Navigator Holdings Ltd. (NVGS) Q4 2019 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to today’s Navigator Holdings Conference Call on the Fourth Quarter and Year End 2019 Financial Results. I have with us Mr. David Butters, Executive Chairman; Mr. Harry Deans, Chief Executive Officer; Mr. Niall Nolan, Chief Financial Officer; Mr. Oeyvind Lindeman, Chief Commercial Officer. At this time, all participants are in listen only mode. There’ll be a presentation followed by a question-and-answer session. [Operator instructions] I must advise you that this conference is being recorded today, Friday the 3rd of April, 2020. And now, I would like to pass the floor to one of your speakers, Mr. Butters. Please go ahead, Sir.

Thank you, Kash and good morning, everyone and welcome to Navigator's fourth quarter earnings conference call. I hope everyone is healthy, safe and secure. But before we actually begin our formal remarks, I would like to point out, as we conduct today’s conference call, we will be making various forward-looking statements. These statements include, but not limited to, future expectations, plans and prospects from both a financial and operational perspective. These forward looking statements are based upon management’s assumptions, forecasts and expectations as of today’s date and are as such are subject to material risks and uncertainties. Actual results may differ significantly from forward-looking information and financial forecasts. Additional information about those factors and assumptions are included in our annual and quarterly reports filed with the Securities and Exchange Commission. So first, let me apologize for the late reporting of our results. I know this may have caused some concerns. The nature of delays comes from the decision made almost two years ago to change our auditors from KPMG to E&Y. We made this decision based upon good corporate governance and its practice and our continued search to improve our accounting platform. We fully understood that in doing so it would likely result in a two or possibly three-week delay in getting our year-end audit completed. That is exactly what happened. But unfortunately, this delay pushed us into a quarantine shutdown in our London office and forced everyone including the auditors to work at home. Naturally, the consequence of everyone working from home resulting in a much delayed audit process. So today our speakers will include Harry Deans, our President and CEO; Niall Nolan, Navigator’s Chief Financial Officer; and our Chief Commercial Officer, Oeyvind Lindeman. So let me pass the call over to Harry who will make introductory comments. Harry?

