Diana Shipping Inc. Q2 2009 Earnings Call Transcript

Aug. 6.09 | About: Diana Shipping, (DSX)

Diana Shipping Inc. (NYSE:DSX)

Q2 2009 Earnings Call Transcript

August 6, 2009 9:00 am ET

Executives

Ed Nebb - IR Advisor

Simeon Palios - Chairman and CEO

Anastassis Margaronis - President

Andreas Michalopoulos - CFO and Treasurer

Ioannis Zafirakis - EVP and Secretary

Analysts

Doug Mavrinac - Jefferies & Company

Gregory Lewis - Credit Suisse

Urs Dur - Lazard Capital Markets

Scott Burk - Oppenheimer & Co.

Anders Rosenlund - ABG Sundal Collier

Rob MacKenzie - FBR Capital Markets

George Piccolo [ph]

Operator

Good morning. My name is Antoniele, and I will be your conference operator today. At this time, I would like to welcome everyone to the Diana Shipping Inc. 2Q conference call and webcast. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator instructions).

Thank you. I would now like to turn the call over to Mr. Ed Nebb, Investor Relations Advisor to Diana Shipping. Please go ahead, sir.

Ed Nebb

Thank you Antoniele, and welcome to all of you. Thank you for joining us for the Diana Shipping Inc.’s 2009 second quarter 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 release we issued earlier today. 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 provisions of the Private Securities Litigation Reform Act of 1995.

Such forward-looking statements are based on assumptions, expectations, projections, intentions, and beliefs 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 from what is expressed or forecasted in the forward-looking statements, please refer to the company's filings with the Securities and Exchange Commission.

And with that, let me turn the call over to Mr. Simeon Palios, Chairman and Chief Executive Officer of Diana Shipping. Go ahead, sir.

Simeon Palios

Thank you, Ed. Good morning and thank you for joining us today. I am pleased to report that in the second quarter of 2009, Diana Shipping maintained a track record of consistent strong performance, despite the uncertainties and challenges of a global economic downturn.

Our results for the period were distinguished by solid profitability, growing and substantial cash position and the balance sheet that is one of the least leveraged of publicly traded companies in the dry bulk sector.

We delivered these achievements by continuing to pursue our time tested strategies, managing our fleet for maximum revenue visibility, pursuing relationships with high-quality charterers and maintaining a conservative approach with the respect to funding our business.

Now I would like to point out some of the highlights of the 2009 second quarter. Then, the members of our senior management team will review our market outlook and discuss the financial results in greater detail.

Net income was $30.4 million with Voyage and time charter revenues of $59.8 million for the second quarter of 2009. This compared to net income of $56.7 million and Voyage and time charter revenues of $86.8 million for the same period a year ago.

Diana has continued to engage in profitable charters with top quality charterers. During the second quarter, we chartered the Oceanis with Bunge SA. And just last week, we announced a charter for the Naias with J. Aron, the principal global trading subsidiary of Goldman Sachs.

Following these two recent charter agreements, we now have 100% of the fleet employed through the end of 2009. Our charters remain well balanced with delivery dates and our adjusting fleet ranging from 2010 to 2015. This provides both current stability and future upside opportunity. We achieved another daily time charter equivalent rate of $33,073 for the second quarter, which covers daily vessel operating expenses by a factor of approximately 5.5 times.

During the second quarter, we further strengthened Diana’s balance sheet. Our equity offering of 6 million sales of common stock in May, ranged approximately $100 million. As a results of our earnings and the equity offering, our cash position increased to nearly $218 million at June 30, 2009. Total debt remained relatively low, $262 million at the end of the second quarter of 2009.

As we view the overall dry bulk marketplace, we continue to believe that Diana is well positioned to manage through the current difficult period and to capitalize upon future opportunities. In particular, we believe that the challenges faced by more highly leveraged (inaudible) well as yards and lenders will allow for the acquisition of vessels on attractive terms.

As we have said in the past, we would be attentive to such opportunities to expand our fleet and enhance our cash generation potential for the benefit of our shareholders. At the same time, we are taking a cautious approach as we believe that it is crucial to declare a recovery in the dry bulk market.

We intend to adopt a discipline approach by deploying our resources to acquire vessels gradually as we invest in future opportunities. We continue to face the future with confidence with company’s solid profitability, strong cash resources, and conservative capital structure, will enable us to build greater shareholders value in the years ahead.

With that, I will now turn the call over to our President, Stassis Margaronis.

Anastassis Margaronis

Thank you, Simeon and a warm welcome to all who have joined us on this second quarter ’09 conference call. Second quarter of this year was certainly one full of excitement developments as far as world trade is concerned.

Keeping our observations within the dry bulk shipping industry, we can start by saying that we have witnessed a dramatic raise in the Baltic Capesize Index, the BCI, from the region of 2039 on April 1st to a high of 7122 points on July 1st, an increase of some 349%. Correspondingly, the Baltic Panamax Index or BPI rose from 1293 points to 2984 points on July 1st, an increase of 230%.

