Ship Finance Management AS Q2 2008 Earnings Call Transcript

| About: Ship Finance (SFL)

Ship Finance Management AS (NYSE:SFL)

Q2 2008 Earnings Call

August 21, 2008 10:00 am ET


Lars Solbakken - CEO

Ole B. Hjertaker - CFO


Jonathan Chappell - JPMorgan

John Parker - Jefferies & Co.

Anders Rosenlund - ABG Sundal Collier

Ken Hoexter - Merrill Lynch

Andreas Stubsrud - Kaupthing


Welcome to the ship finance Q2 2008 result presentation conference call. For your information, this conference is being recorded. At this time, I would like to turn the call over to, Mr. Ole Hjertaker. Please go ahead, sir.

Ole B. Hjertaker

Thank you and welcome to Ship Finance International’s second quarter conference call. From the company here today, we have Lars Solbakken, the Chief Executive Officer. My name is Ole Hjertaker and I’m the Chief Financial Officer. I would like to turn to forward-looking statements, page 2.

Before we begin the presentation, I would like to note that this conference call will contain forward-looking statements within the meaning of the U.S. private securities Litigation Reform Act of 1995. Words such as “expects”, “anticipates”, “estimates”, or similar expressions are intended to identify these forward-looking statements. These statements are based on our current plans and expectations and involve risks and uncertainties that could cause future activities and result to operations to be materially different from those at work in the forward-looking statements. Important factors that could cause actual results to differ include conditions in the shipping, offshore and credit markets. For further information, please refer to Ship Finances, reports and filings with the Securities and Exchange Commission.

Turning to the next page, today, we will discuss the second quarter, 2008 highlights, and also, to touch on some subsequent events and we will also go the financial results for the quarter. Thereafter, we will open up for questions and answers.

Turning to the next page, the Board of Directors has declared increased dividends of $0.58 per share. This represents $2.32 per share on an annualized basis, or 8.5% dividend yield, based on the closing price yesterday of $27.24. Stable and increasing long-term sustainable dividends are very consistent with our strategy. The net income for the quarter was $71.3 million, or $0.98 per share.

This includes $33.1 million of profit share and also a $10.6 million gain on sale of a single hull vessel and a positive mark to market of swaps of $3.2 million. Most of our interest rate swaps are now restructured to hedge accounting based on strict SCC guidelines. This means a lower variance in mark to market than we would otherwise see quarter to quarter. I would also like to you know that we received an upfront payment relating to the single hull vessel, Front Sabang, that has been classified as repayment of investment in finance lease, and is therefore not included in the net income.

We have a continued high profit share in the quarter, as I mentioned. We have $66.8 million, year-to-date, and this profit share contribution is payable in March 2009. The strong tanker market continued in to the third quarter, but market has slowed down in August.

Frontline also expects to dry-dock seven vessels in the third quarter, versus 5 vessels in second quarter, and that was also up from 2 vessels in the first quarter. The dry-docking will, of course, impact the basis for the profit share. If you turn to the fixed charter hire, that was $136.9 million, or $1.88 per share, excluding profit share but including a vessel not consolidated based on US GAAP. This is in line with the previous quarter. This number also excludes the $21.6 million upfront payment relating to the Front Sabang.

The EBITDA equivalent, net of OPEX and GNA expenses, was $142.5 million, or $1.95 per share. Next page: We have continued our reduction of single hull exposure, and excluding vessels sold on higher purchase terms all made seven single hull vessels remain in our fleet. Most of these vessels are sub chartered by Frontline through 2009 and into 2010.

The remaining value in our balance sheet is very low compared to our overall assets, and these vessels will effectively have been written down to scrap by 2010 The Front Sabong was delivered on its on its new higher arrangement in April and the basis for the new higher purchase charter rate was an implied value of $57 million. The deal is structured so that we receive $21.6 million upfront payment and then, a $29,900 barebook rate per day for 3.5 years.

If you look at the barebook rate and compare that to the charter rate, that vessel was earning immediately before it entered the charter. The charter rate is up $12,000 net compared to the previous charter arrangement if we subtract the operating expenses on the vessel at the time. We paid $24.8 million to frontline for the termination of the original charter.

In the quarter, we have also taken delivery of the first of two 17,000 dead-weight chemical tankers. These vessels are chartered on ten-year charters at $8,000 per day on a barebook basis and the first vessel was delivered in mid-April. The second vessel is expected to be delivered in September. The annual net contribution from this deal after interest in installments was $1.4 million per year, or approximately $0.02 per share.

