Diana Shipping Q4 2008 Earnings Call Transcript

Feb.19.09 | About: Diana Shipping, (DSX)

Diana Shipping, Inc. (NYSE:DSX)

Q4 2008 Earnings Call

February 19, 2009 9:00 AM ET

Executives

Edward Nebb - Comm-Counselors, LLC

Simeon P. Palios - Chairman and Chief Executive Officer

Anastassis C. Margaronis - President

Andreas Michalopoulos - Chief Financial Officer and Treasurer

Ioannis Zafirakis - Executive Vice-President and Secretary

Analysts

Douglas Mavrinac - Jefferies & Co.

Justin B. Yagerman - Wachovia Capital Markets, Llc

Jonathan B. Chappell - J.P. Morgan Securities Inc.

Jonathan Dawson - Dawson-Herman Capital Management

Natasha Boyden - Cantor Fitzgerald

Gregory Lewis - Credit Suisse

Urs Dür - Lazard Capital Markets LLC.

G. Scott Burk - Oppenheimer & Co. Inc.

Operator

Ladies and gentlemen welcome to the Diana Shipping Fourth Quarter 2008 Earnings Conference Call on the 19 of February 2009. For today's recorded presentation, all participants will be in a listen-only mode. After the presentation there will be an opportunity to ask questions. (Operator Instructions).

I will now hand the conference over to Edward Nebb. Please go ahead sir.

Edward Nebb

Thank you David. And welcome to the Diana Shipping fourth quarter, year-end 2008 conference call. The members of the Diana Shipping Management team who are with us today, are Mr. Simeon Palios, Chairman and Chief Executive Officer, Mr. Anastassis Margaronis, President; Mr. Andreas Michalopoulos, Chief Financial Officer; Mr. Ioannis Zafirakis, Executive Vice-President and Secretary, and Ms. Maria Dede, Chief Accounting Officer.

Before management begins their remarks, let me briefly summarize the Safe Harbor notice which you can see in its entirety in the news release that we issued this morning. Certain statements made during this conference call which are not statements of historical fact are forward-looking statements that are made pursuant to the Safe Harbor Provision of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on assumptions, expectations, projections, intentions, and belief as to future events that may not prove to be accurate. For description of the risks, uncertainties, and other factors that may cause future results to differ materially from what is forecast in the forward-looking statements, please refer to the Company's filings with the SEC.

And now let me turn the call over to Mr. Simeon Palios, Chairman and Chief Executive Officer of Diana Shipping.

Simeon P. Palios

Thank you, Nebb. Good morning and thank you for joining us today. I am pleased to report that Diana Shipping produced excellent operating and financial results for the fourth quarter and full year 2008. We are especially proud of this performance since it has been achieved despite the extremely challenging conditions facing global economies in general and the dry bulk sector in particular.

During this period of great disruption in the market, Diana remains a strong profitable and a resilient company. We are well positioned, not only to withstand rough seas but also to capitalize on future opportunities.

I would now like to share some of the highlights of our 2008 performance. More importantly, I would describe Diana's solid position as we look over the balance of 2009. Net income was $54.2 million U.S. for the fourth quarter 2008, an increase of nearly 49% from the comparable period of 2007. For the full year ended December 31, 2008 net income was $221.7 million U.S., an increase of more than 65% as compared to the prior year.

Voyage and time charter revenues totaled $84.3 million U.S. for the fourth quarter of 2008 and $337.4 million U.S. for the full year. This represents an increase of 43% for the quarter and 77% for the year. We believe the same strategy that enabled Diana to produce these positive results will continue to serve the Company and our shareholders well in the difficult times that lie ahead.

Let me review some of the key elements of our strategy which is prudent, time tested and intended to mitigate the risk. First, our chartering approach is designed to provide a high degree of revenue visibility. For the full year 2009, we have already fixed revenues for the majority of the available days. These revenues are significantly in excess of our fixed expenses. The revenues generated from the few vessels whose charters will expire in 2009 will be in addition to already secure revenues.

Second, we have focused on building relationships with high quality charterers and have especially booked our charter at the time when the solvency of some charter has been a cause for concern. The majority of our vessels have been chartered to companies whom we've been (ph) strong and substantial. Many of these relationships have been expanded in recent months as the major charterers increasingly seek stable partners in the current marketplace.

Third, we believe in maintaining a solid balance sheet and have a debt level that is one of the lowest in our industry. At the end of 2008, long term debt stood at $238 million, compared with a total stockholders equity of $775.5 million U.S. Fourth, we have always emphasized the value of a young fleet, which now has an average age of 4.3 years. The efficiency of our modern fleet and the flexibility afforded by our sister ships has been a strong point in attracting quality charterers.

Above all, it's sense us (ph) to write besides during these difficult times. These features maintaining high revenue visibility, relationships with strong charterers, a healthy balance sheet and a young fleet have combined to make Diana a strong, stable company. As a result, where many less well positioned companies see only challenges, we are poised to seize opportunities. In particular, we believe the present market where lot of exceptional opportunities to acquire vessels at attractive prices. We also should see a continued flight to quality by end-users of dry bulk carriers enabling us to deepen our relationships with major charterers. Our management team will actively explore these and other opportunities in a selective and disciplined manner intended to create value for our shareholders.

With that I will now turn the call over to our President, Stacy Margaronis, who will provide you with a perspective on market trends. Thank you.

Anastassis C. Margaronis

Thank you, Simeon and a warm welcome to all who have joined us in this conference call.

