Q4 2020 SFL Corporation Ltd Earnings Call
[music].
Ladies and gentlemen, good afternoon, and welcome to the Q4 'twenty 'twenty S. S. L Corporation earnings Conference call.
At this time all participants are in a listen only mode. After the presentation. There will be a Q&A session I want to ask your question you would need to press star one on your telephone.
I would now like to hand, the conference over to your Speaker today, Mr. Al Yes that GAAP. Please go ahead.
Thank you and welcome all to <unk> fourth quarter Conference call.
We'll start the call by briefly going through the highlights over the quarter and following that our CFO Aksel Olesen will take us through the financials and the call will then the concluded by opening up for questions for our Chief operating officer of trim surely will also participate.
Before we begin our presentation I would like to note that this conference call will contain forward looking statements within the meaning of the U S. Private Securities Litigation Reform Act of 1995 words, such as expects anticipates intends estimates or similar expressions are intended to identify these forward looking.
Statements.
Forward looking statements are not guarantees of future performance. These statements are based on our current plans and expectations and are inherently subject to risks and uncertainty that could cause future activities and results of operations to be materially different from those set forth in the forward looking statements and.
Important factors that could cause actual results to differ include but are not limited to conditions in the shipping offshore and credit markets. You should therefore not place undue reliance on these forward looking statements. Please refer to our filings with the Securities and Exchange Commission for more detailed discussion. So we're risks and some uncertainties which may.
Have a direct bearing on our operations operating results and our financial condition.
The announced dividend of <unk> 15 per share represent the dividend yield of more than 7% based on closing price yesterday and this is our 68 quarterly dividend payment.
In light of the continued uncertainty surrounding sea drill an outcome of the chapter 11 restructuring the board of adjusted the dividend to <unk> 15 last quarter and effectively then excluded all contribution from offshore assets for the time being.
Over the years, we have paid more than $27 per share in dividends or $2 $3 billion in total and we have a significant fixed rate the charter backlog support the continued dividend capacity going forward.
The total charter revenues was $144 million in the quarter with more than 90% of this from vessels on long term charters of less than 10% from vessels employed on short term charters and then this book market.
The EBITDA equivalent cash flow in the quarter was approximately $106 million and last 12 months. The EBITDA equivalent has been approximately $464 million.
We recorded a significant impairment in the quarter relating to the nidal drilling rig, which was taken down to scrap value in order to be conservative with cash flow from our other assets were not impacted by the offshore market situation and the free cash flow from other assets were well above the distribution capacity with a good margin in the quarter.
Despite prepaying more than $100 million in an offshore related financing in the quarter. The consolidated cash position at quarter end was more than $200 million and.
And in addition, we had nearly $30 million in marketable securities of.
Our fixed rate backlog, excluding anything from the drilling rigs stands at approximately $2 $3 billion from owned and managed vessels. After the recent charter extensions and vessel transactions provide a significant cash flow visibility going forward.
The backlog excludes revenues from 16 vessels traded in the short term market and also excludes any future profit share optionality.
The profit share does contribute optionality value for us and in the fourth quarter at the accumulated for more than $5 million the.
Last quarter. It was primarily relating to the two vlccs on charter to frontline, but going forward. We expect the relatively higher contribution from huge fuel savings of container vessels with scrubbers in light of increasing fuel price and fuel spreads.
With the strengthening of Drybulk market. We can also for some positive contribution from profit share on capesize bulk carriers as well.
During the last few months, we strengthened our balance sheet and the investment capacity for racing nearly $50 million through share issuance. This combined with other initiatives has been reality fully restored our investment capacity. Despite the prepayment of more than the $100 million when an offshore drilling rig as mentioned earlier.
And there are no immediate plans to raise more equity.
At the end of the fourth quarter. We also sold of 51% stake in a subsidiary which leases out for large 19th to use the.
<unk> 19 per Teu container vessels to MSC.
