Navios Maritime Holdings Inc. (NYSE:NM)
Q2 2014 Earnings Conference Call
August 21, 2014, 8:30 AM ET
Angeliki Frangou - Chairman & CEO
Ted Petrone - President
George Achniotis - CFO
Ioannis Karyotis - SVP, Strategic Planning
Ben Nolan - Stifel
Thank you for joining us for this morning’s Second Quarter 2014 Earnings Conference Call for Navios Maritime Holdings. With us today from the company are Chairman and CEO, Angeliki Frangou; President, Ted Petrone; Chief Financial Officer, George Achniotis; and SVP of Strategic Planning, Ioannis Karyotis.
The conference call is also being webcast. To access the webcast, please go to the Investors section of Navios Maritime Holdings’ website at www.navios.com. You will see the webcasting link.
I’d now like to read the Safe Harbor statement. This conference call could contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 about Navios Holdings.
Forward-looking statements are statements that are not historical facts. Such forward-looking statements are based upon the current beliefs and expectations of Navios Holdings management and are subject to risks and uncertainties which could cause actual results to differ from the forward-looking statements. Such risks are more fully discussed in Navios Holdings’ filings with the Securities and Exchange Commission.
The information set forth herein should be understood in light of such risks. Navios Holdings does not assume any obligation to update the information contained in this conference call. Thank you.
We’ll begin this morning’s conference call with formal remarks from the team and after we’ll open the call to take your questions.
Now I’d like to turn the call over to Navios Holdings’ Chairman and CEO, Angeliki Frangou. Angeliki?
Thank you, Laura. Good morning to all of you joining us on today’s call. We are pleased with the results for the second quarter of 2014 for which we reported revenue of $145.4 million, a 16% increase and an adjusted EBITDA of $51.4 million, a 33% increase compared to the same period last year.
We are also pleased to again announce a dividend of $0.06 for the second quarter of 2014, representing a yield of 2.6%.
Slide 3 highlights our current corporate structure. The value of Navios Holdings primarily derives from four areas; the drybulk fleet within the Navios Holdings and three principal operating subsidiaries. In our view, the whole is still valued at less than the sum of the parts.
Today, the Navios Group controls 147 vessels and is a significant force in the shipping industry. Similarly, Navios Logistics is a major player in the Hidrovia region of South America with substantial growth in the port business with a 20-year Vale contract which is expected to generate a minimum of $35 million in annual EBITDA and in the regional business with six newbuild convoys recently delivered.
Slide 4 highlights Navios Holdings’ efforts to always positioning the company to capture the looming market recovery. We were active in the capital markets during the first half of this year, issuing a total of $170 million through redeemable perpetual preferred stock. This preferred equity provides an excellent piece of long-term capital. It is reasonably priced when compared to alternatives. It is particularly attractive to our common stock investors as Navios was able to raise permanent capital without diluting the interest of our common equity holders.
The issuance of the preferred stocks also strengthened our balances as the preferred qualifies as equity to the rating agencies and resulted in a 12% improvement in our net debt-to-book capitalization ratio. Our pro forma cash balance is at about $351 million as of June 30, 2014.
As I mentioned in the past, we have devoted substantial effort to develop real operating efficiencies. Today, these efficiencies provide significant cash savings and cost control. Navios Holdings has achieved an OpEx which is about 34% less than the industry average.
We have a company-wide cash flow breakeven rate of about $5,478 per open day, which is considerably below the current blended market rate of about $13,000 per day. This has created a margin of safety on our chartering activity, or looked in another way, that’s a significant earnings upside.
Over the years, Navios Holdings has developed a chartering strategy to maximize market returns. We feel we are favorably positioned to benefit of a market recovery supported by a 15% fleet open days in 2014 and an 85% fleet open days in 2015. Both years also have about 11% at index linked charters.
In summary, our strong balance sheet, low cost structure and operating efficiencies provide flexibility to our chartering strategy to maximize company returns.
Slide 5 highlights our strong liquidity position. We have a conservative balance sheet with a net debt-to-book capitalization of 45.3% and pro forma liquidity of $351 million. Our liquidity should be viewed in the context of our cash requirement. The company has no unfunded CapEx and no material debt maturities for five years. As a result, our liquidity is dedicated to expansion opportunities and our operating needs.