The turbulence in the world economy has had profound influence on the dry bulk shipping trade market that can be seen from the Baltic indices mentioned below. The Baltic dry index started the fourth quarter of 2008 at 3025 and yesterday closed at 1986. The equivalent figures for the Baltic Cape Index were 4186 and 3587, while for the Baltic Panamax Index were 2102 and 1352 as of yesterday's close. There is no doubt that the future course of the trade market will be closely linked to the worldwide demand for steel, which in turn will move with the world GDP and industrial production growth.

Let us look at the latter before discussing steel production. According to the IMS, during 2009 world growth is forecast to fall to its lowest level since World War II, with global output and trade plummeting. For this current year, the IMS expect real economic activity to contract by around 1.5% in the United States, 2% in the Euro area, and 2.5% in Japan. With positive growth of plus 6.7% in China, the IMS predict the world economic growth for 2009 to come in at around 0.5%. The well publicized simulative actions taken by governments around the world will undoubtedly help the world economy come out of its present down spiral, and the big question as usual is, when will this happen? According to a recent article in the Economist Magazine much depends on the effectiveness of these stimulus program, the last one announced just a few days ago by the Chinese Government which in turn hinges on the extent to which China is now a capitalist economy.

Ironically the more it remains a command economy rather than a capitalist one, the better the chances for a recovery in 2009. State controlled firms in China accounts for one third of industrial output and almost half of all investment. They have been asked by the Government not to cut capital spending. At the same time, all the big banks in China are government owned and have had controls on bank lending suspended, while at the same time have been encouraged to lend. On top of all this, more public housing and infrastructure projects are on the way. The banks appear to have lead the way in this whole process with total lending surging by 19% in the year to December 2008. China is one of the few large economies whose banking system has not been crippled by the global credit crunch.

How will these forces work to bring the world economy out of recession? According to Deloitte Investment Advisors, the single bet a long-term forecast indicator of the U.S. economy is the treasury yield curve. Since World War II, it has correctly anticipated every recession and every recovery. According to Deloitte, the yield curve is something of a proxy for bank margin. A steep yield curve enables the banks to borrow cheap and lend there (ph). Over the past year the yield curve has steepened significantly. For the current business cycle the peak of the yield curve came in November 2008.

Looking at the behavior of growth in past recessions, this suggests that the recovery from the current recession will not start before late this year.

In the mean time the ongoing lack of credit coupled with the de-leveraging of bank and consumer balance sheet will dampen the pace of any near term growth. On the positive side, pent-up demand is growing for cars and housing while the real wages for those with jobs are up 4.6% from a year ago. Rising real wages are a good leading indicator for consumer spending.

Having lost the benefit of mortgage refinance money consumers in the United States need to rebuild their finances the old fashion way, through real earning. As unemployment eventually stops rising, this will be a major factor in fueling future growth, well before unemployment starts coming down.

How will all this translate in demand for transportation of bulk commodities and how much supply will come in to meet this demand. To answer the question, we have to look at steel production. According to Clarksons world steel production drop during 2008, 20% year-on-year as steel mills idled capacity.

Surprisingly, Chinese output of steel actually improved in December month-on-month by about 10.3%. However, this has steel down by 14.3% year-on-year. At least for the time being, Clarksons do not believe that the slight upswing in output represents the beginning of a long-term upward trend in the production of steel.

In a report from Hong Kong, HSBC said that 2009 global steel production is expected to contract by 7.2%. For the world excluding China, the figure is expected to be minus 9.4%. However, the bank expects some rebound in steel production during 2010 with an estimated increase of about 3.6% on a worldwide basis.

We will continue by focusing on the anticipated changes in overall demand and supply in dry bulk shipping and we started iron ore. Clarksons are forecasting that overall transportation of iron ore during 2009 will reach 752 million metric tons, a drop of 11% from 2008. This forecast incorporates the assumption that China's steel demand will grow 5% during 2009, down from about 6% increase during 2008. Here there are few positive signals to watch out for such as the China steel prices which have recently begun to rise and the pickup in the rate of Chinese iron ore imports. The forecast of Clarkson Johnson Rice is that during 2009 Chinese iron ore shipments will grow by 7%, compared to 2008 with a further 8% rise during 2010.

Hereby, now famous iron ore contract negotiations are well under way with steel mills hoping to get from the miners a reduction of over 40% in the price contract iron ore, while the mining companies are holding out for a 10% reduction, compared to last year's contract price.

Chinese and Japanese steel mills are locked in talks with Vale, Rio Tinto and BHP Billiton pushing for a cut of around 45%, partially based on sharp spot price declines in prices late last year. However, BHP Billiton and Rio Tinto are hoping to secure a lower than expected decline in annual contract iron ore prices as demand rebounds in China.

Before we move on to other commodities, we have to mention two more encouraging signs. The first is that according to Maersk Broker iron ore stock price in Chinese ports dropped as of February 1, 2009 to around 54.8 million tons. Another, is that iron ore carrying bulkers are waiting for us up to five days at Daelune (ph) or Nantong ports before being allocated a berth. Congestion has therefore returned to the system this time not only in Australia, but in China as well. It is estimated that as of two weeks ago more than 60 vessels were waiting for an average of nine days to discharge iron ore at Chinese ports. According to Clarksons, congestion in Australia coal ports has reached 39 vessels with an average waiting time of nine days.

Now coke and coal, according to the latest report from the Iron and Steel Association, world steel production was certainly shrink during 2009. With this decline comes a reduced demand for coke and coal used in the steel making process. Clarksons are forecasting the transportation of about 209 million metric tons of coke and coal during 2009, a drop of 6% compared to 2008. BHP Billiton is forecasting weak demand in 2009 for metallurgical coal. The company expects their shipments from coal ports on the east coast of Australia to Middle in Asia, to be affected later this year.

