Scorpio Bulkers Inc. (SALT) CEO Emanuele Lauro on Q3 2018 Results - Earnings Call Transcript

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About: Scorpio Bulkers Inc (SALT)
by: SA Transcripts

Scorpio Bulkers Inc. (NYSE:SALT) Q3 2018 Earnings Conference Call October 22, 2018 9:00 AM ET

Executives

Emanuele Lauro - Chairman and CEO

Hugh Baker - CFO

Robert Bugbee - President

Cameron Mackey - COO

Analysts

Magnus Fyhr - Seaport Global

Amit Mehrotra - Deutsche Bank

Randy Giveans - Jefferies

Noah Parquette - JPMorgan

Ben Nolan - Stifel Nicolaus

Liam Burke - B. Riley FBR

Max Yaras - Morgan Stanley

Jon Chappell - Evercore ISI

Operator

Hello, and welcome to the Scorpio Bulkers Inc. Third Quarter 2018 Conference Call.

I would now like to turn the call over to Hugh Baker, Chief Financial Officer. Please go ahead, sir.

Hugh Baker

Thank you, operator. Thank you all for joining us today. On the call with me are Emanuele Lauro, our Chairman and Chief Executive Officer; Robert Bugbee, our President; and Cameron Mackey, our Chief Operating Officer.

The information discussed on this call is based on information as of today, October 22, 2018 and may contain forward-looking statements that involve risk and uncertainty. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, you should review the forward-looking statement disclosure in the earnings press release that we issued today, as well as Scorpio Bulkers' SEC filings, which are available at www.scorpiobulkers.com.

Call participants are advised that the audio of this conference call is being broadcast live on the Web and is also being recorded for playback purposes. An archive of the webcast will be made available on the Investor Relations page of our Web site for approximately 14 days.

Now, I'd like to introduce Emanuele Lauro.

Emanuele Lauro

Thanks, Hugh, and good morning, everyone. Thank you for joining us today. I’m pleased to report our best quarterly revenue and EBITDA since the formation of the company. Strong sequential improvements continue and the business is starting to generate good levels of operating cash flows.

We’re focused on investing this cash for high returns or returning it to shareholders. With that in mind, the Board has agreed this quarter to maintain the company’s dividend and to increase the buyback authorization to take advantage of current share price.

Also, the Board elected to make a significant investment in Scorpio Tankers at an interesting moment in the company’s development and more broadly in the product tanker market cycle. This investment in STNG was evaluated at length and ultimately approved by a committee of independent directors of Scorpio Bulkers.

It has the support of the most significant shareholders of Scorpio Bulkers and it follows the deliberate process overseen by professional advisors and underwriters. In short, while this investment has garnered some controversy, it was not and is not taken lightly.

Returning to our core business, the supply dynamic in dry bulk continues to improve. In our view the industry remains disciplined partly driven by an ongoing shortage of capital. This is allowing us some visibility into 2019 and we expect a steady recovery in rates to be sustained. In our Kamsarmax and Ultramax segments, this is particularly the case.

To preempt the inevitable question on trade wars in emerging economies, our demand patterns have remained steady. This is particularly due to the diversity of cargo ships by our midsized vessels.

Our industry faces a huge dislocation from the changes in fuel regulations mandated by the IMO from 2020. Regulatory changes can often lead to perverse outcomes. Scrubber technology may be one such example.

However, in adversity there is often opportunity and after significant talk and analysis, we recently announced the measures we are taking to install scrubbers. This is a significant industrial undertaking for the company and as a result I’m glad that our COO, Cameron Mackey, will share his thoughts with you on this call and provided an insight into our thinking.

Finally, we have undertaken important capital and liquidity measures this quarter to extract value from the fleet and preserve maximum balance sheet flexibility going forward.

With that, I will hand over the call to Cameron.

Cameron Mackey

Thank you, Emanuele. The decision to install scrubbers on the majority of our vessels was made after careful analysis of the risks and potential benefits. Our initial posture of patience or wait and see opens up valuable optionality and additional information on the decision to a point. In this regard, we’re happy to be fast followers rather than a first mover.

Of the major risks; they include pen stroke risk or the risk of further changes to regulation or delay, the risk to availability of different fuels in the market and obviously the risk on the spread between gas oil and 3.5% fuel oil.