Thank you, David and good morning to everyone on the call. I hope you're all well and keeping safe. The world is a completely different place today compared to when we last had our Q3 call in November 2019. Since then, the COVID-19 pandemic has swept the globe with its far reaching consequences for human health, social interaction, and the world economy. The first economic effects were felt in China before spreading to the rest of Asia and now to Europe, the Americas, and beyond. All markets are experiencing huge volatility, and unprecedented turbulence with considerable headwinds in many sectors. However, amongst all the doom , there are some glimmers of hope with China slowly and purposefully starting to return to some degree of normality with both manufacturing and demand gradually starting to recover. As we speak, several Navigator vessels are en route to China and South East Asia with LPG and petrochemical cargos. At Navigator Gas, the safety, security, and welfare of all our colleagues is paramount whether that be on land or at sea. We successfully retested our business resilience procedures last month, and following government advice in both the UK and Poland, we decided on the 18th of March to temporarily close all of our offices and to run our business remotely. For just over 2.5 weeks now, we've been running our business operations remotely without disruption. I'm very pleased that all our business continuity preparations have enabled a seamless transition. Through the use of technology, we've increased the level and frequency of our communications with and between our onshore and fleet staff. Of course, our shore-based activities are only part of the equations, our seafarers continue to crew and safely operate our 38 vessels, which as we speak are plying the seas delivering their vital cargos of gas to our customers across oceans and between continents, and by so doing are keeping the global economy moving. This is no mean feat as we like many companies have experienced considerable operational challenges brought on by the pandemic. On both the vessels, we have stepped up our infection protection and control precautions. We've implemented increased hygiene measures and increased both health screening and medical supplies. Given the numerous travel restrictions, the company and our third-party managers have temporarily suspended all crew changes until it is both safe and feasible to resume them. I would like to say thank you and pay tribute to our hardworking, dedicated, and professional seafarers who are currently separated from their families for extended periods at this difficult time. We have therefore increased the level of support and advice for all our employees to protect their overall well-being and mental health while providing increased internet access and capacity to allow crew members to keep in contact with their loved ones. Our teams have been working with the flag states, the classification societies, the various inspection institutions, and of course our charterers to postpone or alter mandatory dry dockings and inspections as they become due. This pragmatic approach coupled with the additional measures our ports have called and put in place has ensured our operations continue without any major disruptions and at comparable levels to 2019. On late December, last year and the early January this year, the initial phase of Morgan’s Point joint venture ethylene terminal was started up. With the first cargo of ethylene, leaving on the Navigator Europa bound for China on the 8th of January. Commissioning of Phase 1 is now actually complete with Phase 2 namely the construction of the storage tank proceeding safely on time, and on budget. We expect the tank to be operational by the end of November this year. This tank is really taking shape as you can see in the slide in the supplemental information pack. However, the key to full operational effectiveness of our export terminal is dependent on the completion of the underground ethylene storage cavern , currently being built by Enterprise at Mont Belvieu. This upstream cavern will commingle ethylene from a variety of producers and direct it down to a joint terminal in an orderly manner. As is common in these types of infrastructure investments, the conditioning and commissioning by enterprise of the cavern has taken a little longer than expected. We currently understand that these works will now be completed in the next few days or at most few weeks, with notice given to initiate the terminal take-or-pay contract being set shortly thereafter. That being the case, these contracts should take effect at the latest by the end of Q2. Therefore the terminal will have a limited throughput until these contracts are effective. A few weeks ago, we were very excited to announce that Luna Pool with Greater Bay Gas and Pacific Gas which will provide customers with increased flexibility and improved access to ethylene-ready vessels. The pool is expected to be operational in the second quarter of 2020. Our vessel utilization rates in January at 97.3% continued where Q4 left off. However, since the scale of the COVID-19 pandemic and its economic impacts that became apparent, our utilization rates have subsequently dropped and are running – now running at mid-80% levels, levels last seen in mid-2019, which will impact our results in Q1 and probably Q2. Thankfully TCE rates have been pretty resilient so far and have held up better than expected in the phase of the economic slowdown. How long this will continue remains to be seen given the current unprecedented economic turbulence. Rest assured, the management team at Navigator Gas are taking all necessary steps to reduce discretionary spend, while minimizing working capital and CapEx and thus preserving cash flow liquidity. A summary of these interventions are outlined in the supplemental information pack. I'm confident that given our scale, our geographical spread coupled with the our product flexibility and our fantastic counterparty relationships that Navigator Gas is well placed to weather the current economic turbulence, to manage the uncertainties and we'll come out of this stronger. With these few remarks, I would like to hand over to our CFO, Niall Nolan, Niall.

