dividend policy in order to be able to follow it for the long term. And frankly, our hope is that by sticking to this dividend policy, investors will be well rewarded and will value the company appropriately. And if the company is valued appropriately, we will have a currency that will allow us to finance accretive opportunities without walking away from this dividend policy, hopefully, ever. And we're pretty committed to sticking with this policy.

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Operator [25]

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We'll now take our next question.

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Christopher Warren Robertson, Jefferies LLC, Research Division - Equity Associate [26]

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This is Chris Robertson on with Jefferies. Yes, so just as it relates to the dividend policy, Hamish, what are your thoughts around the share repurchases or early debt repayments, does this kind of negate the need for any share repurchase program?

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Hamish Norton, Star Bulk Carriers Corp. - President [27]

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Well, certainly, our focus will be on trying to do things that maximize this dividend at least with the share price where it is currently or, hopefully, higher. We would take another look at that if contrary to our expectations, the share price dropped significantly. But I think our focus is on maintaining or trying to increase the dividend.

And in terms of getting the debt down. Look, first of all, we are building up some cash. We're building up basically about $150,000 per ship per quarter, in order that we have a cash buffer in the company that makes us comfortable. But if the share were to trade significantly above net asset value, we would be fine with using the share to start to reduce the debt and reducing the debt is significantly accretive to the dividend per share. Because of our significant principal amortization, basically, debt service is over 16% of total debt. So every dollar of debt we reduce basically reduces debt serviced by over $0.16, which should significantly increase the dividend per share even if there might be a few more shares outstanding as a result. So let's see if we're able to do that.

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Christopher Warren Robertson, Jefferies LLC, Research Division - Equity Associate [28]

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Okay, that's pretty clear. I wanted to ask a question related to the scrubber installations versus the -- installations versus commission. So can you walk us through the process of what it takes for it to be commissioned and how long that takes?

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Hamish Norton, Star Bulk Carriers Corp. - President [29]

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I think that's a question for Nicos Rescos.

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Nicos Rescos, Star Bulk Carriers Corp. - COO [30]

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Chris, well, as long as installation is completed our shipyard, it typically takes us 3 to 4 days to commission a system. And by now, it is almost on the same day that we get a ship certified. So compared to like 6 months ago, we have managed to optimize the process to a very short one, approximately 3 to 4 days from sailing from a shipyard.

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Christopher Warren Robertson, Jefferies LLC, Research Division - Equity Associate [31]

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Okay. And then what's the kind of average time at the shipyard now? Is it closer to 40 days or closer to 50 days?

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Nicos Rescos, Star Bulk Carriers Corp. - COO [32]

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Well, it depends on whether we're talking about straight scrubber installations or we're talking about dry docks. We have so far concluded 50 scrubber installation calls at the shipyard. And having had the effect of writing things, which is now proving quite valuable, our average downtime at the shipyard is at 25.4 days over 50 ships.

If we talk about dry docks, we have carried out 38 of the 46 planned for this year at an average of 44 days. And this is the process where the main milestone is repairs to the vessel rather than the scrubber for our shipyard.

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Christopher Warren Robertson, Jefferies LLC, Research Division - Equity Associate [33]

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Okay. Finally, a question on kind of the market. What are your thoughts around Capes versus the smaller asset classes? And why might there be diverging expectations for the rest of the year and into 2020?

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Petros Alexandros Pappas, Star Bulk Carriers Corp. - Founder, CEO & Director [34]

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Chris, we expect that at least till the end of this year, as there's going to be several more scrubber installations as well as Q1 next year, we expect that Capes, where most of the installations are taking place, will do much better compared to previous years, of course, because you know that always Q1 is a slower quarter than the rest of the quarters. So we think that because of that, we will see a better market for Capes. We also believe we will see more iron ore trade. And that, of course, favors capes. And finally, we believe that as fuel prices will get more expensive, this will get us into a cascade effect, where Capes will be more economical compared to smaller sizes in carrying cargoes. For those reasons, we believe that Capes are going to be doing better than the smaller vessels.

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Operator [35]

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We will now take our next question.

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Benjamin Joel Nolan, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [36]

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This is Ben Nolan. Good news on the dividend policy, really like it. But I was curious, certainly, over the last few years and even over the summer, I mean, you guys have used your shares for vessel acquisitions and I think successfully. And in particular, as you draw closer, hopefully, closer to NAV or above NAV, your currency should improve. Curious, though, what the target set looks like now. I mean, you've done quite a bit. Do you think maybe the low hanging fruit has been picked? Or are there other situations similar to what you've done, you may be able to execute on?

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Hamish Norton, Star Bulk Carriers Corp. - President [37]

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Well, we really don't know. The -- whether something is low hanging fruit or not depends very much on the outlook of the shareholders of the target company. And that outlook changes from day-to-day, and so we can be surprised. Basically, if we can do transactions for cash and shares that are accretive to our dividend and make good business sense otherwise, we remain happy to do things like that in such a way that it doesn't increase the leverage of Star Bulk, it doesn't harm the dividend, and in fact, I think at this point, it would have to be accretive to the dividend. And we'd be happy to do it and we may find such opportunities. We just don't know.

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Benjamin Joel Nolan, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [38]

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Okay. But the sample set isn't...

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Hamish Norton, Star Bulk Carriers Corp. - President [39]

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We've been surprised in the past, positively. So that's why I'm saying, we don't know because frankly, we didn't know about the other opportunities that we had until they appeared.

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Benjamin Joel Nolan, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [40]

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Got you. Okay. Well, that's helpful. And then just following up on the dividend question, just to make sure that I have it. So as it relates to sort of how you think about it and I know that there was a caveat in the release saying that you may prepay debt, and that would take away a little bit or vessel acquisitions. Totally understand. But as it stands right now for the $197 million of amortization, that's sort of all that you envision for 2020, paying down. There's no aspirations at the moment of pre paying additional debt for now, correct?

