Star Bulk Carriers: Update On Dry Bulk Markets (Podcast Transcript) (NASDAQ:SBLK)

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Hamish Norton, President of Star Bulk Carriers (NASDAQ:SBLK), Co-CFOs Christos Begleris and Simos Spyrou, and Head of Research Constantinos Simantiras joined J Mintzmyer’s Value Investor’s Edge Live on June 8, 2022, to discuss the dry bulk markets and forward prospects and capital allocation. Star Bulk Carriers is the largest US-listed dry bulk company with 128 vessels on the water. We discussed overall dry bulk fundamentals, ranging from China’s impact on Capesize markets to the impact of the Ukraine invasion on midsize trade routes in grain and coal. We also reviewed the economics of SBLK’s scrubber program and current capital allocation priorities.

This interview and discussion is relevant for anyone with dry bulk investments or interest in the overall sector, including Diana Shipping (DSX), Eagle Bulk (EGLE), EuroDry (EDRY), Genco Shipping (GNK), Grindrod Shipping (GRIN), Golden Ocean (GOGL), Navios Maritime Partners (NMM), Pangaea Logistics (PANL), Safe Bulkers (SB), and Seanergy Maritime (SHIP).

Topics Covered

• (0:00) Intro/Disclosures
• (1:00) Current dry bulk market conditions and prospects?
• (5:30) More net optimistic or concerned about China developments?
• (7:30) Midsize has been steady – will Ukraine disruptions threaten rates?
• (10:00) More bullish vs. our last discussion in January 2022?
• (11:30) Are asset values getting overextended?
• (13:45) Are demolition values sustainable or too high?
• (16:45) How long would it take to order newbuild vessels?
• (18:00) Scrubber economics? Any desire to lock in the profit spread?
• (22:00) Capital allocation priorities: Will SBLK be paying down more debt?
• (25:15) Which dry bulk vessels are currently the most attractive?
• (27:00) Logic behind the share sale and repurchase arbitrage?
• (29:00) Any share issuance planned outside of direct asset purchases?
• (30:00) Potential to repurchase shares? Needed criteria?
• (32:00) What differentiates SBLK from peers? Why invest here?
• (36:45) Promising propulsion technologies or other ESG projects?
• (39:00) Risk of significant share overhang due to large Oaktree position?

Full Interview Transcript

J Mintzmyer: Good morning, everybody. Welcome to Value Investor’s Edge live. We’re hosting Star Bulk Carriers (SBLK) this morning including several members of their management team: Hamish Norton, the President of Star Bulk Carriers as well as Simos Spyrou, and Christos Begleris, Co-CFOs and Constantinos Simantiras, who is the Head of Research will talk to us about the drybulk market conditions.

We’re going to talk about the overall market as well as Star Bulk’s positioning and how they can benefit in the current environment.

Before I begin, a disclosure, nothing on the call today constitutes official investment advice or company guidance in any form.

Good morning, gentlemen, or good afternoon to you depending on where you’re at. So welcome, and thanks for joining us this morning.

Hamish Norton: Good morning, J. Thank you for having us.

JM: Yeah, absolutely. Good to have you on the line. So right off the bat, let’s talk about the current market balance for drybulk. Right now we’ve seen a lot of volatility in capesize markets, we’ve seen those rates pulling back a little bit. We’ve seen a little bit more steadiness in the midsize market over the past year. What are some of the dynamics driving that and what factors should investors be really paying attention to?

HN: Sure, I think that question is probably right for Constantinos Simantiras our Head of Market Research. Constantinos.

Constantinos Simantiras: Yeah. Thank you, Hamish. Well, J, the current balance, market balance is tight and should be expected to tighten even further during the next couple of quarters. Main reason is the supply picture, which is extremely positive. And we have like — we have deliveries slowing down. The steaming speeds are experiencing strong downward pressures as a result of the record high bunker costs, for example, VLSFO prices today have reached $1,200 Ii Singapore. This is record high levels, and it’s creating huge downward pressures for steaming speeds. Then there’s huge — there’s a strong increase in congestion during the last nine months. And during the last — during the first month of this year, it has especially special on the smaller sizes. And you’re right that the capesize have indeed experienced volatility as of late.

On the demand side, we have gone through a very difficult first half with various negative factors. We had the Indonesian ban, we had the war. But now we’re entering the strong seasonal season for exports and China appears to be finally reopening. I think that the primary factors, as you mentioned, focus is probably the iron ore trade, which has underperformed during the first half of this year, especially if we focus on Chinese imports of iron ore, and Brazil exports.