Thank you, Harry, and good morning all. Revenue for the fourth quarter was $76.1 million, an increase of $0.5 million from the $75.6 million generated during the last quarter, Q3 2019, but were down 2.8% or $2.2 million from the fourth quarter of 2018. Revenue for the 12 months ended December 31 was $301.4 million, also a reduction of 2.8% from the $310 million generated during 2018. Net revenues as revenue after deducting pass through void expenses was $63.9 million for the fourth quarter, an increase from both the $62.2 million generated last quarter and the $62.8 million generated a year ago. Utilization increased significantly from 86.3% a year ago and 92.7% during the fourth quarter generating $4.3 million of additional revenue. December in particular saw utilization of 96.3% and this higher utilization continued as Harry mentioned into January 2020 with the utilization of 93 – 97.3% before folding away in February and March to levels around 85% largely as a result of the impact of COVID-19. For the full year of 2019, utilization was 86.8% against 89% for the 12 months of 2018. Although utilization increased during the fourth quarter, average charter rates reduced slightly from Q3 with an average of $20,204 per day or $614,500 per month in the fourth quarter compared to $20,920 per day for the fourth quarter of 2018. Average charter rates for the 12 months of 2019 were $20,831, an increase from the average rate of $20,284 achieved for the full year of 2018. During 2019, the company undertook a total of nine dry dockings, taking an aggregate of 262 days to complete which includes the time taken to sell to the respective yards and costing approximately $11.5 million. These three of these dockings were completed during the fourth quarter taking a total of 80 days. We are scheduled to drydock 10 vessels during 2020 at a provisional cost of approximately $12.2 million provision of cost of approximately $12.2 million. Although, as we have mentioned there are certain challenges in drydock investments at the moment as a result of COVID-19 including the inability of service engineers and technical superintendents attending such dockings. However, we believe that although some dockings may be delayed with the consent of the flag states and passenger classification societies, we do not believe the cost of such dockings will be materially higher than anticipated. Vessel operating expenses were $27.7 million for the three months of the fourth quarter, an increase of just 2.4% from the comparative quarter of 2018. CapEx for the full year of 2019 was a $111 million - $111.5 million, a $837 per day, compared to a $106.7 million or $7,694 per day for 2018. The compound annual growth in OpEx over the past 10 years has been just 1.04%. General and administrative costs increased by 10.3% year-on-year principally as the number of employees increased to enable additional investors to be taken into in-house technical management. We now technically manage a total of 17 of our 38 vessels in-house. Interest costs for the fourth quarter were $12.2 million, which was similar to the $12 million incurred during the fourth quarter of 2018. The total interest expense increased from $44.9 million during 2018 to $49 million in 2019 primarily as a result of interest on the NOK bonds issued in November 2018. In addition, we capitalized interest in 2019 of $4.8 million associated with capital contributions made for the construction of the ethylene marine export terminal. As Harry mentioned, the terminal commence loading its inaugural cargo on Navigator Europe in December, the terminal accounted for a book loss of $900,000 during the fourth quarter resulting in a charge of $1.1 million for the full year bringing Navigator’s 50% share of that loss. We are not anticipating a profit from the terminal until volumes from the throughput agreements ramp up in the second quarter of this year. We reported a net loss for the fourth quarter of $2.8 million or a loss of $0.05 per share including the $900,000 relating to the terminal, marginally better than the last generation during the third quarter and better than the $3.9 million loss made during the fourth quarter of 2018. A full loss for the year of 2019 was $16.7 million compared to a loss of $5.7 million for the 12 months of 2018. With respect to the balance sheet, cash stood at $66.1 million at December 31 against the maximum required liquidity covenant from bank loans and bonds of $44.5 million. The company was in compliance with all financial covenants and all its facilities at December 31, 2019 and we do not currently foresee any covenant breaches in the near term. However, the company does provide cash collateral security against unrealized losses on its cross currency interest rate swap and then the event that the Norwegian kroner weakens further against the US dollar. Additional cash security will need to be placed into the collateral account both providing less headroom on our liquids management covenant. During the fourth quarter, we contributed a total of $12.5 million towards the construction of the Ethylene Marine Export Terminal taking total contributions to date to $125.5 million against the anticipated total cost of $150 million. As mentioned the ethylene refrigeration units and ancillary piping loading arms et cetera are now complete in operation and the construction of the 30,000 ton ethylene storage tank is expected to be completed later this year. The terminal loan facility for maximum $75 million remains fully undrawn some of which will be drawn to fund the remaining capital contributions of approximately $24.5 million. The amounts available for drawdown are dependent on the level of throughput agreements in place and currently the banks have agreed availability of $36 million based on the first three off-take agreements with compliance requirements ongoing to increase this available amount to $52 million as a result of fourth off-take agreement signed late last year. As discussed on the last earning’s call, at the end of October, we undertook the refinancing of one of our vessels, Navigator Aurora, through a sale and leaseback transaction. The sale price of $77.5 million provided cash of $69.75 million after seller’s credit of 10%, $44.5 million of which was used to repay the prior loan on the vessels and the remaining $25.25 million available for corporate purposes and to further strengthen our balance sheet. Simultaneous with this sale, the company entered into a bareboat charter for the vessel for up to 13 years with company have break clauses at years 5, 7 and 10. At December 31, total debts stood at $889.5 million which incorporates five bank loan facilities, the unsecured $100 million Norwegian bond, and a $600 million NOK denominated Norwegian bond which equates to approximately $71.7 million. Whilst headline gross debt to equity ratio was 48.6% at December 31, if we were to separate -- separate out the debt associates with the marine export terminal which is a 100% debt financed, the ratio relating to the business -- shipping business reduces to 44.8% and we pay approximately $70 million or 8% of total debt per year in regular quarterly repayments for debt to equity would reduce below 40% at the end of 2020, all of those things being equal. As referred to in the 6-K published last night the company does not have any debt facilities maturing during 2020 and there's only one debt instrument maturing in 2021 $100 million Norwegian bond that matures in February 2021. Company has had considered refinancing this fund with a like-for-like fund prior to the outbreak of COVID-19. So, due to the current disruption in the capital markets, the company is now also considering alternatives in the event that the effects of the virus last longer than anticipated. Thus considers such considerations, include seeking an extension to the maturity of the bond, seeking to raise capital to repay the bond by means of further sale and leaseback for number of the companies vessels, all alternatively raising additional debt, alternative debt using available unsecured vessels. And with that, I'll hand you over to Oeyvind.