Slide 6 provides an overview of the significant competitive advantage and operating leverage we have been developing over the past few years within Navios Holdings where we keep our in-house technical and commercial management.
I’m deeply immersed in this effort because I believe it is an essential skill for a transportation company. Unlike many of our competitors, we manage our vessels in-house. We believe that by doing so, our company is better run and our stakeholders enjoy significant efficiencies, which is more noticeable in bad times than good but important always.
We have been developing this capability for many years and can demonstrate savings which we believe will be unattainable through third-party providers. Third-party providers are concerned with their bottom line where we are focused on our bottom line.
Today, Navios is somewhat unique among each peers as it has developed scale and world-class talent that attends to our business in every department of our firm. We believe we have a significant operating benefit from nurturing this skill internally as better decisions are made regarding the daily operations and maintenance of our vessels.
Today, Navios has almost 200 professionals attending to our shipping business on your behalf globally, excluding our crew of almost 3,000 people. In addition, as we get larger we have obvious purchasing power. Suppliers of all sorts would like to work with us and we can translate these into savings which are being shared with the Navios Group.
Focusing on Navios Holdings, you can see that Navios Holdings has developed significant efficiencies from economies of scale, proven by our daily operating expense being 34% below industry average and our G&A expense being below our public peers. We believe we have demonstrated that Navios Holdings can achieve economies of scale and share this cost savings and benefits of scale with members of our group, ultimately to the great benefit of our stakeholders.
You can see the benefits achieved and transferred to our affiliates and it is supported by Navios Partners’ OpEx, which is about 21% below industry average and Navios Acquisition OpEx, which is 17% below the industry average. As a significant portion of the value of NM is still evident, it is important that we are able to manage OpEx costs well.
Slide 7 showcase our chartering strategy. In an improving market, we see great employment for our vessels with all the counterparties that are willing to charter vessels with index linked rates, which allow us to obtain quality employment and exposure to market upside through the index mechanism. For 2014, we fixed 85% of our available days and for 2015 we have fixed about 15% of our available days. As the current rate shows signs of improvement and potential movements towards 20-year and 10-year average rate, our current position allow us better chartering opportunities.
Slide 8 sets forth Navios’ low-cost structure. As mentioned earlier for 2014, we have fixed 85% of our vessel available days at an average contracted daily charter-out rate of $12,621. This is slightly below our fully-loaded cost of $13,159 per day. However, our fleet also includes open days plus days contracted with index linked charters that could provide us an upside, an incremental revenue with an improving charter market.
For 2015, we have 15% of our vessels at an average contracted daily charter-out rate of $20,966. We feel comfortable with our current 2015 position as it provide us with flexibility to charter out our vessels at higher rates that will be available during a market recovery.
I remind you as I do every quarter, that our breakeven analysis includes operating expenses, drydock expense, charter-in expense for our charter-in fleet, G&A expense, interest expense and capital repayments.
Slide nine goes into further details surrounding the company’s chartering strategy in capturing market upside while protecting the market downside. Our estimate for the 2014 breakeven cost for our company, including all costs, is $5,478 per vessel per day.
Our low daily cash breakeven rate will allow NM to enjoy significant cash flow regardless of where market returns to historical norms. Based on the current market rate of $13,531 per day and using a 4,486 open plus index linked charter days of our fleet, we will earn $36.1 million in free cash flow. However, should the rate revert to the historical averages, which are approximately $20,345 per day for the 20-year average and $28,216 per day for the 10-year average, we could earn $66.7 million or $102 million in free cash flow, respectively.
As this slide illustrates, by acquiring assets at attractive values and using innovative methods to keep our costs low, we are well positioned for any market recovery.
I would like now to turn the call over to Mr. Ted Petrone, Navios’ President, who will take you through Navios operations and our industry perspective. Ted?