Brazil exports during the first quarter declined by approximately 10% year-on-year. And we expect that the recovery, a strong rebound is about to take place during the second half of this year with a very positive effect on ton miles.

JM: Yeah, it’s certainly something we’ve been watching really closely. And of course, we’re also looking at where spot rates are at versus the forward rate agreements, the FFA markets. And two months ago, it was pretty clear we were in heavy contango, which was suggesting, of course that the futures were more optimistic and spot rates would climb. And we saw that. But then about two weeks ago, it flipped and it flipped into more of a backwardation scenario where the FFAs were lower. And we’ve seen all sorts of volatility in FFAs. And right now, you know today and of course, the last week, they’ve been significantly lower.

What do you think the driver of that is? Is this all kind of China-Brazil flows or something else going on there?

CS: Well, when we focus on the cape market, the cape market is extremely volatile. Actually exports of iron ore from both Brazil and Australia during the last few months have underperformed. And at the same time, there has — there was a short term increase of the VLOC arrivals. So I mean, the utilization of capes goes up and down very, very quickly. But as mentioned before, the strong seasonal part is upon us. I mean, exports of Brazilian iron ore increase significantly during the third quarter of every year. And we are in this transition period.

HN: Yeah, and keep in mind that we’ve had a very weak, iron ore movements, and yet rates have been as good as they have been. It tells you that the market is very close to balance.

CS: Plus, J, I mentioned that congestion is very high, especially for the smaller sizes. But Chinese congestion of capes during the last two months has decreased because of less arrivals. So there was a short term influx of vessels, which might have helped — that might help explain this correction.

The good things is that we’re seeing very strong positive signs from the Chinese steel industries and this is one of the things that we are anticipating and looking forward to.

JM: Yeah, there’s definitely some reasons for optimism on the China side. But of course, there’s also reasons to be concerned, pessimistic, the zero-COVID policies have been dragging on, Chinese economic data has been pretty weak, pretty mixed. Do you see China more, as it sounds like you’re optimistic, but do you see it more as a tailwind? Is something to look forward to later this year? Or are you concerned that China will be more of a headwind?

CS: Yeah, well, you’re right, that there’s definitely risk with China with their zero-COVID policy. But the latest indicators are very encouraging. And we expect it to be a reopening tailwind, I would say. I mean, focusing on — especially on the drybulk factors, the steel production, during the last few weeks has finally rebounded, into year-over-year growth. There’s also less scrap consumed in the steelmaking process. And the iron ore stock prices have been declining substantially during the last two months. So all these are really good fundamental indicators that strong recovery of imports is about to take place.

HN: And also, again, in the same vein, keep in mind that we’ve had the rates we’ve had, while much of China has been locked down. And now you know, it’s only getting better. And of course, stimulating the Chinese economy has been done, by the Chinese government through basically real estate and infrastructure, which indirectly is subsidizing the steel production.

JM: Yeah, yeah.

HN: Yeah. It’s all good.

CS: Yeah, Hamish makes a really good point. I mean, during the last nine months, China has gone through a mini recession. I mean, during the second half of last year, steel production was down by almost 20% year-on-year. And the rates the market has been able to keep very profitable rates under this environment.

HN: Yeah, so China’s we think, basically upside from here.

JM: Yeah, well, I hope you’re right. And no, it’s definitely been a headwind so far. That much is clear.

HN: Right, right. Yeah.

JM: The midsize markets, I mean, they’ve been much more strong and stable the last couple of years. I mean, Ukraine has thrown a wrench in that equation a little bit. When you look at the impact of the disruption in Ukraine and what it might do to grains and coal and some of the other minor bulks coming out of there. Do you think that’s going to be a negative on ton miles and negative for midsize? Or is it more of a mix whilst a positive because of the re-routing? What do you think about that?

CS: Well, J, you’re right, I think it is a mix of positive and negative factors. But they’re likely to have a net positive effect. I mean, volumes will out over Ukraine and Russia will be affected over the next quarters. Especially in Ukraine, grain exports are approximately 10% of global grain trade. But as you correctly point out, we expect an increase in ton miles, especially for coal and steel products and this will more than mitigate. And there are other reasons to feel, to be optimistic. I mean the strong increase in gas prices has revived the coal trade for the next few years at least. And at the same time the strong income in oil prices and bunker prices is creating an indirect positive effect through lower speeds. And it’s constraining supply, incentivizing slow steaming so.

