Global Ship Lease, Inc. (GSL) Q4 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. And welcome to the Global Ship Lease Fourth Quarter 2018 Earnings Conference call. At this time, all participants are in a listen only mode. [Operator Instructions] As a reminder, this conference call is being recorded. I'd now like to introduce your host for today's conference Mr. Ian Webber. Sir, you may begin.

Thank you very much. Good morning, good afternoon, everybody, and welcome to the Global Ship Lease Fourth Quarter and Full Year 2018 earnings conference call. The slides that are accompanying today's presentation are available on our website at www.globalshiplease.com. Slide 1 and 2 as usual remind you today's call may include forward-looking statements that are based on current expectations and assumptions and are, by their nature, inherently uncertain and outside of the company's control. Actual results may differ materially from these forward-looking statements due to many factors, including those described in the safe harbor section of the slide presentation. We also draw your attention to the Risk Factors section of our most recent annual report on Form 20-F, which is for 2017 and was filed with the SEC on March 29, 2018. And which you can obtain this via our website or via the SEC's. All of our statements are qualified by these and other disclosures in our reports filed with the SEC. We do not undertake any duty to update forward-looking statements. For reconciliations of the non-GAAP financial measures to which we will refer during this call, to the most directly comparable measures calculated and presented in accordance with GAAP, you should refer to the earnings release that we issued this morning, which is also available on our website. I am joined today by our Executive Chairman, George Youroukos; and our Chief Financial Officer, Tassos Psaropoulos and our Chief Commercial Officer, Tom Lister. George will provide opening remarks and Tassos, Tom and I will take you through quartering results and financial and the current market environment. George will summarize and after that we will be delighted to take your questions. So turning now to Slide 3, I'll pass the call over to George.

Good morning, everyone. It is a pleasure to join you all today in order to give you further insight in what we have created up Global Ship Lease. Fully transaction with Poseidon and through our subsequent actions, as well as to give you our thoughts on the opportunities ahead and the numerous steps that we are taking to unlock GSL's great potential. First of all, let may be clear that the Poseidon transaction did a great deal more than simply double the number of ships in our fleet. Following transaction, GSL's fleet of mid-sized and smaller containerships is younger, larger and better specified. In particular, we have added nine modern eco wide beam vessels, six of 6,900 TEUs and three of 9,000 - 100 TEUs. That truly state of the art and which have market leading reefer capacity that makes these vessels extremely attractive to charters due to their fuel efficiency and substantial capacity to carry premium rated reefer containers and enables them to command a substantial income premium. In fact, the merger has improved Global Ship Lease across all major operational and financial metrics. The increased fleet size and combination of our short and long-term charters provides greater upside potential, more downside protection and better forward visibility in terms of both total contracted revenue and average remaining contract duration. We will also have now access to an integrated management platform to create value in a variety of ways. One excellent example of this is the work that we are doing to extract additional value from the legacy GSL fleet by expanding some vessels cargo and refill capacity which in turn makes them more competitive and desirable to the liner companies, allowing them to earn a premium compared to their more ordinary peers. Also through both an existing diversified our portfolio and deep and established relationships across the liner industry. The transaction ensures that Global Ship Lease is part of all the relevant discussions and in the mix for all compelling opportunities taking place throughout our industry. As my colleagues will explain shortly, we believe that the fundamentals of our business particularly among the vessel classes where we operate support continued strengthening of the market. And we expect that we will continue to seek opportunities to lock-in attractive charter rates for longer terms for our vessels. The recent five year charters that we agreed for six 6,900 TEU vessels add superior rates compared to prevailing market rates, demonstrate that there is long-term demand for our ships. With a largely fixed cost base all increased revenue goes straight to the bottom line thus improving cash flows. Meantime, we have recently re-fixed six vessels at market rates for relatively short terms as the previous charter have expired. We are very confident that we will be able to continue to find employment for all of our fleet on attractive terms. Beyond improving our fleet and looking to secure longer-term contracts at good rates, we are taking a variety of addition steps to ensure that we fully unlock GSL's shareholder value. We are actively optimizing our balance sheet by delivering through amortization and by working to address medium debt maturities in 2020 to reduce our cost of debt. We are also looking to grow the fleet on a selective basis via structured and opportunistic acquisitions of vessels and fleets with best-in-class commercial characteristics and employment prospects. Additionally, we are focused on introducing the new Global Ship Lease to the investment community, communicating in a consistent and transparent manner, and meeting with investors on non deal role shows, attending conferences and interacting regularly with analysts. We see a great deal of value in Global Ship Lease and it is a high priority of us to effectively convey that value proposition to the investment community. With that I will turn the call to Ian.