Turning to the next page, the ultra-deep water drill ship, West Polaris was a record breaking transaction in the market. It was the largest average single asset sale leaseback in the maritime industry with $850 million on the rig. Also, it added around $1.1 billion to our charter backlog. The deal was financed by a combination of $150 million equity contribution and a $700 million bank loan. The reduced rate in the three-month mobilization period and we will therefore have the full cash effect from that rig in the fourth quarter.

We don’t take interest rate risk on this rig as the charter rate is adjusted based on prevailing interest rates. The interest has been swapped for the first five years and the adjusted charter rate will now be $120,000 the first three months, and approximately $345,000 on average for the remaining period of the first five years. The return on equity on this deal is around 15% to us.

We have also announced the sale of two new building Suezmax tankers in July and the sales price was agreed to $111 billion per vessel, less commission. This is significantly higher than the yard contract price of $71 million, and, if we add, also, some unexpected costs relating to construction and interest in the construction period, we expect to book a profit on these vessels of $68 million.

This will be booked in 2009, when the vessels are expected to be delivered. Our intention is to reinvest the proceeds from the sale of these Suezmax tankers and as an illustration, the gain from the sale of these two vessels is equivalent to almost the equity investment in half a drill ship.

If we turn to page 7, we want to highlight that we have a significant portion of our balance that is accounted for based on lease accounting. On slide 22 in the presentation, which is an appendix, we have a breakdown of the finance leases in the different components, including forward fourth quarter estimates. I mentioned earlier that we received $21.6 million relating to the higher purchase for Front Sabong.

As you can see, this is included in the gross operating revenues, but then netted out again immediately through repayment of investment and finance leases, and is therefore excluded from the total operating revenues. We will comment on the operational performance for the different segments separately, a little later in the presentation. The profit share was approximately twice the level in the end quarter of 2007. We also book a gain on the sale of Front Sabong of $10.6 million.

The ship operating expenses are down and we now also see the fruits of our deliberate avoidance of operating expense risk. As the illustration of this, all the vessels on charter to Frontline have an operating expenses agreement based on $6,500 per fixed, including dry locking expenses. This is a fixed amount without escalation, all the way through the end of the individual charters.

Frontline today report $9,600 per day average operating expenses on the fleet they operate, but this excludes drydocking. Including drydocking for this quarter, they reported $11,600 per day. We expect the trend with escalating operating expenses to continue across all vessel segments in the near term.

The depreciation expense reported in the quarter was $7.1 million. This is up from $6 million in the first quarter. The increase is partly due to the addition of the first chemical tanker, but it is also due to an adjustment that was made in the first quarter that effectively reduced the depreciation in the first quarter The level of depreciation that we present here in the second quarter is therefore more in line with the level we would expect to see doing forward.

If you turn to the balance sheet on page 8, we just want to highlight that other current assets include the current portion of repayment of investment in finance lease i.e. a part of the book value of those assets. Of the $202 million, $184 million was related to finance lease assets, and the other $15 million was related to derivative instruments receivables. Also, if you look at the book value over assets, these are significantly below market values. If you take Frontline's fee as an example, they had at the end of the second quarter, a charter fee value in the region of $4-4.1 billion. The book value on our books for these assets is in the region of $1.7 billion and the loans against these vessels are in the region of $1 billion.

Turning to the next page, in the cash flow statement, I only want to point your attention to the first item under investing activities. This is where, in repayment of investment in finance leases appears in the cash flow statement, and this is the amount that is subtracted from the revenues in our P&L. In this quarter, this number amounted to $71.1 million, which as I mentioned before, includes the $21.6 million relating to Front Sabong. In the second quarter of 2007, we have the similar transaction relating to Front Wanades and at the time, extraordinary repayment of investment in finance lease amounted to $12 million.

If you turn to page 10, we will talk a little bit about our operational performance. We generate a very significant cash flow per charter, which is based on a large performing fleet, and then, we have a motored payout ratio at reserved significant capital for debt repayments. A problem measured for dividend payout is what we call contribution after interest, or EBITDA less interest, versus dividends paid.

In the quarter, we had approximately $28 million of net interests, or $0.39 per share, which is down from $31.9 in the first quarter. This is based on a reduced interest rate level from a liable base of 3.3% in the first quarter, to 2.75% in the second quarter. The contribution after interest was therefore approximately $114.5 million, or $1.57 per share declared is $0.58 per share. This gives a payout ratio on this metrics of 39%.

