Diana Shipping Inc. (DSX) Q4 2015 Earnings Report, Transcript and Summary

Greetings and welcome to the Diana Shipping’s Fourth Quarter 2015 Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Ed Nebb, Investor Relations Advisor. Thank you. You may begin.

Thank you, Christine and thanks to everyone for joining us today for the Diana Shipping 2015 fourth quarter and year-end conference call. The members of the management team with us today are Mr. Simeon Palios, Chairman and Chief Executive Officer; Mr. Anastasios Margaronis, President; Mr. Andreas Michalopoulos, Chief Financial Officer; Mr. Ioannis Zafirakis, Chief Operating Officer and Secretary; and Ms. Maria Dede, Chief Accounting Officer. Before management begins their remarks, let me briefly summarize the Safe Harbor notice. Certain statements made during this conference call, which are not historical fact are Forward-Looking Statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act. Forward-looking statements are based on the assumptions, expectations, projections and beliefs as to future events that may not prove to be accurate. For a description of the risk, uncertainties and other factors that may cause future results to differ from the forward-looking statements please refer to the company’s filings with the Securities and Exchange Commission. And with that, let me turn the call over to Mr. Simeon Palios, Chairman and CEO of Diana Shipping.

Thank you, Ed. Good morning and thank you for joining us today to discuss the results of Diana Shipping Inc. for the fourth quarter and full-year 2015. It’s been a challenging environment for the dry bulk marketplace, we continue to take advantage of opportunities to expand our fleet and position the company for future industry cycles. At the same time, we maintain a solid balance sheet as a source of selling in a volatile market. To review our financial results the company reported a net loss of $22.5 million and a net loss attributed to common stockholders of $23.9 million for the fourth quarter of 2015. The comparable results for the fourth quarter of 2014 were a net loss of $6.2 million and a net loss attributed to common stockholders of $7.7 million. For the full-year of 2015, the net loss and the net loss attributed to common stockholders were $64.7 million and $17.5 million respectively. This compared to a net loss and the net loss attributed to common stockholders of $10.3 million and $15.3 million respectively for 2014. Our time charter revenues were $38.3 million for the fourth quarter and $157.7 million for the full-year of 2015. This compared with $46.1 million for the fourth quarter and $175.6 million for the full-year of 2014. The Diana Shipping continues to maintain a fortress balance sheet. Cash and cash equivalent exceeded $193 million at December 31, 2015. Long-term debt including the current portion was $606 million compared to stockholders equity of further $1.2 billion. As per our well established strategy, we continue to take advantage of the current market conditions to expand our fleet. We took delivery in November of 2015 of the motor vessel Seattle, a 179,362 deadweight Capsize dry bulk vessel built in 2011. Also in November, we took delivery of the motor vessel New Orleans, a 180,906 deadweight newly built Capsize dry bulk vessel. In February of 2016, we agreed to acquire subject to financing three Panamax vessels with delivery expected by the end of this month. The motor vessel Sunshine in 2010 built Panamax dry bulk vessel of 75,700 deadweight, the motor vessel MANZONI a 2015 built Panamax dry bulk vessel of 75,400 deadweight and Infinity 9 a 2015 built Panamax dry bulk vessel of 77,901 deadweight. With the delivery of the three more traditional recent acquisitions our fleet will consist of 46 dry bulk vessels. We also have two new building new Kamsarmax dry bulk vessels and one new building Kamsarmax dry bulk vessel expected to be delivered in third quarter and fourth quarter of 2016. We continue to manage the fleet in a prudent manner that promotes the balance of same charter maturities and produces and predictable revenue stream. Currently, our fix revenue days are 64% for 2016. Moving forward Diana Shipping will continue to deploy its strong financial capacity which supports shareholders value oriented strategies. Specifically, we will continue to maintain a strong balance sheet while seeking opportunities to expand our fleet to be well positioned for a more promising phase of the dry bulk side. With that, I will now turn the call over to our President, Stacy Margaronis, for a perspective on the industry conditions. He will then be followed by our Chief Financial Officer, Andreas Michalopoulos, who will provide a financial overview. Thank you.