Looking at the latest forecasts for the world economy published by the World Bank, they believe that the global economy excluding China will shrink by about 3% this year, while China is estimated to grow by about 7.2%, some signs that the economy is doing better than expected, with the help of the general stimulus package announced a few months by the Chinese Government.

In trying to find an answer to the all important question of whether or not the world industrial output is about to rebound, we have to look at Asia and the rest of the world separately. Excluding China, Korea and Japan, world industrial output is still contracting even though at the slower rate than earlier this year. However, as mentioned by Clarksons, in Asia, things look much brighter.

China’s industrial production jumped to 10.7% in June and steel output reached 46 million metric tons equal to the June 2008 record. However in June 2009, world steel production excluding China was down 30% compared to a year ago and this makes it even more difficult to decide if the Chinese output numbers are sustainable or not.

There is no doubt that areas of strong steel demand in China are construction, automobiles and ironically not for shipbuilding. For as long as the Chinese Government continues to support the economy, we anticipate final demand to remain firm in the short and medium term and hence the outlook for iron ore imports is reasonably positive. However, there are at least two negative factors in relation to Chinese imports of iron ore at least in the short term.

Firstly, iron ore inventories are still at near record levels about 75 million metric tons, meaning those imports will have to be supported by continued strong demand from steel mills going forward.

Secondly, iron ore prices have reached the levels of around $100 per metric ton landed in China, where more Chinese iron ore producers are able to compete against imported iron ore in spite of the inferior quality of their product. For example in June, Chinese iron ore production was up 27% month on month, to reach an all-time record of $83 million tons. This trend is likely to continue with domestic iron ore producers gaining more market share in the second half of 2009, compared to the early part of the year.

Nevertheless, preliminary Chinese customs data for June indicate another very strong month for iron ore imports with $55.3 million metric tons entering the country. If confirmed, this would represent the second highest monthly total ever just short of April’s record 67 million metric tons.

As a result, preliminary first half 2009 iron ore estimates are at 297.2 million metric tons, up 29% on the same period last year. This lifted bulk carrier demand particularly for Capesize bulkers. In addition, port congestion also ensued restricting the available supply of tonnage.

It is interesting to note that as of a few weeks ago, and about 16% of the world bulk carrier fleet or all deliveries since the beginning of 2007, we are waiting for berths of China, Brazil and Australia. To make things even more favorable for the owners of Capes, iron ore vessel bookings from Brazil to China jumped to a record in July, as Australia suspended spot sales of iron ore to China, following the detentions of relook in to top sales officials in China.

Finally, the icing on the cake came in the form of a strike at Chennai Port in Southern India. This strike until it was resolved a few days ago had led to a complete toll [ph] of iron ore handling operations since the 29th of June. The port handles about 12% of India’s total iron ore exports, which exceeded 100 million tons last year.

In view of all the above mentioned developments, it is remarkable that spot daily time charter rates for Capes did not exceed their earlier record set in June 2008 and peaked at around $95,000 per day. The answer to this might become a more obvious, as we discuss the supply of tonnage later on.

Before leaving the subject of iron ore trades to look at other bulk commodities, it is worth noting that according to Clarksons, total seaborne iron ore trade is expected to shrink in 2009 by 2% to $824 million metric tons compared to last year.

Turning to coking or metallurgical coal, the most noteworthy event of last quarter has been the increase of Australian exports to China and the associated ore congestion both of which are expected to increase booking coal market for the rest of this year.

On the other hand, Chinese coking coal exports are projected to reach a mere 2.1 million tons which, if realized, will make China a net importer of about 16 million metric tons for 2009. Clarksons expect the overall shipments of coking coal worldwide to reach 201 million metric tons which will represent a reduction of 8% compared to last year.

The seaborne trade of thermal coal is indeed foreseeing to be much more steady for 2009 with an expected reduction of just 1% at 570 million metric tons compared to 2008. This overall figure conceals some dramatic changes such as China’s anticipated increase by 82% in imports and a reduction of 13% compared to last year of imports to the United States.

European and Japanese electricity demand is expected to fold this year, reflecting the effects of the global economic downturn. This will be largely offset by increases of imports to China as mentioned above as well as to India and South Korea.

As we go to the seaborne grain cargos of all kinds, these are expected to reach about 221 million tons, 6% down compared to 2008. Here the only noteworthy events of the quarter were the good harvests in the North Africa, Turkey and Iran, dictating lower import requirements. Strong imports however are expected to be going to Russia and the rest of the CIS.

Now it is time to look at the every important but hard to forecast supply of tonnage for the rest of 2009 year and going out into 2013. Before we do that, we will go through a relatively easy housekeeping exercise and look at congestion which has as we know helped or efficiently reduced the supply of available tonnage.

