Genco Shipping & Trading Limited Q1 2008 Earnings Call Transcript

| About: Genco Shipping (GNK)

Genco Shipping & Trading Limited (NYSE:GNK)

Q1 2008 Earnings Call

May 1, 2008 8:30 am ET

Executives

Gerry Buchanan - President

John Wobensmith - CFO, Principal Accounting Officer

Peter Georgiopoulos - Chairman

Analyst

Doug Mavrinac - Jefferies & Co.

Jon Chappell - JPMorgan

Natasha Boyden - Cantor Fitzgerald

Omar Nokta - Dahlman Rose

Greg Lewis - Credit Suisse

Urs Dur - Lazard Capital Markets

Chris Wetherbee - Merrill Lynch

Justin Yagerman - Wachovia

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Genco Shipping & Trading Limited first-quarter 2008 Earnings Call and presentation. Before we begin, please note that there will be a slide presentation accompanying today's conference call. That presentation can be obtained from Genco's website at www.gencoshipping.com.

To inform everyone, today's conference is being recorded and is now being broadcast at the company's website, www.gencoshipping.com. We will conduct a question-and-answer session after the opening remarks. Instructions will follow at that time. A replay of the conference will be accessible anytime during the next two weeks through Thursday, May 15, 2008, by dialing 888-203-1112 for US callers and 719-457-0820 for those outside the US. To access the replay, please enter the pass code 4047163.

At this time, I will turn the conference over to the Company. Please go ahead.

Unidentified Company Representative

Good morning. Before we begin our presentation, I note that in this conference call we will be making certain forward-looking statements that discuss future events and performance. These statements are subject to risk and uncertainties that could cause actual results to differ from the forward-looking statements. For a discussion of factors that could cause results to differ, please see the company's press release that was issued yesterday. The materials relating to this call posted on the company's website, and the company's filings with the Securities and Exchange Commission, including with our limitation the company's annual report on Form 10-K for the year ended December 31, 2007, and the company's subsequent reports filed with the SEC.

At this time, I would like to introduce Mr. Gerry Buchanan, the President of Genco Shipping and Trading.

Gerry Buchanan

Thank you. Good morning and welcome to Genco's first-quarter conference call. With me today is Peter Georgiopoulos, our Chairman, and John Wobensmith, our Chief Financial Officer.

As outlined on slide 3 of the presentation, I will begin today's call by discussing the highlights of the first quarter and year-to-date, followed by John's review of our financial results for the three-month period ended March 31, 2008. Following this, I will discuss the industry's current fundamentals. John, Peter, and I will then be happy to take your questions.

During the first quarter of 2008, we continue to build on the success we experienced in 2007 and made significant progress in three important areas. First, we continue to take advantage of the strong drybulk market and signed time charters at attractive rates. Second, we further grew our modern fleet. And third, we declared an increased dividend at the new target rate of $1.00 per share for the quarter.

For the quarter, we recorded strong net income, which reflects our attractive time charters as well as the profit-sharing agreements we have on two vessels. For the first quarter, net income excluding the sale of the Genco Trader was $47.8 million or $1.66 basic and $1.65 diluted earnings per share, which John will discuss in more detail later in the call. Including the sale of the Genco Trader, the company recorded net income of $74 million or $2.57 basic and $2.56 diluted earnings per share.

As I mentioned a moment ago, we declared an increased first-quarter dividend of $1.00 per share. Including the first quarter dividend, we have declared dividends totaling $7.49 per share on a cumulative basis since going public in July 2005. Complementing the sizable quarterly dividend, we have declared for the quarter we are pleased to have further expanded our fleet during the first quarter by receiving two additional vessels from our 15 vessel acquisitions in 2007.

During the first quarter, we completed the $336 million acquisition of the six drybulk vessels from companies within the Evalend Shipping Co. S.A. We also took delivery of the fifth of nine Cape vessels acquired in the $1.1 billion Metrostar transaction.

As we mentioned on past calls, our agreements in 2007 to acquire 15 modern vessels has served to expand our world-class fleet by 156%, improve the average age of our fleet, and diversify our fleet into the Capesize sector, gaining direct exposure to the booming iron ore and coal markets. I also highlight four additional accomplishments in the first quarter that John will discuss later on the call. First, we paid back $73 million in debt, readying the company for future growth. Second, we completed the sale of the Genco Trader, realizing a gain for our shareholders of $26.2 million. And, third we acted opportunistically to increase the ownership position in Jinhui Shipping and Transportation Limited to 19.4%. Finally, we announced a $50 million share repurchase program. In addition, we entered into an agreement to time charter the Genco Carrier at a gross rate of $37,000 per day for 34 to 37.5 months. That's a 54% increase over the current rate of $24,000 a day.

