Tuesday, March 29, 2011

Will there be open revolt in the Eurozone?

Massive loan bailout facilities that pyramid Ponzi level public debt together with austerity programs that cause recession and shrink GDP, reducing capacity to service public debt are among the many contradictions in the thinking of the EU elite to preserve their currency union at all costs. Yves Smith compares EU methods of internal (infernal?) devaluation to Medieval torture. Will voters in EU laggards like Greece and Ireland ultimately revolt and this debacle end in sovereign default?

Classic economic theory of the unholy triangle illustrates the impossibility of having at the same time:
  • A fixed exchange rate.
  • Free capital movement (absence of capital controls).
  • An independent monetary policy.

Eurozone members like Greece and Ireland gave up an independent monetary policy for a fixed exchange rate in an environment of free capital movement. The result was uncontrollable credit bubbles and price distortions under the ECB one-size-all monetary policy locked by fiat to the rules of the German Central bank. Greece and Ireland have very different paths to their present insolvency, but both cases illustrate the tension between European integration and democracy.  EZ policies have exacerbated the growing divergences between the core and periphery countries, resulting in this ongoing crisis that threatens the future of the currency union experiment.

As Bernard Connolly explains in his book "Rotten Heart of Europe", the single currency project was designed to generate an irresistible momentum for full scale political union in Europe, dominated by an implicit power-sharing agreement between the German and French political elites.

The problem is that democracy, national sovereignty and global economic integration are mutually incompatible. Deep economic integration requires the elimination of all transaction costs in cross-border dealings. Nation-states are a fundamental source of such transaction costs. They generate sovereign risk, create regulatory discontinuities at the border, prevent global regulation and supervision of financial intermediaries, and render a global lender of last resort a hopeless dream.

The EZ currency union illustrates the limits of global federalism. Making hapless EZ member countries responsive only to the needs of the ECB at the expense of domestic objectives is inherently incompatible with democracy. We could return to something like the post-war Bretton Woods regime with its capital controls and limited trade liberalization as alternative, but that would negate EU free trade. Finally, we could resolve this trilemma maintaining free capital movement, abandoning the currency union and reverting to flexible exchange rates with independent monetary policy.

I would suggest that the least painful and most desirable path would be breaking up the EZ currency union, preserving the nation states and democracy.

Monday, March 28, 2011

The Genmar saga rolls on with equity infusion and restructuring package

In vessel provider business models, there is little any private equity firm can add in efficiencies. Success is largely a matter of the freight market cycle and asset speculation. The only means for high returns is scaling up in huge leveraged block purchase deals, arguing expanded earnings multiples despite marginal (often diminishing) returns on asset. Peter G managed last year to raise capital for Genmar on such expectations without discount. The timing was bad. Now Genmar is in a mess.

Genmar's share price has been in steady decline since the heady days of 2007 when it was trading close to US$ 40. It stabilized after the 2008 meltdown just above US$ 7 and even briefly exceeded the US$ 8 level on the euphoria of the ill-fated Metrostar block deal and capital raise.

The Group is now in a fight for survival with weak cash flows, unfunded capex, mounting debt maturities and a requirement of new equity by year end by its beleaguered senior lenders. The Company has been trying to sell unencumbered vessels to raise cash via leading, which is the first resort when a shipping company faces financial problems. This brings a nice cash infusion that later slowly erodes with the payment of the lease obligations that reduce free cash flow.

The likelihood of a dilutive equity offering increases day by day with the prospects of the entry of a private equity financial investor. Oaktree Capital is a prospect. Other names mentioned include the Blackstone group and Maritime Equity Partners. Oaktree is deeply involved with the Beluga bankruptcy. Another option for Genmar shareholders would be a firm like Advent with its system of operating partners that would bring new blood into Genmar management. As Paul Slater has remarked, it is time that underperforming shipping companies are compelled to fire management in the same way as other listed companies when shareholders lose money and value is impaired. As usual, only the senior leaders have any clout and shareholders are at the mercy of the management and its lenders.