Thank you, George. If you could all turn to Slide 4, I'll quickly run through the highlights for the fourth quarter and for the full year. Needless to say the strategic combination that we completed in November with Poseidon is the single most significant event for us during the year. And I'll come back to that shortly. But we've also made important steps in reducing our debt, improving our leverage profile, chartering vessels at rates superior to prevailing market rates and maintaining high vessel utilization to maximize revenue and therefore cash flow. The six week contribution from the addition of the 19 Poseidon vessels on November the 15th makes some of our standard period comparisons less illustrative, but I'll highlight a few important points here. On a normalized basis that strips out mainly the impact of the non-cash impairment charge of $71.8 million and certain non-recurring costs related solely to the Poseidon transaction. We were profitable for the quarter and the year, earning $13.8 million of normalized net income for 2018. We also generated adjusted EBITDA of $97.2 million during the year and $26.6 million for the fourth quarter. Of that $26.6 million, $9.1 million was contributed by the Poseidon fleet. Following completion of the transaction, GSL's asset base has expanded to over $1.3 billion on a charter attached basis. Net asset value per share has increased by almost 40% from $1.94 to $2.71 and this benefits from a $48 million debt reduction crystallized by opportunistic refinancing of some of Poseidon's secure bank debts in November just before completion of the transaction. We'll come back onto NAV shortly. As George mentioned, we've recently secured attractive new charters and extensions for a number of vessels, most prominently the six five-year charters for the Eco wide beam high reefer 6,900 TEU containerships in the Poseidon fleet to CMA CGM. These charters add up to $279.4 million of revenue, a net of address commission and approximately $200 million of EBITDA over the life of the charters. Turning to Slide 5 and just to take a step back for a moment. Global Ship Lease now owns and operates a fleet of 38 containerships ranging from 2,200 TEU to 11,000 TEU, a range that we broadly describe as mid sized and smaller tonnage and a segment which we believe has the most supportive supply-demand fundamentals within the global containership fleet. We have a mixture of strong downside cover as evidenced by $727 million of contracted revenue, net of address commission and based on redelivery at the midpoint and including options to extend charters only at the company's control. And this contracted revenue is spread over an average of 2.5 years. We also have significant upside potential from our shorter term charters that we'll be renewing overtime in what we anticipate will be an improving charter market. Our counterparties include both the very largest global liner companies and more niche regional operators, giving us a highly diversified and conservative counterparty risk profile. We also have a leadership team and via Technomar and ConChart commercial and technical management platforms with a great deal of experience, wide range of capabilities, which has already been begun to open up new opportunities and doors for GSL. For example and George mentioned this six vessels with charters coming to an end recently or shortly in the first quarter of this year have been re-fixed and we're proactively working on other near term expiries. We have multiple sources of debt both public and private which provides opportunity for improvements over the coming months, with strong sponsorship from a range of leading entities across the finance and shipping sectors including having CMA CGM, the fourth largest liner company as an important shareholder and customer. On Slide 6, we've outlined the particular and transformative benefits of the merger. The fleet is more than doubled in size of capacity. The average vessel profile has improved with a greater average size, a lower average age and higher technical specification both upside potential for an improving charter market and downside cover from the contract backlogs have been enhanced, and our charter portfolio has been greatly diversified. We're in an improved leverage position that compares favorably with our peers and enables us to pursue further capital structure improvements. We have access to highly qualified and experienced technical and commercial management organizations, and we're in a position to capture costs synergies related to both increased scale and the capabilities of our technical manager. I mentioned the improvement in net asset value per share just now, but turning to slide 7 we see graphically the Charter attached NAV, an incremental charter attached NAV per share impacts of the Poseidon transaction. And this demonstrates the underlying value of what we've accomplished. In short, with increased charter attached NAV by over $400 million or more than 4.7x its pre transaction level. And on a per share basis at this adds $0.77 per share measured at December the 31st, 2018 which is a 40% increase on the pre transaction level. And this is even after a slight pullback in charter rates and consequently asset values during the low season towards the end of the year. To this point, as Tom will discuss in more detail since the year end there has been a recovery in charter rates particularly for larger vessels. So some of this pullback will have been reversed. On slide 8. We show the full Global Ship Lease fleet and charter portfolio which represents the $727 million of contracted revenue already mentioned. And as you can see the expiration of our charters is staggered over several years, but some of our highest paying charters extending well out into the mid- 2020s. Past our strategic preference is to lock in multi year time charters when rates have strengthened, we prefer to have relatively short charters which generally means somewhere between three months and a year during a recovering rate environment such as currently exists. The six recent re-fixing fall into this category and as their post year-end events are shown in white on the chart. We remain confident that the fundamentals of our market are supportive of our fleet and our strategy and for more detail on the underpinnings of their confidence I'll turn the call over to Tom,