Moving to slide 6, I will discuss our continued success in the execution of our chartering strategy. During the first quarter, Genco continued to take advantage of the strong drybulk market by signing contracts utilizing its portfolio approach. At the core of this approach, which is geared towards maximizing return on capital, is the company's focus on signing contracts with staggered durations in order to provide shareholders with a sizable contracted revenue stream, maintain the ability to benefit from future rate increases, as well as seeking opportunities to enter into profit-sharing agreements. In January, the Genco Champion, the final vessel to be delivered under the Evalend transaction, commenced a time charters for 35 to 37.5 months at a rate of $24,000 per day.

In March, we reached an agreement to extend the time charter for the Genco Marine, our 1996-built Handymax vessel, for an additional 11 to 13 months. The vessel was secured at a gross rate of $47,000 per day, representing a 96% increase over the vessel's previous charter level. In addition to these longer-term charters, we also signed four short-term charter contracts with durations ranging from 3 to 5 months and day rates averaging approximately $59,300 per day.

As a result of our considerable success in continuing to sign existing vessels to charters at significantly higher rates than the previous charter levels, approximately 86% of our current fleet's remaining available days for 2008 and 55% of our fleet's 2009 available days are secured on contracts.

On slide 8, we detail the remaining vessels of which we expect to take delivery from our acquisitions in 2007. We expect to take delivery of the remaining four Capesize newbuildings between the fourth quarter of 2008 and the third quarter of 2009. After completion of the expansion, our fleet will grow to 32 drybulk vessels consisting of nine Capesize, six Panamax, three Supramax, six Handymax, and eight Handysize vessels with an average age of approximately seven years, well below the industry average of approximately 16 years.

We expect the expansion will enable Genco to grow our total deadweight to approximately 2.7 million tons and enhance our position to benefit from the strong demand for iron ore and coal from China and other developing countries.

At this time, I would like to turn the call over to John.

John Wobensmith

Thank you, Gerry. I will begin my remarks by directing you to slide 10, which presents our first-quarter 2008 financial results. For the three-month period ended March 31, 2008, we recorded revenues of $91.7 million. This compares with revenues for the first quarter of 2007 of $37.2 million.

This increase of more than 146% during the first quarter was due to the operation of a larger fleet, including five Capesize vessels, as well as higher charter rates achieved for 15 of our vessels, and our profit-sharing agreement from the Genco Titus and the Genco Constantine. I will discuss these positive factors in more detail in a moment.

Operating income for the first quarter was $85.3 million. This compares with operating income for the three-month period ended March 31, 2007, of $22.3 million. The increase in operating income is attributable to higher revenues and a gain from the sale of our oldest vessel, which was partially offset by higher vessel operating expenses, as well as higher general and administrative expenses and depreciation and amortization due to the operation of a larger fleet. Interest expense for the first quarter of 2008 was $11.8 million, which compares to $3.5 million for the first quarter of 2007.

Net income was $74 million or $2.57 basic and $2.56 diluted earnings per share for the first quarter of 2008. Excluding the $26.2 million gain on the sale of the Genco Trader, net income totaled $47.8 million or $1.66 basic and $1.65 diluted earnings per share for the three months ended March 31, 2008. For the first quarter of 2007, net income was $19.8 million or $0.78 basic and diluted earnings per share, which included a $3.6 million gain on the sale of the Genco Glory. Excluding this sale, net income was $16.3 million or $0.64 basic and diluted earnings per share for the three months ended March 31, 2007.

Moving to slide 11, you will see that we continued to maintain a strong balance sheet during a time in which we both expanded our fleet and distributed sizable dividends to our shareholders. During the quarter, we repaid $73 million in debt using approximately $43 million generated from the sale of the Genco Trader and $30 million generated from cash flows from operation of our fleet. We made the decision to pay down a portion of our debt based on our increased cash flow and in order to prepare the company for future growth.

Other balance sheet items include the following. Our cash position was $48.3 million as of March 31, 2008, and our debt-to-capital ratio was 62%. Our total assets as of March 31, 2008, were $1.75 billion consisting primarily of our current fleet, deposits on vessels to be acquired, Jinhui common stock, and cash.

Our EBITDA for the three-month period ended March 31, 2008, was $95.8 million. Excluding the gain on the sale of the Genco Trader, our EBITDA margin represents 76% of revenues. Moving to slide 12, our utilization rate was 99.8% for the first quarter of 2008 compared to 98.3% in the year-earlier period. Our time charter equivalent rate for the first quarter of 2008 increased 73.5% to $35,891 versus $20,683 recorded in the first quarter of 2007. The increase in time charter equivalent rates was due to higher charter rates achieved in the first quarter of 2008 versus the first quarter of 2007 for five of the Panamax vessels, five of the Handymax vessels, and five of the Handysize vessels in our current fleet.

Furthermore, higher TCE rates were achieved in the first quarter of 2008 versus the same period last year, due to the operation of the five Capesize vessels, part of the Metrostar acquisition. Two of the vessels have profit-sharing agreements. As a result of Genco's foresight in entering into these agreements and strong market for these two vessels, they earned an average of approximately $83,700 per day representing 71% increase over the vessels' average base rate.