In addition, many of our vessels delivered between 2014 and '15 and therefore have previously scheduled dry docks due in 2019 and '20. We’ve secured yard capacity to these dry docks in advance, thus we’re fortunate that we are coordinating vessel scrubber installations with their previously scheduled dry docks.

The potential impact of 2020 given that the vast majority of the world’s fleet will not be initially fitted with scrubbers leads us to believe that slow streaming, market dislocations and enhanced levels of scrapping will further tighten supply and those in the best position to benefit from these favorable conditions will be modern fuel efficient vessels equipped with scrubbers.

With this, I’ll hand the call over to Hugh to discuss our financial results in greater detail.

Hugh Baker

Thank you, Cameron. Rates for our ships increased sequentially each month over the third quarter of 2018 and in the quarter our Kamsarmax fleet earned $13,649 per day per ship and our Ultramax fleet made $11,342 per day per ship.

We continue to make healthy cash flows with rates increasing to-date in October and visibility into November bookings suggest November is stronger still. In our earnings press release you will note that we booked 49% of our Kamsarmax fleet days to date in Q4 at $14,382 per day and 47% of our Ultramax fleet days to date in Q4 at $13,388 per day.

The outlook for our dry bulk business into '19 and 2020 looks very positive and we are optimistic. We recently announced a small amount of time charter cover to take us through to past Chinese New Year and this was fixed at attractive rates to support this optimistic market outlook.

We have the best fleets in the dry bulk sector. The most modern vessels built at high-quality yards already 100% fully fitted with ballast water treatment systems and which will be fitted with scrubbers during the next 18 months.

As Cameron has explained, the scrubber investment decision is a reflection of our strategy to maintain our fleet as the best-in-class Ultramax and Kamsarmax fleet as well as comply with the 2020 regulations.

Business is strong and rates are currently attractive, so we are generating strong cash flow and liquidity. During the quarter, we executed a number of financing initiatives which further increased our liquidity. Our current liquidity is $58 million but we anticipate that this will increase by further $38 million over the next few weeks as we close two previously announced financing transactions.

As a result of this and the strong rates we are forecasting for the fourth quarter, we expect our available liquidity at year end to be substantially higher than today’s level. We’re comfortable that we’ll finance our recently announced scrubber program at attractive terms and we expect to announce scrubber financing initiatives during the fourth quarter and the first quarter of 2019.

The complete cost of our scrubber program will be paid for by a combination of loan finance both specific scrubber loans and non-scrubber specific loan finance, current liquidity and cash generation from our existing fleet and we expect to be able to comfortably manage this burden.

At the moment, we do not see significant buying opportunities for fleets of ships of our caliber at attractive levels and believe a better strategy to produce value at this time is to run our existing fleet and reap the benefits of an improving operating environment.

We’re currently not looking at any other opportunities. At its current valuation, we consider that our own stock presents an excellent opportunity and for this reason following on from 11.9 million of our own stock purchased from the beginning of the quarter to-date, we are now resetting our available buyback amount to $50 million.

We want to get the money to work at the best potential return and so we recently invested $100 million in Scorpio Tankers, an investment which was supported by our leading shareholders. We perceive that to be a significant upside in the product tanker sector and we believe Scorpio Tankers with its large modern fleet and market cap is the best available company in this sector.

We were able to secure a good position in the sector we know very well at a very attractive price level. This investment supports our focus on creating the most value over time and not overnight. In conclusion, we are optimistic about rates and cash flow generation is strong so we look forward to the future with great confidence.

With that, I’ll open the call up to a Q&A.

Question-and-Answer Session

Operator

[Operator Instructions]. Our first question comes from Magnus Fyhr with Seaport Global. Your line is now open. Once again the line of Magnus Fyhr of Seaport Global is now open if you’d like to ask any questions.

Magnus Fyhr

Yes. Thank you. Good morning. Just a couple of questions; first, on the charter-in strategy, noticed the fixed employment has increased a bit, rates are expected to increase further going into the winter. Can you just kind of elaborate a little bit on what your strategy is as far as fixed percentage of the fleet going forward or if it’s just opportunistic?