The purchase of Airbus, an entity affiliated with him and holdings, our largest shareholder the.
The purchase price was approximately $7 $17 $5 million on.
And in effect the transaction.
And the effect of the transaction most of the assets and associated debt were reclassified as equity accounts debt and therefore slimmed the gross balance sheet.
Equity ratio increased while the estimated net reduction nsfl's distributable cash flow from these assets is limited to only approximately 700 thousands of dollars per quarter as a large portion of our invested capital is an interest bearing intercompany loan which remains unchanged.
As previously announced.
And most of its subsidiaries filed chapter 11 cases in Texas last week.
We have entered into agreements relating to two of our drilling rigs, where we will receive approximately 75% of the lease higher under the existing charter agreements for the Salinas investor cliffs for the time being the.
Of the agreed amounts are sufficient to cover debt service relating to the rigs.
These agreements will ensure uninterrupted performance on the sub charters to the oil major we're seeing drill will be allowed to use funds received from the respective sub charter to pay a fixed level of operating and maintenance expenses.
With regard to the rig west Taurus the lease is expected to be rejected and the rig redelivered to SSL.
This rig is now debt free and has been held in may of <unk> for more than five years and Thats a <unk> current the of elevating strategic alternatives for the rig including potential recycling at the European.
The Union approved Green recycling facility.
The harsh environment Jackup rig vaseline has sub chartered to an oil major until the end of 2028, while the harsh environment Semisubmersible rig West Hercules is employed on consecutive sub charters to an oil major in the North sea.
While no insurances can be provided with regards to the outcome of the <unk> chapter 11 proceedings SFO continues to have constructive dialogue with <unk> and the relative financing banks to fund the long term solution for the rest of the invest Hercules.
We can unfortunately did not make any further comments to relay.
I think through the range and the pending restructuring but of our objective is always to maximize long term value for our stakeholders.
Excluding the drilling makes the backlog from owned and managed shipping assets was $2 3 billion at the end of the fourth quarter.
Over the years, we have changed both fleet composition and structure and we now have 81 shipping assets in our portfolio and no vessels remaining from the initial fleet back from 2000 for.
We have gone from a single asset class charter to one single customer to a diversified fleet and multiple counterparties and over time the mix of the charter backlog has varied from 100% tankers to nearly 60% offshore at one stage to containers being the <unk> largest segment right now.
In addition, we have 16 vessels traded in the short term market, which we define as up to 12 month charters and also from time to time significant contribution from profit share as discussed earlier.
We do not have a set mix in the portfolio focus is on the evaluating deal opportunities across the segments and try to do the right transactions from a risk reward perspective.
Overtime, we believe this will balance itself out, but we tried to be careful and conservative in our investments and not interest just because money is burning in our pockets.
Our strategy has been to maintain a strong technical and commercial operating platform incorporation with our sister companies in the <unk> group. This gives us the ability to offer a wider range of services to our customer from.
Effectively structured financing to full service time charters.
But more importantly, we also believe it gives us unique access to deal flow in of core segments.
And with full control of our vessel maintenance and performance, including energy efficiency and emission minimizing efforts, we can impact improvements to our vessels through the life of the assets and not the only be possibly opening up of vessels employed of tablets, where the customer may not always have an incentive to make such improvements.
We do of course of closely follow the various developments of new propulsion technology, and the other initiatives to reduce or eliminate carbon footprint by commercial vessels and to ensure that our asset portfolio remained competitive in the long run and with that I would give the word over to our CFO Aksel Olesen, who will take us through the for.
<unk> highlights for the quarter.
Thank you Miss the advocate on.
This side, we have shown our pro forma illustration of cash flow for the fourth quarter.
Please note that this is one of the guideline to assess the company's performance.
In accordance with U S GAAP.
And also net of extraordinary and non cash items.
The company generated gross charter hire of approximately $144 million in the fourth quarter.