Thanks very much, Ian. Let's take a quick look at the market backdrop. From a macroeconomic perspective the IMF in its January update to the World Economic Outlook acknowledged negative sentiment and the risk of rising trade tensions particularly between the US and China. And notch down its global GDP growth projections to 3.5% in 2019 and 3.6% in 2020. Despite some slowing in China, emerging markets and developing economies are expected to continue to be the main engines of the global economy, growing by 4.5% in 2019 and 4.9% in 2020. World trade volumes are forecast to grow by 4% per annum over the same period. And while container shipping industry sentiment understandably faced headwinds during the second half of 2018, the favorable fundamentals for midsize and smaller ships remain intact. The next few slides provide our usual market analysis through which run a handful of recurring themes summarized at the top of slide 10. Essentially our thesis is that, one, despite headwinds to sentiment industry fundamentals is supportive. The demand expected to grow faster than supply in 2019 particularly for the mid-sized and smaller fleet segment. Two, the containership order book has reduced significantly over time as the industry adjusts to a combination of liner consolidation and alliances, capital constraints and a new demand growth paradigm. This year the global fleet is anticipated to grow by about 3.6% but more importantly for us the increase in the 2,000, to 10,000 TEU segment GSL focus is projected to be only 1% in 2.19 after scrapping and slippage. Three, short-term negative sentiment is helpful to longer-term fundamentals, having ground to a virtual standstill in the first half of 2018, scrapping activity appears to be picking up. First 60 days of 2019 saw the removal of around 38,000 TEU which is equivalent to about 38% of scrapping in the whole of 2018. Further, negative sentiment and lack of finance has led to negligible new ordering activity. Four, we see IMO 2020, and emission control as a positive catalyst for ship owners offering vessels to the charter market, scrubber retrofitting is prompting the removal of capacity from the market during 2019 and beyond with each scrubber installation taking the respective vessel out of service for about six weeks. Plus as fuel prices are anticipated to rise significantly in 2020, operators are expected to slow steam vessels which will cause a reduction in effective supply. And finally five and this is a point we've been focusing on for some time and that goes to the very heart of the GSL value proposition. We believe industry dynamics continue to be most attractive for midsize and smaller ships which make up the expanded GSL fleet and will represent our continued focus going forward. So the chance on the lower half of the slide underlying the points I've just made. On the left you can see a comparison of demand growth, the dark bars and supply growth the pale bars. You can see demand growth beginning to exceed supply growth in 2019, a trend sustained in 2017. In 2018, overall supply for the global containership feed outgrew demand partly due to new vessel deliveries the majority of which are very large containerships, but also importantly because scrapping slowed significantly as vessel earnings and asset values firmed. Vessel earnings in the short-term charter market are reflected in the charter rate index, the red line which as you can see improved strongly from 2016 through the first half of 2018 before plateauing in the second half of the year, as we will come to you back-- come back to you later, we're now seeing charter rates firm again in some of the mid-size vessel segments. The lower right-hand chart shows how the global fleet has evolved since 2007. Most significantly you can see how the order book to fleet ratio which was north of 60% in 2007 on the back of speculative orders, largely out of the German KG market had fallen to 12.3% by the end of 2018, a reduction of almost 5x. If you drill down further as we will on a later slide, the order book to fleet ratio for sub 10,000 TEU ships, the mid-size and smaller vessel segments is only 3.8% overall and 1.6% on the basis of deliveries scheduled for 2019. Slide 11 focuses mainly on demand side fundamentals. The pie chart at top left shows the composition of global containerized trade in 2018 where 30% of volumes were carried in the main lane trades by which I mean Asia, Europe, the Trans-Pacific and the Transatlantic. In the context of trade tensions, it's worth noting that the trans-pacific accounts are only around 13% of global volumes and as at December 31, 2018, only three of our ships were deployed on trades between China and the US. More relevant to us is the fact that in aggregate a little over 70% of global containerized trade is carried on the non-mainlanes, intermediate and intra-regional trades which tend to be served by midsize and smaller vessels which are the focus of the GSL fleet. You can see from the chart on the right that demand is expected to grow faster than supply in 2019 and the most robust growth is expected to be in these same non mainlanes, intermediate and intra-regional trade. Turning now slide 12 which looks at the supply-side fundamentals. Top left you can see that idle fleet capacity although subject to the usual seasonal variations has been trending down since 2016. And it's worst back in 2009 the idle fleet peaked at around 11%, by the end of 2018 it was 2.5%. Scrapping which is the focus with the chart at top right held to reduce idle capacity during 2016 and 2018, however, as you can see strengthening in the market with rising vessel earnings and asset values meant that scrapping in 2018 was very limited around 1,000 TEU. The good news is that scrapping activity is increasing in 2019 with around 38,000 TEU already committed for scrapping this year. Bottom left is a chart showing the order book which is significantly weighted towards the big ships, and very low for the midsize and smaller vessel segments. To reiterate the overall order book to fleet ratio at the end of 2018 was 12.3%. For vessels below 10,000 TEUu it was 3.8% and most notably for the segment's ranging from 4,000 TEU to just under 10,000 TEU in other words those representing 80% of GSL fleet capacity, there is zero order book. So existing capacity for midsize and smaller tonnage has been reduced over the last few years with scrapping exceeding new deliveries. The order book pipeline for replacement tonnage is limited and cargo demand has continued to grow. Slide 13 looks at the vessel deployment patterns with global containerized trade chopped into 20 or so trade groupings, which arranged along the horizontal axis. Immediately below these you will see the number of vessels operated in each trade grouping. The bars in the chart show the maximum vessel size deployed for trade grouping, the pale blue bars. And the average vessel size, the dark blue bars. Clearly, the really big ships are key to a handful of trades driven by a search for unit cost efficiency facilitated by high volumes, decent port infrastructure and long tradelanes. Asia Europe is the obvious example served by the largest ships on the water maximum size north of 22,000 TEU and with an average size around 14,000 TEU. On the flip side, midsize and smaller ships in other words those focused upon by GSL, a core to most other tradelanes. Slides 14 and 15 present the same data in a slightly different way. Slide 14 shows the deployment of the really big ships, those of over 10,000 TEU during a 30-day period in the fourth quarter of 2018. As you can see they're largely deployed on the arterial east/west trades. Slide 15 on the other hand shows the deployment of mid-sized and smaller ships. They're everywhere. Slide 16 wraps up this section, here you can see how vessel earnings short-term charter rates and asset values have evolved over the long term, which is the left-hand chart and since the beginning of the fundamentals driven recovery a couple of years ago, the top right-hand chart. As you can see, short-term charter rates were under sustained downward pressure for a number of years until during the first quarter of 2017, they began to recover sharply. As you would expect, asset values tend to correlate to earnings and sentiment and also began to firm significantly. This upward trajectory continued through first half of 2018 but faltered in the second half of the year as trade war rhetoric ramped up, and sentiment turned negative. The usual industry low season wished to run from the fourth quarter through Chinese New Year exacerbated this downward trend. However, in the last few weeks, as you can see from the breakout chart at bottom-right, charter rate momentum has once again begun to turn positive. This is particularly evident for the larger mid-sized vessels of 5,500 TEU and up so roughly 68% of the GSL fleet, where rates have increased by between 50% and 75% in the last couple of months or so. So to conclude this section, number one, despite some headwinds to sentiment industry fundamentals are supportive with demand forecasts to grow faster than supply. Two, the order book pipeline for mid-sized and smaller ships is very limited. Three, scrapping activity is picking up. Four, IMO 2020 is likely to be a positive catalyst for ship owners causing a reduction in effective supply going forward. And finally five, we believe industry dynamics continue to be most attractive for midsize and smaller ships which make up the expanded GSL fleet and represent our continued focus. With that Tassos over to you.