Emanuele Lauro

Magnus, I think that primarily this is optimistic. At the time of fixing you have this sort of really extraordinary good strong market in the sense that your markets in contango for the ships that we have and your time charter rate at the time of fixing was higher than the paper rate which was higher than the spot rate, you’re able to fix that first quarter which traditionally has been the weakest quarter at higher than what you’re actually fixing fourth quarter in the present spot market. So that’s been very, very good sort of risk reward and we may continue to fix a few more ships up there in those levels to cover that first part of the year. But either way we’ve left – believe the majority, the vast majority of the fleet on the spot market into what we think will continue to be a strengthening market related to demand and lack of fleet, new tonnage next year.

Magnus Fyhr

So I guess on the current percentage, it’s about below 25% or around 20%. You don’t see that going over 30% during the winter or --?

Emanuele Lauro

I don’t think so, no. That depends on where the rates go to. But I don’t think – over the winter is a long way into January and February. So you may get a point in time where you’re technically 32 or something, but I would doubt if it goes beyond the high 20s.

Magnus Fyhr

Okay, very good. And maybe for Cameron, when you’re looking at putting scrubbers on the ship and calculate the economics, what – how many sailing days are you expecting to use scrubbers after 2020 on an annual basis?

Cameron Mackey

Obviously, Magnus, it depends on the trading area and trading pattern of the vessel. So just as a rough guide you can use between 260 and 300 days.

Magnus Fyhr

Okay, very good. Thank you. That’s all I had.

Operator

Thank you. Our next question comes from Amit Mehrotra with Deutsche Bank. Your line is now open.

Amit Mehrotra

Thanks, operator. Hi, everybody. So just Cam just following up on the scrubber question, just on the investment and timing, are all the orders firm or does any of the orders reflect options? And I think most people that know much about IMO 2020 think the market could get very dislocated shortly after the mandate or right at the mandate. So I just want to understand the strategy of waiting to install some of them until 3Q of 2020. That was really kind of the source of the question in terms of maybe some of that reflects options that you guys are looking to maximize your optionality on? Thanks.

Cameron Mackey

No, thank you for that. It goes without question and we’ve said this on previous calls that the analysis is a bit more nuance than an Ultramax or a Kamsarmax than it is on a VLOC or a new Kamsarmax and certainly it’s more nuance because of the age and fuel efficiency of our vessels. So for all these reasons we wanted to really get our hands around particularly that pricing and availability, those two risks that I spoke of before let alone the political risk. As it appears, once the big guys whether it’s container operators or large tanker or bulk carrier operators go for scrubbers, the supply chain, the bunker supply chain in the industry starts to get reassured on demand post 2020 and therefore we can then piggyback on that reassurance to be more confident in our investment decision. When it comes to the timing, you’re right. There is a bunch of optionality in our agreement, so I’d say it’s neither for – our orders are not entirely – they are firm but I would also describe a fair bit of flexibility or optionality in our program to move around timing installation as the market develops further.

Amit Mehrotra

Interesting. So basically you’re saying half – maybe more than half a fleet may actually not be installed until maybe early 2020 and then you may start accelerating the installation process?

Cameron Mackey

Let’s put it this way as a modeling assumption you can say between say the second quarter of '19 and the third quarter of '20 you should look at pretty much a liner distribution. But in that timeframe should we face unforeseen risks, we will adjust as necessary or to the accounts --

Amit Mehrotra

Okay, that’s helpful. Thanks. Just one last one for me. I can’t hang up without asking about the 800-pound girl in the room which is the STNG investment. So Robert or Emanuele in an environment I guess where capital for shipping is quite scarce following the investment, where does SALT exactly fit among the drivable peers just given now that 20% plus of the net asset value of the company represents an investment of product tanker company? And then also you keep on reiterating for obvious reasons that the deal was supported by the most significant shareholders. Obviously SSH is the biggest shareholder for SALT. Can you just give us some more color on that because the reaction to be quite fair has been almost across the board negative on the investment and so I just want to understand how much of the share capital base did you get locked up before you decided to do this investment or was it just SSH just given its position as the largest shareholder? Thank you.