Steam coal, Clarksons estimate for transportation of steam coal during 2009 is at a steady $576 million metric ton. Clarkson Johnson Rice believe that if it were not for the reduced demand for transportation of thermal coal due to cuts in production in the energy intensive industrial metal such as steel, aluminum and others, the transportation of thermal coal would increase during 2009. The main reason, is that thermal coal used for power generation is generally inelastic with the above mentioned exception.

Population factors dictate a continuously increasing demand for power for domestic use especially by developing nations. According to the Australian Government agency, ABARE, strong world import demand during 2009 is expected to be met by increased shipments from Indonesia, Columbia and Australia.

Grain, here Clarksons expect the world shipments to reach 230 million metric tons during 2009, a reduction of 3%, compared to 2008. As in previous years, the grain trade will play a side act in the future scenario affecting demand for the transportation of bulk commodity.

Before we look at the supply of tonnage and anticipated fleet growth going forward, we should not neglect to mention the ton-mile effect. Even though demand is now much weaker for the transportation of raw materials than in 2007 and 2008, the slowdown has not resulted in the reduction in average voyage distance, instead, the much lower prevailing freight rate environment allows more efficiencies, highly longer routes than a tight market does, assuming of course the other factors dictate purchases from more distant suppliers. The result of this, according to Clarkson Johnson Rice will be the lengthening of the average route which will contribute to demand through 2010.

Turning to the future supply of dry bulk tonnage, two are the main things worth looking at. The first is the huge increase in scrapping and the other is the cancellation of new building orders. Starting with the simpler of the two, scrapping. According to Clarksons, during 2008, a total of 5 million tons dead weight of dry bulkers were scrapped. Most of which went to scrap yards during the last quarter of the last year. Already during 2009, a sort of a 2 million tons dead weight have headed for the breakers. It is estimated by Clarksons that January was the first month for many years that more ships were scrapped or lost than were added to the fleet. With a huge pool of old ships in the dry bulk fleet, it is anticipated that the rate of scrapping will continue even if there is a modest increase in the earnings of these vessels.

Turning to the new building orders, here the picture is much less clear. A dead weight tonnage about 70.3% of the world dry bulk fleet is on order. About 106% of the Capesize fleet is in order and 52.85% of Panamax bulkers. However reports from Japan suggest that as many as 600 allocated hull numbers have been cancelled with 80% of those losses recorded at Chinese and South Korean yards. According to Mitsui O.S.K., later this year the number of cancelled orders may reach 1000. And they have cut back, they are buying plans to 50 vessels. Similar drastic reductions have been announced by K Line and then YK (ph).

Some brokers even suggest that as many as half of the 3400 bulk was on order and might not be build as a result of the credit crunch. Speculative orders in particular by owners with little or no building track record in the dry bulk sector, were thought to be particularly vulnerable together with contracts placed with the so called Greenfield yards in China. The main problem with these cancellations, past, present and future, is that it is impossible to establish the precise number of vessels that will never be built. The reason is that some established and well capitalized yards in China and South Korea have announced plans to build a number of ships whose contracts have been cancelled by buyers, and then try and trade them for their own account with the intention of selling them later on at more profitable price levels. This means that these ships will not disappear but will compete for business, with the other new building tonnage, thus delaying the recovery in trade market.

As regards to the short and medium term, we agree with the views expressed by the DnB NOR that the present increase in dry bulk spot rate, mostly linked to restocking of iron ore inventories in China will continue in the near term. However, if demand does not continue to increase there is a very real risk that rates will come back down.

According to shipping analyst Gibson, Panamax in particular should see rates improving during this month, initially because they are relatively cheap compared to Cape with some sort of adjustment inevitable where charterers consider splitting shipments in smaller parcels. From March onwards, the start of the South American grain season should give the Panamax market further seasonal support.

On the longer-term, we fully agree with the view expressed by ARRO (ph) ship brokers, that without the credit crunch and deleveraging process we are going through today, the dry bulk shipping industry will have had to go through a 1980s style depression from 2010 onwards. However, we share the long-term guarded optimism expressed by ARRO (ph) based on the following factors. First, there will be continued acceleration in the volume of scrapping.

Secondly, the order book will continue to shrink with some ships appearing later than anticipated owned by yard and/or their bankers while others will never be built. Thirdly, the cancellation and delay of investment in extractive and productive capacity as a response to short-term price depression will continue. Fourth, that government sponsored infrastructure projects will materialize worldwide and they will create increased demand for bulk commodity transportation. And finally, that inflation returns when liquidity in the system becomes excessive and governments realize that they have to start draining the system from excess cash. All the above should sow the seeds of the next great market bull-run at some point after this setback in trust and confidence has run its course.

The challenge for most shipping companies will be to survive over the next two years or so, and then hopefully optimism will return to the industry. In the meantime, opportunities will have presented themselves to acquire inexpensive assets with significant capital appreciation potential.

Our company is certainly well positioned to take advantage of this period of freight market and asset value weakness. Our strong balance sheet and secure cash flow from high quality time charterers will provide us with the ammunition to purchase assets when pessimism reaches its peak, and the majority of players convince themselves that for dry bulk shipping things will be much worse than in the 1980.

I would now pass you to our CFO, Andreas Michalopoulos, who will provide you with our company's financial highlights for the fourth quarter of 2008 and the 12 months of last year.

Thank you.