And the ninth 10th of the revenue coming from our fixed charter rate backlog, which currently stands of $2 3 billion, providing us with the strongest stability on our cash flow going forward.
During the quarter the line the fleet generated the gross charter hire of approximately $82 million and.
And clearly, including $1 9 million and profit split contribution related the fuel savings on some of the large container vessels.
Of this amount approximately 95% was derived from our vessels on long term charters.
At the end of the quarter SSL line. The fleet backlog was approximately $1 7 billion between the average remaining charter term of approximately four years where for.
Some of the seven years weighted by charter revenue.
Approximately 85% of the loan book.
It's the world's largest slightly the operators Maersk line and the MSC.
The balance of approximately of 15% to evergreen.
Our tanker fleet generated approximately $19 million and gross charter hire.
On the Vlccs chartered to frontline shipping generated $7 4 million, including <unk> 5 million and profit split contribution.
And during 2020, the total profit share contribution from these assets with the $18 6 million.
Furthermore, the net charter hire from the Companys two suezmax tankers employed in the short term markets with approximately $1 6 million in.
In the quarter.
And in November the company re delivered the last VLCC to help the group.
And after the repayment of the associated financing the transaction increase.
Balance of approximately 10 7 million.
During the quarter of dry bulk fleet generated approximately 27 million and gross charter hire and of this amount of approximately 70% of derived from our vessels on long term charters.
During the quarter the company.
At 10 handy sized vessels employed in the spot and short term market.
Of the vessels generated approximately $6 4 million in net charter hire compared to $7 million in the previous quarter.
The <unk> drilling rigs, which have been trucks out of the subsidiaries of seadrift.
In the fourth quarter received charter hire of approximately $16 3 million.
Subsequent to quarter end of <unk> entered into certain agreements relating to a drilling rig so the.
The final quarter of Google.
While the rest of course will be redelivered to us to fill.
The the surplus and this line will continue the employment with <unk> in order to ensure uninterrupted performance on the sub charters to oil majors.
This summarizes to an adjusted EBITDA of approximately $106 million for the fourth quarter, we're not the 110 per share.
We then move on to the profit and loss statement as reported under the U S. GAAP.
So the as described in previous earnings calls our accounting statements are different from those of the traditional shipping company.
So our business strategy focuses on long term charter contract.
A lot of part of our activities are classified as capital leasing.
As a result of significant portion of the chart revenues are of excuses from U S. GAAP operating revenues.
And instead, the SaaS revenues classified as repayment of investment in finance leases and the loans.
With silicon the associates and long term investments on the interest income from associates.
For for the fourth quarter reported total operating revenues according to U S GAAP of approximately $150 million.
Which is less than the approximately $144 million of charter hire.
We received for the reasons just mentioned.
During the quarter. The company recorded profit split the income of $3 5 million from of tanker vessels on charter to frontline.
And of one 9 million from profit split arrangements related to the fuel savings from some of the large container vessels.
The company also recorded nonrecurring non cash items during the quarter, including of pull through mark to market effects related to hedging derivatives of $3 4 million.
Unlike through mark to market effects relating to equity and debt investments of $4 2 million.
A gain of $5 6 million from charter termination and sale of subsidiaries.
In addition to it.
Increasingly create the provision with two $8 million.
Furthermore, the company reported a growth of impairment of $252 6 million from the drilling rig with tourists.
Partially offset by the debt extinguishment of the effect of 66 1 million.
After the sulfate the debt repurchased at the discounts implying on the net impairment of approximately $187 million.
So overall on the according to U S GAAP the.
We reported a net loss of 165 million dollar for the nine cents per share.
Moving on to the balance sheet.
At quarter end, the <unk> had approximately $215 million of cash and cash equivalents.
Clothing, approximately $3 4 million of cash held in the wholly owned non consolidated subsidiaries.
Furthermore, the content of marketable securities of approximately $29 million.
Based on the market prices at the end of the quarter.