Emanuele Lauro

Amit, thanks for the question. Okay, so I’ll take the last question first which is clearly an important one. Over 50% of the outstanding shares of SALT were supportive by the transaction. So in that sense I would say highly supportive not only in just the idea of SALT doing it but also in the actual STNG position too. I don’t really think that we’ve taken into consideration how we fit with our peers. We’ve only really taken into consideration the idea of creating value over time. And when we look at the product market and we look at the product market related to 2020, the product market is really at the cusp of its recovery and certainly you could look at the dry bulk market as somewhere in the fourth or the fifth innings maybe and the product market they’re still throwing out whatever it’s called, the practice pitches or celebrity pitches. And STNG itself is in a position where the product market doesn’t just gain from the improvement of the product market and the tanker market but it really is the main beneficiary under this 2020 with its new fleet and its size and its position. And the pricing of the STNG deal was done, it created tremendous value as an investment for the SALT shareholders. And touch – cross fingers, already the product market has been improving every day since SALT made its investment and the tanker market itself led out --

Amit Mehrotra

Yes, but the stock’s down $0.11 – the stock’s down $0.11 since you price it.

Emanuele Lauro

Sure, but it’s not a daily mark. The SALT is not making a daily mark on the position. We’ll look and see what happens in three months, six months. If you wanted to daily mark, SALT is down, STNG is down less than dry bulk is in the last 10 days.

Amit Mehrotra

All right, I will --

Emanuele Lauro

You made the comparison to other dry bulk stocks. STNG’s stock has outperformed ever dry bulk company in the last seven days. Seven days is irrelevant.

Amit Mehrotra

Yes, that’s fair. Okay, that’s all for me. I’ll hop off. Thank you very much.

Emanuele Lauro

Thanks.

Operator

Thank you. Our next question comes from Randy Giveans with Jefferies. Your line is now open.

Randy Giveans

Thank you, operator. A few quick questions on the scrubbers for me. So who is the supplier of the scrubbers and how much downtime is expected for each vessel?

Cameron Mackey

Thanks, Randy. We’re not prepared to disclose the scrubber suppliers right now but we will in time. We’re still working through some follow-up terms on our agreements. The downtime that we expect for installation is about 28 days, including commissioning. Of that 20 days, as I mentioned, most or many of our vessels have previously scheduled dry docking that will take up somewhere between 60% and 75% of those days. So in other words, the scrubber work – installation work will be going on concurrently with other regularly planned maintenance on the vessels.

Randy Giveans

Okay. And just for our own analysis, you were saying days that see 260 plus days. What is the daily fuel burn for that kind of full speed on the Kamsar and Ultramax in terms of tons per day?

Cameron Mackey

It actually depends a great deal depending on the type of cargo and the order-to-speed in the charter party, so we might take that offline but we can walk you through some indicative analysis if you like.

Randy Giveans

Okay. Now switching over to the $100 million investment in STNG, is that kind of a sign that you believe those shares are a little better value than SALT shares?

Cameron Mackey

No. I don’t think you should [indiscernible] simple. You can see that we’ve been buying back shares in the SALT at every opportunity. We’ve been in the market almost every day. You can imagine there have been a lot of blackouts with SALT. You have the official earnings windows that you can’t deal. And then if you’re preparing to do a deal, you can’t buy and if you’re doing a financing or material information, you can’t buy either. So of the days that we’ve been allowed to buy I think SALT has been virtually in the market every single day. We’ve also been asked and try to do block deals every single day in the market and we’ve been unable to get those block deals. Right now, look, I understand that some people if they want to sell a company don’t necessarily want to do it in a public way, so contact us, contact the company if you have a block of shares that you want to sell. We’d like to know about that. So we really believe that SALT is a great value. We bought back shares where we could this quarter. We have been buying through the day. We’re not just re-upping [ph] the shares buyback to 50 million for show or without the ability to do it. We can clearly do that of our balance sheet and our expected forward earnings. And as shipping companies go with buybacks, you can see we’ve made a concerted effort to do that. You just could not go and take efficiently $100 million of SALT. We couldn’t buy that through the market and we couldn’t efficiently append to buy $100 million of SALT knowing how close and tied up our shareholder base is. So it’s certainly not a confidence – a lack of confidence in SALT that we buy STNG.

Randy Giveans

Okay. And then following up on that, how long do you expect to hold these STNG shares? Is there a lockup period?