Of course EBITDA less interest does not factor in capital use for reinvestment and debt repayment and as we continue to pay our dollar debt with a fairly steep repayment profile, we also, of course, want to preserve capital for this purpose.

If you look at the changes from the first quarter to the second quarter on the tanker side we have the Front Sabong with a new higher charter rate of $29,900 on a barebook basis, from mid April and also the delivery of the first chemical tankers happened in mid April and the revenue from that vessel is $8,000 per day.

There are no operating expenses associated with these vessels and the vessel operating expenses therefore came down. If we include general and administrative expenses the costs reduced from $28 million in the first quarter 2008 to $27.5 million in the second quarter.

If you look at the next quarter and expectations there, we will then have a full quarter of Front Sabong and also the first chemical tanker. But more importantly, we will also then have the West Polaris in the offshore segment with $120,000 per day for 80 days, approximately, in the quarter.

At the same time, the second of the jack-up rigs from Prospero has a reduced rate after the initial 400 days. This happened now in August and the charter rate for that rig was reduced from $160,000 per day approximately, down to $80,000 per day.

It’s important here to highlight that this is of course also reflected in the financing structure we have there; and the net contribution after interest and debt amortization is stable although the gross charter hire is reduced.

If you look at the fourth quarter the main difference will be that the West Polaris will then be in for the full quarter and also at the increased charter rate of $350,000 per day in the quarter.

We will then also expect to have the second chemical vessel delivered with [inaudible] earnings effect.

If you turn to page 11 under diversification and growth we want to highlight that Ship Finance started as a pure tanker company effectively… where all the combination carriers were trading in the tanker market.

The growth into both container and offshore has happened in the last two-year period and has been fueled by profit share payments for Frontline and sales of single hull vessels.

If you look at the net cash commitments for the rest of 2008 we estimate that to $219 million relating to our new projects.

This also includes the $850 million bridge ship transaction which has been paid already and the drill ship is generating revenues currently.

If you compare that to our available liquidity at the end of the second quarter this was $243 million and I will give a breakdown on that a little later here.

If you look at the capital expenditure these amounts are net of any seller’s credit and of course includes the two new building Suezmax vessels that we have recently announced sold.

The net proceeds from the sale of those vessels are expected to be $217 million in total net of commissions. We also want to highlight that in certain projects, such as the five container vessels to be delivered in 2012 20% of the contract price has been paid as equity already and a significant portion of the remaining capital commitments is expected to be funded by bank financing.

Also, we want to mention that the exact delivery of the vessels under construction is always uncertain and timing of the investments as we specify here may be adjusted over time. Generally, when we have agreed to acquire vessels in combination with our long term charter we typically invest at the actual time of delivery and this will therefore mitigate any economic effect of a potential delay.

If you turn to page 12 on financing and liquidity, we have a loan portfolio or approximately $2.3 billion including around $449 million bond loan. We have more than 25 banks in our syndicates and very good access to capital and the dealership transaction demonstrates our ability to source capital in an otherwise difficult financing market for most companies. With our portfolio on long-term charters our strategy is to hedge a substantial portion of our interest rate exposure. This is done through swaps, fixed interest adjustment clauses and also interest compensation clauses through charters.

The level of hedging has increased during the first two quarters of the year also based on what we view as an attractive interest rates curve, and currently approximately 75% of our interest rate is effectively hedged.

We also want to highlight that most of our new projects have been structured with limited or no recourse to our balance sheet.

The Horizon Lines deal has been structured without guarantees from Ship Finance. The have guarantees from Ship Finance relating to the loans in the region $10 - $20 million per rig, and for the drillship transaction only $100 million of the 700 million loan is guaranteed by Ship Finance and this is reduced to $70 million after five year. Approximately $1.7 billion in limited recourse financing also includes of the course the $700 million drillship deal $240 million approximately is guaranteed by Ship Finance or only 14% of that loan exposure.

If you look at the capital available at the end of the second quarter, we had $243 million including existing revolving credit facilities.

We have also accumulated a $66.8 million profit share year today, and we believe there is potential for this is potential for more profit share also in the second half of 2008. This is all payable next year. We also have additional unpledged assets, and for your information we are currently in the process of raising $58 million against two currently unpledged container vessels.

We also have several vessels with very low associated debt and, on top of that, in 2009 we expect to get the cash from the sale of the two Suezmax tankers, and we expect this to take place in the second half of the year.