For the first quarter of 2008, our daily vessel operating expenses were $4,278 per day versus $3,627 per day for the first quarter of 2007. The increase was due to higher crew and lube expenses. While our daily vessel operating expenses for the quarter were lower than budget, it is important to note that we believe daily vessel operating expenses are best measured for comparative purposes over a 12-month period in order to take into account all of the expenses that each vessel in our fleet will incur over a full year of operations. Based on estimates provided by our technical managers, and management's expectations, we expect our 2008 daily vessel operating expense budget to be $4,700 per vessel per day on a weighted basis. As previously announced the increased budget reflects the anticipated increased cost for crewing and lubes as well as the operation of our Capesize vessels.

On slide 13, we present a pro forma balance sheet that reflects the company's payment of its first-quarter 2008 dividend of $1.00 per share. As you can see, our pro forma cash position for the quarter is $19.2 million. As of March 31, 2008, our pro forma liquidity totaled $381.7 million, and our pro forma net debt-to-total capital ratio was 63%. It should be noted that while the pro forma balance sheet includes $77 million in debt associated with the purchases of Jinhui common stock, it does not include its current market value.

On slide 14 of the presentation, we outline our payment schedule for the remaining four of our newly acquired vessels to be delivered. I would like to note that the deposit payments have already been made in the amount of $96.4 million. The remaining balance will be made upon delivery of each vessel, scheduled between the fourth quarter of 2008 and the third quarter of 2009, and is covered by our revolving credit facility.

Before moving on to our dividend policy, I will now briefly discuss our anticipated breakeven levels detailed on slide 15. As we mentioned a moment ago, we expect our 2008 daily vessel operating expense budget to be $4,700 per vessel per day on a weighted basis of an average number of 28 vessels for the second quarter of 2008. Furthermore, we expect our daily free cash flow breakeven to be $11,526 and our daily net income breakeven rate to be $18,038.

Next I will discuss our dividend policy, which is highlighted on slide 16. As Gerry stated earlier, we once again increased our quarterly dividend target rate, this time to $1 per share, representing the third increase since going public. We are pleased to have declared a dividend of $1.00 per share for the quarter, an increase over our first-quarter 2007 and 2006 dividends of approximately 52% and 67%, respectively.

Based on our closing price yesterday of $67.65, plus the cumulative dividends of $6.49 per share that we have paid to date, we have provided shareholders who invested in our IPO in July of 2005 a total return of approximately 253%. Our dividend policy, which is determined by our Board of Directors and is calculated based on free cash flow, less cash reserves for fleet maintenance, renewal and growth, and debt amortization, provides important benefits to shareholders. Since our IPO in July of 2005, we have continued to grow our dividend while expanding our fleet. This success is testimony to the sizable cash flows we generate, as well as the ongoing support we receive from the banking and capital markets.

Building on our past success consolidating the industry, we intend to continue to take advantage of our significant financial flexibility to seek growth opportunities that meet our strict earnings and cash flow accretion criteria as well as our return on capital hurdle. Complementing our approach of growth through consolidation and seeking to distribute sizable dividends to shareholders, we also intend to look for opportunities under our new share repurchase program to create additional shareholder value.

Before I turn the call back over to Gerry to discuss the industry fundamentals, I will now provide an update on our ownership position in Jinhui Shipping and Transportation Limited, a drybulk shipping owner and operator focused on the Supramax segment of drybulk shipping.

Following the announcement of our initial position in the company in May of 2007, our current position in Jinhui is 16,335,100 shares equaling 19.4% of the outstanding shares in both the Jinhui's capital stock as of April 30, 2008. The total debt level related to company's purchase of Jinhui's capital stock is currently $77 million. Genco may purchase additional shares of Jinhui's capital stock or dispose of any and all shares of Jinhui's capital stock that Genco holds, whether through open market transactions, privately negotiated transactions, or otherwise.

I will now turn the call back to Gerry.

Gerry Buchanan

Thank you, John. I will now take this opportunity to spend a few moments discussing the industry fundamentals. I will start with slide 18, which points to the drybulk indices. Represented on this slide are the overall Baltic Dry Index, the Baltic Capesize Index, and the Baltic Panamax Index. As can be seen when looking at the first-quarter 2008, the rate environment has displayed a significant increase as compared to the same time last year, albeit a volatile beginning to the year. Even with the recent volatility, the Index is still up approximately 42% over the corresponding level of last year. On slide 19, we detail the long-term drybulk demand fundamentals, which we believe remain strong for the following reason.

Increases in China's GDP continued at a strong rate, reaching an annual growth rate of 10.6% for the first quarter of 2008. The country's GDP is estimated to grow by 10% for the entire year of 2008. More importantly, Chinese fixed-asset investment, which is the main driver behind the demand for the cargoes that we ship, grew 24.6% year-over-year for the first quarter of 2008.