Cameron Mackey

There is a lockup period but we expect to hold STNG shares for considerably longer than the lockup period. The lockup period was 90 days from the actual deal itself. And as you can see from the balance sheet there are a few people who didn’t really follow the company properly or understand the SALT balance sheet properly who may have thought that SALT would be under pressure to sell the STNG shares if the dry cargo market went south. But you can see from our balance sheet there is no pressure to do that. So we’re running out the investment. If you were to look at – we’ve already said that we think that the product market is poised in its very early stages of recovery, but it’s got this [indiscernible] coming in shipping which is a clear positive demand side catalyst coming toward in '19 for 2020. So that would indicate that for the foreseeable future or even next year or two we’d expect to be owners of Scorpio Tankers shares. Now whether Scorpio Tankers doubles in value in a relatively short time, who knows, and whether our shareholders then say, okay, let’s dividend some shares out, that’s okay. But in terms of our actual shareholders whether it’s directly through SALT itself or through our individual shareholders via dividend which we will follow their advice over time, who knows.

Randy Giveans

Okay. And then I guess SALT is or has been or still is a dry bulk company mostly. How would you – how are you seeing kind of the U.S.-China trade war concerning tariffs? Apparently Brazil, Argentina starting to import U.S. soybeans. Are you seeing some of those flows on your ships?

Cameron Mackey

Yes, I think we’ve been a beneficiary and continue to be beneficiary in the soybean trade. We probably in those smaller ships are becoming a beneficiary too in the regions around China growing; the Chinas, the Vietnams and other areas. We could become an even greater beneficiary if some of the talk related to some of the worry related to the Capesize market which is China’s own domestic steel demand slows. We could probably may become sort of an accidental beneficiary to that if China on the other hand is upping its exports of steel itself.

Randy Giveans

Okay, all right. Well, that’s it for me. Thanks again.

Operator

Thank you. Our next question comes from Noah Parquette with JPMorgan. Your line is now open.

Noah Parquette

Great. Thanks. I wanted to ask about the self regulation. There was a news last week the Trump administration wants to put in an experience building phase and obviously there was a report a couple months ago from INTERTANKO on some other flag states. Do you guys see any risk of that happening or any even path to some sort of experience building phase or is that just not really something to think about?

Cameron Mackey

We don’t have or we can’t predict the future but up to now it’s appeared to be a very remote risk, very remote. Now different constituents of the IMO obviously have their own agendas. So I would say much towards disappointment INTERTANKO and some of the larger flag states don’t really represent our interest either in the short term or the long term. I’d call them more apologists for your typical small undercapitalized shipowner who obviously seeks a delay, doesn’t have the capital to install a scrubber. Trump, I think most people believe, is looking to high gasoline prices with some sort of interest in talking them down. Of course the U.S. could withdraw from the regulation but that doesn’t change what happens in the rest of the world and furthermore there is some debate over whether that change is what happens in the states and their own local courts. So the short answer is it doesn’t really bother us and we don’t see a significant change because of those headlines.

Noah Parquette

Okay.

Emanuele Lauro

I’d just like to add one thing on the charter. I think it’s important to look at the charters themselves. They’re basically – the longest charters are about six months, the average is about five, six months on the position I think is one or two that are a little bit longer. So that itself is a pretty bullish statement in that we’re really only looking to see coverage for the first quarter in the minority of the fleet itself. So I’d just add that as a point.

Noah Parquette

Okay. And I just wanted to ask, I think you guys say the share count and maybe this is more of a modeling question was 75.4 million now and the weighted average is 72.7 last quarter and obviously you’ve been buying back shares. What’s the discrepancy between those two? Is that restricted stock or is it something else I’m missing?

Hugh Baker

It’s restricted stock.

Noah Parquette

Can you give any sort of guidance on what the weighted average for EPS purposes will be in Q4 or it’s too early?

Hugh Baker

2.7 million shares.

Noah Parquette

Okay. Thanks.

Operator

Thank you. Our next question comes from Ben Nolan with Stifel. Your line is now open.

Ben Nolan

Thanks. Robert, I wanted to follow up on what you just sort of mentioned there about sort of how you’re thinking through your charter coverage and merit and maybe with the scrubbers. I know in recent conversations that I’ve had with a number of the charters, they are looking to lock and cover for scrubber fitted ships for longer durations beyond 2020. Curious now that you guys have made that move, is there a degree of then reverse inquiry into you guys say, hey, great we would really like some of your Supramaxes or whatever and here’s the rate we’d be willing to pay or is that just not a conversation you’re open to having?