According to Maersk Broker, the number of Capesize bulkers waiting to berth at Australia’s coal load ports and China’s iron ore discharge ports appears to have declined recently. During the last week of July, the Australian coal port loading queues have dropped to 18 ships from more than 30. Meanwhile, there were 65 Capes waiting to berth in China compared to 88 in the middle of June. This trend is expected to continue as trade returns to a more normal pace and therefore more ships will enter the market for chartering over the coming months.

As of June this year, the order book for all types of bulk carriers over 10,000 metric tons dead weight stood at 285.5 million tons dead weight or 66% of the existing fleet. Deliveries go out to 2013 with the highest annual deliveries 109.6 million metric tons scheduled for 2010. From the new building order book total 146.9 million metric tons or 96% of the existing Capesized fleet are in order and 58.9 million metric tons or 50% of the existing Panamax fleet are scheduled for delivery over the next three years.

Statistics as to the growth of the trading fleets of each category of bulker vary, depending on the assumptions made as to absolute cancellations, that is actual as opposed to ships which are cancelled and then resold at the shipyards, delayed deliveries and scrapping.

According to the assumptions made by Clarksons, the Panamax fleet at the end of 2009 will stand at 121.2 million tons dead weight, higher by only 4% compared to the end of 2008. The corresponding figures of Capes are 171.4 million tons dead weight or 10% higher and at the beginning of the year. It is interesting to note that so far this year, only seven Capes have been demolished and unfortunately with daily rates being where they are today, there is no reason to assume that many more will be heading for the scrap yards between now and the end of the year.

On the Panamax front, 24 ships of about 1.6 million tons dead weight was scrapped so far this year and here again, there are no reasons to expect that unless daily rates weaken considerably from their present levels between now and the end of the year, we will see many more ships being scrapped during the second half of 2009.

It is quite obvious that in order to make some sort of informed guess on fleet size going forward, we have to take a view on new building order cancellations. It was recently reported by Lloyd’s List that according to shipping consultants Drewry’s, about 21% of the dry bulk order book is currently at risk of cancellation. Drewry also predict that over the next two years, the cancellations will increase across all sectors of shipping together with delays to deliveries.

Still on the subject of cancellations, the Scandinavian Specification Society [ph] VNV recently announced that the number of confirmed cancellations to date is still a relatively small proportion of the order book, just over 10% in the case of bulk carriers.

VNV confirmed what has been suspected by many observers of the shipbuilding industry to date, i.e., that a number of ships ordered at Chinese yards and cancelled by their owners were still being built but have been reassigned to Chinese owners or the yards who are continuing to seek new buyers.

Ignoring abovementioned complications, Maersk Broker calculated about 280 or so vessels have been cancelled from the order book representing about 25 million metric tons, 60% of which are from Chinese yards. This is partly surprising if we take into account that over 46% of the dry bulk new building order book is held by Chinese yards.

Another interesting aspect that comes from shipyard analysts’ world yards, according to whom an increasing number of shipbuilders are preparing to become ship owners. Truly that cannot be good news for pure ship owners or the shipping industry at large. This trend started in Japan in the 1980s and it has been around ever since. However, during the fast shipping boom, this practice became and trenched as a business model for shipbuilding.

An increasing number of shipbuilders, who were building ships for their own account sometimes disguised as a third-party corporate client for a variety of reasons. In China, many private yards who are building what can be called commodity ships on the speculation that the foreign owner would eventually emerge to buy the new buildings as three sales at the profit.

Some shipyards just did it for not other reason than because they have too much money to play with. When new building demand died off, we saw many medium to long size Chinese shipyards forming ship owning companies to take over slots abandoned by ship owners or slots which had simply been reserve in order to maintain production flow. We agree with where we are that shipbuilders becoming ship owners is an absolutely terrible idea. It simply means that whatever is not wanted by the market to the extent that ship owners represent that market will be built, completed and delivered.

Actions of ship owners and shipyards thus far are not helping to shift the supply-demand balance in the right direction in any meaningful way. Owners are trying to convince yards to let them off the hook without compensation and shipyards supported by government liquidity form ship owning companies to operate ships either contracted for their own account or abandoned by owners who did not pay as per the shipbuilding contracts.

The only way out of such a mess is for owners, yards and their respective bankers to try and reschedule the order book as far as practically possible without the interference of third parties and particularly government agencies. If calculating the cancelled orders is difficult, what about calculating the number of vessels that will not be delivered by newly established and Greenfield yards, due to lack of credit for owners and shipbuilders alike?

Here we have taken a rather simplistic view and have decided to assume in our model that none of these vessel will be delivered. Approximately 30% of the world’s dry bulk order book is with such yards with an emphasis on smaller bulkers rather than the larger ones. Nevertheless, we still assume that none of these vessels will ever be built.

Where does all this leave us as regard to the short and medium-term balance between supply and demand? There are two prevailing views as usual with opposite conclusions of which we favor the second as being more realistic in its assumptions. The first runs along the lines that the combined effect of all the vessels with significant to new building order cancellations and a delay in new building deliveries will result in modest dry bulk fleet growth during 2009 and 2010.