Thank you, Niall, and good morning, all. Clarksons 12-month time charter assessment for handysize semi-refrigerated gas carriers increased by 20% during the fourth quarter from $540,000 a month at the beginning to $645,000 a month at the end of December. As one would expect in a rising market, our utilization across the fleet similarly rose from an average of 85% and during third quarter to an average of 92.7% during fourth quarter. The increased utilization was generally due to an uplift in the transportation need of LPG during the first winter months. LPG has the proportion of earnings based rose by 4% to $2,100 in four days during the quarter compared to the previous quarter amounting to two thirds of our total fleet turning days, deep sea petrochemical voyages similarly picked up in demand and reverted back to the more traditional trading routes; ethylene from US to Asia and butadiene from Europe to Asia bringing additional 10 miles to the handysize segment. The Chinese petrochemical manufacturing demand rose during this period in order to replenish inventory levels prior to China Lunar New Year. This resulted in our petrochemical earning days during the quarter to rise by 26% to 877 days compared to the previous quarter. As you heard earlier in the call, Navigator Europa went all fast alongside Morgan’s Point Terminal during the Christmas period to commence the inaugural ethylene commissioning cargo for the Enterprise Navigator ethylene joint venture. She successfully completed loading operations of 11,500 tons of ethylene, for in Americans speak, 25 million pounds of ethylene and delivered on-specification ethylene to Taiwan on the 10th of February. Since then, the terminal has loaded four additional vessels. In the run up to our expectation of full utilization of the ethylene terminal and in a move to create a larger and broader platform of handysize ethylene vessels, we announced the formation of the Luna Pool last month. Pool enables us to provide the better service to our customers in the form of flexibility in the deep sea petrochemical trades or critical mass matters. The pool will have 14 handyside ethylene vessels at its disposal, the service there is existing and new potential contracts and customers. The beginning of 2020 started off on a good note with healthy utilization and employment across the fleet. However as you’ve heard and experiencing with the manifestation of COVID-19 virus and its global impact, we started seeing a dampening effect on shipping demand from February onwards. Manufacturing demand decreased alongside consumer demand, resulting in high feedstock and raw material inventories and price volatility. Many market participants chose not to move cargoes or could not move cargoes during the month of February and March meaningless amount of seaborne transportation which in turn has surprised me has impacted our utilization rates. These are impacted manifesting is a more in the petrochemical segment due to its association with GDP as opposed to LPG for handysize cargoes are generally associated with domestic consumption for heating and cooking and there should be less impacted by effects of the virus. Somewhat surprisingly though our Argus reported earlier this week that petrochemical crackers globally have yet to reduce operating rates as a result of demand or margin reason. And despite price fall for a finished products Argus is reporting that producers are still making a reasonable margin. With the cracker operating rate holding firm in Europe and US in a weak domestic demand environment products such as ethylene and butadiene are being exported to Asia as we speak. As an example Europe exported nearly 50,000 tons of ethylene during the month of March and for East destinations. Ethylene FOB pricing in Europe and U.S. is currently about $275 a ton and $200 a ton respectively with Asian buying demand hovering about $450 to $500 per ton range. So within this range it still make possible to justify deep sea petrochemical shipments between the continents albeit the margins have narrowed considerably over the last two months - making it slightly more challenging. This slightly positive news is that China’s reopening manufacturing site lifting travel bans allowing workers to return to their jobs. China manufacturing PMI rose to 52 in March up from a record low of 35.7 in February. This should stimulate some form of petrochemical demand in the near future. However it is likely too early to see the effects of this yet. And now I will hand you back to David.