Also as Phil the five debt free of vessels and the rig with the combined charter free market value for <unk>.
Proximately $4 million to $6 million based on broker appraisals.
In the last quarterly call, we mentioned net ads crude carriers rest of approximately 17%.
Older vessels at attractive prices and the the net proceeds from the sale will be distributed to the shareholders.
The distribution has not been approved unless the risk.
So.
As Phil expects to receive a dividend of approximately $9 million during the first quarter.
The subsidiaries owning the drilling rig with surplus with line unless tourists of previously and the accounted for as investment in associates.
The exit the method in accordance with U S GAAP.
This equity accounts of subsidiaries are wholly owned by the film for the result of the accounting treatment operating revenues operating expenses and net interest expenses in the subsidiaries.
Not included in the CFO of consolidated income statement.
Instead, the net contribution from these subsidiaries, let's recognize the combination of interest income from associates unresolved and associates.
During the fourth quarter, the subsidiaries owning the rigs with tourists and the scientists, we reassessed and fill the consolidated offer among other things changed as the certain financing terms relating to debt.
Consequently from the time of consolidation at the end of October 2020.
All of them is earned and costs incurred with the accounted for of operating items and the consolidated income statement of as Phil.
And concurrently the balance sheets of fits of ELD deepwater unless the for lunch.
We are fully consolidated into the consolidated balance sheets of.
As of the cell.
And based on the fourth quarter figures the company of that.
Book equity ratio of approximately 26 per cent.
Then to summarize.
The board has declared a cash dividend of <unk> 10 per share for the quarter, which represents the dividend yield of approximately seven 4%.
The closing share price yesterday.
This is the 68 consecutive quarterly dividend and since the inception of the company in 2000 and for more of a $27 per share of $2 $3 billion in aggregate at the return to shareholders through dividends.
And while the continued to collect revenue from our fixed charter rate backdrop. We also have upside from the profit split arrangements from our Vlccs and Capesize vessel.
In addition to profit split arrangements related to the fuel savings for some of the large container vessels.
We haven't put in more of.
230 million for fixed charter backlog the loss per month.
We actively continue to explore new business opportunities with.
With particular focus on the investments in asset we deliver carbon footprint in order to position our portfolio for the future.
And with that I give the word back to the operator, who will open the line for questions.
Thank you ladies and gentlemen.
Now beginning the question and answer session.
Just a reminder, if you wish to ask a question. Please press star one on your telephone and wait for your name to Vietnam.
And if you wish to cancel your request. Please go ahead.
Our first question today comes from the line of Randy <unk> from Jefferies. Please go ahead. Your line is open.
The gentlemen, how's it going.
Good thank you.
Excellent alright, so I guess looking at the kind of the balance sheet in your fleet, you raised around $50 million and net.
Share sales, so what kind of acquisition target.
At here in the near term, maybe what sector or sub sector and then also any plans for refinancing the convertible notes maturing later this year.
Thanks.
Yes, so what we have done we did as you know prepay.
The loan relating to the vessel the tourists in the fourth quarter and and we have effectively replenish that the investment capacity.
We know of more cash than we had.
In the third quarter before we prepaid more than $100 million on dock unit.
So that in itself you can say, it's also an illustration of the cash flow generation capacity in the company. In addition to the year.
Somewhat less than $50 million.
We raced in the market.
We have also in 2020 continuously looked at opportunities acquisition opportunities.
We have been of course, a little extra careful I would say because the has been uncertainty through the year.
Ho what would unfold relating to our drilling rigs.
The charters to seed will I think now there is more of visibility that have filed for chapter 11.
We have got of a robust liquidity and we will of course continue to look at opportunities.
We generally don't guide specifically on segments, we are looking at many many segments.
I would say, where we are maybe reluctant offshore and naturally.
Obviously, the oil product related.
We're also has it been done.
It's all about finding the right.
Combination of the risk reward.
Also from a from a call.