Andreas Michalopoulos

Thank you, Stacy and good morning. I think we'll be discussing the growth of the Diana's operational results for the fourth quarter and year-ended December 31, 2008, fourth quarter 2008.

Net income for the fourth quarter of 2008 amounted to $54.2 million and the earnings per share of Diana Shipping amounted to $0.72. Voyage and time charter revenues increased by $84.3 million, compared to $58.9 million in 2007. The increase is attributable to increased average hire rate and the increase in the number of vessels in the fleet, after the acquisition of the Boston in November 2007, the Salt Lake City in December 2007 and the Norfolk in February 2008.

Ownership days were 1748 for the fourth quarter of 2008, compared to 1542 in the same period of 2007, due to the enlargement of the fleet. Fleet utilization was 98.6% in the fourth quarter of '08 and 99.3% in 2007. The daily time charter equivalent rate for the fourth quarter of 2008 was $45,824, compared to $36,459 for 2007. Voyage expenses were $4.8 million for the quarter and operating expenses amounted to $9.9 million, an increase by 16%. The increase is attributable to the 13% increase of the ownership days resulting from the delivery of new Capesize vessels to our fleet, a 6% increase in crew costs, a 60% increase in insurance cost due to supplementary coals, and 8% increase in repair. Those increases were partly setoff with decreases in stores and spares.

Daily operating expenses were $5,675 for the fourth quarter of 2008, compared to $5,516 in 2007, representing an increase of 3%. Depreciation and amortization of deferred charges amounted to $11million for the fourth quarter of 2008. General and administrative expenses decreased by $2 million or 39% for the fourth quarter of 2008 to $3.1 million, compared to $5.1 million in 2007. The decrease was mainly attributable to the 2007 accrued employee cash bonus which was all recorded in the fourth quarter in the year 2007. Interest and finance costs increased to $1.5 million for the quarter, compared to $0.6 million in 2007.

Now for the year ended December 31, 2008 compared to year ended December 31, 2007, net income for 2008 amounted to $221.7 and the earnings per share to $2.97. Voyage and time charter revenues increased to $337.4 million in the year ended December 31, 2008 compared to $190.5 million in 2007. The increase is attributable to increased average hire rates in 2008, compared to the same period of 2007 and the announcement of the Company's fleet. This increase was partially offset by the decrease in revenues due to the sales of the Balerita fleet (ph) and its delivery to its new owners in July 2007 which derived revenues during the month of 2007 that did not exist in the same period of 2008.

Ownership days where 6913 for the year ended December 31, 2008 compared to 5813 in the same period of 2007. The increase in ownership days resulted from the enlargement of the fleet. Fleet utilization was 99.8% for the year ended December 31, 2008 compared to 99.3% for the same period of 2007. Daily time charter equivalent rate for the year 2008 was $46,777 compared to $31,272 for 2007. Voyage expenses amounted to $15 million. Operating expenses amounted to $39.9 million, the increase in operating expenses is attributable to the 19% increase in ownership days resulting from the increase in the number and size of the vessels to our fleet. The 11% increase in the exchange rate of Euro to U.S. Dollar and increase in those (ph) category of operating expense.

Daily operating expenses ware $5,772 in 2008 compared to $5,046 in 2007, representing an increase of 14%. Depreciation and amortization of deferred charges for 2008 amounted to $43.3 million. General and administrative expenses in 2008 increased by $2.1 million or 18% to $13.8 million compared to $11.7 million in 2007. The increase is attributable to compensation cost on restricted stock awards during the year that did not take place in 2007.

Interest and finance costs in 2008 decreased to $5.9 million compared to $6.4 million in 2007. Insurance settlement for vessel unrepaired damages amounted to $0.9 million and relates to cash received in the first quarter of 2008 for unrepaired damages, claims for the motor vessel Coronis during the previous year.

Thank you for your attention. Now we would be pleased to respond to your questions. I will turn the call to the operator, who will instruct us to the procedure for asking questions.

Question-and-Answer Session

Operator

Thank you sir. (Operator Instructions). And the first question comes from Doug Mavrinac from Jefferies & Company. Please go ahead.

Douglas Mavrinac - Jefferies & Co.

Four (ph) questions for you all. First, it seems within the industry at least that there has been a resurgence in discussions and debates over the past few days related to time charter contract cancellations and/or renegotiations. Could you please share with us the status of your time for the contracts and with your counterparties and whether you have been approached by any of your counterparties about renegotiating the times of existing contracts?

Simeon Palios

Well during 2008, three vessels were delivered earlier than the earliest allow of the delivery dates specified in their one time charter contracts. Earlier these deliveries during 2008 ranged from a few days to a couple of weeks with a combined minor effect of the anticipated cash flow and earnings. Separately in the case of the bankruptcy of Atlas Bulk Shipping, the Calipso lost approximately U.S. $1.5 million in contracted higher, which was a portion between the fourth quarter of 2008 and the first quarter of 2009.

Douglas Mavrinac - Jefferies & Co.

Okay, thank you Mr. Palios. And do you have any fears or thoughts that any of your vessels that are currently on charter, I mean looking at your charter, as its very, very high quality, very blue chip Cargill and BHP, NYK and all a long list, have any of those parties come to you and -- or first begun to pay you maybe less than the contracted rate? And then second, expressed that their desire to maybe reduce future payments that would be lower than the currently contracted rate?

Simeon Palios

No, they have not.

Douglas Mavrinac - Jefferies & Co.