Cameron Mackey

Ben, it’s Cam. There is inquiry and yes it’s not a conversation we want to have. Obviously we’re used to this type of inquiry from the time we ordered our vessels being the most modern and most fuel efficient. So it’s a new iteration on an old conversation. But as you know very well, the charters aren’t willing to pay rates that make sense for us. So given that our charters and a lot of voyages are on either short-term TC or call it dollars per ton business, the rent that we are able to keep by staying spot is much more attractive than looking to fix out and sharing that rent with a big charter.

Ben Nolan

Cam, do you think that discrepancy closes as we get closer to the implementation day?

Cameron Mackey

Absolutely it will. But I think if I had to predict you’d be looking in a year’s time a real two tier market scrubber fitted or non-scrubber fitted for a lot of the shorter period. And then as you get further out the charter curve as you do in other asset types, you get much more to a return on capital type discussion as opposed to a utilization and state of the cycle type discussion, right.

Ben Nolan

Sure. And do you think as we – should that develop and we get to a two tier market and as we get a little bit further out, is there a point in which you would be willing or open having those conversations saying, fine, we’ll charter you at X but we want that premium for three years or whatever, or is that too far afield from kind of the spot model that you currently have?

Cameron Mackey

No. Those types of conversations go on all the time. Our customers appreciate that we’re thought oriented and we’re in for a cyclical recovery and a cyclical play. So it would be somewhat of a counterintuitive let alone a significant change in our commercial strategy to start to entertain longer term fixtures either in any respect but certainly on the basis of scrubbers alone.

Robert Bugbee

And I think Ben also you look at it like right now if you took in simple terms the value of a modern Ultramax without scrubbers and the net time charter rate, you’re throwing off around a 10% gross cash flow to valuation. If you moved up into – as a result of putting scrubbers on and the market improving and you moved up to gross 25% return on your valuation or 20% with the valuation moving up may be 10%, 15%, 20% as a result of rates, it’s a different prospect then. If you’re locking a ship out and you’re able to return all your equity within a three-year period, then I think it’s a sensible thing anyway to probably fix some ships out.

Ben Nolan

Sure. Okay. Well, I turn it over now. Thanks, guys.

Operator

Thank you. Our next question comes from Liam Burke with B. Riley FBR. Your line is now open.

Liam Burke

Yes. Thank you. Good morning. In terms of the, up-in-the-air regulation, how are you addressing open versus close systems on the scrubbers?

Cameron Mackey

Thank you. Our scrubbers will be fitted are called hybrid ready which means they were will be fitted to operate only in open loop condition. And then in the future should the regulatory landscape change, we can further modify the vessels and the systems to operate in full hybrid mode. So it’s like buying a cheap option. We’re installing open loop scrubbers with the option to turn them into hybrid or close loop systems in the future.

Liam Burke

Okay. And would that require any more dry docking or could that be done relatively easily with upgrades?

Cameron Mackey

No. A close loop system is a bit more entailed work. So like I said, the environment would have to change significantly enough for us to count additional dry docking work for that. But the flipside of it is just to be clear the world is not mandating at this time close loop scrubbers and it will take some significant time horizon for that to come through the IMO or reach a critical mass in the world.

Liam Burke

Great. Thank you.

Operator

Thank you. Our next question comes from Max Yaras with Morgan Stanley. Your line is now open.

Max Yaras

Hi. Thank you. Going back to the two tier market for scrubbers, what percentage of the Ultramax or midsized fleet you expect to have scrubbers? And then what percentage does that have to get to where you start to realize the full economic benefit of the spread?

Cameron Mackey

Thank you for the question. We don’t have very detailed statistics but in general those who were installing scrubbers have to have access to significant amounts of capital. And as you know from where the dry bulk market has been only a couple of years ago, there aren’t a lot of owners that have access to that capital. So it’s a very, very small number occupied mostly by publicly listed players or very large well capitalized private owners. So of the total Ultramax fleet, I can’t imagine that’s more than a couple of percent of the entire fleet and it will take – again, this is just a guess. It will take several, several years before you get to a significant number of Ultamaxes being scrubber fitted.