Thank you, Simeon and very good morning to all the participants for this fourth quarter 2015 Diana Shipping, Inc call. There is no need to remind anyone who is even remotely connected to the dry bulk cargo shipping industry of the current state of the dry bulk market. Just to put things in context, we will remind ourselves that on October 1 the BDI, the Baltic Dry Index stood at 888 and yesterday closed at 332. The Baltic Panamax Index did not very much vessels starting from 704 on October 1 and closing yesterday at 357. The Baltic Cape Index moved during the same period from 1,911 to 174. Now, let's look at macroeconomic development, latest figure show that the Euro zone GDP grew by 1.5% in 2015 in line with expectation while the 28 countries of the European Union grew by 1.8% in 2015. The European Commission’s 2016 all forecast for the Euro zone has been lowered from 1.8% in November 2015 to 1.7% today, due impart to increase global risk including slower growth in emerging markets and in China. However, lower oil prices and the lower euro are expected to support growth in the Euro zone during 2016. In February this year, the China manufacturing PMI remained at 49. This was an improvement December 48.2 but still lower than 2015 indicating economic contracts. China's January trade surplus reached a record of $63.2 billion. We agreed with Commodore Research who believe that even though China has several problems to resolve with this economy large consecutive monthly trade surplus should not be ignored. These surpluses and huge foreign reserve provide a major benefit to the economy and room for the Chinese government to maneuver in its effort to resolve these problem. To put things in the right perspective Commodore Research point out the China foreign reserve are about $3 trillion. The government has according Moody's reportedly being recently growing from the reserves in dealing with various problems and it estimates that reserve have shrunk by 762 billion over the last 18 months. Trade services have been adding an average of $60.1 billion to these foreign reserves each month. The U.S. Manufacturing Purchasing Manage Index PMI, in January was 52.7 beating the expectations which stood at 51, overall the U.S. economy grew by 2.4% in 2015 and according to Braemar ACM is expected to grow by similar rate in 2016. According to Braemar ACM, global manufacturing expansion accelerated slightly so far in 2016, but remain weak overall as positive growth in developed market failed to accept the contraction in emerging economy. One of the bright spots of 2015 as far as growth is concerned was India, its economy grew at 7.5% in 2015 according to official figures, even though from October to December 2015 Indian GDP growth dropped somewhat to around 7.2%. The Indian government revised sharply upwards previous quarter growth. Let's look at the freight and time charter earnings now to bulk carriers. The current average Capesize spot market earnings are holding around $2,300 per day while Panamaxs are earning in the spot markets around $2,800 per day. The average 12 month time charter hire stage for a modern Capesize vessel sounds at around 5,250 per day delivery Pacific, while modern Panamax will bring in near $4,500 per day again delivering the Pacific for the same time charter period. Such higher levels do not cover even the operating expenses of the ship concerns let alone covering finance cost. Now active volume, the dismal earnings of large bulk carrier and the negative sentiment prevailing in our industry for awhile now has as expected affected asset values. The three months price trend for modern capesized bulker values has declined by approximately 24% with a modern Panamax value dropping by approximately 20% during the same three months period. So what about the new building order book? According to figures published by Clarkson’s, the bulk carrier order book as a whole consists of 1,571 or so vessels which currently present about 16% of the existing global fleet. The Capesize order book is made up of 240 vessels of 48.5 million deadweight pounds representing about 16% of the global Capsize fleet. There are 333 Panamax vessels on order including Kamsarmax and post-Panamax with a total deadweight capacity of 27.4 million tons representing 14% of the existing global fleet. There will undoubtedly be several cancellations and delivery delays of the 2016 vessels into 2017 and beyond, our estimate of actual compared to scheduled deliveries for this year is around 60%. According to Clarkson’s there are reports that three large Chinese bulk carrier owners, China VLOC Company Limited, China Ore Shipping and high TDC leasing are about to order up to 30 VLOCs. These should suffern for deployment by Valae SA from long-term contractor fleet. If this order is finalized, it would add at least 12 million deadweight tons to the Chinese order book this year, equivalent to 40% of the total bulk carrier tonnage at Chinese yards in 2015. Again, if this all materializes, it will undoubtedly delay somewhat recovery of Capesize vessels. [indiscernible]. According to Gibson’s between 40 to 50 bulk carriers of all sizes are probably laid-up in Asia. About 20 vessels are laid up in illusive stage of which 12 arrived only recently. As a percentage of the total bulker fleet delayed the tonnage is still insignificant for the time being, as for scrapping now. The average bulk carrier age stands of just less than nine year according to Clarkson’s. However, the distressed market conditions are leading downward ships to the scrap yard. Clarkson's continues that in 2012 the average age of bulk carriers sold for scrap was 28 years. This age was poured into 25 years in 2015 and 23 years so far in 2016. For the Capsized vessel, the average scrapping age have dropped 20 years so far this year. In January of this year, Panamax and Capsize sold for scrap only 14 years of age each. This is a new record for a long life. During the last year, 99 Panamax vessels were actually scrapped according to Braemar ACM. In the Capsize vessel, 82 ships were reported sold for scrap during 2015. Clarkson’s predicts that 40 million deadweight worth of bulk carrier tonnage will be scrapped in 2016. This could help reduce fleet growth to less than 2% this year. Again, according to Clarkson’s percentage bulkers of 6.7 million deadweight ton has being sold for demolishing so for this year, at least 20 of which were Capesize bulkers representing approximately 1.8 million deadweight. Around 1.6 million deadweight of Panamax have been sold for scrap thus far in 2016 according to Maersk. Let's turn to fleet growth now. According to Clarkson’s, the bulk carrier fleet increased by 2.4% in 2016 after growing 4.8% in 2014. In 2015, the Panamax fleet increased by 2% and the Capes by only 0.5%. Nearly two thirds will be net bulk carrier fleet growth last year was concentrated in the Supramax, Ultramax sectors which showed 269 deliveries and only 71 deletion. Overall, the bulk carrier fleet is expected by Clarkson’s to expand by between 1% to 2% per year between 2016 and 2018. The assumption here is that deliveries will go at around 40 million to 50 million deadweights per annum in 2016 and 2017 and between 25 million and 30 million in 2018. Removal figures are expected to be around 40 million deadweight this year as mentioned earlier about 34 million into 2017 and 17 million in 2018. Clarkson’s predict that in 2016 the Capsize fleet will reach 311.7 million deadweight representing a near 0.7% increase compared to 2015. In 2017, the prediction is for the Capsize fleet to be 310.2 million deadweight. If it's materializes it will represent a 0.5% shrinkage of the fleet of Cape. For Panamaxs the predicted figures for 2016 are a fleet of 198.3 million deadweight representing 1.5% fleet growth and for 2017 the Panamax fleet could reach 200 million deadweight up by 0.9% compared to 2016. Obviously, these figures incorporate several assumption as regards scrapping and new building deliveries most of which I mentioned throughout the short presentation. [indiscernible]. According to Braemar Shipbroking, when freight rates grows somewhat during the third quarter of 2015, Capsize ships accelerated to an average of 10.9 NOx in balance. This was about half and faster during the first half of 2015, when rates are almost constantly below operating expenses. Late and speeds were also increased as operators wanted to capitalize on the better rates. As rates crashed during the fourth quarter of 2015 and the first weeks of 2016 Capesize ships review their late and speeds, but carried on sailing higher speed in balance. The recent fall in oil and bunker prices has rendered few savings less significant hence this the speed discrepancy. On congestion, Braemar Shipbroking had reported that congestion is the main loading and discharge port came down during 2016 helping drag the sport dry index down to record low levels. The average number of Capesize ships waiting outside ports in China, Australia, Brazil averaged to 156 between January 2011 and June 2015. In contrast, just over 120 ships on average have been lined up at ports in those countries over the past seven months. On bulk carrier demand now, according the Clarkson’s in 2015, the bulk carrier trade grew by just 1% compared to the previous year driven by the impact of slowing Chinese GDP growth