Okay, perfect, okay, great, thank you. And then sticking on the charter hire scene, looking at your charter list, you guys have a couple of Panamaxes that are operating on contract to contract that expire over the next one to two months. Can you please share with us your thoughts on how you intend to approach chartering those vessels relative to the class of charterer versus contractor rate and versus rates, and how you balance your goals for each of those?

Simeon Palios

Well, as these will be tested in line with the portfolio approach, which we have been using all along since our company became public in March 2005. This means that the vessels would be chartered to top-class charterers, so as to come open on different dates in the shipping cycle.

Douglas Mavrinac - Jefferies & Co.

Okay, great. So, the class of charter, or the type of charter is probably one of things that you focus on above, but you know potentially what the rate is, its just you want the best quality of charter that you can get?

Simeon Palios

Indeed.

Douglas Mavrinac - Jefferies & Co.

Okay, great, thank you. And then just two final questions before I turn it over. Given the recent improvement in both the charter rates within the markets, both voyage rates and time charter rates, can you share with us what you are seeing relative to asset values, whether you've seen a slight improvement or marked improvement or no change as it relates to current assets?

Simeon Palios

Well, the current assets have been improved, some how more than what they should.

Douglas Mavrinac - Jefferies & Co.

Okay.

Simeon Palios

Of course we believe that this is a blip.

Douglas Mavrinac - Jefferies & Co.

Okay. Great thank you. And then actually that's a segue to my final question. And if you could share with us Mr. Palios, your view on, you guys are on a very advantage position, one of the strongest balance sheets in the industry, if not the strongest. How do you approach making future acquisitions, what are you going to look forward and say this is potentially the right time for us to take advantage of our balance sheet strength?

Simeon Palios

Well, we are continuously monitoring the market for investment opportunities. These may come in the form of more divestures from ship yards, banks or the second hand markets from different owners. As far as other public companies are concerned, we have not as yet seen any compelling investment opportunities, mainly because of the issues affecting their balance sheets. These coupled with the fact that according to our calculation the discount to net asset value are not attractive enough, which has kept us from moving forward with any acquisition on such public entities.

Douglas Mavrinac - Jefferies & Co.

Okay. Perfect, great. Thank you very much Mr. Palios.

Simeon Palios

Thank you.

Operator

And the next question comes from Justin Yagerman from Wachovia. Please go ahead.

Justin Yagerman - Wachovia Capital Markets, Llc

Hey, good morning. How are you guys doing?

Anastassis Margaronis

Hi, Justin. How are you?

Justin Yagerman - Wachovia Capital Markets, Llc

I'm good. I wanted to get a sense of the upcoming chartering activity, obviously you've had a good concentration of your recent charters with Cargill. Is that something that you would look to change going forward or are you looking to diversify your charter book a bit more, I mean as you've built up a pretty decent critical mass there? Or is that kind of happened out of necessity that when you look at the top tier charterers, they're really the ones who are open to taking period right now.

Anastassis Margaronis

Well the later is more closer to the truth than anything else. When things are weak, as far as the freight rates and freight market is concerned, there are not many good charterers offering for the type of business that we would be prepared to consider. Having said that, of course we are always monitoring the number of ships that we have charted to any one charter regardless how good that charter happens to be. And now we are of course aware of the fact that we have a good number of ships with Cargill and our first preference ideally would be to charter with another corporate, with equal or better status, on terms that would be similar of course with what Cargill would be prepared to offer for our time charter business.

Justin Yagerman - Wachovia Capital Markets, Llc

What's the liquidity like in the time charter market right now, as you look out, I think the next couple, you guys are coming out for Panamax, in the one, two three, year, what are you looking at in terms of availability and what are rates like currently?

Simeon Palios

Well, we can see today something in the vicinity of excess of $15,000 space, which of course is well above the run expense of the ship for a year. And for two years, we are coming close to 16.5 to $17,000 daily, which again is not a bad rate.

Justin Yagerman - Wachovia Capital Markets, Llc

And then the three year is not something you would entertain right now, I would assume?

Simeon Palios

Well provided the ships open at different days in the shipping cycle, yes. Because I think that's very important today, we don't have all the ships opening in the same time.

Justin Yagerman - Wachovia Capital Markets, Llc

Yeah. I think it's a good point. When you weigh the acquisition opportunities that are out there, and you said that companies right now, there is nothing because of... even at a discount to their NAV, it sounds like you think asset values are going to drop more. And then you look at the new build or second hands out there, you also have a share repurchase authorization on the table, is that something that you consider doing, if you don't -- if you have to wait out for too long, or else is that fact that you guys are trading above NAV, something that would prevent you from thinking about doing that right now?

Ioannis Zafirakis

Hi Justin, this is Ioannis. Yeah, it sound that as long as we trade above NAV, and we are well priced as a company which we think we are -- we will continue being well priced. The share purchase program will not be used at all.

Justin Yagerman - Wachovia Capital Markets, Llc

Okay, that makes a lot of sense. And then I guess last, and I'll turn it over to someone else. On the dividend policy, obviously we just moved away from that but I don't know if you guys have yet publicly said what kind of benchmark should be looking for to reinstate a policy at some point obviously, you're looking for opportunities in the market but you will be building cash over the next several quarters and if those opportunities don't arise, you'd be looking for ways to return some capital to shareholders. What are you looking at as benchmarks for reinstating a dividend policy or potentially a timeline for when you would maybe special dividend to out cash if you see the opportunities on market?