Thank you, Angeliki. Please turn to slide 10. Our core fleet consists of 63 vessels totaling 6.2 million deadweight. We are one of the largest drybulk operators in the world. After delivery of the Navios Gem in June, the Capesize vessel built in Navios shipyard for $54 million, we have 54 vessels on the water with an average age of 7.3 years. This is 20% younger than the industry average of nine years.
Please turn to slide 11. We have fixed about 86% of our capacity for 2014, a 11% of which are index linked. The remaining open days are available for hire in an improving environment. We have fixed about 15% in 2015, again 11% of which are index linked. The average daily charter-out rate for our fleet is $12,621 a day for 2014. The rate for 2015 is $20,966.
As Angeliki previously mentioned and as noted in the bottom of slide 11, our vessels operating expense was 34% below the industry average in all asset classes. This reflects, among other things, the significant economies we have achieved with scale. The [$1,928] [ph] daily dollars a day savings per vessel as compared to the industry average in operating expenses aggregates to about $26 million in annual savings dropping directly to our bottom line.
Please turn to slide 12. The BDI fell to an 18-month low on July 22 at 723 led by extreme weakness for Panamaxes which recorded their lowest Q2 time charter average since the 1980s, an unexpected slowdown in grain and coal shipments which led to lower-than-usual port congestion have all contributed to the best earnings in both the Panamax and Supermax sectors. Conversely, stronger-than-expected iron ore shipments pushed the average Capesize earnings to just under $12,000 a day in Q2, which was slightly down from Q1, representing a 92% year-on-year increase over the same period last year.
Subsequent to Q2, Capes are seeing increased iron ore shipments from Brazil and continued shipments from expanded operations in Australia. As an example, we just fixed one of our Capes for an Aussie round voyage at about double the time-charter chart of only a week ago. Both the Panamax and Supermax sectors are also experiencing recent strength from increased grain shipment as the northern hemisphere grain season gets underway, increased Chinese imports of bauxite and nickel, they also support the smaller-size vessels as they draw down inventory.
Please turn to slide 13. World GDP continues to be driven by developing economies which now contribute a higher percentage of total world growth than the developed economies, representing over half of the global consumption of most commodities.
The IMF recently reduced projected world growth for 2014 to 3.4%, but increased it to 4% for 2015. Developing economies are projected to grow at 4.6% in 2014 and 5.2% in ‘15. Chinese economic growth is projected at 7.4% for ’14 and 7.1% for ‘15.
Turning to slide 14, the primary engines of trade growth continue to be China and India. Drybulk trade has expanded by an average of 5.5% per year in the twelve years since China joined the WTO. Forecast for 2014 are for global drybulk trade to grow approximately 6% and ton mile growth of about 7%. Net fleet growth is expected to be under 5% leading to favorable supply demand dynamics for the first time in many years.
Moving to slide 15, iron ore from the major mines outside China continue to be the lowest-cost highest-quality source of this commodity. With future iron ore prices forecast remain below $100 a ton, Chinese domestic production represented by the red boxes in the lower right graph will become uneconomic. In fact, market reports state that some Chinese domestic iron ore mines are closing and as a result of the lower iron ore prices, steel mill margins are improving.
The currently planned expansions of global iron ore mines will add significantly to seaborne bulk commodity movements for the balance of this year, with further significant growth in the following years.
Please move to slide 16. Most of the additional supply of seaborne iron ore in the second half of 2014 will come from Brazil. In fact, over the last five years, Brazil iron ore exports in the second half of the year have exceeded first half exports by an average of almost 25%. If this pattern continues, this will cause a significant increase in ton miles, especially for Capesize vessels.
Moving to slide 17, the continued development and urbanization of China will contribute significantly to steel consumption for the remainder of this year and beyond. Infrastructure, housing construction and consumer spending growth underpin future development. Longer-term, the revision of the residency permit system should encourage continued urbanization within China.
Note that the Chinese fixed asset investments continue to grow at over 70% year-on-year through June led by railway and social housing construction. The preliminary July PMI of 52, the highest since January 2013, reflects infrastructure as well as manufacturing growth over the loosening of reserves requirements in April. It has also helped industrial production grow at over 9% in June, the highest level since December.