on the company's seaborne iron ore imports. Another factor having a negative effect on seaborne, bulk trade has been coal, seaborne coal trade contracted for the first time in almost 30 years largely driven by 30% collapse in Chinese coal import demand during 2015 compared to the prior year. In the base case scenario Clarkson’s predict that the dry bulk trade will increase by about 1% in 2016, followed by growth of 3% per year in 2017 and 2018. Growth in real tonnage demand taking into account tonne miles is not expected to deviate significantly from the volume growth, saving distances in grain, soybean and some industrial commodities are expected to rise while Clarkson’s foresee relatively small changes in iron ore and coal. Ship sailing speeds are not expected to increase much more than they already have until trade rate reached much higher level. Based on the above mentioned assumptions, Clarkson’s expects growth in demand before shorter fleet expansion this year without ruling out vitality in earnings due to factors such as seasonality, trading and fleet productivity. In 2017 and 2018, Clarkson’s expect demand gradually outpace the bulk carrier fleet which could result in a recovery from late 2017 through 2018, closing will determine the pace of end market recovery down the road together with several other factors north east of is the restraint in signing new building contracts by owner especially for the next year or so. Let's look at steel now, according to Gibson’s Shipping Energy world steel production for 2015 was 1.623 billion metric tonnes down 2.8% compared to 2014. The seasonal capacity utilization for the whole of 2015 was 69.7% compare to 73% in 2014. China produced 803.83 million metric tonnes steel in 2015 according to the National Bureaus of Statistics, down 2.3% from a year earlier. This was the first annual fold in Chinese crude steel production in three decades. Gibson’s Shipping Energy predicts that steel production in China may be reduced by further 2% or 3% this year. It is a prediction shared by the Chairman of China's Iron and Steel Association. At the high end of this change, steel production will be reduced between 23 million and 24 million metric tonnes. On iron ore line, according to Maersk Broker, oversupply of iron ore has expanded output by the big low cost miners more than offset cuts in high cost supply mine especially in China. In 2016, Chinese iron ore imports increased by 2% to reach 954 million metric tonnes. A possible explanation for this increase is that the country’s steel mill took advantage of collapsing in iron ore spot prices thus is placing demand for domestic ore replacing it with cheaper imported iron ore. For 2016, Clarkson’s predicts that Chinese iron ore imports will decline by about 2% compared to last year. On a global basis, iron ore imports are expected to decline by about 1% in 2016. In the longer term, Clarkson’s predict that with further downward pressure on iron ore prices there will be an increase in the closes of uneconomic Chinese iron ore mine. Therefore there could be an increase of iron ore import to China of about 30 million to 40 million tonnes from 2017 onwards. Stock price of iron ore in Chinese ports remain high at around 96 million tonnes, with steel production weak these numbers gained more significant compared to the time when the steel industry was consuming ever greater volumes of this raw material on a monthly basis. Let's turn to thermal and metallurgic results. We agree with Clarkson’s that a very vital factor for dry bulk demand will be the trend in Chinese coal imports. This assumptions is made that electricity demand in the country will climb to 2% to 3% per year. The main question becomes at what pace will the capacity of alternative electricity production increase. Hydropower capacity growth would probably be limited in the coming year judging by the number of new hydro dam projects. Even though capacity of other renewal will expand significantly, these will be relatively small in the total production of energy statistics. According to Commodore Research, probably 491 billion kilowatt hours produced in China in December of 2015, 385.6 billion kilowatt hours was produced from thermal coal power stations, only 67.7 billion of electricity produced last December came from hydropower. Thermal coal imports was also stabilized depending on the Chinese government policy to support inefficient domestic coal mine. The Chinese government is planning to close up to 1,000 small Chinese coal mines in the coming year in a bid to remove 60 million metric tons of output. Some new coal fired power plant projects in Japan, Indonesia, Vietnam and elsewhere in Asia to provide a much needed boost to the thermal coal trade. Finally on a worldwide basis, thermal coal imports are expected to remain flat in 2016 compared to last year. Turning to metallurgical coal, Clarkson’s see an upside potential for the coal trade in the form of higher Indian import. Expanding Indian steel production coupled with an increasing number of coal fired power plants may generate higher growth in overall demand for coal down the road as India cannot source all of its coal requirements domestically. India is expected to increase its imports during this year by 6% compared to 2015. Gibson's reports that the import tax cuts from 6% to 4% on Australian metallurgical coal imported to China is now in effect. This had resulted in some additional interest from end users for February and March delivery cargo. However, for 2016 as a whole, Clarkson’s are forecasting that Chinese coking coal imports to will drop by 8%. On a global basis, Clarkson’s expecting on coking coal exports to fold by 1% in 2016 compared to last year when total exports declined by 3%. Grain progress. According Clarkson’s, the global combined wheat and coarse grain trade is projected to drop by 2% in the 2015 to 2016 crop years. The decline is expected to be partly driven by 4% drop in imports into Asia. According to Howe Robinson, combined whole farm exports from Brazil and Argentina are forecasted to reach record level in the 2015 to 2016 season. In addition to large supply, both countries have weak currencies making their export rate competitive relative to other suppliers. Brazil's exports are forecasted to grow record levels using exceptionally good harvest. Argentina's exports are forecasted to be the second largest on record. Exports are expected to remain strong mainly due to larger projected supplies these coming months. The bulk of Argentina's 2015 to 2016 exports are likely to shift towards the middle to the end of the summer season in the Northern Hemisphere. Finally, let's have a look at the seaborne trade outlook. Valae is predicting according to Commodore Research that its S11 B project which is targeting the production of an additional 90 million tons of iron ore per annum will to be completed by the end of 2017. Valae’s production will then reach 430 million tonnes per annum and operations are expected to commence in the second half of 2017. [indiscernible] should be able to handle a massive 230 million tons of iron ore per annum by 2018. All this together with the projected fleet statistics, fleet Commodore Research did a prediction that the Capesize market is a segment of the dry bulk market that has the greatest chance of turning first and possibly reaching levels far above market consensus as either expressed by the FX pay curve. This could happen by 2018. However, Commodore is quick to add that for strength to the current Capesize market a great deal has to go right. The main factor is that China's economy should stabilize together with these productions. Commodore is much less optimistic on the recovery prospects of the Panamaxs, as a reminder for this year at least deliveries will outpace the scrapping volume. Things might start improving next year, but the ground that will need to be covered for equilibrium to return to the sector is quite long and tedious. We generally agree with the above mentioned views and wish to add perhaps as mentioned in our last quarterly conference call, a ground work is being laid primarily for the market to improve. As usual the big question is when? Taking into consideration that compares to say 30 years ago supplying demand statistics shift up and down much faster now than then, it us not reasonable to assume that barring any unforeseen experiment negative development down the road, this crisis should be shorter than what the industry went through in 1980s. How much short is something that they need to decide for themselves, after looking at the pointer and other factors which we have tried to cover up concisely as possible in this presentation. [indiscernible] the company's investment strategy with a specific recovery timetable in mind. What we do know is that we are finally at the bottom of the bulk carrier shipping cycle - work to make this market much better and profitable than it is now. With the company's strong balance sheet, the Diana fleet will keep expanding and the company will emerge from this crisis with a modern future bulk carriers ready to take advantage of improved franchise of earnings and asset values. I will now pass the call to our CFO, Andreas Michalopoulos, who will provide us with the financial highlight of the fourth quarter of 2015 and of the year as a whole. Thanks.