The main assumptions here are that only 50% of the new building order book for 2009 and 40% of the order book for 2010 will be delivered due to various issues the credit crisis has created, most importantly, the inability of ship owners to a failed financing and their desire to preserve liquidity.

A further assumption about scrapping has been made at between 5% and 5.5% over the world dry bulk fleet per year for 2009 and 2010 due to the aging of the fleet. These assumptions leads to an estimated increase of the world’s dry bulk fleet of 4.6% in 2009 and 6.2% in 2010, which is certainly more manageable than other estimates even though the overall figures disguise a heavy weighting towards the larger ships simply because the order book is similarly weighted in their favor.

We tend to favor the short-term forecast of Howe Robinson, who after applying appropriate multipliers for each type of bulk carrier arrived at an additional cargo carrying capacity by the end of 2009 or early 2010 of about 529 million metric tons per annum.

On a net basis, this may vary between 322 million metric tons and 147 million metric tons of additional capacity per annum depending of course on scrapings and other factors influencing these figures.

However the estimated changes in volumes of bulk commodity shipments in 2009 showed declines across the board compared to 2008 with the exception of the Chinese coastal trade which estimated to rise by about 5% this year.

It is our view that to try and resolve a severe fleet oversupply situation waiting to happen, ship owners will have to think seriously about scraping not only their very old ships, but also ships which some might not consider that old. This is particularly relevant in the Capesize sector where only 16% of the existing fleet is over 20 years old and 32% of the fleet is four years old.

Unfortunately the current trend is in the opposite direction due to the good earnings of these ships. Even though in May this year, 1.2 million tons deadweights of bulkers were scrapped, in June, a mere 269,000 metric tons deadweight of bulk carriers were sold to scrap yards.

During the first three weeks of July 2009, 12 Capesize bulkers have entered the market, and since the beginning of the year 49 such ships have joined the fleet. The trend there is to accelerate even though we agree with the view held by any shipping analyst that it will see approximately 15% to 20% of the 2009 over the book delays until 2010.

The recent raise in the Baltic Dry Index or BDI has undoubtedly led more ship owners who decided to go ahead with the construction and delivery of ships scheduled for completion during the next 12 months. This should lead to the acceleration of new building deliveries.

Looking beyond the second half of 2010, we agree with the view expressed by some shipping analysts that even four or five years of between 40 million and 45 million tons deadweight of actual deliveries (inaudible) against the scheduled 71.2 million ton of deadweight this year and a 110.3 million in 2010 should be sufficient to place a lid on any upside in market utilization and use vessels earnings towards breakeven with corresponding drops in asset values. This assumes dry bulk demand growth of about 4.8% per annum over the next five years with heavier weighting towards the end of the period with fleet growth of at least 5.5% net per annum, more heavily weighted towards the beginning of the period.

To many listeners’ disappointment, this is our view of the likely future trend of values and earnings of bulk carriers especially the larger categories of ships. As mentioned earlier by our Chairman and CEO, part of the core of our business strategy is to be ready to take advantage of asset acquisitions as they present themselves without necessarily setting specific price targets maintaining our strict and high technical standards for the ships, which we will be acquiring over the next few quarters.

If we plan our acquisitions carefully and with some elements of good luck, we will succeed in coming out of the downturn with a strong balance sheet and a larger fleet which will generate high cash flow, earnings and eventually healthy dividends for the benefits of all of our shareholders.

I will pass you now to our CFO, Andreas Michalopoulos who will provide you with the financial highlights of our second quarter and first half 2009 financials. Thank you for your attention.

Andreas Michalopoulos

Thank you, Stassis and good morning. I am pleased to be presenting today with you Diana’s operational results for the second quarter and six months ended June 30th, 2009 – second quarter 2009.

Net income for the second quarter of 2009 amounted to $30.4 million and the earnings per share of Diana Shipping amounted to $0.39. Voyage and time charter revenues decreased to $59.8 million compared to $86.8 million in 2008. The decrease is attributable to decreased average higher rates and increased of higher days.

Ownership days were 1,729 for the second quarter of 2009 and 2008, but operating days were 1,700 in the second quarter 2009 compared to 1,728 in 2008. Fleet utilization was 99.1% in the second quarter of ‘09 and 99.9% in 2008. The daily time charter equivalent rate for the second quarter of 2009 was $33,073 compared to $47,844 for 2008.

Voyage expenses were $3.1 million for the quarter. Operating expenses amounted to $10.3 million, an increase by 4%. The increase is attributable to an increase in repairs which was partly offset by decreased insurance costs.

Daily operating expenses were $5,962 for the second quarter of 2009, compared to $5,702 in 2008, representing an increase of 5%. Depreciation and amortization of deferred charges amounted to $11 million for the second quarter of 2009.

General and administrative expenses increased by $0.3 million or 8% for the second quarter of 2009 to $4.2 million, compared to $3.9 million in 2008. The increase is mainly attributable to increased compensation cost on restricted stocks.