We can open the call up for the Q&A, Kazz if that’s okay with you.

[Operator Instructions] First question comes from the line of Randy Giveans from Jefferies. Please ask your question.

All right, so starting on the shipping side, you know in your press release, you stated the company has not experienced any significant decrease in charter earnings thus far but realization has fallen from 97% in January to the mid-80% range. So a couple of questions. What kind of charter rate levels are you seeing for the spot propane and/or ethylene ships and then what was the average utilization for 1Q 2020? Should we just maybe take the midpoint of the 97% and mid-80% to around 90%

Hi Randy, so you have the utilization rate for the quarter in the press release there. But I think at the backend of January, quoted time charter earnings from Clarksons were at its peak at $695,000 a month, so that was at end of January. At the end of last week, it was quoted at $665,000, so down a tad bit, but we are not seeing a drop off the cliff if that was the question. So, I'd say it's a slight reduction from its peak at the end of January to what we are seeing today. It is smaller, so the rates are impacted less so, but its utilization as you pick up on which is somewhat lower than what we had in December and January, because of just dampening effect from -- on the demand side.

Thanks for that Oeyvind. And then a question for Niall, looking at the sale-leaseback debt transaction freed up around, I don’t know, 30 million in liquidity net of the debt repayment. Any specific use for those proceeds? Is that just kind of staying on the balance sheet and then two other questions, what is the effective interest rate on that transactions and/or additional sale leaseback kind of as an available options, is that market still open could possibly repay that 100 million next February?

Yeah. So the - the existing sale leaseback transactions first, this is with Ocean Yield in Norwegian outfit. The rate was 4.3% plus LIBOR. And we have 25.25 million as I mentioned of surplus cash. That's really just strengthening the balance sheet, providing additional liquidity that we did in -- so that transaction was closed in October last year, October 28 of last year. With respect to any future sale leaseback that we're considering to pay off the 100 million bond in the event that the market stays closed or the capital markets stay closed and we're looking at alternatives to market. Certainly, the Japanese leasing market is very much open, which has remained open throughout and the rates would probably be less than the 4.3% that I mentioned in the relating to the existing leaseback.

Perfect. Niall, thanks for that. And then one more little topic to cover here for the ethylene export terminal. I know there’s still kind of commercial acceptance and those things are hopefully coming say in the next few days, if not weeks. With that, what is kind of the expected maybe EBITDA guidance update for the second quarter or –just the full year 2020, and then kind of on a full run for the full year 2021? And then can you remind us of the total debt Navigator has on its books for the terminal?

I’m not happy to start off on that. The debt that -- at least the payments that we have are $125 million so far which is -- which is all debt. We expect to pay the other $24.5 million generally throughout 2020 this year. They -- those payments principally relate to the tank which as Harry mentioned is due to come on in November of this year. In terms of -- I did mention that we are not expecting to be profitable from that terminal until the throughput agreements ramp up or come into play after which we would expect to be. We've given guidance before about the full operations of the terminal in mid-teens around the $22 million, $23 million -- yes $22 million $23 million EBITDA level. That's based on -- on the full million ton capacity of the terminal when the tank comes into play.

Just making sure that that range is still intact, and I guess you mentioned it there. So last question for me. Any updates on that remaining 25% capacity in terms of contracts?

Thank you. Are you ready for the next question?

Harry, did you want to answer that question?

I was waiting for Oeyvind, but he might have dropped off. Yeah, we are still in – it is still work in progress Randy. We’re still trying to get as you remember, phase one is already sold out and it’s phase two we’re talking about once the tank comes on stream. We’re -- Oeyvind and the team people on Enterprises are in lots of discussions and those discussions are being a bit halted to be honest given the COVID-19 situation, but we’re still hopeful that we’ll get the terminal sold out imminently.