Thank you, Stacy and good morning. I’m pleased to be discussing today with you Diana’s operational results for the fourth quarter and year ended December 31, 2015. For the fourth quarter 2015, net loss amounted to $22.5 million, net loss attributed to common stockholders amounted to $23.9 million and loss per common share was $0.30. Time charter revenues decreased to $38.3 million compared to $46.1 million for the fourth quarter of 2014. The decrease was due to the decreased average time charter rate that we achieved for our vessels during the quarter and was partially offset by revenues derived from the addition to our fleet of the vessels Santa Barbara delivered in January 2015, and Medusa delivered in June 2015 and New Orleans and Seattle delivered in November 2015. Ownership days were 3,870 for the fourth quarter of 2015 compared to 3,588 for the same quarter of 2014. Fleet utilization was 99.8% compared to 99.2% for the same quarter of 2014. And the daily time charter equivalent rate was $9,169 compared to $12,090 for the same quarter of 2014. Voyage expenses were $3.4 million for the quarter compared to $3.5 million for the same quarter of 2014. The decrease in voyage expenses was due to the decrease in revenues and was partially offset by increased loss from bunkers resulting from the redelivery of vessels during the quarter amounting to $1.4 million compared to $1.3 million for the same quarter of 2014. Vessel operating expenses amounted to $23.6 million compared to $22.3 million for the fourth quarter of 2014 an increased by 6%. The increase was due to an 8% increase in ownership days resulting from the enlargement of the fleet increased stores and spares and environmental cost. These increase was partially offset mainly by decrease insurance and repair costs. Daily operating expenses were $6,093 for the fourth quarter of 2015 compared to $6,225 for the same quarter of 2014, representing a decrease of 2%. Depreciation and amortization of deferred charges amounted to $19.8 million. General and administrative expenses were $7.5 million the same at for the fourth quarter of 2014. Management fleet to related parties were $0.3 million for the quarter and were the fees paid to Diane Williamson Management Limited after transferring the management of six vessels from Diana Shipping Services SA. Interest and finance cost amounted to $4.9 million compared to $2.2 million in 2014. This increase was attributable to increased average debt and average interest rates during the quarter compared to the same quarter of 2014. Interest and other income amounted to $0.5 million compared to $0.9 million and was decreased due to the decrease in the income earned from Diana Containerships as a result of the amended loan agreement. Loss from equity method investments amounted to $2.3 million compared to income of $0.2 million for the same quarter of 2014. For the year ended December 31, 2015, net loss amounted to $64.7 million and net loss attributed to common stockholders amounted to $70.5 million and loss per share was $0.89. Time charter revenue decreased to $167.7 million compared to $175.6 million for 2014. The decrease was attributable to decreased average time charter rates that we achieved for our vessels during the year and increase dry dock and of higher days compared to 2014 during which the vessels did not earned anything. This decrease was partly offset by increased revenues due to the enlargement of the fleet. Ownership days for 2015 were 14,900 compared to 13,822 for the same period of 2014. Fleet utilization was 99.3% compared to 99.4% for 2014 and the daily time charter equivalent rate was $9,739 compared to $12,081 for 2014. Voyage expenses were $16.5 million for 2015 and include $7.5 million of loss from bunkers from the redelivery of our vessels during the year. Vessel operating expenses amounted to $88.3 million compared to $86.9 million for 2014. There was an increase in operating expenses due to the 8% increase in ownership days resulting from the enlargement of the fleet, but this increase was partly effect by decreased stores and spares. Daily operating expenses were $5,924 for 2015 compare to $6,289 for 2014 representing 6% decease. Daily operating expenses decreased due to decreased average crew cost, insurances, stores and spares and taxes. Depreciation and amortization of deferred charges amounted to $76.3 million for 2015. General and administrative expenses amounted to $25.3 million compared to $26.2 million in 2014. The decrease was mainly attributable to decreased in salary and the exchange rate between the U.S. dollar and the euro and was partly offset by increased Board of Director fees, legal and other profession fees. Management fee to related party were $0.4 million and were the fees paid for technical management for six vessels first with two DWM. Diane Williamson Management progressively in 2015 from August to December. Interest and finance cost amounted to $15.6 million compared to $8.4 million in 2014, this increase was attributable to increased average debt and average interest rates during 2015 compared to 2014. Interest expenses amounted to $13.9 million compared to $7.8 million in 2014. Interest and other income amounted to $3.2 million compared to $3.6 million for 2014. This decrease was due to the decrease in interest income we see from Diana Containerships Inc during the year amounting to $2.7 million compared to $3.2 million in 2014. Income loss from equity method investments amounted to $5.1 million compared to income of $12.7 million for 2014. The loss in 2015 was mainly due to $5 million loss from our investment in Diana Containerships Inc part of which was due to being diluted as our share ownership in 2015 decreased to 26.08% from 26.34%. Additionally, there was a $0.1 million loss from our investments in Diane Williamson Management Limited. Thank you for your attention. We would be pleased now to respond to your questions and I will turn the call to the operator who will instruct you as to the procedure for asking questions. Thanks.