So yeah, maybe there are some negatives in terms of volumes. But I think that gradually the market will, in the medium term will gradually feel net positive effect.

JM: Yeah, again, one of those ones where I hope you’re right. I’m following it closely. I mean, depends on who you talk to. Right. I mean, I know there’s going to definitely be some ton mile additions because of re-routing. But there’s also a concern of when do those grains come back online, and what happens. There sounds like mixed but a little bit net positive. And it sounds like capes, you’re basically all positive on those.

CS: Yeah, pretty much you summed it up really, really nicely.

JM: Okay. One of the questions I was going to ask, and it sounds like I have kind of gotten the answer already. But we talked six months ago, in January. We talked about the drybulk markets, and you were very bullish and constructive on the market back then. How are your views today? There’s I mean — a lot has happened. It’s unusual. A lot has happened in five months since we last talked. Are you more bullish today, less bullish about the same? How do you view yourself versus last January?

CS: Well, as you said, a lot has happened. We are definitely more bullish on the supply side. There’s no ordering taking place. The order book continues to be at record — close to record lows, despite the very healthy freight environment. That is amazing. And with the environmental regulations are coming closer. But at the same time we’ve had a war during the six months, a war began and this has actually further improved the supply picture in our opinion. So we are definitely more bullish, and especially for the next six months, as we are just entering the seasonal strong part for trade and China appears to be finally recovering.

JM: Yeah, there’s a lot of stuff going on. Things that people can interpret it negatively or positively, depending on your framework. One thing that’s gone on that I think is clearly positive, at least for your net asset valuation is we’ve seen newbuild prices rise significantly, right for the resales and the newbuilds yard slots are not even available right now for a while. We’ve also seen demolition values rise up on the other end of the curve. So we got this NAV curve that’s getting lifted, like a V shaped or U shape however you want to call it. Is this sustainable, the very high demolition prices and the very high newbuild prices or are things getting a little bit stretched here?

CS: Well, J, it’s extremely difficult to make predictions on asset values and on how high they can get. Having said that, I mean, the shipbuilding costs have risen substantially during the last 1, 1.5 year. And there are clearly capacity constraints for the next several years. And these will support newbuilding prices. And on the demo — on the demo side, on the other end. I mean, demolition values have increased and steel price fundamentals for the short and medium term look very strong. And actually the Ukraine war further strengthen upside potential for steel prices.

HN: Yeah, and I should point out also that you may think new building prices are high now. But I think we really haven’t seen anything, compared to the prices that are going to be the rule, for example, ammonia fuel newbuildings, which would be the one of the likely zero carbon fuels, that will have to be used by ships in the relatively near future. And basically refreshing the fleet in order to use sophisticated zero carbon or low carbon technology is going to basically happen as a result of very high rates over the next decade.

So these newbuildings that are going to be required by the environmental regs aren’t going to construct themselves. Ship owners are going to have to be financially incentivized to order these ships, because of very high rates. Those high rates are going to come because 10% of the fleet that is most fuel inefficient, is going essentially to be regulated out of existence. And probably on an ongoing basis, and supporting rates for quite a long time.

JM: Yeah, I certainly see some of that dynamics on the new side, that suggest right the cost of inputs, the tight yard capacity, that suggest those prices certainly make sense. What about the demolition values? I mean, they’re pushing $700 per light deadweight ton plus or minus. Normally midcycles like $350. We’re double that right now. Are there concerns on that side of the curve, things are getting a little out of control?

CS: Well, I don’t think that they’re actually concerns. I mean, the scrap availability has definitely decreased because most markets are healthy. So there’s not a lot of demolition taking place. But at the same time, the steel mills are using less scrap. And despite that, the prices reached really high levels during the last three months. I would say that, as the steel dynamics return over the next six months, with China coming back, and perhaps creating somewhat higher iron ore prices, we will see support also on scrap prices. There is a correlation between the two.

So okay, $700 is — it’s definitely a very high number, but it could go higher. I mean, especially when we compare with the behavior of various other commodities during the last one year.

JM: Yeah, we can certainly see that.