Anastassis Margaronis

Justin maybe two of us will answer this, but my reply is that the dividend policy doesn't have a specific benchmark. As we have said from the very beginning, we will reinstate or follow a full payout dividend policy, when we start acquiring assets for cash flow, and not for appreciation of asset values. We consider it highly unlikely, so that we will not get a chance to acquire asset at attractive prices. The question is how attractive they will be. So the potential of appreciation in the value of these assets is the main reason for why we will be investing over the next few quarters. If we see that the potential for capital appreciation that is appreciation of the value of the asset has diminished then our acquisitions will be geared more towards cash flow and then we will consider reinstating the dividend policy the way we had it from when the Company became public.

Justin Yagerman - Wachovia Capital Markets, Llc

That makes a lot of sense. What's is the highest level of debt that you guys would consider as you go about the acquisition of assets before you'd either come back to the market or try to refinancing and otherwise?

Anastassis Margaronis

Of course you understand that depends on the market, but very clearly we would be able to leverage of the company up to levels 70-80% easily. Of course we have said that in the past, I don't we would easily do that at once because we feel that we cannot, the same way you cannot tell everything at the highest point, the same way you cannot find the lowest point in the market to buy. So the best way to have a maximum shareholder value is to sort of start your acquisitions and widen the span of your acquisition and therefore this 70-80% will not be done at once but gradually.

Simeon Palios

Justin, let me add something there, the growth that we think we are to the market becoming much, much better the higher the level as you are going to see in Diana.

Justin Yagerman - Wachovia Capital Markets, Llc

Yeah. That makes a lot of sense. Okay, I appreciate the time guys. Thanks.

Simeon Palios

You are welcome.

Operator

And the next question comes from John Chappell from J.P. Morgan. Please go ahead.

Jonathan Chappell - J.P. Morgan Securities Inc.

Thank you, good afternoon. Andreas, a quick follow up on the balance sheet, can you just talk about the timing of the debt assumption, year end debt was about $66 million higher at the end of the third quarter with no capital commitments for the next year, what was the timing purposes for that debt assumption?

Andreas Michalopoulos

Yeah, hi Jonathan. As you know for cash management purposes and because actually the flexibility of our credit facility enables us to do that, we were decreasing our debt to EBIT cash from operations we had in the previous quarter and we are keeping zero cash in the balance sheet. Now, during the fourth quarter as we decided to suspend the dividend, we drew down the total amount of debt relating to vessel purchases and decided to keep the cash from operations on our balance sheet as a cash item in order to be ready, should we need that cash promptly for vessel purchases as we discussed before. Now, the debt relating to the vessel purchases always was at around $200 million since the last delivery we had and that is more is directed (ph) at Norfolk in February ' 08. Now the additional $50 million that you see there, relates to us having the new shareholders who are striving to some equity fall on offerings happening between two quarters that were actually eligible for the dividend of the previous quarter and also to some very minor adjustments we had for the last 15 quarters in rounding-up the dividend. So, having said all of that, I think you have understood that our debt to book cap was 23% at the end of the year and this debt is very, very attractively priced for the Company.

So, that's a bit of rationale we have behind the levels that you see there and we intend to keep those levels and for now until we start acquiring vessels whereby we will increase the levels of debt gradually according to the purchases that we will have.

Jonathan Chappell - J.P. Morgan Securities Inc.

Okay. And how much of the facility is still available for the final purchase of the New York and Los Angeles, next year?

Andreas Michalopoulos

At the moment, the facility in place that we have with RBS is the $300 million and before and this can be triggered at the time of delivery. So, but before that we have the ported (ph) facility in place which actually pays for all the pre-delivery finance as you know up to the delivery point of the vessel. And don't forget that once we get those vessels delivered, and even today there are banks that are there to lend us even more money than the available facility that we have with RBS against those vessels. So we feel very comfortable being able to finance those vessels.

Anastassis Margaronis

And there is a small difference in the pricing of any new debt, because the pricing the debt with RBS cannot be repeated with any bank on any percentage finance. But apart from that, Andreas is absolutely correct. There are banks who are willing to finance at market rate, the acquisition of our Capesize new buildings, or the acquisition of any other secondhand tonnage, we might decide to make.

Jonathan Chappell - J.P. Morgan Securities Inc.

Okay. And Stacy or maybe Simeon, if you can just give me a little bit of color on what do you perceive has been happening in the last couple of months. You stated or Mr. Palios stated before that you thought there was a blip in the asset prices and you guys did a lot of chartering, re-chartering of ships in the last couple of months at prices that are well below current market levels. Do you think that recent run is temporary nature only and you're expecting more of a downturn in the middle of this year, which will provide you with more opportunities?

Simeon Palios

Well we believe that the number of tonnage which is coming from the year (ph) are going to be much more than the scrapping which Stacy said has hereon, and the translations. So, I think there are going to be an over hang of tonnage which is not going to be able to be absorbed by any small blip like that. We need something more substantial. Take for example the containers, the daily containers are in a worst shape than the dry cargo market. And of course, we have seen the values deteriorating much more than the values of the dry cargo. Well, given some time, we believe that we may see the values of the dry cargo ships to come closer to the values of the containers and then of course we have to move. As Andreas said before, you cannot ship it right in the very low, but still there is some room to for adjustment. A Cape today at $60 million, I don't think or 55 is not a bargain, for Panamax two year old or one year old at 30-$32 million again, is not a bargain I think.

Jonathan Chappell - J.P. Morgan Securities Inc.

Okay, good insight. My final question is the three vessels that were delivered earlier than the earliest part of the contract in '08 and well as the Calypso which lost a $1.5 million. Are you pursuing any legal action against the charters or are you just accepting the redelivery as part of the market situation today?