I think the best answer for that Randy would be what Jim Teague at Enterprise had said in his conference call that they were very close to signing the last documents that would result in that terminal being sold out completely. Now, since that conference call that they had a month and a half ago, there have been a lot of changes in the world. I think knowing the background of those comments, I would suggest that that interest and that potential signature on the documents will be coming. But I think no one is in a rush to put their name on the document right now. So, I think it’s coming, there's a lot of confidence that, that will be signed, but it's not signed yet.

Okay. Yeah. Got to hear from all four of you so well-covered.

Thank you.

Thanks, Randy. Is there another question?

Your next question comes from the line of Sean Morgan from Evercore. Please ask your question.

Hi guys. Yeah. Sean Morgan. So, the unrealized loss on the cross currency for the interest rate swap, you guys had to cash collateralize that. What was the total amount that had to be posted, and is there sort of like an upward limit that would need to be posted and how much liquidity headroom do you have, sort of taken that into account.

So the loss at the end of – the unrealized loss at the end of December was $6.3 million and the – hedge provider bears the first $5 million, so we had to put up the $1.3 million into a collateral account. And there isn't actually a headroom, that there isn't a cap on that.

Okay. So, it's sort of like a dollar-for-dollar that you have to match to the unrealized loss, so if we go up another $5 million, you'd have to post another $ million effectively.

Correct. Yeah.

Okay. And then you talked a little bit about the sort of spotting demand you're seeing around the world and maybe a little bit of improvement in China, with India, I think I read that they're now planning to do subsidies for Indian retail consumers for cooking gas. Is there going to be able – in your opinion it would be able to offset some of the some of the loss demand from the industrial sector in a year or so I guess to make – are you sort of thinking this is going to be a negative for a while in India or possibly improving demand there.

Hi, Sean, it’s a good question, it’s a complicated question. So the LPG – at least what is subsidized, it's for marginally economic people in India. So they use the LPG for domestic for heating, not so much heating perhaps for cooking, so that the demand is still there but it's unchanged. It's just that it get subsidized. Another impact of India is that our petrochemical industry are the downstream demand in India is lower. So the Indian production has to find them out elsewhere in Asia and had some knock on effect on other trades. But for LPG in India obviously there's the security of supply on the national interest which is important. So what we've seen over the last couple of weeks but at the national oil companies in India have gone out to secure larger stems of LPG for the security of supply to the various ports, but they won't get caught short in this corona lockdown. So, I think for handysize, net effect is neutral and there's not that much handysize LPG business in between the Middle East and India. There's a couple of ships, but those will be unaffected. And the more impact is that there are new petrochemical cargos being imported from India, it will go to Asia, which has a positive effect so be it a smaller volumes. So, I think net-net is mostly neutral shown, so not too big impact on plus minus.

Okay. That's helpful. Thanks. I'm going to turn it over.

Thank you. Next question comes from the line of Omar Nokta from Clarksons Platou. Please ask your question.

Hi, David, Harry, Niall, and Oeyvind. And I hope you and your families are safe as well as everyone at Navigator.

True.

Thank you. You know you guys have given a very good overview I thought obviously in the comment…

Sorry, question, can you ask your question again. It appears your line has dropped off. [Operator Instructions] Thank you.

Yes, maybe you can take the next one. And if Omar can hear us, he'll call back with his question.

Thank you. I’ll ask Omar to continue with his question.

Can you hear me?

Yes, now we can. Thank you.

Okay. Yeah. Sorry about that. Not sure what happened. I just wanted to just a couple…

It’s the bug.

It is it's going around. Maybe just first half you talked about the operational challenges and this is definitely something that industry wide that they're shipping, say everyone is facing and that is the crew changes and needing to delay that. When you guys think about it, how long do you think it's feasible, because you guys have specialized vessels and they have very sophisticated equipment on board.

Yeah.

How long do you think it's feasible to keep the crews on board without making a change. Is this week -- number of weeks type of thing or can this go on for months, you think?

Hi Omar, this is Harry, good morning, I'll take that one. Omar, in many respects the safest place to be at the moment is on one of our vessels to be honest. And to answer your question, yeah, it can go indefinitely, but as countries start to open up, and this way you start moving again, then we’ll -- what we’re trying to do is seek to refresh the crews as quickly as possible.