Through July 2014, crude steel production in China was up 5% year-on-year. Chinese iron ore imports were up 18% year-on-year. Domestic iron ore production increased 9% but quality seems to be deteriorating as effective FE content hovers in the 20% range compared to 63% of imported ore.
Based on this data it seems that the substitution of low-quality domestic iron ore with imported iron ore continues to occur. This trend is expected to continue with our increased ton miles carried and tons.
Please turn to slide 18. Over the past years there have been significant change in coal trade. China turned from being a net exporter of coal in ‘09 only five years ago to being the world’s largest importer today.
As the charts indicate both India and China sea-borne coal imports have grown at least 21% CAGR since 2009 with the increase in steel production and with number of planned new coal-fired power generators, coal imports in both countries are forecasted to grow over the next several years. Just these two countries account for 35% of all seaborne coal movements worldwide.
Turning to slide 19, China’s grain imports are expected to double from 2012 to 2022 as the country’s per capita income rises leading to an improved diet and increased consumption of poultry and meat. As noted in the bottom of this slide, it takes about eight tons of grain to produce one ton of beef. Grain shipments, while small relative to iron ore and coal, account for a large portion of vessels demand as measured in vessel days as grain is an inefficient cargo to load and discharge.
Moving to slide 20, through July, 30.6 million deadweight deliveries indicating that total deliveries for 2014 are likely to be in the low-50 million deadweight range. The non-delivery rate through July was about 36%. Once again this year almost 60% of the order book was scheduled to deliver in the first half of the year.
Net fleet additions this year are expected to be lower than last year and net fleet growth is expected to be lower than demand growth resulting in an improved rate environment. The order book declined dramatically this year and for each of the next three years.
Turning to slide 21, scrapping rates for older less fuel-efficient vessels have continued this year. Through August 14, 9.2 million deadweight was scrapped. The current rate environment should encourage scrapping of older vessels. About 10% of the fleet is over 20 years of age providing about 73 million deadweight of potential scrapping candidates. As demolition prices appear to depend on overall steel prices and not on the supply of vessels, they are expected to remain high.
This concludes my presentation.
I would now like to turn the call over to George Achniotis, our CFO to go over our financial results and review our subsidiaries. George?
Thank you, Ted, and good morning all. Please turn to slide 22 for a review of the Navios Holdings earnings highlights for the second quarter and the first half of 2014.
Revenue in the quarter increased by 16% to $145 million, compared to $126 million in Q2 2013. Revenue from drybulk operations increased by 21% to $75 million from $62 million in ’13. As shown in the operating highlights chart at the bottom of the slide, the increase was due to a 13% increase in the TCE rate achieved as the market improved compared to 2013 and a 21% increase in the operating days of the fleet due to the delivery of additional vessels. Revenue from the Logistics business also increased by 10% to $70 million.
Revenue for the first half of 2014 increased by 3% to $268 million, compared to $259 million in 2013. Revenue from drybulk vessel operations increased substantially from $123 million to $152 million, mainly as a result of a 22% increase in the operating days of the fleet and an 11% increase in the TCE rate achieved.
Revenue from the Logistics business decreased by about $21 million as a result of lower volumes of products sold at the port in Paraguay. As Ioannis will explain later, this is a low-margin opportunity business that can create a lot of noise in terms of revenue but has a low impact in the margins of the company.
EBITDA for the second quarter and first half of 2014 was affected by two non-recurring items; $17.4 million portion of write-off of deferred finance cost and fees due to the refinancing of the Navios Logistics’ [subsequent] [ph] bond in April and a $11.5 million write-down of a non-cash unrealized loss on shares obtained as part of a settlement of an old claim. Excluding these adjustments, EBITDA for the first quarter increased by 33% to $51 million, compared to $39 million in the same period last year.
The increase was mainly due to the increase in revenue of the fleet and increase in equity in net earnings from affiliated companies and an increase in the EBITDA contribution from Navios Logistics.
Adjusted EBITDA for the first half of 2014 increased by 44% to $111 million, compared to $77 million in the first half of 2013. The increase was mainly due to the same reasons that affected the quarterly results.