India's GDP is forecasted to grow by 8.7% year-over-year for the first fiscal year ending March 31, 2008. World GDP growth was 4.9% for 2007 and is forecasted at 4.1% for 2008. A major driver of this growth is the Asian economies.

Finally, if we look at the graph on this slide, we can see that China has overtaken Europe and Japan as the largest importer of major bulks, accounting for approximately 25% of the world's imports. When looking at the same data for 1998, Chinese imports accounted for only 6% of the world trade. As China continues to rely on long-haul trade routes from Brazil and Australia for its iron ore needs, ton-mile demand is expected to continue to grow.

Moving to slide 20, we will discuss the drivers behind the overall strong rate environment. As indicated on the graph at the bottom left, Chinese steel production grew to 125 million tons for the three months ending March 31, 2008, while 111 million tons of iron ore were imported into China for the same period. For the three-month period, Chinese steel production grew by 8.9% and iron ore imports grew by 10.5% year-over-year. It is important to note that Chinese iron ore imports and steel production continued to show strength even during a time when disruptions were evident due to winter storms, infrastructure problems, and power shortages.

Moreover, the significant increase in the price of steel since the beginning of the year indicates the continuous underlying demand for the commodity, as well as the need for incremental iron ore coupled with the fact that the International Iron and Steel Institute projects China's [foreign] steel use to grow by 11.5% in 2008 and 10% in 2009, bodes well for the drybulk market. We further believe that there are several other factors to support a strong rate environment going forward into 2008. We believe that once the ongoing iron ore negotiations between the Australian miners and the Chinese steel mills are concluded, we should see increased activity in that trade.

Second, we believe that the iron ore trade should always show a greater strength in the coming months. One of the reasons behind the temporary rate softness during the first quarter of 2008 was the suspension of shipments from the Brazilian Port of Itaguai. With the return of Itaguai terminal to full operations as of February 26, we believe that increased iron ore activity from Brazil has already started picking up, and should provide further positive impact on rates going forward. At the same time, Australian coal mines that experienced heavy flooding during the first quarter of 2008 are recovering. And although not all mines are still in full production mode, we have seen a number of them lifting force majeure and resuming outgoing shipments of coal.

Furthermore, we expect further growth in the demand for coal. Not only is increased domestic demand for Chinese coal forcing the country to become a net importer of the commodity, but India's economic growth is also adding further pressure to the coal trades in two ways. Firstly, its increased steel production is forcing the country to become a major importer of coking coal and secondly its increased energy demand will result in higher thermal coal imports.

On the grain front, the South American grain season, expected to ramp up during the first quarter of 2008, will also affect the second half of the year. Although record crops have been observed this year, there has been uncertainty due to the doubtful outcome of the Argentinean Government's regulation on export tariffs. Initial indications point to a conclusion of the farmers negotiations with the government and the recommencement of grain shipments.

Turning to slide 21, we note that while recent weather-related shutdowns in Chinese steel mills have created some steel production holdup, they also indicate the lack of adequate infrastructure within the country. Chinese fixed-asset investment has been showing consistent growth both through the end of 2007 and into the first quarter of 2008, pointing to the country's efforts to improve their infrastructure platform going forward. Combined with the fact that Chinese companies have been actively investing in Brazilian and Australian mining companies in order to access mining rights to iron ore, is a good indication of the bullish demand expectations for the commodity. Looking at the graph on the bottom of the page, one can see the planned production increases by the major minors to meet the anticipated demand. Indicatively, production quantities are forecasted to almost double from approximately 600 million tons in 2007 to 1,110 million tons in 2012.

Finally, on slide 22 we present our view for the supply side of the equation. Looking at the graph on the bottom slide, we can see the drybulk order book by quarter through 2012. A fairly defined order book over the next two years provides for good visibility over the medium-term charter market. Although the drybulk order book has increased to 59% of the existing fleet, it's questionable whether it will be delivered in its entirety. It's important to note that 23% of the Capesize orders scheduled to deliver in 2009 and 33% of the Capesize orders for 2010 are contracted by greenfield yards. The increased price of steel could place constraints on some of the startup yards. Anecdotal evidence of constraints, such as financing for shipyards and smaller owners as well as machinery and equipment shortages, could cause additional deterrence in the delivering of the current order book in its entirety.

Furthermore, we do not believe that the impact of the much discussed VLOC conversions is certain. The potential of additional capacity for this year is approximately 10 million deadweight tons. However, the reliability of the converted vessels is questionable. Rumors of some issues with the first units have arisen, and better tanker market prospects are dampening interest from the side of the owners.

Lastly, over 30% of the world's fleet is 20 years or older. As we have indicated on past calls, unlike tankers, bulk carrier scraping is not mandated; it is more of an economical equation on the cost of repairs to comply with the requirements of fifth or sixth special survey. However, charters do become more selective in less robust markets, and many of them will not take vessels which are in excess of 20 years old for long-term time charters. Therefore, we believe that scrapping will become an increasing factor in the future.