<unk> net carbon footprint perspective, where we think that we will call them over the years as we develop the company going forward.
So the.
Specifics, but we are we remain call.
What it's focused on.
Adding the new transactions.
And hopefully in 2021.
There will be there will be deals for you to look at it.
Sure sure.
Okay, and then with that any on the convertible notes any color there.
Sorry I.
I forgot to comment on that yes of course, we know that is coming due in October so still of many months until until that we have a decent cash position as of this.
And we believe the capital markets are there and available. So we think that there is ample time to address that in due course.
Certainly well ahead of the.
The final maturity.
Got it.
Okay, and then obviously on the container ship side that market's been very strong and you don't have much in terms of spot exposure. Most of the vessels are on long term charters, but on dry bulk alright that is certainly a sector that we've seen significant strength of your just in the last few weeks and you have a decent amount of short term or.
Spot exposed vessels with the do you plan on continuing to operate those.
Andy sizes Super Max is what have you in the spot market are looking to lock in some time charters here with the strong rates.
Yes, Tim shortly.
Speaking now.
Thank you for the question.
Looking at being exposed to the spot market right now is quite positive as we see it we have share.
We have three of the super than the <unk>.
Seven of the hand is sort of more or less of base with only short short contracts, which means that we will take full we will enjoy the printer.
The market at the moment I mean, the handy sized market this week.
It's almost.
Now 14000 plus per day. So it's really looking good we may of course locking some vessels on sort of some on some longer charters I mean, after a year or so but it sort of depends where we are comfortable staying in the in the spot market short term for these vessels for now.
But would add that of course.
Some of the more of our long term business philosophy are our focus is.
Typically longer term charters so.
We are in sort of waiting to see how of this market plays out and if we cannot sort of secure really long term charters also on these assets. We will eventually call it divest of them and reinvest in assets, where we can have that we can get that cash flow visibility.
We hope to get some profit split from our eight capes on charter to <unk>.
The Golden Ocean as the market.
The quite firm for credit timing.
Got it.
That makes sense.
I guess the last quick modeling question I saw the other financial items gain of $72 million, what does that consist of.
The.
In connection with the repurchase of the debt relating to the dividend for us.
Got it.
The deal well, thanks again for the time.
Thank you. Thank you.
And your next question comes from the line of ship.
Simon <unk> from <unk> capital. Please go ahead your line is open.
Yes.
Hi, good morning, good afternoon, everyone.
Hi.
Finally.
So you drill is not going to be as much of an issue kind of looking forward and it's resolved.
And I want to commend you and the team for doing a great job of.
At <unk> the opportunities in container ship.
And as a shareholder I can say, we're extraordinarily well.
While possessions.
My question all the way for you is.
Look at.
A fairly large canvas.
What areas interest and attract new where do you think there.
You kind of be in tankers or some other class.
Yes, Thank you Richard and thanks for the kind words.
We we look at as you point out we try to look at a very at the.
Broad bullet maritime market.
I think where we have seen more.
The general call. It the interest and also in securing longer term of term charters has typically been on the line of sight.
And as I mentioned earlier also of that is also where we from time to time see that.
Of the end user or sort of the of our customers are willing to pay up pools of for new and improved technology because of their customer again.
Is requesting call it our green or type of transportation and this is this is spot on our focus area now in our COO from show you spent a lot of time on new technology and evaluating various systems. Unfortunately, there is no quick fix out there there are no technology today that.
We'll really transition call. It the marriage of time space fully to a carbon neutral.
Setting, but there are many things you can do to the assets.
While we are working towards call it a green or I would say shipping. So so typically also so I would say our focus area is typically on the line of sight container car carriers those kind of assets.
Also on the Drybulk side that could be interesting opportunities for assets also with the newer and more energy efficient.
Propulsion technology.
On the tanker side.
While we all the way we're always opportunistic.
More reluctant.
So part of it because we think that in the long run.