Thank you. We will now be conducting our question-and-answer session [Operator Instructions] Our first question comes from the line of Mike Webber with Wells Fargo. Please proceed with your question.

Hey guys thanks for taking my questions. This is Donald stepping in for Mike. Was the asset values has historic lows and balance sheet risk creep into the space, extremely loss everywhere except Diana. Can you talk a bit, the potential for a large scale M&A?

As we have said in the past the consolidation in our industry is not such an attractive opportunity, you can understand that you can buy cheap assets out of the market instead of buying a company that probably has vessels that you don’t want. Also the due diligence is getting more and more difficult especially nowadays, so M&A is not very attractive proposition for anyone or I would rather say only for those that they want to be safe, but we do not consider that as an attractive opportunity for our company.

Okay. And as a follow-up to that, it seems the banks are taking a bit of a harder line to this downturn relative to say, what is working out since during 2009 to 2011. Can you talk a bit this bank posturing and how you think it plays out as comments are increasingly breached in sort of the next six to 12 months?

Definitely the banks they look at the covenants, but what they look mostly is the ability of the company to pay the amortization and the interest expense. The covenants are usually used as a bells to warn someone for potential problem. Certainly, there are companies out there that they have big financing issues and they are not able to pay the amortization of the facility and also the interest expense. However, banks they are willing to reconsider the covenants and give waivers, in company they are ready to perform and especially for some years to come.

Alright. Thank you for the color guys. That’s it from me.

Welcome.

Thanks.