Thank you very much, Tom. If you will now turn to slide 18, I will guide you through the financial highlights for the fourth quarter. Rather than going through every line item, let me point out a few key items. We generated revenue of $50 million during the fourth quarter and a net loss of $72.5 million after non cash impairment charge of $71.8 million on three vessels. The $12.1 million increase in revenue year-over-year was principally due to the addition of the 19 Poseidon vessels partially offset by the effect of the new charters of GSL Ningbo and OOCL Qingdao renewed at lower rate. In the fourth quarter of 2018, there was no plan to hire, seven days of unplanned of hire and 50 days of vital time for one vessel between charters giving an overall utilization of 98.6%. The average cost per ownership day including management fees in the fourth quarter was $6,818 down $41 per day year-over-year. Now slide 19 shows unaudited pro forma financial information for the enlarged business based on full year 2018. You can see that pro forma revenue was $278 million and adjusted EBITDA of $174 million. Please note that we have adjusted for the six new charters to CMA CGM and have backed out certain cost and charges associated only with the transaction. On slide 20 is a balance sheet. As of December 31, 2018, we have $19.1 million of cash. Slide 21 shows the significant improvement in loan-to-value as a result of the Poseidon transaction. With a gross debt of $889.2 million, our charter-attached LTV as of December 31, 2018 was 67%, a decrease of 23% points from each free transaction level of 90% while our Charter-free LTV was 86%, a decrease of 58% of points from substantially over 100% previously. On a net debt basis, charter-attached LTV was 60% and charter free 77%. We believe that these much improved loan-to-value metrics put us in a greatly improved position and one that compares favorably to our peer group. For the record, slide 22 shows our cost flow. Now I would like to turn the call back to George for closing remarks.