Platou Markets estimate Genmar has no equity value, assuming a 10% decline in asset values in their current supply/demand outlook. Genmar has severe cashflow and liquidity problems. There are two credit facilities: the 2005 credit facility of US$ 745 mio still outstanding (LIBOR + 250 bps, but US$ 580 mio swapped at 4.2%) and a new 2010 credit facility of US$ 372 mio (LIBOR +300 bps) for the acquisition of the 7 Metrostar vessels. It also has US$ 300 mio 12% notes due 2017. Of the 2005 credit facility, US$ 50 mio falls due in 2011 and the remaining US$ 695 mio in 2012. The 2010 credit facility has a repayment schedule starting September 2010 estimated at US$ 33 mio per year. Cash deficits of US$ 67 mio/ US$ 787 mio are projected in 2011/ 2012.

The company needs substantial restructuring and new business plan. A merger with a larger, stronger group with a better commercial base is another option. The quality of the fleet could make this attractive.

Fiscal sanity: Time to end special treatment of government debt!

Greek financial minister George Papaconstantinou's recent diatribe against rating agencies illustrates the pernicious mentality that got Greece into deep financial problems and national bankruptcy. He wants to avoid the discipline of the market place, getting special loan pricing with rates that do not reflect true credit risk. He cannot live with objective transparency in Greek public finance. Market priced sovereign credit is critical to fiscal sanity and proper allocation of resources.

Since governments make the laws and appoint the regulators, there is substantial political moral hazard to abuse credit allocation, create financial pyramids and bubbles rewarding political constituencies and buying votes to assure re-election at expense of the future. Greece is case in point.

The country was middle income and emerging market, but 'baptized' within the Eurozone as a 'developed country' with a mispriced credit rating. The trade imbalances worsened severely, people lived beyond their means - many in bloated state sector jobs with salaries far in excess of the private sector - and the public debt levels became out of control, rising to Ponzi levels. The political system encouraged the consumption priding itself on the rise in living standards that was largely financed by "cheap" debt with a shrinking productive base.

There was the EU stability agreement designed to impose fiscal discipline and avoid 'free-loading' the system, but politics got in the way of serious enforcement. Core countries like France and Germany were the first to set a bad example by flaunting the rules. The ongoing Greek statistics blame game is superfluous when Greek accession to the Euro was fudged from the beginning with the blessing of the European Commission because the currency union was seen a political unification project and they wanted the widest participation possible.

The Eurozone is now moving to fried ice cream where core countries like Germany are overheating but periphery laggards like Greece are insolvent and in deep recession.  ECB's President Trichet even suggests some topping syrup in the form of higher interest rates that might help price stability in Germany but send Greece to outright default with losses on core country banks.  Even the ECB balance sheet carries toxic Greek sovereign debt securities which the CDO market prices with deep discounts for longer maturities.

The IMF-ESM backstop facility to Greece adds to Greek debt along with the short-term debt market where the ECB buys Greek securities from the Greek banks. The Greek crisis is treated as a liquidity problem but in the immediate future, the public debt levels continue to increase to even more alarming levels whilst the tax base is imploding with the deep recession. The theory that Greece is a rich country with lots of tax evaders is largely a euphemistic illusion in self denial to support this kind of thinking. At the current rates of VAT including substantial increase on food and fuel taxes, everyone in Greece effectively pays already substantial taxes and these taxes are a huge drag on the private economy together with the government using the Greek banks for short term funding.

The Greek banks themselves are deteriorating financially with growing loan losses from the recession and the toxic Greek debt securities. Just recently the IMF has asked the Greek government to implement a Euro 30 billion guarantee to backstop the banks. So contingent liabilities are also on the rise. In short, the EU is creating an ever growing mountain of debt.

In the same spirit, many would like to increase this mountain of debt with the introduction of Eurobonds, a subterfuge for more mispriced credit to EU laggards based on cross guarantees from the core countries. Woe to any rating agency that might eventually downgrade Eurozone core countries for the rising contingent liabilities from such a system!!! The Eurocrats would be tempted to send them to the guillotine!!!

Whilst the fear of debt deflation is understandable, getting out this Ponzi debt pyramid situation depends on a miracle of unexpected growth that just does not seem realistic. In the case of Greece, the required economic growth rates to pare down its 125-130% GDP (still rising) debt levels would be sustained double digit levels that exceed China!!! The EZ is rapidly moving to a situation between a rock and a hard place.

It is time that that governments end their games of voter deception with mispriced credit and subsidies on sovereign debt. They should revise the Basel Accords to include loan reserves on sovereign debt, insist on stringent sovereign debt credit rating and avoid the temptation of Eurobonds that would add to the contagion risk and credit mispricing that already plagues the system.