HN: Also, I think the focus on net asset value is probably not really as relevant as maybe it used to be. I mean, at this point, given the efficiencies we’ve managed to introduce into our operations, we are managing ships with operating expense and overhead, something like $1,600 a day, lower than our peer group. And the time charter equivalents that we’ve been earning, when you analyze it on a vessel by vessel class basis, compared to our peers, and I believe we use a service called vessel index to do that, are something like $4,000, a day greater than the average of our peers.

And you add that up, and that’s over $5,000 a day, more earnings per vessel than then the average of our peers. And that is a huge impact on the value of the ships in our hands, as opposed to the value of the ships in other people’s hands. So when you combine that with our dividend policy, I think net asset value is becoming less relevant.

JM: No, you’re definitely making the point. Hamish. One of the questions, of course, I always ask is why picks, Star Bulk over their peers, and so you’re beating me to that punch. Definitely tracking you outperformance and some of the lower G&A numbers and things like that. Just to kind of wrap up the current vein we were at on, on asset prices. I did want to ask, looking at the newbuilds. I know that’s something that Star Bulk hasn’t recently considered and whatnot. But if you were considering newbuilds, when are yard slots available? Can you still get some stuff for ‘24? Are we talking 2025? What’s that like?

CS: Well, I had a discussion this morning with our S&P department about that. And I understand that there’s still some but limited capacity for 2024. And it’s mainly for smaller sized vessels, caps or maxes or ultramaxes, while larger sizes, you probably have to go into 2025.

JM: Wow, yeah, so significantly pushed back in at a time of course, when the order book is basically record low. So that’s…

HN: Well, the containers are taking up capacity. I mean, there has been a very strong shipbuilding boom there.

JM: Yeah, containers, car carriers, LNG, lots of stuff going on there. Especially I guess for the bigger slots, right, the bigger size ships. What about scrubber spreads? I mean, you moved early. You got the whole fleet basically with scrubbers installed? I’m seeing depending on what market you’re in, there’s anywhere from $200 a ton to $500 a ton of scrubbers right. Can you talk to me a little bit about that? What sort of differentials are you seeing? And are you locking any of that in? Are you just letting it kind of float at this point?

HN: Well today, the scrubber spread in Singapore was quoted at $535 per ton, so huge. However, the forward curve is heavily discounted. I mean, the second half is slightly above 250, 2023, slightly above 150. And as you pointed out, I mean we have the competitive advantage of installing scrubbers early and at a relatively low cost. And we have now almost fully repaid this investment. So this allows us actually to be more aggressive and enjoy what’s happening in the spot market and not have to accept strong discounts.

CS: I think this point because essential we have now repaid the entire investment of scrubbers, plus of hire that we incurred in order to install scrubbers, which cost approximately $250 million. And having repaid the entire divestment, we are in a good position to basically enjoy the high spot markets and the spread, of course, to receive high levels and the discount to spot being lower in the next few months, we may hedge forward the position as you have done in the past.

HN: Yeah, a large part of the reason for the high scrubber spread is the shortage of vacuum gas oil coming out of Russia. And it doesn’t look to us like that’s coming back anytime soon, which is one of the reasons we have not hedged.

JM: Yeah, no, makes sense. Normally, a little bit of a market call, but I think one that certainly has some logic behind it. So I mean, that’s obviously contributing a lot on a per dollar per day basis on your fleet. I mean, higher than probably you even thought. Just some round numbers for folks. What’s that look like for a cape size? Or Newcastle, one of the larger vessels versus one of your smaller vessels? What sort of…?

HN: Well, I mean, if you if you think a cape is burning, on average, sort of 40 tons a day, it’s 40 times 500 if you recently bunkered in Singapore, and it’s 40 times sort of 300 if you recently bunkered in Rotterdam. But I think a better way to look at it is that we burn about 700,000 tons of fuel a year and take the average scrubber spread over the year and multiply by roughly 700,000 tons, and that’s how much we’ll earn. So at $200 a ton, for example, that’s $140 million.

JM: Yeah, we’re talking significant boost to your earnings. And it’s 100% cash flow at that point. So yeah, certainly. Fantastic. It sounds like you’re not really wanting to lock that in and hedge it yet, because of the very, very steep backwardation on the spread. But if that would change a little bit, you’d be willing to again?

HN: Yeah, it’s a steep backwardation. And frankly, the paper market doesn’t seem to be representative of the actual spreads we’re really getting, which are high, because we do tend to bunker more in Singapore.