Simeon Palios

The Calypso with the surplus bulk shipping is going to be -- it has not finished as yet but we are pursuing it. And I think in about a month we will know what will happen there. The other vessels that we mentioned we are in arbitration and we have already arranged in one of the government (ph) settlement and basically we are going to get for sure some money back, Jonathan.

Jonathan Chappell - J.P. Morgan Securities Inc.

Okay, thanks very much to everybody.

Simeon Palios

Decision as you know is with the liquidators at the moment.

Jonathan Chappell - J.P. Morgan Securities Inc.

Okay. Thank you.

Operator

And the next...

Simeon Palios

Sorry, to interrupt, but we are talking about all these claims are in the vicinity all together in less than $3 million.

Operator

Thank you. And your next question comes from John Dawson from Dawson-Herman Capital Management. Please go ahead.

Jonathan Dawson - Dawson-Herman Capital Management

My question has already been answered.

Simeon Palios

Thank you John.

Jonathan Dawson - Dawson-Herman Capital Management

Thanks.

Operator

And the next question comes from Natasha Boyden from Cantor. Please go ahead.

Natasha Boyden - Cantor Fitzgerald

Thank you, a pretty good morning gentlemen.

Simeon Palios

Good morning.

Natasha Boyden - Cantor Fitzgerald

I just wanted to touch again on acquisitions, just very briefly, you almost referred to some of the Capesize and Panamax vessels but would hand these other vehicles that you see (ph) in terms of acquisition?

Simeon Palios

Yes, but we will mainly focus on Capes and Panamaxs, but we will not exclude the Supermaxs.

Natasha Boyden - Cantor Fitzgerald

Is there any particular reason for that?

Anastassis Margaronis

I think it's much easier to deal with the Capes and Panamaxs and more easy to operate, and I think the running expenses are less also.

Natasha Boyden - Cantor Fitzgerald

Okay, great, thank you. And I think perhaps you may have touched on this briefly in your comments, but clearly Panamax rates have been lagging, Cape fairly significantly over the last couples of months. So, in your opinion what is driving that discrepancy and what's going to be the catalyst that causes Panamax rates to normalize more with respect to the Cape?

Anastassis Margaronis

Well the reason that has been driving the creation of this gap is obviously the iron ore transportation, particularly from South America. Now the limit of course will come when it pays to make two Panamax shipments as opposed to one Capesize shipment from South America to the Far East. The problem sometimes is that shippers do not accept the splitting the stems of the cargoes in other words creating smaller parcels for their own logistical reason. But when the difference in time charter rates becomes compelling, then there will be a demand for more Panamax's which are going to replace Capes which most of which have now left the anchorages and lay up, and are busy transporting iron ore or waiting to discharge iron ore in China.

The other reason I mentioned earlier was this seasonal grain trade from South America which we subtended during the past few years, we ignore because we had such a strong freight market, we didn't pay much attention to the grain trade. But now this will come possibly as a catalyst to lead to an improvement in and already firming Panamax freight market.

Natasha Boyden - Cantor Fitzgerald

Okay, great. And then just lastly on a fairly minor note, what would you suggest a good run rate for Diana, for a daily vessel (ph) project expense going forward?

Anastassis Margaronis

Well I think...

Andreas Michalopoulos

Hi. I think basically the daily OpEx of around the average daily OpEx of around 5,800 for both Capes and Panamaxs is a pretty good run rate. Now I would put at around at 5,600 Panamax and around 6,000 a Cape. So I would see the operating expenses of the vessel not increasing that much during 2009 at least that's what we if nothing unexpected arises that's the way we would see that.

Natasha Boyden - Cantor Fitzgerald

Okay, great. Thank you very much.

Anastassis Margaronis

Welcome.

Operator

And the next question comes from Gregory Louis from Credit Suisse. Please go ahead.

Gregory Lewis - Credit Suisse

Yes, thank you and good afternoon.

Anastassis Margaronis

Good afternoon, Greg.

Simeon Palios

Hi, Greg.

Gregory Lewis - Credit Suisse

I guess my question is related to lower quality owners. Are you seeing in the market the discrimination of lower quality owners and is that sort of helping push rates higher?

Anastassis Margaronis

Are you referring from a charters point of view.

Gregory Lewis - Credit Suisse

Yes.

Anastassis Margaronis

Actually, leave out lower quality owners from their chartering impossibilities.

Gregory Lewis - Credit Suisse

Yes.

Anastassis Margaronis

It's something that always comes as a factor in deciding which ship to charter when there is weakness in the market and a greater and larger choice from the charterers point of view to chart the vessel. We feel that it is playing a role, but not a significant one at this point in time from as regards with strengthening of rates. When the point comes that there is a shortage of tonnage then as we have seen in the past, any ship will be chartered whether it belongs to a reputable or a non-reputable charter. But for the time being, we see that operators who are regarded as more serious are benefiting from rates that they can get where which others cannot.

Gregory Lewis - Credit Suisse

Okay. Great. And then I just wanted to touch on the last two vessels that were actually chartered in January on like one year time charters. What was sort of the rationales for going out and fixing those that are around 10,000 or $11,000 a day as opposed to just leaving them in the spot market?

Ioannis Zafirakis

This is exactly what our CFO has been explaining during his comments that we do not try to forecast what the market is going to do, Greg. We have to place the vessels to open in a different time in the cycle. And basically the main thinking process besides that was for how long we were going to fix the vessel and what was the current rate for that period about that. We either have a portfolio approach to ships, all you see or we don't. If we do have a portfolio approach that targets the way of chartering the vessels, we have to stick on that. If we start changing and waiting for a while before the markets gets better or worst, then we don't have a strategy basically.