The only road to fiscal sanity in the EU is market priced sovereign credit and a period of painful loan restructuring and credit writedowns, with possibly (suggested by Nouriel Roubini) some monetization through quantitative easing and lower exchange rate to temper the shock of the debt deflation.

Wednesday, March 23, 2011

NewLead turns to Scorpio for pool employment

NewLead recently announced the the 37,000-dwt Hiotissa (built 2004) and Hiona (built 2003) will join Scorpio’s Handymax Tanker Pool during the second quarter. This justifies my observations at the time of the Aries reverse merger with then Grand Union. I felt that Grand Union - a traditional vessel provider model - lacked the commercial base of Scorpio . I also had concerns about recapitalization, which are still an issue. On the restructuring, I commend the efforts of the NewLead management.

Aries (NASDAQ: RAMS) was a listing that never should have happened. The group had many weaknesses and was not a deal for institutional investors. I expressed my personal concerns at the time to Stephanie Kasselakis, who was assisting John Sinders at Jefferies and is now at Poten Capital.  It was only the skill and determination of John Sinders at Jefferies that got this problematic IPO placed. Sinders worked hard for his two main shareholders clients - Mons Bolin and Gabriel Petrides - to achieve an extraordinarily deal.

Unfortunately, these efforts went in vain and it was a downhill course thereafter for the company and its investors with a series of operational problems and operating losses that put the company on the verge of bankruptcy. It is to the credit of Jeff Parry, who came from Poten in the eleventh hour as CEO that the reverse merger with GrandUnion got done and the company did not go under.

GrandUnion did not put a lot of money initially in the new venture, which is understandable on their part. They capitalized their entry by transferring tonnage of their own to the troubled company and got some financing from the Industrial Bank of Greece. They realized their goal of a publicly-listed company, but they also took upon themselves a gigantic restructuring job with a company where almost nothing worked. They have done a commendable job so far, selling off unproductive assets, cleaning up the vessel technical management and dropping into the company new assets from the Grand Union. They moved the Aries vessel management to Nick Fistes' company NewLead and renamed Aries as NewLead, sensible management decisions in an effort to rebrand and change a tarnished corporate image.

The Scorpio Group, who was reported to be a contender for Aries, was not for this kind of job and the existing Aries tanker tonnage would have been very problematical for them. Scorpio made a very wise decision to pass on any involvement with Aries and do a clean IPO on their own to build up their asset base with good quality tonnage at moderate prices. They already had a significant tanker commercial base with three pools and a fine management team, so the listing had inherent value.

The Scorpio Group is in stronger position than NewLead (NASDAQ: NEWL) - the renamed company -and can hardly be called a rival. Scorpio Tankers, the listed downstream company, has a fleet of ten modern, high specification product tankers. The Scorpio Group controls commercially 57 vessels of which their Handymax Tanker Pool is now 33 units including the two from NewLead.

On the other hand, it is sensible move for NewLead to join the Scorpio Handymax Tanker Pool. They do not have comparable internal capabilities that were a substantial investment of the Scorpio management to develop over time and add value to their group. NewLead already has put three of their Suezmax tankers on period time-charter. They also have a larger drybulk fleet - a number of them built in the early 1990's, which is undoubtedly facing some challenges in current market conditions. NewLead's major challenge is to complete the restructuring, turn profitable, establish a dividend policy, increase capital and scale up.

The tanker markets are struggling and the Japan earthquake has increased the turmoil. Scorpio Tankers CEO Robert Bugbee was one of the first major tanker companies to warn investors last fall of the coming challenges in the tanker sector. Both companies face turbulent market conditions this year.

Thursday, March 17, 2011

Drydocks World in massive debt restructuring talks

Drydocks World is suffering from the effects of overexpansion and high leverage. They have been on a binge not only to expand their Emirates facilities but also have moved into southeast Asia, acquiring facilities in Singapore and Indonesia. Although essentially a repair yard, their ambition is to go into shipbuilding, conversion and offshore work. Business has not developed as they hoped and they have to restructure a whopping US$ 2,2 bn debt with their senior lenders.

At the same time that Dubai Drydocks World was aiming to become a major force in world shipbuilding, other ME countries flush with petrol money were investing in rival repair facilities in Qatar and Oman. These projects have been slow to come on stream, but Qatar Drydocks at Las Raffan opened in December last year. These new facilities are likely to create margin pressures with the increased competition and need for new business to fill the new facilities.