Thank you, Tassos. So guys I will bit summarize before moving to our questions. And we have slide 24 which places a simple question. Why GSL? So I'll try to give you the elevator pitch on why GSL. Number one, our shares trade at very attractive level on an NAV basis where the current share prices have an approximate 70% discount. And also an enterprise value to be their multiple basis where we have approximately 5.6x. So there is a lot of upside potential in our stock. Number two, the industry fundamentals in the container sector. And more particularly in the sub sectors which represent our fleet are very supportive. Why? More specifically. The order book is low like we said for between 2,000 to 10,000 TEU where we are. The total order book to fleet ratio is only 3.8% with a potential increase with the projected increase in this fleet of only 1% through 2019. There is lack of available finance. These and the negative sentiment due to the concerns over tariffs have put a brake on new orders. That is the most fundamental issue in shipping as shipping is a cyclical business but cargo volumes year-over-year are only growing containers. Therefore, the cyclicality obviously comes from supply. And that's where we should really focus rather than anything else. And this for our industry is moving to the right direction. We have no supply. Scrapping, rates have increased which come to help this supply theory that I've given you. And year-to-date represents 40% already of what the whole 2018 had scrapping. The IMO 2020 mission control is expected to lead to increase slow steaming for charters and for liner companies to achieve reduce fuel consumption, thus it will reduce the effective supply of ships. So the fleet will shrink and therefore it is as if you are going to have lesser ships available. Number three, we have a high quality fleet especially high quality fleet, 56% by TEU our fleet are best-in-class in terms of reefer capacity which is highly attractive to charters, they charge premium rate for reefer cargo. A third of our fleet are more than wide beam, fuel efficient ships which will become increasingly attractive post 2020 where fuel efficiency will be paramount. Post 2020, the slot cost differential between standard vessels and our fuel efficient fleet is going to widen, making our vessels even more competitive as slot cost is the most important metric for liner companies. Hence, the arms race for even larger vessels to the mainlanes trades. It is all about slot cost guys for liner companies. The competitiveness of our vessels means that they will drive the cascade going forward rather than be victims of it. As a result, we have a balance portfolio of charters which provides substantial downside protection from $727 million contracted revenue and average remaining charter terms of 2.5 years. We foresee that this going to grow in the near future. We also have considerable upside. 80% of our fleet by TEU is in segments where there is absolutely no order book is a great place to be for us. And 68% of our fleet consists of post panamax vessel, vessels that have wider beam and increased stability which are currently enjoying the highest increases in charter rate of our industry ranging between 50% to 275% increases over the last month or so. So rates are going through the roof for these ships. We are prioritizing as a fourth point; we are prioritizing further improvements of our balance sheet. The Poseidon transaction loan value and improved the overall quality of our assets. We have a significant larger business with incremental financial flexibility. Specifically, we are further reducing our debt through amortization and are proactively looking to optimize our capital structure to extend maturities and lower cost to generate additional cash flow -- free cash flow. Fifth, we are -- we've engaged experienced and supportive shareholders in Kelso and CMA amongst others. CMA CGM as you know is one of the top four liner companies in the world. And we are very privileged to have such a shareholder in our company. Last but not least GSL represents a great platform for growth via merging acquisition as proven by the recent Poseidon transaction. Of course, we will remain disciplined and only contemplate transactions of clearly build shareholder value. And with that, I would like to open the call to your questions. Thank you.

[Operator Instructions] Our first question comes from the line of Steve O'Hara of Sidoti & Company. Your line is now open.

Hi, good morning. Thanks for taking the questions. Can you just and talk about maybe with IMO 2020, what your expectations are on scrubber inflation within your fleet potentially and would that ends with the partnership with customers? And then the other thing is in your meetings with the investors I mean what is the biggest delta between the way you guys see the company and the way investors see the company and what -- how do we close that gap? Thank you.

Okay. Tom, do you want to talk about this scrubbers and our policy?