During the quarter, we recorded an adjusted net loss of approximately $8 million compared to a net loss of $16 million in 2013. The 51% improvement is mainly due to the increase in EBITDA and it was partially offset by an increase in interest and finance expenses and an increase in depreciation and amortization due to the vessel additions in the fleet.
Adjusted net loss for the first half of 2014 was about $6 million compared to a net loss of $26 million in 2013. Similar to the quarterly results, the improvement was mainly due to the increase in EBITDA and was mitigated by an increase in interest expense and increase in depreciation and amortization and an increase in income tax at Navios Logistics.
Please turn now to slide 23. We continue to maintain a strong balance sheet with low leverage and a healthy cash balance. At June 30, 2014, we had $235 million in cash, compared to $190 million at December 31, 2013. This does not include the $116 million net proceeds from the legacy issuance of the redeemable perpetual preferred stock that was completed in July.
Total bank debt has increased by $32 million since the end of 2013 to $250 million as we have a finance on existing facility and the Navios Gem, a Capesize vessel that delivered into our fleet in June. Senior notes increased by $82 million following the refinancing of the Navios Logistics bond in April of 2014. Following this refinancing, we don’t have any significant debt maturities until 2019.
The net debt-to-book capitalization ratio is almost unchanged from year-end at approximately 51.5%. Taking into account the issuance of the perpetual preferred stock though, the ratio reduces substantially to about 45%. This is a very low ratio for a shipping company operating in a capital-intensive industry.
Furthermore, I would like to remind you that the full market value of our investments in our affiliated companies is not reflected on our balance sheet. If these investments were valued at the current market values, our leverage ratios would be even lower.
Turning to slide 24, the company continues to provide returns to its shareholders through its uninterrupted dividend. A dividend of $0.06 per share was declared to common shareholders as of September 18 to be paid on September 26. On October 15, the company will also pay a dividend of $3.9 million to its preferred equity holders.
The total expected cash dividend inflows from the two investments in Navios Partners and Navios Acquisition exceeded by almost $5 million the annual cash paid out by Navios Holdings to its shareholders.
Over the next few slides, we will now briefly review our subsidiaries. Please turn to slide 25. Navios Holdings owns 20% of the Navios Partners, including a 2% GP interest. Navios Partners has become a key player in the drybulk industry with a market capitalization of almost $1.6 billion and an enterprise value of over $2 billion. Since its inception in 2007, Navios Partners’ fleet has grown by almost four times from eight vessels to 32 with an average charter duration of 3.2 years.
Moving to slide 26, this slide highlights the latest acquisition of two container vessels of 8,200 TEU capacity with minimum four years employment. This is a very attractive acquisition as it increases the cash flow visibility and strengthens the distribution capacity of the company.
In addition, the purchase price represents an attractive EBITDA multiple of 6.2 times. The transaction represents further diversification into the container segment and favorable asset values. Using about 50% debt financing for this transaction provides Navios Partners with at least an additional $152 million of purchasing power for future acquisitions.
Please turn now to slide 27. Navios Partners provides significant cash flow to Navios Holdings. Since its start of operations, annual distributions from Navios Partners have grown by over 150% from under $12 million to $30 million annually.
By the end of 2014, we expect to receive a total of about $166 million in distributions since the inception of the company. In addition to the distributions, there has been 162% appreciation of our investment in Partners which is not fully reflected on our balance sheet.
Turn to slide 28, Navios Holdings has over 46% economic interest in Navios Acquisition. Navios Acquisition has grown to become one of the top five publicly-listed tanker owners among its U.S. and European peers with one of the youngest in-the-water fleets. Their fleet consists of 44 tankers with an average age of 4.8 years. 38 vessels are currently in the water with an additional six to be delivered over the next few quarters.
Please turn now to slide 29. NNA’s fleet has [grown] [ph] in the past three years from 14 vessels in 2011 to 42 by the end of 2014. Subsequently, available days have also grown significantly from just over 4,000 in 2011 to almost 13,700 in 2014 and it will grow to over 15,600 in 2015 when all vessels deliver into the fleet. As a result of this, EBITDA has grown by 67% between 2011 and ‘13, and by 24% in the first half of ’14 compared to the first half of ’13. In the current rate environment, we expect that EBITDA will continue to grow in double digits as NNA takes delivery of new vessels this year and next.