The Gulf region has no tradition in deep-sea merchant vessel construction. It is not an area of industrial production for the auxiliary equipment like Japan or Korea. They have done some off-shore platform work and supply vessels, but their main staple has been ship repairs.

Meanwhile Singapore shipbuilding activities have been in consolidation with mergers for fewer and stronger groups. The former Pan United shipyard that Dyrdocks World acquired in Singapore was one of the smallest and weakest yards. Singapore has some tradition in merchant shipbuilding, but mainly smaller vessels. They have a good reputation in ship repairs, conversions and off-shore platforms. Of course, Dubai Shipyards has to face competition from established Singapore players like Keppel and Sembwabang.

An even bigger problem for their strategy is competing with major shipyard players like China, where capacity increased by 57% last year and has become of the three major shipbuilding countries as well as the Koreans and Japanese. Japan and Korea have proven design history, auxiliary industries for engines and equipment, and sophisticated export finance facilities. China is a relative newcomer, but is it credible that Dubai Drydocks World can compete with their labor costs?

Drydocks World brought Khamis Jumaa Buamim into their business the middle of last year as part of a management reshuffle and to look at refinancing its huge loans. Buamin was with Conoco and ConocoPhillips for 25 years in various management positions including Vice President, Dubai Petroleum Company (2002-2007), a ConocoPhillips affiliate company in the United Arab Emirates.

In January Drydocks World lined up US$ 200 mio in intermediate financing from seven existing creditors to tide it over while it attempts a restructuring. Buamim reported at the time the money would be used to cover ongoing business costs such as equipment suppliers, subcontractor services and staff wages. He was hopeful that the business cycle was coming back.

The question is whether there will not have to be further restructuring, sale of assets and reduction of capacity under the weight of the enormous debt load, if recovery takes longer than expected.

Japan disaster brings more pain to already beleaguered tanker markets

Last spring a year ago, the window opened for the Crude Carriers (NYSE: CRU) and Scorpio (NASDAQ: STNG) IPO's as well as the General Maritime (NYSE: GMR) capital raise for the fateful Metrostar block deal. This proved for investors (and especially for Genmar) disastrous timing. Now the Japanese tragedy is like to take an already ailing market a further notch down, creating potential distress conditions for overstretched tanker operators like Genmar, whose shares recently plunged 20%.

Six Japanese refineries are closed as a result of Friday’s devastating earthquake and the power shutdown of nuclear facilities threatened by meltdown. Of the crude on the water and destined for Japan at present, much of this may get resold, which may have a further effect on the crude price.

There could be woe for the long-range LR1 and LR2 products tanker markets with Japan unable to keep up its large naphtha imports with the Japanese productive capacity immobilized from lack of energy resources and the physical destruction from the earthquake.

Of the six refineries – two JX Nippon plants in Sendai and Negishi, Kashima Oil in Kashima, Cosmo Oil and Kyokuto Petroleum in Chiba and TonenGeneral Sekiyu in Kawasakim - all but the last are yet to have a restart date.

If the refineries are shut for for a prolonged period, all diesel exports to Southeast Asia, Europe and the western coast of South America will stop altogether and there will be a trade rebalancing with diesel sourced from India and the Middle East. Japan will become a net importer of gasoline with South Korean and Indian refineries benefitting.

The trade rebalancing will also affect other shipping sectors like containers and dry cargo.

It will be interesting to see what happens with time chartered vessels and whether contracts will be subject to renegotiation as Charterers face the stress of declined cargo volume and trade rebalancing.

Tuesday, March 8, 2011

Maersk gambles on cargo volumes

From suffering US$ 2.09 bn losses for 2009 in its container shipping and back to US$ 4.9 bn profits in 2010 primed initially by slow-steaming, Maersk is now making a record-breaking order for 18,000-teu ships that is raising again the specter of overcapacity on major liner trades. Their sheer size means they can only be fully utilized on the Far East-to-Europe trades. Dependence on a single route has led some to remember the ill-fated ultra large crude carriers (ULCCs) of the 1970s.

Maersk recently signed ten firm orders with Daewoo Shipbuilding & Marine Engineering for delivery in 2013 and 2014 at a cost of US$ 190 mio apiece. Options for another 20 vessels means the deal could end up being worth US$ 5.7 bn.