JM: Okay, yeah, no, very, very interesting factor. And I’m not sure how much a lot of the market’s really picking up on that. Obviously, shipping people know about it, but I don’t know how much that is getting accounted for, right that value. You mentioned NAV is having its flaws. And obviously, this is a case where not all ships are created equal. One point you made on management, of course, but on another point, little specifications, like whether or not a ship has a scrubber could be worth millions of dollars.

HN: Yeah, exactly.

JM: So what about the capital allocation priorities in the balance sheet going forward? You pivoted to a model where you’re paying out almost all your free cash flow. Is there any likelihood for that to change? Or are you sticking with that plan? And anything on the debt side you want to?

HN: Well, remember, we’re paying out all of our free cash flow after paying down $200 million of debt. What we define as free cash flow is free cash flow after a very substantial debt repayment every year. And at that rate we bring our debt down, our net debt gets down to zero in I think under five years. So it’s not bad. And look our strategy is to protect the dividend. The dividend is very important to us. It’s very important to our board members.

We think it’s very important to our shareholders, and we’re not going to do anything to put that dividend in jeopardy. What we do intend to do whenever possible, is to use our equity to buy ships in a way that is accretive to the shareholders, accretive to the dividend, accretive to earnings. Ideally, reducing the average age of our fleet. But we’re not going to do it if it’s not, good for the shareholders.

But we would intend to bring down leverage over time by doing accretive acquisitions with sheriffs, to buy ships with less debt than we’ve got right now. So we do intend to bring our leverage as a percentage of assets down over time, as low as possible, but not by putting the dividend at risk.

JM: Okay, Hamish, that’s useful, very helpful.

CS: What we’re also doing is that we’re trying to optimize in every way possible, the cost of our senior debt, which is already quite competitively priced. But we’re taking advantage of the fact that there is demand from financial institutions to provide new senior debt to big companies like ourselves, and therefore, where possible, we are refinancing debt that was previously priced at LIBOR plus — in the high 2% or 3%, with new debt that is priced at SOFR, which is the replacement of LIBOR plus 1.6%, 1.8% thereby saving more than a percentage point on the debt, which corresponds, which will correspond to annual savings of about $5 million per year.

JM: That makes sense. As your leverage comes down and the balance sheet gets stronger, you’re able to get a little bit better terms there on the spreads. If you were going to go out in the market, and I know you said potentially, right, you’re not committing to anything. But if you were going to go out there and buy some ships, ships or shares or use cash to buy ships, however it might be, what sort of vessels are you most interested in? What sort of freight trade? What sort of size?

HN: Look, we like our fleet. So we would, if we saw an opportunity to accretively acquire a fleet, if it looks like our current fleet in terms of size distributions, that would be ideal. And I think what we would pay attention to is fuel efficiency, we would pay some attention to age. We like to make acquisitions that will reduce the average age of our fleet, but with secondhand ships, not with newbuildings. And ships that are a few years old are fine, 5 to 10 year old ships, that would be great.

CS: I think first generation eco vessels around seven year old vessels are great for the purposes.

JM: With scrubbers, of course,

HN: Well, that would be optimal, right? If we can get them with scrubbers, if we can’t get them with scrubbers, we’ll take that into account on the price. And obviously, we know a lot about how to install scrubbers when that makes sense.

JM: Yeah, certainly it’s not — you’re not stuck with whatever it is. So to that end, and to the efficient management of your shares, and your balance sheet and all that, you did something really interesting last quarter. And I was as an investor, prior investment analyst, I was a big fan. I sent you a note congratulating you, but you basically issued shares, and this is my calculation, so you can correct me if I’m wrong, but you basically issued shares about 110% NAV, and you repurchase shares in the same quarter about 90% NAV. So you basically did arbitraging both sides of that market.

HN: Yeah, this was not — this was good. It wasn’t as good as what we had intended to do. But when life gives you lemons, you make lemonade, we had identified a really attractive arbitrage transaction, we issued shares under the ATM to try to do that, basically, very, very attractive transaction involving vessels. And then before we had issued too many shares under the ATM, a couple of things happened. One was that the arbitrage transaction we had identified receded a little bit into the distance. And at the same time, our shares dropped, and we said you know what, we have issued some shares. We know that the shareholders don’t want us to issue shares unless we have a good use for the proceeds. The use of proceeds we had identified is receding a little bit from our grasp, but our share price has dropped so we can use that money that we’ve raised right away to buy shares back cheaper than we issued. So we did that.