Please turn to slide 30. Navios Acquisition also provides significant cash flow to Navios Holdings. Including the expected 2014 dividends, Navios Acquisition will provide over $35 million in distributions since its start of operations in 2010. The value of Navios Holdings interest in Navios Acquisition has also grown by 17%.
And this concludes my presentation. At this point, I will turn the call over to Ioannis Karyotis for his review of the Navios South American Logistics results. Ioannis?
Thank you, George. Slide 31 provides an overview of Navios Logistics; includes Navios Holdings’ owned 63.8% stake. Navios Logistics has three segments; port terminals, barges and cabotage. We are one of the major logistics providers in the Hidrovia region of South America. We have significant opportunity to grow our business and maintain a focus on developing contracted revenues from a portfolio of high-quality clients providing visible cash flows.
Please turn to slide 32. The development of the new iron ore terminal to service our 20-year agreement with Vale International for the storage and transshipment of iron ore is progressing. We have now completed the dredging of the port area and now things working on developing the engineering design of the new terminal and selecting and procuring the main equipment solutions.
In parallel, we are advancing on the remaining regulatory processes to start construction. I would like to remind you that we expect to invest approximately $150 million in this project and expect a minimum annual EBITDA of $35 million.
Turning to the investment in six new convoys, last year we ordered 72 barges in China, leveraging Navios’ global relationship and technical expertise with jumbo barges built according to our specifications have now been delivered. The first three convoys, each with one push boat and 12 barges have been placed into service under six-year time charters. Under these contracts, each convoy is earning $14,500 net per day and we anticipate the three convoys ultimately will generate approximately $10 million annual EBITDA.
Looking forward, the 36 newbuilding barges that will make up the second three convoys have been delivered in China and are currently being transported to South America. We also expect to take delivery of three newbuilding push boats in Q1 2015.
Please turn to slide 33, in the past four years EBITDA has been steadily growing at 20.5% CAGR. And in the first half of 2014 it has increased by 11.6%. From the three new contracts that we started servicing during Q2 2014, we expect to ultimately generate about $10 million annualized EBITDA. We expect similar contribution from another three convoys that remain to be deployed as well as incremental growth from the investment in our port terminal infrastructure.
Please turn to slide 34 to discuss the results for the second quarter and the first half of 2014. EBITDA and net income for the three and the six month periods ended June 30, 2014 have been affected by $27.3 million one-off write-off of deferred finance cost and fees related to the refinancing in April of the $290 million senior notes due in 2019 with proceeds of $375 million senior notes due in 2022.
In order to make the comparison to the previous periods meaningful, we have adjusted EBITDA and net income accordingly. Adjusted EBITDA for the second quarter increased by 22% compared to the same period last year to $21.4 million. This is the highest quarterly EBITDA ever recorded since the incorporation of Navios Logistics.
Port segment’s adjusted EBITDA increased by 38% to $9.6 million mainly due to the increase in throughput in our dry terminal in Uruguay that moved 1.3 million of tons of cargo in the quarter, 90% more than in the second quarter of 2013.
Barge segment’s adjusted EBITDA increased by 5% to $4.8 million benefiting from the commencement of service during the quarter of three new convoys under long-term charter-out contracts.
Cabotage business had a strong quarter with adjusted EBITDA growing 16% to $7 million due to more available days and higher charter rates.
In the second quarter of 2014, adjusted net income was $5.8 million compared to $4.4 million in Q2 2013. The 32% improvement is due to the increase in EBITDA and was partially offset by an increase in depreciation and amortization due to the additions to the barge fleet and the new conveyor belt in our dry port, an increase in interest and finance expenses and an increase in income taxes.
Turning to the financial results for the six month period ended June 30, 2014. Revenue decreased 15% to $115.6 million due to the decline in the low-margin sales of products in our liquid terminal in the first quarter of the year. Adjusted EBITDA increased 12% to $35.4 million on the back of strong growth in the barge and cabotage segment and stable performance in port terminals.