That concludes our presentation and we would now be happy to take your questions.

Questions-and-Answers

Operator

(Operator instructions) We will go first to Doug Mavrinac with Jefferies & Company.

Doug Mavrinac - Jefferies & Co.

Great. Thank you, good morning, guys. A fantastic quarter again. Given the strength in drybulk shipping charter rates over the past few months and particularly the past few weeks, you guys are in a very enviable position to take advantage of this strength, with six vessels operating on-time charter contracts that expire over the next few months. How does this recent strength influence your thinking about renewing those expiring time charter contracts? Do you continue to pursue one or three-year time charters as you have in the past on the Panamax and smaller vessels? Or do the prospects for an even stronger rate environment in the fall give you a reason to consider shorter duration time charters, say three to five-month time charters?

Peter Georgiopoulos

We've been -- some of the ships we've had, some of our other ships we have had on three to five month charters at good rates. And, I think as we've done in the past, we are just going to monitor the market and see when we feel the right time to fix the ships away on longer-term charters is we're not afraid to put them away on shorter-term ones as we've done in the past. But as you saw what we did yesterday, we have begun to put some away. So, I think you could see us putting ships away over the next six months.

Doug Mavrinac - Jefferies & Co.

Okay, great. Thank you, Peter. As it relates to the longer-term fundamentals, Gerry, you mentioned this in your commentary. There has been discussion of how the credit markets situation has impacted both shipbuilders and shipowners. Have you guys seen any evidence of the tightening credit market conditions forcing either shipbuilders or shipowners to not be able to fulfill their contractual obligations in the form of offers made to you by either one, as one of the strongest industry participants?

Peter Georgiopoulos

We've seen a couple of participants who had big newbuilding order books. You know, owners that generally order a lot of ships that are starting to feel the heat a little bit that have come to us, you know, with potential problems of financing their purchases.

Doug Mavrinac - Jefferies & Co.

Okay.

Gerry Buchanan

Just looking at the other side of that on the shipyard side, I heard yesterday from a major classification society about one of these yards, greenfield yards that has a sizable order book, which has actually closed up shop. So, you know, it's not just affecting us; it's affecting the yards as well as we said in our script, you know?

Doug Mavrinac - Jefferies & Co.

Right, yes. Great, thank you. That's very helpful.

Peter Georgiopoulos

'This is just sort of secondhand, but someone had told me that one of the classification societies said that they had -- I think it was 33 bulk carrier orders that have been canceled over the last few months.

Gerry Buchanan

Yes.

Doug Mavrinac - Jefferies & Co.

Wow.

Gerry Buchanan

Yes.

Doug Mavrinac - Jefferies & Co.

Okay, wow, that's very helpful. Also, staying on the subject of the longer-term fundamentals and shipbuilders, Gerry you also alluded to this in your commentary. Can you guys provide, perhaps, some insights into how rising steel costs impact the profitability of shipbuilders, given the lack of cost escalators in newbuilding contracts and the fallout that has occurred in the past whenever those circumstances are at play?

Gerry Buchanan

Well, if you look at some of the yards where these orders are placed, a lot of them are startup yards. As we already said, we don't know where they're going. Within their contracts, we don't know if they have escalation clauses in there to take care of the increase in steel prices, which have gone up 25%-plus. So if they can't build the ships at the price they negotiated, and they have no escalation clauses, they are not going to go forward with that.

Doug Mavrinac - Jefferies & Co.

Right, and those guys can't hedge price of steel more than, say, six months in advance, right?

Gerry Buchanan

No, no.

Doug Mavrinac - Jefferies & Co.

Okay, great. Thank you very much, Peter. Thanks, Gerry.

Operator

Thank you. And we will go next to Jon Chappell with JPMorgan.

Jon Chappell - JPMorgan

Thank you. Good morning, guys.

Gerry Buchanan

Thanks good morning.

Jon Chappell - JPMorgan

Peter, question on the dividend increase this past quarter. What has changed in the last couple months that gave you the confidence to raise the dividend another 18% after last quarter's increase, given that the fleet really hasn't changed, and most of your charters have stayed the same as well?

Peter Georgiopoulos

I think what we see is with the new ships coming onboard -- you know, when we did the charter last time, I mean not charter, sorry, the dividend increase, we felt we could go to the dollar then; we just didn't want to jump. So we said, let's go to where we went. And, then what we've seen is the strength that we thought was going to happen has increased. Charter rates are higher. We feel we can put the new ships that are coming onboard away at higher rates. And, we just didn't want to run before -- you know how we do things. We like to do it sort of step-by-step. So I think it really wasn't that anything has changed. It's just we wanted to do it in steps.