Sure. And, Steve, first of all, I point out that all of our ships in our fleet are compatible with the new fuel that's going to come in starting 2020. There are some strict protocols for switching from one fuel to the other, but our entire fleet is fully compatible with low sulfur fuel. That's point one. As for scrubbers, that's an initiative that's going to be driven by the charters themselves. So if a charter has a strong preference for a scrubber and is prepared to support us with a long-term charter by which I mean call it three or five years or so and provide us with a suitable charter rate premium to offset the economics of installing that scrubber then clearly we will look carefully at scrubbers. And would be willing to install them. So it's a charter -- it's all to do with being Charter focused. Okay. Then as far as the second question you raised, Steve, the meetings that we've had with investors since the transaction have all been extremely positive I would say. And once we have spent time explaining the GSL story, explaining why we see our fleet is being focused in the right industry segments, and why we see our fleet as being best-in-class in certain instances. Then it's a story that they get by and large. So I wouldn't say there's a very significant gap between the way we see the world and the way investors see the world, but it does require that we engage more closely I think with investors to explain our story more clearly. And George referred to that in his prepared remarks, Steve, about introducing the new GSL to the investment community where we're stepping up our attendance at conferences, one-on-one meetings, and non-deal road shows. We've always made ourselves available to talk with investors on the phone or in person, and we're very keen to continue to explain the supportive dynamics of the industry, particularly the fleet sector that we are exposed to the midsize and smaller tonnage. And really run home some of the messages which have become even more important with the addition of Poseidon, the quality of our fleet, the extremely low in fact zero order book for many of the ships segments that we have in our portfolio, and the opportunities post- 2020 with modern the eco vessels that we have.

Okay and then maybe just on made to me sounds like they had picked up after the first of the year I mean you see this mostly as macro driven and with concerns about trade is that kind of what's driving some of the other than maybe typical seasonality mezack is that mostly what's driving the swings or variation here in terms of the rates. If I mean I assume given 6,000 that typically what it is but are you seeing any rate pressure either positive or negative more acutely based on expectations around IMO 2020 or what the order book looks like. I mean seeing any customers move on those terms as well.

Yes. Let me try to answer that question, factually, the trade tensions have not reduced cargoes. So the only thing that they have done so far is increase actually cargoes. Cargoes volumes between United States and China have increased substantially over the past three to four months as people are trying to get to the states as much cargo as I can before the tariffs would possibly kick-in. So, in fact, the trade --the world discussions have only actually helped our industry not reduced by any means the cargo volume. On the other hand, psychologically the liner companies have to make decisions on whether to start services or not and starting a service is a commitment where you commit anything between five to ten six depends on the service and you commit for at least six months to a year. So it's a big financial commitment and as you can imagine with this overhang and the liner companies, this service are initiated by the liner managers for people who are-- who don't want to take unnecessary risks when the whole world is talking about world trade wars et cetera. It is --its human nature that they want to play safe and they don't want to take the risk and be the ones to be blamed for starting a service that would probably cost a few million dollars to the liner company. And that service might be not profitable going forward, if the tariff war goes to full-blown. So it's very psychological, psychological driven. Therefore, that's why I believe in a big part we have seen this reduction in demand and reduction saturate. Of course, it is also the seasonal thing that new services beginning usually just are decided in a beginning just after the Chinese New Year. So given the fact that we had all these negative questions all this time, it didn't help the psychology. Now as to the 2020, my personal view is that which is contrary to some articles we read is that liner companies are going to make a lot of money. And there's a reason behind it. This --the fuel surcharge is definite and it's going to be there because it's going to be there for all liner companies. This additional fuel cost is not going to be shouldered by the liner companies that are certain. Therefore this is going to be paid by the shippers and therefore any scrubbers that the liner companies have placed on their ships, its going are pure profit for them. As they will not differentiate and say, okay, what this service has three ships with scrubbers and five ships without scrubber, so we're not going to charge the fuel-- the fuel surcharge to all of the containers. They cannot do that. They're going to place the fuel surcharge and all the saving that will come from this scrubbers going to end up in to their balance sheet. So I believe that this is going to be a very good year for liner companies and let's see if I'm right or wrong. But it's clear that there's going to be a surcharge so the additional fuel cost is going to be passed to the shippers and the scrubbers are going to just give additional profit to the liner companies.

Our next question comes from line of Howard Blum with UBS Financial Services. Your line is now open.

Good morning. Thanks for the update and the additional information you provided in the slides. I had three questions maybe I just spit them out and let you answer them however you wish. You received a delisting notice from the New York Stock Exchange on November 13th and the six-month period ends on May 13th. Does a company anticipate taking steps to maintain the stock exchange listing or in failure to attain an average price of $1.04 30-day period, the stock will be delisted and I guess your list on NASDAQ. I don't know what the company's intentions are. Whether you're going to have a reverse split if you're not able to attain the share price or what your plan is? Second thing is I know this --

Let me answer that very quickly we have called a special meeting of shareholders for March the 20th at which we're seeking shareholder approval to give the board the authority to undertake a reverse stock split. So I think that's the answer to that question.

Okay. Good. There's been a discussion I guess with the increased size of the fleet as to how frequently you'll announce new charters when they come up will you announce new charters on an individual basis or have you decided how you're going to inform shareholders about new charters in the future?

I can answer that very quickly also. Since we want our shareholders to be completely up to date and be able to update their models in line with what we've said that we are going door-to-door to explain our company to the various investors. We will be announcing our renewed charters as soon as they happen and they become confirm.