Max Yaras

Okay. And then on the financing, I know it’s not fully announced yet but what kind of rate do you expect to achieve on that financing rate? And is it with existing lenders or new lenders?

Hugh Baker

Max, we haven’t really determined yet how we’re going to do it, but we have a pretty good idea of the sort of general direction of travel. We would anticipate the majority of the finance will come in the form of sort of conventional bank lending. It will come from our existing lenders. And we’re not anticipating that we’d have to pay more than the current cost of finance for scrubber financing. Now currently we’re getting financing done from sort of conventional European shipping lenders at around LIBOR plus 230 to 240 basis points. And I think that that’s where we’re going to expect the majority of our scrubber finance to come out of.

Max Yaras

Okay. And then one final one on the STNG investment. Are you looking at any other investments outside of the dry bulk space?

Emanuele Lauro

No.

Max Yaras

Okay. All right, thank you.

Operator

Thank you. Our next question comes from Jon Chappell with Evercore ISI. Your line is now open.

Jon Chappell

Thanks. Thanks for the commentary, Cam. I just have two follow ups for you on comments you made before. So the dry dock schedule, you see most of the ships that are going to do the scrubbers were already kind of planned for dry dock. Can you just tell us how many off-hour days were expected for 2019 pre-scrubber decision and then post-scrubber decision?

Cameron Mackey

Jon, I’m going to differ to Hugh for that and he might not have it handy right yet because we’re still getting final documentation on our slots and our scrubber schedule.

Hugh Baker

All I can say is that we’ve obviously put in indicative of higher periods in our own internal financial projections. I don’t think we’re really in a position to share that. But I would go back to what Cameron has said is that we are – most of the scrubber installation is going to be concurrent with normal dry docking schedules for the vessels. And generally speaking we’re looking at dry docking and scrubber installation is generally in the sort of 28-day range with – if it’s scrubber installation on its own without dry docking, you’re looking at less than that.

Jon Chappell

Okay. Well, maybe Hugh, how many were scheduled for dry docking anyway in 2019? And then is there any way to say how many that you’ve decided to put scrubbers on weren’t in the normal 2019 schedule and now be added on top of the normal schedule?

Hugh Baker

I don’t have the schedules at hand but obviously all of our vessels that were built in 2014 will be dry docked in 2019 and all of our vessels built in 2015 will be dry docked in the year after. And then we will potentially include other vessels that we will just simply be putting scrubbers on without dry docking. Cameron, can you --?

Cameron Mackey

Yes, that’s about right. If you want, Jon, we can schedule a call after this to walk you through the schedule and the math.

Jon Chappell

All right, I appreciate it. Thanks, Cam. The second thing is you mentioned the fleet slowdown just benefitting the industry in general and certainly one of the catalysts we’ve been expecting as this regulation is phased in. We’re starting to hear from some industry players and maybe they’re pitching their own book from the chartering side that the fleet’s already operating kind of near optimum speed given just the proximity to the deep downturn in 2016. Is there kind of any way to gauge how much more potential slowdown could happen from running on the compliant fuel or these charters are kind of on point where the fleet’s kind of already running at optimum speed?

Cameron Mackey

No, not necessarily, Jon. I’d say, look, laden speed is what the charters care about and you’ve seen charter party speeds move around a little bit with the cycle, 13 knots down to 10.5, 11 back up to 12, et cetera. Now ballast speed is entirely at the discretion of the owner. And so what we’re predicting is there’s a certain self-correcting mechanism part to this but still the same where less well capitalized or older ships if you take the additional costs of compliant fuel into account, their ballast speed could go well down to 7, 8 knots if they really wanted to optimize. So when you say optimize it depends on whose perspective you’re adopting.

Jon Chappell

Got it, all right. Thanks, Cam.

Emanuele Lauro

I would just like to add before we wrap up a pretty significant data point which I think is quite bullish. This is the first conference call we’ve ever had for SALT where there’s not a single Norwegian or European analyst asking a question. So with that, I’d just like – Hugh, if you’d like to wrap up.

Hugh Baker

Thank you all for being on this call. We have no further questions. And thank you for joining us today and we look forward to speaking to you all in the future. Thank you very much. Thank you, operator.

Operator

Not a problem. Ladies and gentlemen, thank you for participating in today’s conference. This does conclude your program and you may all disconnect. Everyone, have a great day.