Jon Chappell - JPMorgan

Okay, that's fair. And, Gerry, devil's advocate question here. The Australian negotiations have obviously put some pressure on the Pacific relative to the Atlantic. But from what we've been hearing, the Chinese have been building stockpiles of iron ore which has really helped the ton-mile factor of Brazilian-to-China trade. If Australia finally does -- or when they finally do get these negotiations completed, and assuming the Pacific does pick up a little bit, is it possible that there could be some pressure from the current lofty rates on the Atlantic Capesize market, given to some maybe shrinkage of the Brazilian-to-China trade?

Gerry Buchanan

Well, I think you're going to see an increase in the exports from Australia up to China. That's absolutely certain once the negotiations are finished. But, I think you're still going to see the Chinese taking their ore on their present contracts from Brazil.

Jon Chappell - JPMorgan

Okay. Then one last question. We have seen escalating costs in everything, materials, labor, leading to delays in shipyards as you have said and also refineries. Are you hearing anything about the mine expansion plans, whether it's in Australia or anywhere else? Any delays in some of the significant expansions due to cost escalation or labor issues?

Gerry Buchanan

To be honest, no, I'm not hearing anything on that front. The only thing we're hearing about is the mines coming back into production after the recent flooding that they went through.

Jon Chappell - JPMorgan

Okay. Thanks, Peter and Gerry.

Operator

Thank you. And we will go next to Natasha Boyden with Cantor Fitzgerald.

Natasha Boyden - Cantor Fitzgerald

Thank you buddy. Good morning, gentlemen. Just smart follow on from Jon's question on the dividend. As you said, you increased your dividend for the second quarter in a row. You haven't repurchased any shares under your $50 million program. Can you talk a little bit about how you do balance deciding whether or not to increase the dividend versus share repurchases, as far as returning cash to shareholders?

Peter Georgiopoulos

It's an analysis based on we are opportunistic, so where we see the stock price vis-à-vis the dividend and right now we think raising the dividend is a better use of money than buying back stock.

Natasha Boyden - Cantor Fitzgerald

Okay, okay, fair enough. Thank you. In terms of asset values at the moment, do you think the long-term rates support buying assets at the moment? Do you think they're high enough to sustainable return on assets?

Peter Georgiopoulos

Yes.

Natasha Boyden - Cantor Fitzgerald

You do? So that means you're still looking for opportunities out there?

Peter Georgiopoulos

Yes.

Natasha Boyden - Cantor Fitzgerald

Okay, fair enough. And, I think, Peter, you did mention as we get closer to 2009, I think did you say that you were seeing some of these greenfield yards -- that they weren't getting off the ground? Is that what you were saying, that they were having some trouble?

Peter Georgiopoulos

Yes.

Gerry Buchanan

Yes, sorry, Peter. I think that it's absolutely true, Natasha.

Natasha Boyden - Cantor Fitzgerald

Okay, so you think there may be some slippage.

Peter Georgiopoulos

Yes.

Natasha Boyden - Cantor Fitzgerald

Okay, great. Well, thank you very much.

Operator

Thank you. And we will go next to Omar Nokta with Dahlman Rose.

Omar Nokta - Dahlman Rose

Good morning.

Gerry Buchanan

Morning.

Omar Nokta - Dahlman Rose

Gerry, you discussed earlier how the Australian coal miners are beginning to increase shipments now. What are you seeing in South Africa? Have those power outages -- are they still having an impact? Have they been reduced? Could you tell really what's going on?

Gerry Buchanan

I think, what you are seeing is you're seeing reduced exports for South Africa due to that. You know, they are using it more in domestic use. Power outages are still a big problem in South Africa. It is reducing the production from the mines as a result, yes.

Omar Nokta - Dahlman Rose

Okay, and so that's basically going to be something to expect going forward?

Gerry Buchanan

Well, I would imagine that the South African Government are turning all their resources to resolving that. Because, I mean, energy is a fundamental issue in any country, and especially a country that relies on heavy mining for its foreign currency and exports.

Omar Nokta - Dahlman Rose

Right, okay. And, then just on the -- another note with the grains, all the shortages worldwide and prices going through the roof. Are you seeing an impact on the Panamax or Handymax markets right now?

Gerry Buchanan

No, I have to say we're not. But I can tell you that all the intelligence tells us that the harvests all over the world appear to be very, very good. South Africa, even India is reporting a bumper harvest this year, but we don't expect to see them exporting anything. It's mainly for domestic consumption. The harvests in South America are very good. And, Australia which has suffered greatly in the last three years from the serious drought, is now seeing increased planting. They expect it to be up over the last three years by about 10 million tons. So, it's good news on the grain front.

Omar Nokta - Dahlman Rose

Okay, thank you. That's very helpful. Thanks a lot, guys.

Operator

Thank you. And we will go next to Greg Lewis with Credit Suisse.

Greg Lewis - Credit Suisse

Thank you and good morning. John, I guess my first question is for you. Looking at your debt, in Q1 you paid down roughly about $30 million from cash flow from operations. I guess going forward what sort of amortization are you looking at over the next -- through 2008?