Our next question comes from the line of Amit Mehrotra with Deutsche Bank. Please proceed with your question.

Thank you. Good morning, afternoon, everybody. First question is on the, the announcement of the acquisition. The three Panamax vessels. The pricing is fine, it does have the benefit of lowering the average age of the Panamax fleet. But, as a management team, you guys have said previously, the buying more than one ship at a time does not fit the strategy, given you've locked in too much risk at one point in the cycle. I understand that the market has moved significantly down since over the last six to nine months, but just wondering how the 10 block transaction were of fits into the strategy? Thanks.

Amit, to be exact what we have been saying is that we are not here to spend a lot of dry powder for one deal, we are very conscious in how much money we are investing at this time in the cycle and how much money we are reducing our dry powder. The strategic deal does not involve a lot of equity of hours, if anything is almost zero. If there are other pieces like these, please bring them on and we will do them. We are not wasting our dry powder there.

Right, okay. We can take of further offline, but maybe…

I think, if you listen carefully to previous conference calls, you will hear me especially saying that we are not there to waste a lot of our dry powder at one point in the cycle.

Right. Let me just ask one more follow-up to the acquisition strategy. I guess, you guys are pretty conservative and you talked about this dry powder, like you said, but obviously no one immune into this market, which is at all-time low right now. So does it at all this market, does that all make you pause a little bit or do you still continue to do the one acquisition every two, three months even in this market?

Yes, you see the most important number one factor that we have to worry about the surviving and we pay a lot of attention in giving to the company the appropriate breathing space to do that. We think that we have done a very good job there and if there is also the ability of the company to make some best decision as well. Without a danger a lot the survival period of the company; we are there to do it. You have to understand that we have to take some entrepreneurial risk as well. We're in the shipping sector and we want to produce a return, in order to prove my point, I can’t say to you that we can sell the entire fleet and stay with a cost and wait for the market to recover before we do anything and we have 10 years in front of us for that to happen. No, everything is relative and we have to see to take some entrepreneurial risk. It is true that we have managed very well up to now to buy a lot of vessels at the lower part of the cycle and we are not so in a hurry to buying more cheaper, even if we don't buy any in the market sense we will be happy with what we have done. But we cannot exclude the possibility of buying something especially if we don't waste a lot of our dry powder or do not endanger the survival period of the company.

Right, but, so if I'm interpreting your comments correctly, you've been active over the last 12 months. You may continue to be active, but the pace may slow down a little bit.

Psychologically we strongly feel that this is what is going to happen, but the official response to the company is that we should not decrease the pace.

Got it. Okay, that's helpful. Thanks Ioannis. Just couple more, one on the operating costs, the OpEx per day is a little bit higher than what other dry bulk companies have recently reported. I know there is a lot of different things' going on in that number, but if you can just offer some thoughts on why this may be the case and maybe are there any other further opportunities to bring your cost down in any sort of material way?

Absolutely not, we've already commented many times on the OpEx number which this quarter is at $6,092 per day per vessel on an average and we strongly feel that you cannot compare that cost for many reasons. One, because obviously you understand that the mix of vessels is different from company to company. Two, because and most importantly because the state of the vessel when you look at it is different from company-to-company. And we are proud to say that this number reflects a very efficient preventive maintenance that we have on our vessel and that enables us not to have huge dry docking costs when that's actually due for dry dock. So we feel that you should model at least if that’s helpful, the same type of number going forward. It would be wrong you see to say that, yes, we are going to have because we are in the low end of the cycle, suddenly our operating expenses will go to $4,000 per day. This would mean that we did something wrong over the previous years when the market was better.

How much of a risk do you think it is to the industry given that what your implication is versus other companies under investing in their maintenance of ships. How much of a risk do you think this poses to the industry?

Certainly in bad time, people cannot afford to properly maintain their vessels, companies cannot afford to maintain their vessels properly and this is a determent of the quality or the useful life of the vessel. And eventually this is one of the factors why the market stands positive at same point where you have a lot of scrapping of down grade vessels, really bad condition vessels, lots of money needed for the vessels to go through to set up their rates and so on and so forth. This is part of the process as they leave to the [indiscernible] of our industry.

Okay. One last one from me, quick one. Andreas, can you just update us on the cash outlays that are going to be made for the three new buildings in the three Panamax and if you can, the breakdown between the debt and equity financing? Thanks.

We believe as we have stated that most if not all the investment in the three Panamax vessel is going to be made through debt finance. So the number of $39.8 million should be mainly out of debt finance. I mean if it's not 100% around 80% to 90% should be through debt finance. So that’s what we feel for those Panamaxs and now yes you must also recall for the other vessels that we have on order the two new Castlemax and the Kamsarmax that we have a loan facility that we have signed with China Export-Import Bank which of a total amount of $75.7 million.

What is your remaining payment so - what are the remaining gross payments for those three?

Remaining gross payments for those three is $83.4 million.

Got it. Okay guys that's all from me. I appreciate it. Thank you for the time.

Thank you.

You are Welcome.

Our next question comes from the line of Noah Parquette with J.P. Morgan. Please proceed with your question.

Thanks. I just wanted to ask you, in your conversations in the S&P market, what the sense you are getting from sellers compared to say three months ago in terms of so-called for sellers or at the value expectations. I mean has there been more resistance on pricing here or do you still think that values could move lower? Thanks.