And it resulted in a good outcome for everybody. Not quite as good as we had hoped for but we did what we could for the shareholders.

JM: Yeah, certainly makes sense. So it sounds like you. I mean, definitely, I mean, you can never complain obviously about repurchasing your shares at a big discount to NAV, right? That’s obviously accretive and it’s going on in the market. But it sounds like the 110% issuance was asset tied. If you didn’t have assets identified, you wouldn’t necessarily be selling at just 110. You wait for a higher premium.

HN: Correct.

JM: Yeah. Okay. Because that was one of my follow-ups, there are related questions is I love it. I love the arbitrage, but why not something looser, like, you know, 80% repurchase?

CS: Well, we don’t intend to issue shares without having something to do with the money?

JM: What about for like debt repayment or accelerated or something like that?

CS: We don’t intend — we do not currently intend to issue shares to repay debt.

JM: Okay, no, that’s clear. It’s a follow up I needed to make. Looking at your current NAV, and I know, obviously, NAVs can be debatable based on what broker you’re using, and all sorts of that stuff. Or if you include working capital, and if you include performing cash flows, and all that sort of stuff. But even after you pay this big dividend, I have your NAV right now, trailing numbers around 30. And if I include pro forma, Q2 cash flows, scrubber spreads, Eco premiums, all that, you’re definitely lower to mid-30s.

We’re in the middle of a big shipping sell off this morning. So I’m just curious, is that repurchase open for business? Or is that only if you’ve done some sort of arbitrage?

CS: We have repurchased — we have a share repurchase program authorized. There’s room left under it. We do not generally intend to repurchase shares using cash that could otherwise be paid out as a dividend. If we repurchase shares, normally, it would be funded by sales of vessels but, we’re probably, not going to put the dividend at risk with a share repurchase.

JM: Okay, so if you saw a big discount to NAV I mean, today, it’s probably again, debatable who you ask. But as we’re talking today, the morning of June 8, it’s debatable between 10% and 20% discount to pro forma NAV. So if that discount continues wider, it sounds like what you would do is first step one, you would contact an interested party and see if they want to buy a ship at current or above market value. And then once that contract is signed and agreed, then you would repurchase. Is that fair?

CS: Well, that’s certainly one way it could happen. I wouldn’t restrict ourselves quite that narrowly, but we’re not going to put the dividend at risk.

JM: Okay. That’s it. No, it’s good to know. A lot of folks prioritize the dividend, I think, at a discount to NAV, I think, hell with the dividend, buy the shares. But I mean, I know that’s a debate that you have certain views on. These are great, I’m going to look to some of the questions folks have posted in the chat and try to incorporate those in as well. In the meantime, as I do that, I want to give you a chance, Hamish and the rest of the team to circle back, what differentiates Star Bulk Carriers? There’s so many drybulk, will companies, there’s like 10 of them. What differentiates you? I know you hinted at it earlier. You said look, we’re outperforming the indices. What else differentiate Star Bulk Carriers, why should investors pick you over somebody else?

HN: Well, look, I think a few things differentiate us. I think, maybe one of the most important things that differentiates us from some of our peers is our corporate governance. We take corporate governance very seriously. We have a very strong Board of Directors. We have three members from Oaktree. We have another institutional investor. We have two ship owners. And for a Greek company to have a Norwegian ship owner, and an Italian ship owner, both of whom ended up on the board because they sold their fleets to Star and took back shares is a real endorsement of our corporate governance.

We have a compensation committee that takes its job very seriously in terms of compensating management when shareholders make money. And as a result, we think and act like shareholders. We are, as management shareholders, we work for the shareholders. And as a result of that, that we’ve gotten our operating costs to the lowest in the industry, our overheads per ship per day to the lowest in the industry. And our revenues per ship are substantially above our peer group. So our view is that ships in our hands are worth substantially more than ships that are in other’s hands. And that’s one of the reasons why we frankly pay less attention to NAV, than to many other metrics.

JM: Thanks for that, yeah.

Christos Begleris: Just to add to what Hamish said, it’s maybe worth mentioning our focus on ESG. ESG is at the very top of our agenda. We actually have three axis, of as far as our short to medium term strategy is concerned. On the first axis, we are investing in research and development. As we have announced recently, we have cooperated with some big players in our industry like Cargill, Rio Tinto, and [indiscernible] to basically cooperate in the so called Green Corridors Initiative, where we aim to have vessels that have zero carbon footprint operating between Australia and China, to create a green corridor where vessels will not be emitting CO2, and the way that the fuel we produced will be also carbon neutral.