Having too much exposure to the tanker sector, which is transporting the very product debt.
Has the highest <unk> emission footprint.
It's not as a negative side to it. So so it's a balancing act, but in general we focus on on the liner side and potentially also new sectors outside of our current core segments, where where we also think that we can there could be.
Both opportunities for us so a little a little sort of vague there.
We typically were not try not to be too specific on percentages or dollar amounts that were going to investing in any specific sector, but we are very focused on building SSL and transition the poor.
Folio.
Remember back some years ago, we had only tanker vessels and I'm very happy that we don't have that kind of concentration in that segment.
I'd Love your thoughts I'm looking at the order book by various segments.
Except for LNG work.
The old policies to flex has a lot of issues.
Thank you.
There are very few points in time when the.
Forward outlook.
Talking six months.
Total year.
Have been better and given your long career.
I Wonder if you could contrast, the opportunity set today.
The other valleys in the past.
Yes.
Interesting question I think if you take if you take the sort of a step back and look or.
Look at sort of the shipping or the maritime markets in general what we've seen over the years, it's typically be the owners who have killed call. It the market recoveries by ordering too many vessels too quickly.
And quicker than the demand call it the pick up.
Therefore, you have periods with oversupply caused by over eager.
The owners the change now and you're absolutely correct in many in many shipping markets. Now you have the historic low order book slightly the dry bulk like in the tanker space.
It's a very long time since you've seen such low order books and and.
The market you would then expect many call it speculative owners to run out and order new ships because.
Many can see this but at the same time with the developments and change in propulsion technology.
That also means that many of our holding back a little on their investments because they are not quite sure which assets to investing.
And what will be sort of the standard going forward and also I would like to highlight the access to capital, which is a fundamental change from prior cycles, where we see many of the traditional call. It shipping banks, who would lever any of any vessel to any owner.
Concentrating and focusing on the larger and larger customers.
And making it more difficult to I would say smaller and more margin on all of the owners to just go out and order vessels. Because again. These are capital intensive assets. So I think you have an interesting triangulation now in this market in many of the sub segments, where you could see.
Very good.
Much higher volatility and positive volatility we hope.
And the spot market and the way we can benefit from that is a combination of the dry bulk market as Tim mentioned also of profit shares we have on tanker assets.
And of course, we try to.
Catch some of this if we can.
And to the through the gateway can but but you are absolutely correct. It's it's in.
We haven't seen you call. It this kind of market balance for for many many years.
Thank you very much.
Thank you.
<unk>.
Okay.
Next question comes from the line of Greg Lewis from BTG. Please go ahead. Your line is open.
Yes, hi, Thank you and good afternoon everybody.
Yes, hi.
Yeah.
I'm trying to trying to read between the lines.
Feel free to for you to tell me I'm thinking about this the wrong way.
But as I think about the ship finance historically.
You have kind of bought assets and per.
The much.
For the most part it seems like I want to say, we will run those either to our useful life for maybe we got rid of Psalm because there was the restructuring by Ey.
The counterparty.
But as I look at this and think about.
Of the previous Richard's comments around.
The cycle there are reasons to be of consolidated about some of these of course.
The commodity shipping like of dry bulk or anchors and really I guess I'm curious.
Going through the fully realizing that some of these vessels may be arent on contract.
Is it could could this cycle will be different for <unk> now in that maybe.
Take advantage of the cycle and maybe opportunistically sell of.
And we're cycle back cash into other types of endeavors or am I, just thinking about this wrong.
Now you were just talking about it wrongly I think.
Sure the reference to a company name is mainly maybe pinpointing it you.
You referenced to ship finance, which as you know.
Our previous name as we changed two years ago and there is no SSL.
Correct correct.
Although I know I have to answer.
From your leg there but.
Our focus is how can we generate a long term sustainable cash flow for our investors I E. How can we create a.
The dividend predictable sort of dividend type model.