The increase in EBITDA was offset by an increase in depreciation and amortization and increase in interest and finance expenses and an increase in income tax to $1 million expense compared to an income tax benefit of $3.7 million in the first half of 2013 that stem from the reversal of income tax provisions due to the re-organization of certain of our local subsidiaries. As a result, adjusted net income for the period was $5.7 million.
Please turn to slide 35. Slide 35 shows our strong balance sheet as of June 30, 2014. Cash at the end of the second quarter was at $116.4 million compared to $86.6 million at the end of 2013. Net debt-to-book capitalization was 40% compared to 36% at the end of 2013 due to the 7.25% $375 million of senior notes due in 2022 that were issued in April.
Now, I would like to turn the call back to Angeliki.
Thank you, Ioannis. This completes our formal presentation. We will open the call to questions.
(Operator Instructions) Your first question comes from the line of Ben Nolan of Stifel.
Ben Nolan - Stifel
I guess my first question or line of questions maybe relates to the preferred offering that you guys did in July and just sort of the thinking behind that. As a source of capital, it obviously is an alternative to common shares, but by the same token, 8.75% is not the cheapest capital in the world, how do you compare that to maybe dropping down, I know there is at least one Capesize that would be a good candidate to be a dropdown into the MLP versus just using the existing cash that you have and cash flows coming in. I’m just curious as to the thought process, I guess, on the preferred offering there.
Number one, I think what we see it is as a non-dilutive equity is -- that equity in the rating agencies improves your net debt to book capitalization by about 12%, and as you’ve seen we have accretively used the money. We have -- end of last year, beginning of this year, we bought 10 vessels including the one Capesize newbuilding that Ted announced in Navios Gem that we took delivery in Q2.
And we got also five long-term capital investments. We can accretively use that capital. We use perpetual preferred as a [indiscernible] your bonds so you see the available value there and the relative cost. And as we have maturities [indiscernible] somewhere in the beginning of next year, we see it as an alternative part of our balance sheet.
Ben Nolan - Stifel
And I suppose the other read through there is that you already had a pretty strong liquidity position, but you are continuing to see an ample level of opportunities for other potential deals and you want to have the cash on hand to execute on those potential transactions, is that natural?
This is very correct. I think you always know that Navios has a fully funded model. So you can see the liquidity we have, we’ve - that is $350 million relative to [non-CapEx] [ph] available to execute very quickly large transactions. I mean last year, we leased 10 vessels quite quickly and of course with the improving environment and the available days that we have, as you have seen, we have a significant, 85% of our available days open next year. We see improving environment as you have seen the growth of our EBITDA this year, we had, in the first half, $111 million EBTIDA. So with an improving environment, open days, we should also have cash flow deleverage into our fleet - and opportunities.
Ben Nolan - Stifel
And sort of along those same lines, I know that obviously we’ve seen a bit of pullback in asset values in the past three or four months, and yesterday one of your competitors was talking about how they felt like now is an excellent buying opportunity and the asset values are basically pretty comfortable or well supported at these levels particularly in the Panamax class, do you share that same view that now that we’ve seen a bit of a pullback in asset values, it’s a good buying opportunity?
We had the seasonally lower recovery in the markets. There is always opportunities and we always review vessels, fleets. So, I think I will always say that it depends on a particular deal that you are looking.
The reality is that rates, we have seen that they have come up from the levels, a lot of the periods, I mean we’ve seen almost a 50% improvement on the BDI just in two weeks, and we believe that as we develop on the Q4, we will have the ability to really improve on your cash flows and as you know we are always a very disciplined buyer. So we’re following up the market. We think there is always opportunities on this environment, and then, will give us the ability with the cash we have to execute without risk.
Ben Nolan - Stifel
And then, lastly just as it relates to the drybulk market in general, I know one of the issues throughout the first half of the year has been prohibition of Indonesia against the export of raw materials like bauxite and nickel ore. And there has been a lot of talk about the Chinese having -- their inventories being drawn down and needing to look to source those commodities elsewhere. Have you guys seen any of that yet in terms of or any of your ships or is there any demand for increased level of cargos in other geographies away from Indonesia to bring some of those -- replace some of those commodities into China, is that materializing on as far as you can tell?