Maersk is clearly taking a forward position on the freight market after 2013 where The company appears to expect that container volumes will pick up by the time the first of the leviathans is delivered in two years’ time.

2010 marked a significant recovery in the container sector. Freight rates per teu in 2010 rose by about 30 percent from the previous year calculated on a yearly average basis. Freight rates fell in the last quarter, however, after gaining steadily during the first three quarters. The main factors behind the weaker market were a seasonal drop in cargo volumes, higher deliveries and reactivation of idle tonnage.

Freight rates from Asia to Europe experienced the most pronounced upturn in the early part of the year, but also saw the sharpest drop towards the end of the year. On an annual basis, box rates on this trade route rose by 80% compared with 2009. Other trade routes typically saw rates increase by 20% to 30%. Charter rates followed a similar trend with a steady increase over the first three quarters, although they declined only moderately in the final quarter. On a yearly average basis, charter rates rose between 40 - 80% with the strongest gains for ships above 3000 teu.

China’s imports of container cargo grew at a brisker pace than exports. A large portion of the containers imported to China consisted of parts to assembly plants, which to a significant extent were also reexported to other countries. Intra-Asian container traffic increased significantly by around 20%. outpacing the headhaul Chinese export routes to Europe and the US (approx 15-6% increase). Also a notable trend in the global container shipping market in 2010 was a sharp increase in volumes from East Asia to the Middle East, Africa and South America.

Maersk may be looking around for new markets, with chief executive Eiving Kolding alluding to “interesting markets” in the Europe region, namely Russia, Turkey and North Africa, but the development of these kinds of routes does not call for such leviathan vessels.

In 2010, container traffic rose by 2.7 times world GDP growth. Historically, global container traffic has increased by between 2.2 and 2.7 times the world GDP growth. This phenomena, which was the need to rebuild inventories after the economic recession in 2009, is not sustainable.

Based on prevailing forecasts for world GDP in 2011, Platou Markets are forecasting that the global container trade could climb by around 10%. They are expecting biggest gains in container volumes in Intra-Asian trade and on routes from Asia to the Middle East, South America and Africa. Conversely, they expect container imports to Europe and United States to show a more moderate increase this year.

The net fleet expansion is forecast to around 9% on a yearly average basis. Platou Markest are expecting the global container trade in 2011 to rise another 9-10%, representing a balanced picture with likelihood of slacker rates the first half of the year and then a pickup in activity in the 2nd semester.

The container orderbook remains large. Scheduled deliveries in 2011 amounts to a capacity of 1.4 million teu (1.3 mio teu in 2010). Major players like Seaspan have aggressively held on to their pre-2008 fleet expansion orderbook; Maersk is now setting a new trend in increasing the containership orderbook.


Thursday, March 3, 2011

Domino effect in Dry Cargo Market?

The dry cargo sector started the year badly in 2011 with the KLC bankruptcy and reorganization. The US bankruptcy fillings in NY Federal court name three major previous shipping failures: Britannia Bulk, Armada and Transfield as counterparties, all of which went bust in the wake of the financial crisis. Its collapse created shockwaves in the dry-cargo market with Eagle Bulk, Golden Ocean, Paragon and Goldenport Holdings among those with vessels on hire to the cash-strapped company.

KLC is a major Korean shipping company controlling a large fleet of both tankers and dry cargo vessels. Its dry cargo operation is divided into five groups: Cape team, Panamax team and three tramper teams. They are major charterers for numerous listed dry cargo companies like Eagle, for example, who depended on them for the employment of many of their vessels.

KLC’s needed US $186.94 mio in February to repay debts and meet operating expenses. At the same time its liquid assets totalled only US$ 60.66 mio. Operating income was insufficient to cover these amounts. Its red figure for the whole of 2010 was KRW 328.6 bn (US $291.55 mio), which added to a loss of KRW 584.1 bn in the previous 12 months.

They had tried unofficially to renegotiate some of their charters. KLC earlier sent out 60 to 70 letters to shipowners seeking to revise charter contracts in a bid to stay afloat, but of course, owners resisted. Hard pressed companies like Eagle had little room to give. KLC is already facing six separate legal battles in the US and others are expected to make similar claims. It also has 47 ongoing arbitration disputes. KLC began receivership proceedings in Seoul in mid February a couple of weeks after filing for court protection.