Yeah. Okay. Thanks for that. And then just as a point of [Audio Gap] you mentioned the utilization being down into the mid-80s at this point. Would you say that that's a blended average across the spot in time chart or is that just the spot market utilization?

That is a blended cost of all fleets, which we always quote our utilization numbers basis.

Okay. Thank you. And then just one other thing I wanted to ask and, Niall, clearly the sale leaseback, you’ve unlocked a good amount of cash and – as I just think about it, and looking at the way it's classified in the balance sheet, I may have missed it, but is there a reason why it appears to me that it looks like it's a related party transaction. Is that the case with this?

Yeah. This is - this is – this unfortunately is a consequence of US GAAP because the vessel is owned by a company, which has no equity involvement by Navigator, but Navigator is the sole beneficiary of that company, because we've got buy options at the end of various years 2005, 2007 and 2010. We are required to consolidate that subsidiary into our books, and therefore on the balance sheet, it's called a related party and on the income statement there is an amount of net income attributable to the non-controlling interest which is again sale and leaseback. So it’s – it’s the most bizarre accounting treatment that we’ve come across to date. It is now how IFRS accounts for sale and leasebacks. But it's -- it's a requirement of US gov. But you're right the non-controlling interest does -- does relate to this sale and leaseback.

Okay. Yeah. All right. So but effectively just from the big picture obviously ocean yield and navigator, there's no…

There is – there is absolutely zero commonality or Navigator equity participation in that subsidiary. But – and effectively from the balance sheet perspective look on the balance sheet amount as the amount of the outstanding loan.

Yeah. Okay. I'll do that. And – and I know I'm bouncing around but I just want to ask one more and Oeyvind I think you gave a good overview despite the drop off in oil prices there still is a fairly decent gap between ethylene or petrochemical prices in the US, Europe and in Asia. From what you're seeing right now in the market it's everything's changing and it's dynamic, but basic -- based off of that spread and yes it's coming, are you still seeing a good amount of movements or has that -- or has sort of the overall pandemic really started to impact the movements based off of this pricing?

Yeah, I mean the downstream demands in Far East is not helping because obviously it’s come off and it’s big time in February and March, although March is looking slightly better than February. But the point was that we're filling up Far East and companies were filling up their storages before the Chinese linear comments. So they were already – their inventories were already full. So and then you have February-March come in downstream demand was low because workers were at home and so forth, nobody will consuming. But that had an impact on the inventory consuming, so that’s had an impact on the inventory management on the availability where you could place cargos and at the same time you have the Europeans and the Americans still running their crackers at the high rates, so they're producing their domestic situation similar to China. So they're ramping up inventory so as soon as we see tonnage being available in Asia, the cargos will move and they have been moving albeit a little bit on reduced scale. So I mentioned it was 50,000 tons of ethylene going from Europe to Asia in March and that is quite unprecedented. So but pricing the narrowing of the arm is also a challenge. So on paper it works today but producers and end users and traders they have to then find outage, so therefore you drop off 12,000 tons of ethylene it is a big cargo. Can they go to one place or do they have to mix up and go to two or three locations and what are the pricing do in the meantime because you know their wages are quite long it takes from you load to you get to the destination is 30, 40 days. So you have a lot of complexities in those trades but they haven't stopped but of course the corona situation does make it easier.

Yeah just to that end, it’s floating storage any sort of is that a viable option these trade where there is a

Yeah we haven't seen that yet now we have some larger ships being available on the spot market and that can take 20,000 tons and that might come, so we haven't seen – seen those market calls yet I think blocking storage situation is more applicable in the early commodities. So if it's propane or crude doing or something like this when you come to petrochemicals, it’s a refined products petrochemicals, it’s a refined product. So it’s less of a scope to -- for floating storage.

Okay. Got it. Well, appreciate the color guys. Thank you very much and stay safe.

Good to hear from you.

Thank you, gentlemen. In the interest of time, I’d now like to hand the conference back to you, for your closing statements.

Well, great. Troubling and in difficult times, even making this conference call has been a challenge. So I hope we’re -- the info given for that as well. Look forward to our next quarterly call, which I hope is not as delayed as this year end call and thank you for joining us.

Thank you. That does conclude our conference for today. Thank you for participating. You may now all disconnect.