John Wobensmith

Well, keep in mind that our credit facility is five years non-amortizing interest only. So we're actually not -- we're under no obligation from the banks to repay. But we did repay the $73 million in the first quarter. You know, we've always said that our target leverage ratio is 40% to 55% on a debt-to-cap basis, so we will be targeting that.

Greg Lewis - Credit Suisse

Okay. I guess, you know, and following up to the question on Australian iron ore negotiations, Gerry, do you have any sort of sense for how much cargoes could be being held back by the Australians?

Gerry Buchanan

No, I don't.

Greg Lewis - Credit Suisse

Okay. And, then lastly, when I look at the Handysize fleet, roughly 40% of the Handysize fleet is fixed out until about 2010. Given that, should we expect the remainder of those vessels to sort of be time chartered, either on the short end or the longer end of that level? Just so you don't have an unnecessary amount of exposure to the 2010 time frame?

Peter Georgiopoulos

Yes, I think you will see us, I mean as we've done in the past, the ships will roll through different periods. So you will have ships coming out at different times. You are not going to have 30 ships all hitting the charter market at the same time.

Greg Lewis - Credit Suisse

Okay, great. Thank you.

Peter Georgiopoulos

Thanks.

Operator

Thank you. And we will go next to Urs Dur with Lazard Capital.

Urs Dur - Lazard Capital Markets

Hi, guys.

Peter Georgiopoulos

Hi.

Urs Dur - Lazard Capital Markets

Given that you're not buying back shares, which is fine; not a criticism. And given your view that a lot of the yards are in trouble and this order book may not be as real as it appears, and I tend to agree with that in general, though I think it can be built if you pay them. What's your view on newbuildings? And, do you think you can be able to find some slots and some newbuildings orders for, say late 2011, 2012? Are you looking at the newbuilding side?

Peter Georgiopoulos

Yes, we look at everything. I don't know that we want to do anything in 2012, 2011 right now. But, if we could pick up something in 2009, 2010, we would look at it; and we're looking for ships on the water.

Greg Lewis - Credit Suisse

Okay, but in regards to your view on the yards themselves and the problems you view that they are having, do you see nearer-term opportunities for newbuildings than ships on the water, per say? Just -- I know, I guess it's sort of the same question.

Peter Georgiopoulos

Not necessarily. I think there are -- I understand your question. In other words, I think what you are trying to say -- will there be more distressed situations in newbuildings as opposed to on the water?

Greg Lewis - Credit Suisse

Yes.

Peter Georgiopoulos

My concern is that with some of these yards, I mean, look, if you're going to order -- if you are going to buy someone's slot in a good shipyard, that's like be a distressed situation, because there will be plenty of people. Where you're going to maybe find a distressed situation is in a questionable shipyard, and we wouldn't touch a ship from a questionable shipyard in the first place.

Greg Lewis - Credit Suisse

Okay, very good. Thanks for the dividend.

Peter Georgiopoulos

You're welcome.

Operator

Thank you. And we will go next to Chris Wetherbee with Merrill Lynch.

Chris Wetherbee - Merrill Lynch

Great, thanks. Good morning. Just wonder if we could touch on rates a little bit again. You mentioned obviously, we're seeing the strength in the near term, and I think you have talked about this a little bit. But are you seeing solid demand from charterers to try to go a little bit longer here, push it out past that three-year time frame? Or just to kind of lock in their capacity, have you seen any activity on that front?

Peter Georgiopoulos

We see the sweet spot in the one to three-year market, which is what we have been sticking with. We have seen things going longer; but the rate comes off considerably the longer you go out.

Chris Wetherbee - Merrill Lynch

Okay, so that has met with demand, though, from the shippers? They're actually looking to get in on that type of level to lock in rates?

Peter Georgiopoulos

Right.

Chris Wetherbee - Merrill Lynch

Okay, and then I guess --

Peter Georgiopoulos

And that's no different than it's been. I mean, historically that is just the way it is. That sweet spot is in that one- to three-year range, and then you watch it drop off as you go to five to 10 years.

Chris Wetherbee - Merrill Lynch

No, that makes sense. Then just switching gears a bit to the Australian coal side. You give us an idea of kind of what percentage of the capacity that is kind of back up and running? I think you mentioned that it's kind of coming back. I don't think it's completely there yet, but you have a sense of what level we are at now?

Gerry Buchanan

Well, I can't give you percentages because I don't have that information. But I can tell you that one of the main mines is back on track again, and there's still another two to come, which they are hoping to get back in the very, very near future.

Chris Wetherbee - Merrill Lynch

Okay, great. And I guess, just finally on the VLOC conversions, I think you mentioned there is 10 million deadweight tons out there. Is there anything that has been done in the near term, anything that has actually been completed? We have heard the stories of some issues and some stress issues. Just curious if you have heard of any actual successful completions in the last three months or so?