Erik Nikolai Stavseth, an analyst at Arctic Securities, said in his morning note: "In light of the weak market fundamentals and cautious outlook on the dry bulk sector, we maintain our view that more situations like Korea Line are likely to emerge." Platou Markets forecasts utilization and earnings in the dry cargo sector to decline. They estimate a 10-20% decline in asset values depending on vessel type, but note that dry bulk stocks reflect a softer market ahead to a greater extent than tanker stocks. On the other hand, dry cargo owners like Michael Bodouroglou of Paragon maintain up upbeat view that the market will strengthen in the 2nd half of the year and pressure on vessel values will be minimal.

Prevailing forecasts for the world economy in 2011 suggest somewhat lower growth than in 2010. It is therefore likely that seaborne dry bulk trade will also increase more moderately than in 2010. Last year China’s imports grew less than expected, while imports to the rest of the world were significantly stronger. World market prices for iron ore will be of vital importance for how much China will source from the international market. Sailing distances for iron ore, soybeans and forestry products are also expected to increase somewhat due to higher South American exports to Asia. The imbalance in trade between the Atlantic and Pacific Basins will continue to widen. It is also possible to expect slower speed due to high fuel prices and excess ship capacity. All this provides a scenario of stronger growth in tonnage demand compared with cargo volumes in 2011.

What continues to plague the dry cargo market is the huge orderbook overhang and flood of new deliveries into the market, creating a chronic oversupply that depresses freight rates. In 2010, about 77 mio dwt of new ships were delivered from yards and 4 mill dwt of converted tankers entered dry bulk operation. Only 6 mio dwt were scrapped. On a yearly average basis, the active dry bulk fleet grew 12.5% from 2009 to 2010. By segment, the fleet above 100,000 dwt expanded by 23%, while vessels ranging from 60,000 dwt to 99,999 dwt grew by 9%. The 40,000 dwt to 59,999 dwt segment rose by 13%, while the fleet below 40,000 dwt increased by only 4%.

Around 140 mio dwt of new ships are scheduled for delivery in 2011. From previous years, we can assume a 60% slippage, some 85 mio to 90 mio dwt of new ships will start operation. Scrapping is a function of the ships’ earnings, but assuming 15 mio to 20 mill dwt will be sent to breaking, a fleet growth rate in the region of 14-15 percent seems plausible. This far outpaces demand projections of seaborne dry bulk trade increasing by 6% to 7% from 2010 to 2011.

Blue chip tanker operator OSG posts big losses

US-listed tanker owner Overseas Shipholding Group (OSG) suffered sizeable losses in the final half of 2010 . The net deficit to 31 December was US $134.2 mio, against a profit of US$ 70.2 mio in 2009. The FFA market currently expects VLCC rates in the low 20’s the next two years, yet equity analyst consensus expectations indicate a recovery of the tanker market. It appears that the analyst consensus underestimated the supply side.

OSG is diversified with both crude and product tanker exposure in addition to its specialized US Flag business. 110 ships are operated of which 43% are chartered-in.

The OSG time charter equivalent (TCE) earnings dropped 10% to US$ 853.3 mio over the full year, due to increased spot exposure combined with lower average spot rates. VLCCs and MRs were most badly hit. Average VLCC spot rates were only $17,000 per day in the final quarter, down from $23,900 in the same three months of 2009. Fleet revenue days decreased 2% or 861 days.

CEO Morten Arntzen said: that 2010 was clearly a disappointing year financially but he pointed to debt reduction, a focus on keeping ship operating costs in check and long term charters for two FSOs operated in joint venture with Euronav as reasons to be more optimistic for 2011. He also said the US-flag business has secured new contracts combined with a lower cost base, which should return it to profit.

OSG has high spot exposure and large fixed costs as almost half of the fleet is leased. OSG will struggle with weak cash flows in a low market scenario the next two years. Like most mature companies, OSG suffers from comparatively low returns ratios.

On the other hand, with its strong financial strength, the company could take advantage of new growth opportunities, something that it very much needs to maintain investor interest by improved profitability. OSG had by the end of Q3’10 cash equivalents of US$ 351 mio and a remaining capex of US$ 375 mio which is fully funded. Total liquidity, including undrawn bank facilities was US$ 1.5 bn. In a weaker tanker market, the company could use the opportunity to expand its owned fleet.

Earnings forecasts in the tanker sector are likely to come down as weak market conditions continue to prevail.