If you look at some of the investments that we expect to happen in the third and fourth quarter, we have already invested $150 million in the drillship deal. We expect to invest $5.6 million of equity in the chemical tankers. Also, at the very end of the fourth quarter we expect to invest $10 million in the first vessel and $15 million on the first capsized bulker on charter to Golden Ocean.

We will also pay some new billing installments to yards and specifically on the Suezmax tankers. For you information we have currently paid around in excess of $50 million from our equity in yard down payments and we believe that we can also arrange financing for the remaining yard commitments.

If you look at the next page, page 13, we have a history of paying very stable and increasing quarterly dividends over time. This is now the 18th consecutive quarter where we have paid a stable or increasing dividend.

The dividend of $0.58 per share equals approximately 8.5% dividend yield based on yesterday’s close price. Going forward we expect that new transactions will be net accretive to the long term dividend capacity as illustrated by the $0.02 per share quarterly increase relating to the recent drill ship transaction.

Slide number 14. The profit share agreement with Frontline has been very favorable for the company. The original charters were structured much lower in the tanker cycle and therefore have a fairly low profit share thresh hold.

The profit-share contribution has been $89 million per year and this has generated $400 million over the last four and a half years. This has enabled the company to fuel significant growth, and based on the market outlook, we expect also a profit-share to be generated in the second half of 2008.

If you look at page 15, we illustrate there some sensitivity related to the profit-share contribution. This is an estimate of the third quarter and fourth quarter profit-share on average versus the tanker rate in the market.

This is the split-tanker rate and of course Frontline has sub-chartered several of these vessels to other operators and users. So therefore the actual charter rate earned net to our vessels will be lower. But this is reflected in this graph.

The average per quarter for the last 18 quarters has been $22.3 million. If you look at the combination of charter rates reported for more VLCC’s, which is $119,500 per quarter so far in the third quarter, it is slightly down compared to the $129,200 for the second quarter.

If you look at the Clarkson’s numbers for the third quarter, but adjust it one month to compensate for expected time between fixing, as is reported in the market, and actual loading, when it will start accruing from an accounting perspective, and we combine that with the forward rates, as quoted by Imarex for the remaining of the third and fourth quarter, this indicates a potential VLCC market in excess of $90,000 per day.

If this should happen, this would mean that the quarterly profit-share for the third and fourth quarter may be in excess of $25 million per share.

Of course the actual profit share is based on the actual earnings for these vessels in their respective periods. As we mentioned earlier in the presentation, seven vessels of the Frontline fleet will be dry docked in the third quarter, and we expect that, of course, to also impact profit-share contribution in the period.

What this graph also illustrates is that even when the average annual spot rates are approximately $12,000 below our base rate, there will be a positive profit-share contribution. This is due to several vessels and specifically most of the remaining single hull VLCC’s and also the oval carriers, which are sub chartered out at levels above the base charter rate level.

You can look then at page number 16. We believe that we have a very unique order back-log. Typically companies with a large charter backlog have five to seven year coverage and as we see Ship Finance is in a different league with more than 13 year waited average charter coverage.

The $6.5 billion fixed order back log represent $90 per share and if subtract operating expenses, the ABTA element of that could be in the region of $5.5 billion or $75 per share.

These numbers are before any profit-share contribution. These numbers do not include any re-chartering after the end of the current charter period.

So then we will turn to the last page of the presentation.

We believe that this strong quarter has been very good, and also fueled by a substantial profit-share contribution. We had stable fixed rate charter revenues and we expect as substantial increase in third and fourth quarter when the West Polaris is included.

We see a very good potential deal flow and the West Polaris transaction demonstrates our ability to structure creative transactions for the company. That also means that we could increase the dividend on the back of that transaction. As we see it, with Ship Finance’s risk profile, the company can grow in all cycles. In the current market we see an increased deal flow and very good access through transactions. We believe we are well funded to continue growing and also, that we have access to capital. With that, we would like to open up for questions.

Question-and-Answer Session


Thank you, sir. (Operator Instructions). We now will take our first question from Jonathan Chappell from JPMorgan. Please go ahead.

Jonathan Chappell - JPMorgan

Thank you. Good afternoon. Over the West Polaris being delivered this quarter, it looks like it is going to add significantly to the bottom line and I'm just wondering, are their other Rig opportunities out there first of all; and second of all, I know that you had a huge syndicate of banks, and we've talked about it in the past that lending is open to the right companies but would you have to issue equity to fund the type of purchase price that these Rigs are providing, even though the accretion is very large?