Gerry Buchanan

The Hebei Success was the last one to come online, which was delivered, I think, at the tail end of last year. And prior to that, you have got to go back a number of years to the Hebei Innovator. So as far as we know, there's only two of them actually in operation. There has been a lot of discussion in the press about the Hebei Innovator with its ongoing problems, all of which hotly denied by Hebei Ocean, the company. But, I can tell you that there are certainly were problems with it, and I expect to see continued problems as more of these vessels -- if they do come out.

Peter Georgiopoulos

And, it's something that we've been saying for a year now on all these calls when people ask us about these conversions. We have been saying we think there will be structural problems with them, just because a VLCC is built differently than a bulk carrier, and the stresses are different. We have been saying that for a year now. I think initially people just sort of didn't listen to us. And now all of a sudden that you see the first one come out and have problems, and people are talking about the other ones that are in the yards having problems and delays. I think people are realizing that maybe we weren't so wrong.

Gerry Buchanan

They are not only built differently; they are loaded differently and operated differently. That is the issue, you know. And, you take a structure, and you can cut it and built in the strength that it doesn't have to take the bulk cargoes, the iron ore cargoes, and the loading rates, etc. But in doing that you build in a lot of stresses and the problem is that they don't know what the stresses are, and they don't know how they are going to materialize, or where they're going to materialize, until they go into operation. Then they start materializing in fractures and cracks and whatever else. So it is a big problem. You talk to any naval architect and they will tell you that.

Chris Wetherbee - Merrill Lynch

I guess just one more question, I guess on the supply side. You mentioned some cancellations. We had heard that as well. I just want to make sure I caught what you had said. You had said there was a yard that had pretty much scrapped their order book at this point. Is that correct?

Gerry Buchanan

Yeah, that is what I was told by a major classification society only yesterday, yes.

Chris Wetherbee - Merrill Lynch

Is it the Chinese yard?

Gerry Buchanan

Yes, it's a Chinese yard.

Chris Wetherbee - Merrill Lynch

Okay, great. Thanks very much for the time, guys.

Gerry Buchanan

Thanks.

Operator

(Operator Instructions) We will go next to Justin Yagerman with Wachovia.

Justin Yagerman - Wachovia

Hey, good morning, gentlemen. How are you?

Gerry Buchanan

Fine, thank you.

Justin Yagerman - Wachovia

I am just curious, Peter or Gerry, where you guys are seeing period interest right now and at what levels on the Capes and the Panamaxes, and I guess how far out into your redeliveries or newbuild deliveries are you guys seeing interest for chartering vessels?

Peter Georgiopoulos

We can charter everything right now it's all a matter a price. Typically if you wait a little closer to delivery, you get a better rate. So we're pretty comfortable with where we are right now and where the market is going, and with our delivery schedule. And, so I think we are just going to wait a little bit longer to fix those ships away as we get closer to the delivery dates.

Justin Yagerman - Wachovia

No, and I understand that, I guess what I was more trying to get at was what -- if you are receiving interest, where are the dollar levels? We have been hearing Cape rates for five-year charters at $82,000 a day or so. Does that sounds within the realm of where things are right now? Or I just guess we were just trying to get a sense of what kind of interest you were seeing and at what dollar levels?

Peter Georgiopoulos

Yes, I think that's a fair number. We've seen five-year rates in that range.

Justin Yagerman - Wachovia

Okay. And, then I guess, Gerry, you had mentioned that that yard that went out was Chinese. Are the orders that are canceled there within the 30 that you had mentioned seeing in the quarter that had been canceled?

Gerry Buchanan

I don't have any further details on it, to be honest with you. This was in a telephone conversation with a major classification about the yards and talking to him about the number of contracts they had for new build supervision. And, he told me that one of the yards in China, a greenfield yard -- he didn't give me the name -- had gone out of business. I don't have any more details on that.

Justin Yagerman - Wachovia

Okay, much appreciated. And, I guess conceptually, just trying to get a handle on -- within the quarter you guys discretionarily, if that is a word, paid down debt. You raised the dividend at the end of the quarter. Obviously, I mean signaling strength to come; and you've been known for making accretive acquisitions in the market. How do you kind of think about that when you're deciding to pay down the debt as opposed to allocate that capital towards potential further acquisitions?

Peter Georgiopoulos

You know, our debt, we've got a revolver; so we pay it down but it's not gone. So we didn’t draw it back down anytime we want for an acquisition. So we feel, why sit with the cash and have a negative arbitrage? Paying even though the interest rates are low, paying interest and sitting on the cash, earning very little in the bank account. So, we pay it down, and when we need it we draw it back.

Justin Yagerman - Wachovia

Very good. Appreciate the time, guys. Thanks a lot.

Operator

Thank you. At this time there are no more questions. This concludes the Genco Shipping & Trading Limited conference call. Thank you and have a nice day.

Gerry Buchanan

Thank you, operator.

Operator

Thank you. Have a good day.

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