We’re also participating in other projects. We’re closely following carbon capture. And then the second axis has to do with basically improving the consumption of our existing vessels. We’re installing energy saving devices on some of our vessels with a view to optimizing consumption and therefore reducing our carbon footprint on those vessels. And thirdly, we’re also optimizing the way we execute each voyage. We have a vessel performance monitoring department that takes into account the various parameters of the charter party, the weather, and the conditions that the vessels operate in order to basically come up with the optimal speed with a view to reducing the consumption and therefore reducing our carbon footprint.

JM: Yeah, thank you, Christos. I think that’s an excellent complement to Hamish’s points on the corporate governance and the efficiency of operations, is that you can also argue an efficiency and an ESG angle there as well. And that’s an excellent segue into one of the final questions I wanted to ask. And I know it’s a little preliminary, but there’s a lot we can do with the on the water fleet. We can do the optimization stuff you talked about. We’ve talked about slow steaming in the past, the carbon intensity initiatives and EEXI are going to start coming into play starting next year.

What about on the newbuild front/new propulsion technologies? Is there anything in the last 6 to 12 months that looks promising? Ammonia, methanol, dual fuel, LNG dual fuel? What’s kind of the state at this point?

HN: Well, some people are going with — some people are intending to go with ammonia, you can’t order an ammonia based engine yet. Some people are going with methanol, or LNG and of course, you can order engines to burn methanol or LNG. Getting carbon neutral methanol or carbon neutral LNG is much more complex than getting carbon neutral ammonia. And it’s a common — it’s a very sort of complex debate as to which might be the more appropriate fuel. In the meantime, there have been some technological progress in carbon capture.

We’re looking into that quite closely. And of course, if you put carbon capture equipment on board, you can use a fuel oil engine, and mitigate the carbon emissions that way. I don’t know if somebody is going to want to build a newbuilding with just a fuel oil engine and carbon capture equipment. But maybe. We certainly haven’t made any decisions yet. And again, the carbon capture equipment that’s being trialed now probably won’t be commercially available for a couple of years.

JM: So it’s not commercially viable at this point, but something that you are considering and kind of studying, I guess, the economics of it.

HN: Absolutely. Yeah.

JM: Yeah. Interesting. I think with the correct — or I don’t know, I don’t want to use the word correct, but with a high enough tax regime, I can certainly see where something like that might make sense, economically?

Kind of last question for you, and it’s we’re circling back a little bit here. But you have a major shareholder Oaktree, of course, and they’ve been very supportive of your dividend policies and your scrubber program and all those sorts of things. Private equity is usually not known for being permanent investors. Is there any concern about the overhang there anything that could be worked out? I mean, I don’t know how much you can even comment on that. But is there any, like a tender offer or something like that,

HN: A tender offer? Well, I mean, we’re certainly not going to make a tender offer that would allow Oaktree to sell, sell their stock. That would — I think, any tender offer that allowed Oaktree to sell their whole block would basically allow anybody else to sell their whole block, and it would be — we’d have to tender for essentially all of our shares. No, look I think Oaktree has been a very supportive shareholder. Someday, they’re going to be a seller. They’ve shown a substantial concern for making sure that they don’t sell in such a way that the share price is very negatively affected.

And I think over time, they’ll figure out how to get out. We trade $100 million a day, more or less. So in something like 35 or 40 trading days, we trade our whole market cap. Oaktree is 25% of our market cap. If they got out of their position over a year, I don’t think anybody would notice.

JM: Yeah, that’s a good point. Hamish. I think one of the concerns, I don’t know how heavy of a concern it is. But I think, anytime you look at a large private equity holder kind of an overhang is factored in there and people just curious, right, how that would work. And you bring the point on the liquidity.

All right. Well, thank you. Thank you, Hamish and Christos and Spyrou the Co-CFOs and Constantinos today. Excellent market commentary and always appreciate it when you join our program. And thanks again for your time gentlemen.

HN: Thanks very much, J for hosting us. Thank you very much.

JM: You’re welcome until next time. Another iteration of Value Investor’s Edge Live and we are recording on the morning of June 8, 2022. We just hosted Star Bulk Carriers and their management team to talk about the drybulk markets and how Star Bulk specifically is positioning themselves there. As a reminder, nothing on the call today constitutes official company guidance or investment recommendations of any form.