Certainly, the conditions are fast and the psychology is that there are more willing sellers at the moment and the prices are going down. There is not such a thing as the last event being that we usually have and I can say that anything goes, there are not too many willing buyers out there and we strongly believe that from the moment we are interested in buying a vessel that we will certainly find one that [Indiscernible] the best of all the segments and then the price is going to be a really good. There are not too many buyers out there.

Okay. And then on the three Panamaxs, given you give an update on, I think it's subject to the bank financing being transferred and can you give an update on that?

It's not that solid transferring of the bank financing, its finding from the existing banks financing almost of 100% to be price that we paid and with some more [indiscernible] regards to the amortization. We have initiated agreement, we have not signed documents yet, but we are very optimistic that we will get there soon.

Okay. And then lastly, just following up on your acquisition strategy. I mean, can talk about your timeframe for deploying capital, has that change at all in the last three months, is it still kind of through this year or when you look to extend that?

As we've said earlier the thing what about is to make sure that we have in front of us a period of time that we can easily survive without having problems with our bank. At the moment we stand at the vicinity of two years to three years drilling space, where we even in this bad market conditions we have no problem whatsoever with the bank. And now as we said earlier, if there are opportunities we may take advantage of those, but officially the response is what I said earlier that's the case does not change over the basis is neither the periods of investment which is for approximately another year as we have said. But psychologically we know that may not materialize. We have as everybody a pressure, we look at what you see, the psychology above the markets and that how long the market is going to stay low is always bad that the real hard time. And the market turns when nobody believes is going to turn, but we will do everything we can to make sure that we will be there where the market turns, when the time comes.

Okay that’s all I had. Thank you.

Thanks Noah.

You are Welcome.

Our next question comes from the line of Gregory Lewis with Credit Suisse. Please proceed with your question.

Thank you and good afternoon gentlemen. Ioannis, just real quick, just following up on one of the earlier, I think the first question about potential acquisitions. Are there any large fleets actually even been more hit at this point or not really, are companies for sale, are multi vessel companies even for sale at this point?

Yes, I think there a number of those companies around, maybe they are not as yet ready available and two or three the companies with very nice fleets, but again we explain to new. I think we're going to stick to the staggering manner of banks ship, ships that we would like technically and easy to run and ships that we have already in our fleet. So we do believe in [Indiscernible] ships, so that's what we're going to end. We are not all got interested on a block deal.

Okay great. Thank you Simeon. And then just as we look at what's going on with the HMM, clearly they are not a big player in the bulk industry, but just given all the uncertainty and overhang of that. Is that having any type of impact on the industry or it's more just, we've seen this happen in the industry before and it's kind of just being readily absorbed.

Yes, as we have said in the past Greg many times, one of the most important factors is psychology. Indirectly facts like this publicity that takes publicity, well-known names having problems lead to what-and-what psychology, which makes the necessarily events happening like scrapping order book, laying up of vessel et cetera people’s psychology goes down further which helps eventually. And definitely indirectly it has a very big affect on our market.

Okay, great. And then just one last one from me. Just as we think about where the current market is, I mean it's miserable tax rates well below breakeven, clearly I have been here for a while, just as you think about over the years the decade of being ship owners in this space. I mean, realistically how long are these types of rates sustainable? And what I'm trying to get is, how long - I know there is no real answer, but I mean, realistically how long can rates stay below cash breakeven before we actually see even a snap back for even scrapping, just idling the vessels. I mean, can we start of thinking about that now or we still too early in the move lower in the market to be thinking about our potential recovery?

Very quickly I would like to mention something and then others can add, but we don't really see as I mentioned earlier that this recession lasting the five plus a years that 1980s recession last and we say this because of the ability to take ship to demolition and at the same time the attitudes of banks which tend to become much quicker much faster than they used to in the old days. The only difference here now that we have with further below interest rate, which make banks more patient to a certain degree and more reluctant to arch for the border to send ships to scrap yards if the ships are of a certain age. But we're confident the things are going to happen faster in spite of what I just said, because ships will be scrapped very quickly and in larger, larger quantities. The problem is that there is a lot of surplus to be taken out in the Panamax sector in particularly the Ultramax sector which is competing the Panamax sector for certain cargos, it looks pretty awful, it tied between various specific for overall bulk carriers. But these ships are exerting a very negative pressure on Panamaxs and that will not go aware very quickly and we have to be ready for a good number of quarters there of weak earnings. We can't go much further down on the earnings, as we agreed, but at the time that these earnings will remain low that [Indiscernible] hopefully as I said less than 1980s, but we're not near yet at the end of recession.

May I ask a question how long you've been, we are today, how long we are in really bad market?

You know what Ioannis and I would love to catch up with you after lines for my thoughts on that.

These are the opinion that we are in a really bad market for the last six months.

I think that is correct but I'll turn the cal over lets catch up later today or later this week. Thank you very much gentlemen.

[Operator Instructions] Our next question comes from the line of Fotis Giannakoulis with Morgan Stanley. Please proceed with your question.

Hello and thank you for the opportunity. Simeon I would like to ask you from your experience comparing the crisis over today with the crisis of the 80s, except of the interest rates that Stacy mentioned earlier, what other differences do you see today?