Ole B. Hjertaker

We of course, constantly look at opportunities to grow our balance sheet in all segments. We think that the off shore space is very interesting, also because we see that many clients have very substantial quota backlogs and they are able then to pay a high charter rate in the beginning of the charters as we did with the West Polaris, where we haven't accelerated the payment, which also takes down our exposure to the asset. So we think that type of transaction is attractive to us, and of course we are continuously looking at opportunities.

With regard to the capital structure, I think our principal focus is to structure deals that are accretive to our distribution capacity.

As we pointed out, also when we went through the liquidity overview, we still had the sources of liquidity available both now and also going into next year that we can tap on. Then of course it is also a question of what is your growth rate; from our perspective I think that if we had the right opportunities, and we could structure deals were accretive enough we could raise equity if we think it will be beneficial for our investors. But our key focus is distribution per share. So I think we are very open-minded.

Jonathan Chappell - JPMorgan

You have a pretty good liquidity position versus a lot of the other players in the market right now; are you seeing owners or shipyards coming to you with offers which may be viewed attractively, because this kind of financing can't be achieved by, maybe, speculative orders?

Ole B. Hjertaker

We see a very good deal flow, and of course we will see more opportunities where owners have problems meeting their obligations, and also are struggling to raise their financing in the market, and our position now is to take advantage of such opportunities, we haven't done many of these transactions so far but we are positioning ourselves to take advantage of them.

Lars Solbakken

And that is also illustrated by the financing of the two container vessels as we mentioned $58 million that we are in the process of structuring which will add to our capacity.

Jonathan Chappell - JPMorgan

Ok, thanks a lot.


Now, we move to John Packer from Jefferies. Please go ahead.

John Parker - Jefferies & Company

Hi, I just want to tell you that your disclosure is excellent and it really makes it easy to analyze properly. Just one quick question; your profit share sensitivity, wouldn't the higher expenses to Frontline for operating expenses eat into your profit share calculation?

Ole B. Hjertaker

No, the profit share calculation is based on the time charter revenues that vessels are earning in the market, so that is calculated before Frontline calculates their operating expenses. So of course if the vessel is in dry-dock, it is not generating revenues and that of course impacts the basis for the profit share calculation.

Lars Solbakken

Operating expenses - that is Frontline's risk and it is not impacting our profit share.

John Parker - Jefferies & Company

You said you have $154 million in the current pocket for investors and finance leases that will be paid over the next 12 months, is that correct?

Ole B. Hjertaker

Are you now referring to our cash position?

John Parker - Jefferies & Company

Earlier in the call you mentioned that in your other current assets, I think you said 154 was for investors and finance leases, is that correct, or perhaps I didn't quite hear you?

Ole B. Hjertaker

That is correct.

John Parker - Jefferies & Company

Ok, good. Do you have any idea of the timing of the $58 million of debt that you will take on against the containers?

Ole B. Hjertaker

No, we cannot give any specific timing, we are working on it, but we just wanted to illustrate that… but as we are working on it currently we of course hope to conclude that relatively soon. But we will not give any guiding whether or not that will be in place in September, but by the end of September or immediately after.

John Parker - Jefferies & Company

Yes… after everyone is over their summer vacations, right?

Ole B. Hjertaker


John Parker - Jefferies & Company

The Suezmax is a very nice trade obviously; I'm just curious, as you look at that transaction, did you also entertain offers for long-term charters or did a good deal come along, and I guess that you're thinking along the lines of 'we don't necessarily want to put more into this tanker space because we already have so much in it', or was it just 'this is such a great offer that we cannot refuse'. What was your thinking going into that?

Ole B. Hjertaker

I think, of course we have looked at several opportunities for long-term charters, and that was our mutual idea of these vessels, but what we have seen is that, basically the vessels values has moved up quite substantially over the last few months but we have not seen the long-term charter rates that we could obtain on a move in parallel with that, and certainly we found now that it was more attractive to sell them than to do a long-term charter. Then of course as we negotiated it, the market was strong and we felt that it was an opportunity to take advantage of the strong market.

John Parker - Jefferies & Company

So you feel that you will probably get better returns elsewhere with that cash?

Ole B. Hjertaker

Yes and we would not be able to get the same return by doing a long-term charter.

The 111 was an attractive price.

John Parker - Jefferies & Company

Yes it was. Well thank you very much, that's all the questions I have.


Now we will take our next question from Anders Rosenlund of ABGSC. Please go ahead.

Anders Rosenlund - ABG Sundal Collier

Would you be comfortable taking on another $1.7 billion worth of Rigs on your balance sheet?