Yes, Ben definitely. The bulk side comes from Australia, it comes from the Atlantic, I mean that’s where the [indiscernible] comes from, right? And also the nickel is coming from - it’s being replaced and it’s being replaced farther afield which is exactly what everyone thought when demand went into place at the beginning of the year.
Ben Nolan - Stifel
And I guess the pace of that replacement is stepping up, is that fair?
It’s just starting, you are absolutely right. And as the year progresses, and the stockpiles go down, obviously the Chinese had a lot of stockpiling at the end of the year, that’s why still the Handies were exceptionally strong at one point and that looks like they are going to be stepping in. I think in an interesting way these are staring now, that was moving on Handies is actually now going on Panamaxes and farther afield and I think you will see it start moving a bit better.
And on the Panamax side, the coal for China wasn’t so good either. We are really taking it up on the second half. The [UN] [ph] numbers may not be great, but it’s only because the first half was through that far and I think you are seeing a lot of strength, the old crop is moving out of the Gulf right now to get some room for the new crop. South America is starting to move, the Black Sea on the Handies, there is a lot of green light showing up right now on the dry bulk sector.
Your final question comes from the line of Chris Wetherbee of Citi.
Hi, this is Alex on for Chris. Good morning guys. So, is iron ore the continued strong catalyst and you guys more focused on Capesize vessels or each of your vessel deals more case by case?
I think Navios has a large platform on the Capesizes. As you know, we have 18 Capesizes on the Navios Holdings with all modern Japanese fleet, one of the top quality vessels in South Korea. So I think as a platform and ability to capture the upside with our Capesizes I think that will give us a great advantage.
And also given the current rates, are you guys comfortable with chartering durations that you see and at what point do you expect ramp up in terms of longer-term charter?
Today, you’re looking on yearly rates of low-20s and moving steadily to 25. So as we move mostly on the 20-year averages, we like to step in and start fixing some of our vessels in a portfolio approach. Don’t forget that you have quite a significant platform with 61 vessels, you’ll use a portfolio approach anyway.
And lastly, just (technical difficulty) on rates. The BDI has been struggling to pass the 1,000 mark over the past five months, just wanted to get kind of your short and long-term views on rates and is there a more structural issue playing out?
I think I will let Ted talk a little bit more on that, but it’s a clear and decisive move on the BDI. I mean two weeks ago, late, as of August 6, you had 740 on the BDI. Today, you have 50% increase, over almost 1,100 on the BDI. So you can see this can be quite significant. And it seems that there is more room for upside. We foresee seasonal low and we see that now the second half will be, as Ted has discussed also in his presentation, that it will be a much stronger quarter.
That’s right. When we looked at the figures, remember from the first half of the year, we were looking at the second half [indiscernible]. The second half of Q3 for this market to start moving. If you look at the numbers, actually it’s kind of -- the Capesize numbers for the last two weeks, eight trading days, have been almost the same as last year. They’ve been running up at the same pace.
What happens is the volume has to start first out of Brazil, so South America was late this year. You are getting a lot of grain moving out of the Black Sea, again as I said the volume had to be there for a while for the numbers to start picking up.
Remember we didn’t just say that, we’ve acted up by fixing. We have a 11% of our fleet fixed on index related because we believe that, we started fixing that in the first part of Q3 and I think that’s going to come back to be shown to be the correct decision. It looks like the market - if you look at the futures going forward, if you look at Q4, even next year and the futures never really are as high as the physical market but the futures are 20% above today’s spot even today, so I think --.
There is always seasonality, there is cyclicality and seasonality in this market. It’s going to go up, it’s going to go down, but it looks like the fundamentals are in play of less than 5% net fleet growth and you’re having 6% to 7% cargo growth and ton miles above that, again, as I said before, there is green lights right now on the road here for the dry side. The fundamental of that is going to mean better period numbers in the next few months as charterers wake up to that fact.
At this time there are no further questions. I will now turn the call to Angeliki Frangou for any additional or closing remarks.
Thank you. This completes our second quarter results. Thank you.
Thank you for participating in today’s conference call. You may now disconnect.
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