Interest and finance costs decreased to $0.9 million for the quarter, compared to $1.5 million in 2008 due to lower average interest rates.

For the six months ended June 30th, 2009 now compared to the six months ended June 30th, 2008, net income for the six months June 30th, 2009 amounted to $65.2 million and the earnings per share to 86%.

Voyage and time charter revenues decreased $122.5 million in the six months ended June 30th, 2009 compared to $165.6 million in 2008. The decrease is attributable to decrease of retire rate, increased of higher days in 2009 compared to the same period in 2008.

Ownership days were 3,439 for the six months ended June 30th, 2009 compared to 3,417 in the same period of 2008, 3,317 in 2009 compared to 3412 in 2008. The increase in ownership days resulted from the acquisition of the Norfolk in February 2008 and the decrease in operating days was due to increased of higher and dry bulk days.

Fleet utilization was 98.6% for the six months ended June 30th, 2009 and 99.9% for the same period of 2008. The daily time charter equivalent rates for the six months ended June 30th, 2009 was $33,993 compared to $46,533 for 2008.

Voyage expenses amounted to $6.3 million. Operating expenses amounted to $19.7 million, an increase by 3% compared to the same period in 2008. The increase is attributable to increased repairs and was partly offset by reduced insurance costs.

Daily operating expenses were $5,743 in 2009 compared to $5,582 in 2008, representing an increase of 3%. Depreciation and amortization of deferred charges for 2009 amounted to $21.8 million.

General and administrative expenses in 2009 increased by $0.8 million or 11% to $8.3 million compared to $7.5 million in 2008. The increase is attributable to the increased compensation cost on the restricted stock awards.

Interest and finance cost in 2009 decreased to 1.7 million compared to $3 million in ’08 due to decreased average interest rates. In the second quarter of 2009, we entered into a zero cost collar agreement, the evaluation of which as of June 30th, 2009 provided loses of $108 million and did not affect the EPS amounts of either the quarter or the six months ended June 30th, 2009.

Thank you for you attention. We would now be pleased to respond to your questions. And I will turn the call to the operator who will instruct you as to the procedure for asking questions.

Question-and-Answer Session

Operator

(Operator instructions). Your first question comes from the line of Doug Mavrinac.

Doug Mavrinac - Jefferies & Company

Good afternoon everyone.

Anastassis Margaronis

Hi Doug.

Doug Mavrinac - Jefferies & Company

Hi. I just had a handful of follow-up questions for you guys. First, kind of from a demand perspective, you guys have been one of the most consistent employers of your vessels over its course of the last several months. Obviously, your charter rates have improved over the time period. But my question is more of, has the level of demand by charterers improved or is it just the same guys out there, well on the pay is a little bit more given the improvement rate? So my question is more of, do you see more counter parties out there willing to put vessels away for a longer period of time now than you did, say, maybe a few months ago?

Anastassis Margaronis

Well effectively there has been a brisk interest for chartering ships backed by the future forward contracts of course. It’ll always play a role as to the number of charters that would like to take a view as regards six, nine or 12 months forward charters. And all in all, we can say that it has been a healthier demand even though it has not been explosive in the sense that we have seen exceptional demand which we hadn’t seen earlier on.

The problem as usual is to decide what is going to happen over the next couple of quarters. And there again, we will have to take a view on where the future forward agreement contracts are going to be head, and at the same time, where the views will be larger charterers and shippers will go from here on looking at the supply and demand situation.

Doug Mavrinac - Jefferies & Company

Okay, great, thank you Stassis. And then the second question, a lot of people have – it’s been well written about the order book and ship delays and what not, as it relates to Diana Shipping and the two Capes that you guys are taking delivery of one later this year and one next year, can you just provide an update as to the status of those whether you expect to receive those on time and just kind of, I guess overall, what the status of those two are?

Simeon Palios

Well as regards to – number is 1138. The vessel will be delivered to the owners on the 28th of October of this year, which is on schedule. And the other vessel, the 1107 will be delivered within February 2010, which again is on schedule. And we do not foresee any delays on those deliveries which are scheduled as of to date.

Doug Mavrinac - Jefferies & Company

Thank you, Mr. Palios. And then just one final question before I turn it over to others. You guys are in a very obviously enviable position with the amount of cash that you have built up on the balance sheet over the course of the last several months. My question is, given that war chest that you have essentially built up, are you guys seeing any acquisition opportunities yet that are of interest? And if not, at what level – do you have a level of mind of cash, so that you say, okay, well, we are comfortable maybe reinstituting the dividend or is it more of this you just kind of have to balance what do you expect to see with your dividend decisions?

Simeon Palios

We are starting to note some movement across the segments, and the key development over the last few months is aggressive pricing of Capes by a major Korean yard, which is now starting to infiltrate the decision-making of a broader spectrum of yards.