Really they're not a lot of differences, but Stacy was right in mentioning the interest rate because don't forget as those days the interest rate was almost 23% or even higher and today it's almost zero. So that is a huge difference, which makes the lagging effect between the chartering graph and you say in terms of graph come to a shorter as it totally points much quicker, that is quite it. Another point which maybe is different is who are the players today. In the 80s the players were ship owners, today they are well most of them are shipping vessels, so that is a key issue that may alter the pace of changing the market. I cannot see anything else, the volumes of course are different today, the supply of cargos are different, the marketing truth of the iron ore is as we call is different, the ability of the shipyards to produce tonnage today is much different from the 80s. Don't forget that the biggest shipyards in the world in 2000 was Hyundai able to build 58 vessels per year, which was, every week one vessel and we thought it was huge. Today there are so many yards who are capable of building more vessels. And that also changes the forces which will bring the [indiscernible] a different market, provided of course on this will be wise to not accept ordering again.

Can you also explain to us also after three months or so over a very bad market as Ioannis mentioned. We haven't seen so many idle vessels, we hear stories about many more idle vessels in the V80s, also if you can add, how many ships do you think, what percentage of the fleet do you think that there right now is the market is oversupplied. And how in order for rates to move above the breakeven levels including interest and debt service?

I think Stacy mentioned that the numbers, in his little presentation, which is not all that much today. The difference so between the lay-up tonnage in the 80s and today is that the quality of the vessel of the 80s is completely different from today. Today when you lay up a vessel you may have a problem in re-commissioning the ship because of the technology involved, I suppose to the 80s that's another factor that we have to take into consideration. What would be the amount of money necessary to spend to re-commission the ship and this is not we're seeing in 80s.

Fotis we have not seen a lot of vessels being laid up, we expect to see much more and you have to understand that if we don't see a lot of vessels being laid up, that will mean that the psychology is not at the absolute bottom and it means that the market supply or vessels will not go down to relevant that it should go. Laying up objectives people believe that they can be reactivated easily which is not correct. First of all they cannot be reactivated easily, secondly the people will not take the decision to reactivate the vessels promptly and thirdly laying up of vessels creates a bad psychology that make other people scrap their vessels. But certainly one thing is certain that we have to see vessels being laid up if we want to see the market picking up at any point.

Thank you, Ioannis. That's very helpful. One last clarification about your liquidity. Obviously, you have the strongest liquidity compared to every other dry bulk company, but comparing it with two, three years ago before you buy, I think you bought around 20 vessels during this time. You had around what kind of $450 million of cash in your balance sheet right now, the cash slightly below $200 million. At what the level - or how much cash do you think that there is safe for you to in your balance sheet? At what level would you decide not to buy any more vessels, especially since 2012 and 2013 rates have come much lower than they would have at times?

Fotis, as we said earlier we are entrepreneurs and we would like to produce a nice return for our shareholders eventually. Taking positions as the lower part of the cycle is the best thing we have done up to now. Having invested as you said having vessels more than 20 vessels at the lower part of the cycle. It means that this is very, very profitable that it will create lots of value for our shareholders from the moment the market turns. The safe level of money today is what we having in our balance. After a year from now, it maybe a lower number and it has to be a lower number. And again, we have to say that we are here to have an entrepreneurial reach in order to produce a nice return. If we were not ship owners, we wouldn’t have done this. We are very, very happy with our debt level at the moment, because being at the absolute bottom of the market, having the debt level that we have, we continue to be the most appropriate debt level to have in order to produce nice return. We would not have been happy with our balance sheet if we have 20% finance today or even 50% or 60%. This is not proper figure.

And, can you explain to us, I assume that there is no plan of trying to raise more equity in order to keep growing the fleet?

Yes certainly, this is something I forgot to mention. When I started to responding to your question I had to say that we have managed to buy so many vessels at the lower fact of the cycle without having diluted that all we have without having issues at a lower fact of the cycle any equity. This is a very big achievement and it is not our intention to raise more equity provided we have all the other means of surviving the cycle. Of course as the last of the last result, this is something that we always have an option to do, but we are suddenly not considering of doing something like this because there is no need for that and we have managed so well up to now not diluting our shareholders with the contrary of all the others shipping companies, but we are here to try to preserve that.

And one last question related to the liquidity of more of the entire peer group. Of this current market, what do you think is the best measure to look the ability of a company to sustain the downturn without dilution. Is it net debt to fleet value? Is it the cash on hand? And can you remind us based on your estimates, what is the leverage that you referred to, what is your estimate and what is the safe level that the equity dilution is not a risk in order to be able to compare with other communities.

The safest way of looking at this is the ability of the company to pay interest first of all. Amortization second of that and that if a company is not in a position to pay for the amortization then it talks to the bank and usually they give more according for a while and even cannot say interest we have a problem. So they are that we have to cover operating expenses.

Thank you very much all of you. Very helpful.

We have reached the end of the question-and-answer session. I would now like to turn the floor back over to management for closing comments.

Thank you again for your interest and support of Diana Shipping. We look forward to speak with you in the months ahead. Thank you.

Ladies and gentlemen this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation today and have a wonderful day.