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Hamish Norton, Star Bulk Carriers Corp. - President [41]

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We're not planning to prepay anything with operating cash flow. And I think the point we were trying to make in the dividend disclosure was that if we sold securities, or sold ships, that we might use those proceeds to prepay debt or to buy ships and would not, therefore, dividend those proceeds of security sales or ship sales out. But we weren't contemplating prepaying debt or buying ships with operating cash flow.

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Operator [42]

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We'll now take our next question.

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Amit Singh Mehrotra, Deutsche Bank AG, Research Division - Director and Senior Research Analyst [43]

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It's Amit here from Deutsche. Just a follow-up. Quick question on the minimum liquidity numbers you put out there. I know you get -- you want to get to $2 million by the end or middle of 2021. It just seems like $2 million per vessel is just so much more than what your minimum liquidity covenants are. I don't know where they are, but last time I checked, a few years ago, they were probably like $0.5 billion range. So if you could just -- I understand there's obviously some conservatism in there, given the volatility of the market, but if you can just help us think about how do you came up with that $2 million, just given the gap between that number and the minimum liquidity covenants because that doesn't mean there's like $100 million of extra cash on the balance sheet that arguably could go back as dividends, further dividends down the road.

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Hamish Norton, Star Bulk Carriers Corp. - President [44]

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Yes. Well, I think what we were thinking was that the $2.1 million of debt service per vessel is more or less a year's worth of -- cash per vessel is more or less a year's worth of debt service. And in 2016, that kind of cash balance was looking mighty thin and today, it looks like a lot, but it's a very volatile business.

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Amit Singh Mehrotra, Deutsche Bank AG, Research Division - Director and Senior Research Analyst [45]

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Yes. Okay, that makes sense. And then...

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Simos Spyrou, Star Bulk Carriers Corp. - Co-CFO [46]

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And Amit, your point was correct. The minimum cash balance per vessel as per loan facilities is $0.5 million. Therefore, we are leaving a significant buffer.

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Amit Singh Mehrotra, Deutsche Bank AG, Research Division - Director and Senior Research Analyst [47]

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Yes. Got it. Okay. And then the last question for me. I think the bigger question here is what is kind of the 2-, 3-, 4-year vision for the company from a size perspective, from a capital structure perspective. It seems like the dividend is going to drive -- at least the vision for the dividend is to drive a re-rating in the currency of the company, that can use that currency to deleverage the balance sheet. But I would say, 0 debt -- 0 net debt is not necessarily the most efficient capital structure for any company, maybe it is for shipping because it helps you with the currency relative to NAV. So maybe can you just help us kind of the...

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Hamish Norton, Star Bulk Carriers Corp. - President [48]

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I think in shipping, basically, there's very little advantage to having debt. And if you look at just -- if you get very technical and look at the capital asset pricing model, the only benefit to debt is from the tax shield on the interest payments. But we don't get any tax shield from the interest payments because we don't owe any income tax. So we pay the full interest, we don't get any deduction for interest and...

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Amit Singh Mehrotra, Deutsche Bank AG, Research Division - Director and Senior Research Analyst [49]

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I would argue that the weighted average cost of capital can go down as debt. If we want to get [fully academic] here.

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Hamish Norton, Star Bulk Carriers Corp. - President [50]

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Well -- but I mean, it doesn't. Because what happens is as you add debt, the beta of the stock increases by enough that your weighted average cost of capital stays the same in fact. So actually, our weighted average cost of capital should drop if we have less debt because our stock will be larger. And as the company gets larger, the liquidity premium, the size premium on the cost of capital drops. And basically, my experience has been that companies in the shipping industry with no debt have traded at the highest multiples of NAV of any shipping companies. And you've seen Knightsbridge tankers, when it had no debt in the '90s; Nordic American Tankers shipping when it had no debt in the '90s and 2000s; Diana Shipping for that brief period when it had no debt, did very, very, very well. And if we had no debt, we would be able to pay dividends in essentially any market condition.

And the dividends could be quite large because again, because we have no tax. So I think shipping is -- you have to think a little bit out of the box because its tax and financial situation are so different. And we have so much operating leverage in this business that we really don't need financial leverage. So that's our long-term vision, let's hope we get there.

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Operator [51]

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(Operator Instructions) There are no further questions coming through at the moment. I'd like to hand back to the speakers.

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Petros Alexandros Pappas, Star Bulk Carriers Corp. - Founder, CEO & Director [52]

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Operator, our Chief Strategy Officer, Mrs. Plakantonaki would like to say a few words about ESG.

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Charis Plakantonaki, Star Bulk Carriers Corp. - Chief Strategy Officer [53]

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Thank you, Petros. So we would like to report that during Q3 2019, we have published our first annual sustainability report, which is available on the company's website, and it provides transparency on all our company's activities on ESG, including our target and action plans on how to continuously improve on our sustainability performance. We would also like to report that Star Bulk has recently joined the Global Maritime Forum, and they're getting to zero coalition, which is a global alliance within the maritime and other related industries, committed to getting viable deep-sea zero-emission vessels powered by zero-emission fuels into operation by 2030. We believe that collective action is a way forward to get us to the IMO's vision on reducing greenhouse gas emissions, and we are committed to working with the rest of the industry to contribute to this critical effort.

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Petros Alexandros Pappas, Star Bulk Carriers Corp. - Founder, CEO & Director [54]

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Thank you, operator.

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Operator [55]

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Thank you. That does conclude our conference for today.