Simon: And also if I may add, if you have to fix for trans Atlantic, or trans Pacific voyage, which will take you approximately 40 to 50 days at the rate of $3,000 or $4000 a day, then to average out for the whole year, the $10,000 as you mentioned before, you have to charter the rates in excess of 14 and are you going to be certain that the rate is there. So, quite honestly for a company of our own, of this size and this type of ships and this age of vessels since there are, is almost not so relevant to try and charter the vessels at $1,000 daily more or less. It's almost irrelevant thus Ioannis said, it depends a lot when the vessel is open, to open in different days in the shipping set. That's more important, so you have always ready to fix ships.

Gregory Lewis - Credit Suisse

So from that out, it almost sounds like you are prepared to believe that we are at a drop in the cycle, because when I look back at your chartering strategy back in '05 and you had a lot of vessels in the spot market, it seem like you were expecting a rising rate environment. So when I look at charters like that, I mean clearly it looks like you were focused more on utilization of the vessel than potential upside?

Ioannis Zafirakis

I don't think that we ever had a lot of vessels in the spot markets, Greg. However, don't forget that we were raising equity and we were buying always vessels that we could, and we had placed in our portfolio management and seek this type of situation that we explained earlier. So basically our chartering strategy has always been the same and this why you have seen Diana at the moment having charter rates at a much higher level than what the market is today. Basically, we have a hedged chartering strategy, we are hedging our days without using the other days at all by doing a physical hedge.

Gregory Lewis - Credit Suisse

Okay, that's all for me. Thank you very much.

Ioannis Zafirakis

You're welcome.

Operator

And the next question comes from Urs Dür from Lazard Capital Markets. Please go ahead.

Urs Dür - Lazard Capital Markets LLC.

Hi, good afternoon.

Simeon Palios

Hi, Urs.

Urs Dür - Lazard Capital Markets LLC.

All my questions have been answered. So thank you guys for the call. Thank you.

Simeon Palios

Thank you.

Operator

The next question comes form Scott Burk from Oppenheimer. Please go ahead.

G. Scott Burk - Oppenheimer & Co. Inc.

Hi, good morning guys. Just a couple of more questions for you. Going back to the acquisition questions, I'm wondering, you are spending off, 40 million or $50 million per quarter in cash flow. So, you've got a lot of cash flow to buy vessels, would you expect to you that kind of store up cash to buy a big, big, big acquisition... a big, big fleet at once, or would you expect to see more ones and twos added to the fleet in the coming quarters?

Simeon Palios

Well, as we said before as far as lot of the public companies are concerned, we have not as yet seen any compelling investment opportunities, mainly, because our future is affecting their balances. This coupled with requirement (ph) according to our calculations in discount to net asset value are not attractive enough, have kept us out from moving away with any acquisition of such public entities. But of course there are private companies which we have our eyes on and but it is little bit pre-mature, it's little bit pre-mature. It's coming, I think within the next three to four months we will see different values.

G. Scott Burk - Oppenheimer & Co. Inc.

Okay. And you expect those values on the corporate side as you are saying or just for slightly lower vessel prices, individual vessel prices?

Simeon Palios

Well, I think it will come from the banks or the shipyards or private individuals.

G. Scott Burk - Oppenheimer & Co. Inc.

Okay.

Simeon Palios

It will come, without any doubt.

G. Scott Burk - Oppenheimer & Co. Inc.

Okay. And then I had a question about, just kind of an accounting question, there has been some talk about the potential for write-downs of asset values for the fourth quarter and maybe for the first quarter. Did you guys get having discussions with your auditors and with your accountants about that in terms of writing down some of the asset values on the balance sheet?

Andreas Michalopoulos

No, absolutely not, we don't have... we haven't got this type of discussions with our auditors. So, no. You must know that our balance sheet and in general it's so clean that we've done all our tax impairments, etcetera for the year. Everything has come up clean. We will obviously file the 20-F as quickly as possible as well which is like the annual reports. So, you will be able to see the detailed accounts, read the notes and management discussions in there. So, but don't expect any surprise. Our accounts for the moment are more than clean than without any issues of this sort.

G. Scott Burk - Oppenheimer & Co. Inc.

Okay and then one final question, I saw a report a couple of days ago that you had, or one of the vessels was had been sub-chartered from your goods charter, but it was sub-chartered out to Armada and have you seen the impact to your bottom lines from that?

Simeon Palios

Not really. Nothing because the vessel is chartered to be (inaudible) and as a matter of fact the major chatters are going to have second thoughts in chartering ships from sub-charterers, makes our acquisition even stronger. So, we are going to charter ships better in the future because they refrain from sub-chartering or chattering ships from sub-charterers. You mention the Boston and the Boston is chartered to be BHP Billiton. So we have nothing at all, where everything is smooth.

G. Scott Burk - Oppenheimer & Co. Inc.

Okay. Thanks very much.

Simeon Palios

If you're feeling that our name is mentioned in this kind of situation because we have nothing to do with those charters as I've said. As you know that Boston is chartered for four years, with an optional year, to BHP Billiton at 52,000 a day and that's the vessel you mentioned.

G. Scott Burk - Oppenheimer & Co. Inc.

Right, thank you.

Simeon Palios

You're welcome.

Operator

And now, there seems to be no further questions at this time, sir.

Simeon Palios

Well thank you again for your interest in and support of Diana Shipping. We are confident that our strategies will continue to enhance our strength and stability and that our company is well positioned to take advantage of opportunities for our long term profitable growth. Thank you.

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

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