Now, as in regards to the pricing, I would like to answer that by stating that our strategy is to take advantage of asset acquisitions without changing specific price targets, maintaining our high technical standards and age profile for the ships which we will be acquiring over the next few quarters.

Now you also asked something about the dividend. As we have said in the past, as long as we are in the part of the shipping side cycle where we consider that line opportunities for vessels will arise, we do not plan to restate the dividend.

We are convinced that investing in two (inaudible) is a must but a usual of our free cash flows and paying a dividend. However we strongly believe that when we face (inaudible) Diana will come out of which stronger and with very attractive dividends.

Doug Mavrinac - Jefferies & Company

Perfect. Very helpful. Thank you.

Simeon Palios

Three questions.

Doug Mavrinac

That was it. That was it. Thank you. It’s very helpful.

Operator

Your next question comes from the line of Gregory Lewis.

Gregory Lewis - Credit Suisse

Yes, thank you and afternoon.

Anastassis Margaronis

Hello, Greg.

Simeon Palios

Hi.

Gregory Lewis - Credit Suisse

Just to follow-up on of your comments Stassis. You mentioned that shipyards are going to the process of building and owning ships and sort of train them as commodities. At this point, have you had – what types of discussions if any have you had with the shipyards about taking new vessels from members, is this something that’s going to take a little bit longer to play out?

Anastassis Margaronis

We haven’t had any specific discussions with yards to buy ships that are owned by them. What we do know that there is a trend developing rather fast which is the second phase of this ship build or ship owning process which is effectively the yards taking over abandoned slots with the help and finance from major Chinese yards, but they have not approached us yet with a view of selling these or any of those.

Gregory Lewis - Credit Suisse

Okay, great. And then just to follow-up on the potential acquisition of vessels. If we look at the track record over the last couple of years specifically when you were buying Capes, typically you would buy a cape and then it would come pretty much attached with like a long-term time charter. Being there is really not a lot of depths to the time charter market, but will that’s going to prevent you from going out and acquiring Capes or how do you think about that?

Simeon Palios

Well, I think we have to be very explicit there. When we are on the other cycle of these signs of (inaudible), I feel we have to use money from the capital markets. And it doesn’t really matter as long as you charter the vessel with a first class charterer and provided, of course, the vessel is new.

Now when you are on the lower cycle of this (inaudible) then of course you have to use bank debt. And the bank debt is much, much cheaper than the dividend you were paying. So I think this is the key element behind buying high price vessels and low price vessels.

Ioannis Zafirakis

Greg, this is Ioannis. Regarding the chartering of those vessels to us, of course, when is prepared to buy cheap assets without time charter attached for a long period, because it is going to be an asset play rather than a cash flow place as it used to be in the past. We are prevented for buying assets because we don’t see long-term charters for them. We will buy as long as we feel that this is the right time to start buying vessels, regardless of the charter attaches.

Gregory Lewis - Credit Suisse

Okay, great. And then my last question is – I mean clearly China has been strong over the last few months, I mean everybody is going with direct iron ore imports. But have you seen a pickup in cargos through any other regions or countries?

Ioannis Zafirakis

Well there are sporadically volumes increasing, yes. From South America to Europe, and as I mentioned earlier, we have a grain cargos moving to Russia. But we haven’t seen a major trends developing where we can identify them and say these will play pivotal role in the future course of the freight markets. Nothing to compare with the iron ore, two types of coal that we had mentioned and added to that the Chinese coastal trade.

Chinese coastal trades, as I mentioned, there has been an increasing in volume. It has exceeded 600 million tons a year now and an increase of 5% of course is significant. We have obviously to keep in mind that most of this trade is carried in Handysize or Handymax ships and the Panamaxs are beginning now to be involved in the Chinese coastal trade and very few Capes.

Gregory Lewis - Credit Suisse

Okay. Thank you very much for your time gentlemen.

Ioannis Zafirakis

You’re welcome.

Operator

Your next question comes from the line of Urs Dur.

Urs Dur - Lazard Capital Markets

Good morning, guys or good afternoon.

Simeon Palios

Good afternoon.

Urs Dur - Lazard Capital Markets

Good afternoon. Just in regards to Stassis’ comments about the market and then indicating that gradual acquisitions are possible, but then again the outlook for the order book, you’re more cautious. I guess where do you feel asset values are going to go from here. They have been fairly stable for a number of months now, although very liquid. Can you I guess comment on both things? Can you comment on the liquidity of opportunities today as well as where you think asset values are going to go maybe not with numbers, but maybe percentage points down from here.

Anastassis Margaronis

Well, the liquidity in asset trades is going to increase unfortunately as the prices fall, because the prices are not going to drop unless earnings drop. When earnings drop, pessimism will set in and some owners who have been holding out in the hopes of getting either a profitable long-term charter or a better price for their ships are going to effectively start offering the ships for sale before deals happen that was marked down the value of their assets.