Ole B. Hjertaker

That all depends on the structure of course. We have quite a substantial balance sheet today. If you look at our balance sheet today it is in the region of $3 billion, and we are then adding on close to $900 million when we take on that realship deal next quarter. I think in terms of investing capacity we have done $1.7 billion of deals in the last 18 months, so we have clearly demonstrated the ability to take on a significant volume in the past as we see the bank market still being there for our type of companies. We think that we can continue growing the company. We will not give any specific guidance on numbers and amounts but we think the market is very attractive and we see many opportunities so we want to grow the company in a diligent manner of course with the focus on increasing our distribution capacity.

Anders Rosenlund - ABG Sundal Collier

You have previously commented on the tank of exposure, where you indicated that the desire to diversify your exposure to different segments. How should we read that in relation to potential additional vigil?

Ole B. Hjertaker

I think you shouldn't really, just expect Rig deals or off-shore related deals. You should also look at the other segments. What we have mentioned in the past is, of course, starting with effectively 100% tanker exposure, we are now down to about 50% tanker exposure and 50% on other deals which is then a mix of off-shore which is around 25% and 25% between dry-boat and container.

What we said in the past has been that we of course intend to grow this pie and we believe that both off-shore and container segments are both segments that are attractive for us to grow in over time. Of course we will look at it from deal to deal and of course it is more important for us to structure the right deal than necessarily put the deals in one category or in another category but as we see it we see a very good growth potential for us in both these segments. Over time we will also grow in the dry-boat segment but as we have seen it now, we have been a bit reluctant to grow substantially in that segment that is more based on the values we see there and effectively break even rates for long-term charters on deals in that segment.

Anders Rosenlund - ABG Sundal Collier

Ok, excellent. Thank you.


(Operator Instructions). We now will take our next question from Andreas Stubsrud of Kaupthing. Please go ahead.

Andreas Stubsrud - Kaupthing

Yes, thank you. Two quick questions. Number one, have you paid Cedral the $850 million this quarter or will that happen in Q4?

Ole B. Hjertaker

You can say that we have paid now about $600 million which was paid on delivery. As the operation starts and it enters into the charter with Accent we will draw the last $250 million of the loan. So the equity in the first $450 million of the loan has been paid and then we will draw an additional $250 million after it is finally accepted by Accent. There is no more cash going out, all the cash has been paid.

Andreas Stubsrud - Kaupthing

Ok, and in terms of the $700 million loan for that rig. Is it correct, if you can comment on it, is it approximately 4.9%?

Ole B. Hjertaker

I'm not sure that I've got the question here.

Andreas Stubsrud - Kaupthing

Ok, the loan you had to the bank for the $700 million, in terms of the information that you provided for the press release…in terms of paying $65 million in the repayment of debt, I calculated an interest rate of 4.9%, can I confirm that?

Ole B. Hjertaker

No, I don't think that is correct. There was a base rate, but it is liable at 125 and then of course we had a base rate in the press release that went out, but there is an adjustment there so we have now swapped the loans and then there is an adjustment to the rate. But the net to us is the same; the net amount that was announced in the press release is exactly the same.

Andreas Stubsrud - Kaupthing

So you will be able to pay the $23 million, or the deal will provide the $23 million?

Ole B. Hjertaker

Yes, because all the interest risk was for an illustration there. If you look at the charter rate, the first three months in the original press release based on the original LIBOR rate that was announced based on $107,500 per day. After this interest rate has been swapped for the first 5 year period, the charter rate that will be payable will be $120,500 per day, and that decreasing after the first three month period we announced then $330,000 per day, while they will pay on average for that close to five year period in the region of $345,000.

But that difference is really only going through the interest expense so we will get a higher charter rate but then we will also pay a higher interest rate in that period. It has basically swapped for the whole charter period with Exxon. The next two offers are exactly the same.

Andreas Stubsrud - Kaupthing

Ok so the net is the same for C-Finance and Center will pay 345 instead of 330.

Ole B. Hjertaker


Andreas Stubsrud - Kaupthing

Okay, very good. Thank you so much.


(Operator Instructions). As we have no further questions, I would like to turn the call back to Mr. Hjertaker for any additional or closing remarks.

Ole B. Hjertaker

Thank you very much for participating at the Ship Finance international Q2 presentation; we hope that the results are in line with your expectations and we will of course continue focusing on growing the company and building on the dividend capacity in the future. Thank you.


Ladies and gentlemen, that will conclude today's conference call. Thank you for your participation, you may now disconnect.

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