So that's great news. Okay, the last question is a merger you issued about 24 million shares of stock away from the convertible preferred and the other consideration. The majority owner I guess Poseidon was a private equity fund that had been formed I guess in 2010 or 2011. Where did those 24 million shares go? Did it go to the fund or did it go to the individual limited partners of the fund?

. : And the consideration that we gave to Kelso was in the form of convertible preferred shares Series C which in certain circumstances convert to Part A common shares. So that's how the transaction was structured.

Our next question comes from the line of Peter [Indiscernible] of Ironshore Capital. Your line is now open.

Good morning and thank you for taking my questions. Just let me start with following up on the comment you made before that you might be thinking about, if I heard you right unlocking value of legacy GSL ships by adding reefer capacity. Can you confirm that this is indeed with you intent and also how would it be found that or what are the CapEx and potential benefit in the business case?

Okay. Let me answer to that. This is increasing the refer capacity of ships and we have seen that most of the GSL legacy of ships have the electrical power onboard because increasing the reefer capacity has -- it's about two issues. One is to have the electrical power to power up these extra containers, extra reefer containers and the second leg is to install the necessary plugs in the ship so that you can plug in these extra containers. So the legacy diesel ships most of them or the important ships that we're looking at they do have this electrical power, they have extra electrical power. And so we are making a study which is going to be approved by class, all of that has very minimal cost in the tune of $10, 000 - $20,000 to get the approval for the classification site. So we can do that. Once that is done then we can market the ship with a new capacity which the way we normally do it is we agree with our charters to participate in the CapEx expense which is not something huge by the way. It's hundreds or thousands of dollars to participate in to that increase as that the charter ship will be for a long period of charter. So like anything between three to five years and so it is not going to really matter that much the company with respect over CapEx this increase, Nevertheless by doing this increase naturally the value of the ship increases substantially, given the fact that for example our 7,000 that we are increasing with the reefer capacity are becoming the highest reefer capacity 7,000 worldwide.

Right and how many ships of the legacy do you expect to do -- do you think can be converted in between?

Immediately --

You may not have seen it yet but 12 to the fleet table in the earnings release notes that we're targeting an increase near term in 8,000 TEU vessels to 8, 6000.

So to start with, yes, this is what Ian said that these are three ships that are under progress right now of making this analysis, but there are also other ships into the GSL fleet quite a few more of them that we have identified as possible increases to happen.

Okay and what is the timing of this program?

Well, the first advance of the three ships is almost ready. The analysis --the study, we have already prepared another study for another ship. And probably in the next month or two months we will have finished our preliminary analysis on the rest of the fleet. So we will know which ships we can market to the charters, as well as [Indiscernible] 0:52:36.7 provide this additional reefer capacity if need be. We have done something similar also only on the Poseidon fleet. It's just for commercial reasons we do not advertise publicly the upside potential of reefer plugs of our ships, but when we do negotiate with charters we give this information and the reason we don't put in public lists for competition purposes as you can imagine.

Okay and moving on you also mentioned an effort to address the mid-term maturities. Can you just provide a bit more color and what needs to happen for you to feel that you're in a position to approach the market and would it be a bond market or a bank market?

We are in the process of extending our maturities which was a natural thing we would have done anyway. We in Poseidon and that are going to happen with normal bank debt. We do not anticipate to approach to the bond market. These loans are already with commercial banks. The commercial banks are very comfortable. Actually their position has been improved because the ships have obtained longer charters. So it's only better than before and we are in discussion with all these commercial lenders that we have relationships going back 10-15 years to extend the maturities as a natural thing in our industry.

Okay and moving on to the broader market picture. You mentioned that there was a lot of uncertainty related to the tariffs and the trade war is potentially intensifying. How much of the impact of this uncertainty have you seen on demand and rate in intra-regional especially inter Asia and inter Africa freight?

I would let the Tom talk about this he is commercial head.

Sure. Hi, Peter. How are you? We have --if you go back to slide 8, you can see what's happening to charter rates at the moment in the shape of our most recent fixtures. So broadly speaking for the smaller vessels by which I mean the 22s up to the 27th, 28th, the Charter rates are broadly in line with where they were in 2018. So they're roughly in the sort of $7,000 to $9, 000 per day region, which there's not much change one way or the other there. Now for the larger vessels which were the vessel that George was sort of referring to when talking about what's happened to charter rates. I would say that the 9,000 TEU vessels are probably commanding rates in the low to mid 30s at the moment. The 8,500 have increased by roughly 75% or so from call it $12,000 per day back in the Q4 of last year up to the low 20s today. And the 5.5s and 5.9s are also firming. So it's difficult to sort of break it out and say what's happening to charter rates within the intra-regional trades, but given that I would say that large majority of our vessels tend to be deployed in the non main lane and intra-regional trades that recent recap of charter rates I've just given you should give you a sense of what we're seeing in the market from a charter rate perspective.