So we expect, as I said, liquidity increase when prices drop. But we are not sure when this will happen, that’s why we are waiting patiently and we are going to stage our acquisitions over the next few quarters, because we don’t know exactly the timing when asset values are going to bottom out.

Urs Dur - Lazard Capital Markets

But do you feel, I guess, should I take that as the implication that you would look at it over the next few quarters as the high probability of acquiring some ships and that sort of identifying where you feel asset values may well bottom?

Anastassis Margaronis

Yes, we intend to start buying ships within the next couple of quarters and continue for a few quarters beyond that until we feel that asset values have bottomed out.

Urs Dur - Lazard Capital Markets

Okay, great. Fantastic. Really everything else has been asked on my behalf. So thank you very much.

Anastassis Margaronis

You’re welcome.

Operator

Your next question comes from the line of Scott Burk.

Scott Burk - Oppenheimer & Co.

Hi, good afternoon, guys.

Simeon Palios

Good afternoon.

Ioannis Zafirakis

Hi Scott.

Scott Burk - Oppenheimer & Co.

I had a question about just the charter – chartering policy going forward, you have got essentially the whole fleet locked up for the rest of 2009 and 50% coverage for next year, when do you start looking for new charters to the vessel that are rolling off in the first part of 2010?

Ioannis Zafirakis

Hi, Scott. As we have said in the past, the way we charter our vessel has to do with the portfolio approach to our chartering. We charter the vessel periodically meaning that we want to have a vessel to fix every now and then and position that vessel to afterwards for a delivery at a point where we do not have a lot of other vessels opening. So you should expect us to start fixing the 2010, the vessels that they open in 2010, close to those days.

Scott Burk - Oppenheimer & Co.

Okay, and kind of what I expected. Wanted to follow up with the acquisition, so it sounds like you might actually be ready to pull the trigger on some vessels, some vessel purchases near-term, what – are you seeing some deals that have started to look attractive or what’s the kind of the (inaudible) actually started to looking upon in charter?

Anastassis Margaronis

Well essentially, we are being approached by several brokers with opportunities and we are watching the prices. And now, the prices have been going as far as we have concerned, of course, in our acquisition policy, we are on wait during the last few weeks which effectively has pushed back the starting point of the acquisitions, because even though we haven’t set specific price levels for the acquisitions, we do not wish to buy into a market where values arriving.

When our views are as I expressed in earlier on rather cautious if not pessimistic about earnings and evaluations. So essentially when we feel relatively comfortable that values are at a point where compared to maybe historical levels are appropriate for Diana to start the acquisition program, then we will do that. And we guess we are not certain that this will be towards the end of the year.

Scott Burk - Oppenheimer & Co.

Okay. And so it sounds like you are going to average into the vessel prices at the times, so that implies that you will just be buying single vessels are you looking for fleets two to three, four, five vessels at a time when you do start doing purchases?

Simeon Palios

I think it’s better to go vessel by vessel, because by buying vessel by vessel, you don’t buy ships in one specific time with a lot of exposure. I think it’s better to even out your purchases. So one by one maybe is better or two at a time.

Scott Burk - Oppenheimer & Co.

Okay. Thanks guys.

Simeon Palios

You’re welcome.

Operator

Your next question comes from the line of Anders Rosenlund.

Anders Rosenlund - ABG Sundal Collier

Thank you. Have you considered buying assets in other assets than drawable [ph] vessels?

Simeon Palios

Could you repeat the question, please?

Anders Rosenlund - ABG Sundal Collier

Will you consider buying assets in other assets (inaudible) drawable [ph] vessels?

Simeon Palios

We are of course watching the market in every segment and particularly the containers because that is an area which has been hit more than the dry cargo. But we would like to keep our philosophy of Panamaxs and Capes intact for the time being.

Anders Rosenlund - ABG Sundal Collier

Okay. But you won’t rule it out.

Simeon Palios

No. Not completely, no, because it’s asset play.

Anastassis Margaronis

For containers of course, because as we have stated in our various prospectuses what we look at these dry bulk market and container market. We are not considering the wide tanker market or anything of the sort.

Simeon Palios

Anders, let me say again something that we have said in the past. Even we have to do something in the containers market that would be a very short period and the most probably there will be a spin-off into a different company, because we don’t feel that shareholders like the idea of a diversified kind of a fleet in a company. So if we have do something in the containers, it is going to be through that, but very quickly spin out to a different entity.

Anders Rosenlund - ABG Sundal Collier

Brilliant. Thank you.

Simeon Palios

You’re welcome.

Operator

And your next question comes from the line of Rob MacKenzie.

Rob MacKenzie - FBR Capital Markets

Good morning, guys. I am sorry, good afternoon.

Simeon Palios

Hello.

Rob MacKenzie - FBR Capital Markets

Most of my questions have been answered so far, but I just wanted to follow up on again on the acquisition front, where are you seeing the most attractive pricing, is it Panas or Capes and is that how do you weigh the price of the vessel here being an asset play versus the potential contracts that are out in the market right now?

Anastassis Margaronis

Well the asset play is – it depends directly on the possibilities that we ascribe on a ship which we have acquired overseeing its value at relatively short – at this time over the medium term to go up. So at this point, we don’t know when values will go up, because we don’t know when they are going to bottom out towards the wall. So we are very, very far behind in this process unfortunately at least a few quarters. So when we see prices low compared to historical values we can be fairly certain that when we buy, we are going to buy a ship for the asset and value appreciation.

If we buy at a very high value, we buy for the cash flow as Ioannis Zafirakis explained earlier. So now, knowing that we are not for sure at the upper part of the shipping cycle, we are at the lower part of the shipping cycle. Any acquisition by definition is going to be an asset play oriented which means that we will avoid for sure chartering the ship for long periods of time.

Rob MacKenzie - FBR Capital Markets

And I guess what I was asking whether our Panas or Capes more attractively priced from an asset standpoint right now?

Ioannis Zafirakis

You understand that in shipping market prevails. We certainly from the market that what you pay is what you get. The price of the Panamax and the price of the Capes to date are highly correlated to the rate that you can charter them at. So basically there is not such a thing as a better price assets, because if each one demands a different rate, what you pay is what you get.

What Stassis was saying is as reason, we don’t feel that’s time wise, feel the time to start buying assets. If I wanted to be more blind [ph] about it, I would have said it you that it doesn’t really matter what you buy, when you buy cheap assets. What you buy is meaning either Panamaxs or Capes, because everything is included in the price that you pay at that time.

Of course, technically the vessels has to be of some standards. But the asset appreciation and the return that you are going to have, the IRR that you are going to produce on those vessels is going to be pretty similar. Both the volatility in the rates and the price, the pick of the vessel is that more volatile.

Rob MacKenzie - FBR Capital Markets

Great. And you seem to indicate no interest in Handys, is that correct?

Ioannis Zafirakis

Not really, the only what we have said in the past is that whatever we do hear in Diana we have to be focused and we need a specific size to do it. Wouldn’t be interested in buying one Handymax vessel, but we need to have a fleet, then most probably a homogenous fleets of Handymax vessels in order to do something there.

Rob MacKenzie - FBR Capital Markets

Great. Thank you.

Ioannis Zafirakis

You’re welcome.

Operator

(Operator instructions). Your next question comes from the line of George Piccolo [ph].

George Piccolo

Hi, thanks guys. Stassis, I may have heard you wrong, but towards the end of your prepared comments, did you say you thought that if all this new capacity comes on line that used older vessels would get breakeven charters?

Anastassis Margaronis

No we are saying that the earnings of ships were going to quickly drop to breakeven levels or even below that which will at the same time cause their values to drop as well. Not now, we are away above breakeven levels.

George Piccolo

Right. Well along those lines then, what do you think the disconnects would be at least in terms of a daily charter rate between or what is the disconnect today and what it will be in a few years between a brand new vessel and one that is maybe five to 10 years ago?

Ioannis Zafirakis

Unfortunately, I don’t think I can answer that question with any degree of certainty, because it all depends on how aggressive yards will be in pricing the sales of new buildings or the re-sales of ships that they have ended up owning through cancellations.

George Piccolo

Okay. But from the shipper side, you are not seeing any pushback from shippers demanding the newest vessel or looking for a discounted rate because it’s an older vessel.

Anastassis Margaronis

Both for the time being, no, but as the rates drop, of course, shippers will have a larger choice of tonnage and they will go for the newer ships and ignore the older tonnage or alternatively demand much lower rates. But if we can get a modern ship at a low rate, they usually don’t bother with an older vessel. To reach that point, we have to be at pretty low levels, I mean a fraction of what we are seeing now.

Simeon Palios

Having close to running expense of the ships.

Anastassis Margaronis

Yes.

George Piccolo

Okay, thank you for that. All of my other questions have been answered. Thanks.

Anastassis Margaronis

You’re welcome.

Operator

And there are no further questions at this time.

Andreas Michalopoulos

Before we go to the closing remarks with our Chairman and CEO, I would like to correct – my tongue slipped during the financial overview. And I said that the in the second quarter of ’09, we entered into a zero cost collar agreement evaluation of which as of June 30th, 2009 provided losses of $108 million. Of course this is not a $108 million, but the material amount of a $108,000 and that did not affect of course the EPS amounts of either the quarter or the six months ended June 30, 2009. Thank you very much. And now, we can go to the closing remarks with our Chairman and CEO.

Simeon Palios

Thank you, Andreas. Thank you again for your interest in and support of Diana Shipping. We believe that our company continues to be in a very strong position to take advantage of the opportunities that we see now in our market. We will pursue those opportunities in a prudent, responsible and selective manner. And we look forward to speaking to with you next quarter. Thank you.

Operator

Thank you ladies and gentlemen for your participation. This does concludes today’s conference call. You may now disconnect your lines.

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