Let me add, if I may add to what Tom said and sorry to interrupt. If I may add to what Tom said, you can see that the increases in to our all the containers that have happened on the large ships. The post-panamax ships, the ships have that have a wide beam and they can take a lot of cargo because they have better stability. That is a clear indicator that there are lots of cargoes going forward. If liner companies do not see the cargo volumes, they tend to downsize and not to upsize. So that what we see here is that liner companies are starting to upsize and they are trying to use the ships which have the wider beam and therefore the lower slot cost. The bigger the ship the wider beam the lower the slot cost as a rule of thumb. So it is one thing, yes, the liner companies will definitely always go for the lower slot cost as long as there are cargos to fill a ship there is no point to just make the exercise and then have the ship half empty because then the exercise fails because the slot cost calculation, the slot cost calculation as assuming that the ship is relatively full. So from that I can make the assumptions that nothing is happening to the trades, actually to the opposite. I think the trades are firming up and that's why the demand for bigger ships. That would be my guess.

Okay. Thank you for this color. Maybe let me ask a bit differently. So, obviously, late 2018 you had all the success in extending growing new contract for Poseidon vessels at higher day rate. Do you anticipate that in 2019 we will see the legacy GSL vessels are intrinsic as -- at higher day rate as well?

Yes. I am -- I feel confident on that. How about you, Tom?

Yes. I would echo that particularly the 8.5 that's where we see -- [Multiple speakers] yes, which is of the segments where we are seeing the most promising development.

And the 9s, we have also 9s having up for renewal. One of the eco new design ships. And so we feel very, very comfortable and very confident on these coming up renewals.

Our next question comes from the line of [Indiscernible] Capital. Your line is now open.

Thank you. Thanks very much for taking my questions. I guess I have got two questions. One is about new ballast water legislation that comes in early next year I guess. So maybe you could shed some light on whether we should anticipate any impact any sort of capital expenditure related to that for the fleet? And, if so, could you please sort of comment on the potential size of investments required? And my second question is about sort of the -- how you guys think about sort of refinancing of the bond? I mean I guess you kind of commented that -- I guess kind of we can imply that you are not thinking about your financing at this stage, but it would be helpful to kind of understand your sort of thinking process as you kind of saying the LTV of the structure kind of came down as a result of Poseidon transaction. You got younger fleet. These sort of locked in charters are longer so PV of that is quite helpful as well and the sort of underlying market back job is also supporting. So I guess it would be helpful to understand like what kind of factors you consider when it comes to financing of the bond.

I will answer first on the question of the ballast water treatment and then I will let the other questions to Ian. The ballast water treatment system for our fleet is costing per vessel anything between $300,000 to $350,000 all in turnkey solution. We have budgeted that together with our drydocks and special vessel whenever ship go for special way drydocks, we are installing also the ballast water treatment system. It's not major CapEx issue. We do have that may drydocks every year. And it's all within our financial model. So it's nothing really important.

So is it fair to say that you've got 38 vessels so you have to spend cumulatively around $10 million on that when drydocks happen.

Not really because out of these ships nine already have the system. These are the new design vessels we have. So all these nine ships do have the ballast water treatment when they were built. And on the others, we are planning and we can give you --I mean you can assuming if you want to do modeling on our drydocks something like $300,000 per vessel around $300,000 per vessel on the rest of the fleet when they come for renewal except those nine ships.

Thank you.

Ian you want to take --

On the bond and that's just a little bit of history. First one we issued in 2014 that was opportunistic. It took out a previous very restrictive maintenance covenant ship mortgage financing, and allow us the flexibility to grow which we did increasing EBITDA by third. Then we saw an opportunity of refinancing that bond in 2017 on improved terms with more flexibility. And obviously it pushed out the maturity of the paper. The 2000 that bond that we raised last year is five year paper and non call two, so it's unrealistic to assume that we would look to refinance before at least the paper is callable which is very late this year. It is expensive compared to our other debt and as part of our search to optimize the balance sheet. We are looking at the possibilities no more than that of seeing what we can do on a holistic basis to refinance the entire balance sheet on a more cost effective basis. And that's where loan-to-value that we've discussed on the call is so important. So overall loan-to-value is much reduced for the enlarged GSL compare to the legacy GSL that gives us more opportunity to look at alternate sources of debt. End of Q&A

Thank you. And I'm showing no further questions at this time. I would now like to turn the call over to Mr. Ian Webber for closing remarks.

Great. Thank you very much for joining us. Thank you for your questions. And we look forward to providing you an update on the first quarter 2019. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This conclude today's program. You may all disconnect. Everyone have a great day.