Focused on the maritime industry.
So we don't while we always when we build assets we build it for the life of the asset, but what we typically do we typically divest assets as they get older as they come off charter.
Reinvest in newer modern.
Vessels because.
That's also where we typically see that are our potential customers would like to charter in longer term older assets, you typically see relatively shorter charter periods for.
The benefit of one of the benefits of course of of a stronger call. It commodity market is that with higher call. It short term and spot rates in markets that also has an influence on these companies willingness to pay up for longer term charters. So you can say do you have an indirect effect there.
Where you can potentially lock in charters on vessels for long term at a higher level than you would if the market if the Smith.
Market is the rock bottom, but for us it's really about the long term sustainability of the dividend.
And that is also why we have an increasing focus on call it fuel efficiency improvements for.
<unk> on carbon.
Print it is not because the risk there.
It's going to it's going to change with where the flick of a switch, but it's because it's a process and we just need to be ahead of that curve.
It is going to impact of the whole overtime and we just tried to invest as good as best as we can as we transition into this because we think that it has the longer the best long term value for shareholders.
Okay that was super helpful. Thank you. Thank.
Thank you.
Thank you and your next question comes from the line of Liam Burke from B. Riley. Please go ahead. Your line is open.
Good afternoon.
You discussed capital allocation to the course of the.
Call today talked about your debt your.
Asset allocation in terms of the fleet, where does the dividend priority lie in terms of the capital allocation strategy.
Well.
You can say that.
Our primary focus is dividends, but we don't have a specific.
Asset quality the percentage of net income if that is what you referred to.
What we typically do and this is more of how we how we are structured SSL. We can say is the parent company owning a lot of assets. We focus on two things we focus on of course, securing long term employment of these assets and then we focus on.
Capital is flowing from these assets net of financing that's specific to the assets up to the parent company and supporting the long term dividend capacity.
So so our as I said the dividend is is really more a reflection of how we structure the deal.
And how we think long term.
Not necessarily on on quarter to quarter call. It.
Net income or because from from quarter to quarter. There are many factors that has an impact also any noncash items and.
You can say.
Because we have many assets with very long term charters. We also have some sort of accounting features that some call. It more spot oriented maritime companies don't see like lease accounting, which is more similar to what you see in the airline industry of for instance.
And therefore affecting call it some of the numbers that is being reported.
Not sure if that if that was helpful. For you know it is helpful.
But I mean getting getting down that.
Walking down that this discussion.
As you look forward to adding assets of any capital allocation is there one form of financing would be at leasing or debt.
Debt.
Of that looks more attractive to you.
When you have part of your assets in the spot market or is it typically.
Kind of continue to be.
What the current charter agreement is or if it's operating in the spot market.
I think the true.
<unk> two <unk>.
Evaluate the each each project at charter.
What's the optimal financing to that the charter.
Asset depending on when the age of et cetera.
Of the debate it depends on the case, the case basis, but all of us trying to.
Improved financing terms of build bank relationships. If you look at the <unk> portfolio of Bang.
For the last few years.
Currently we have approximately 30 banks in the bank group the CNR.
Grace and to the east.
The extensive day bank bank of <unk>, Japanese banks, Taiwanese banks et cetera.
Thats the Usfl very similar to Japanese ship owners with the conservative strategy and the.
We liked the business model of AMR, hence providing.
Providing us with very attractive capital. So that's kind of part of our business development.
Finding the most attractive financing and.
Creating debt the arbitrage for them.
Great. Thank you.
Yes. Thank you.
Thank you and one for Ken.
And if you wish to ask a question. Please press star one on your clinic, London wait for your name to be announced.
And if you wish to cancel that request. Please go ahead of the Hutch.
Your next question comes from the line of where.
The <unk> from Citi. Please go ahead your line is open.
Hey, guys James on for Chris.
I just wanted to follow up on some of the previous questions around the priorities for your capital allocation.
The vessel values of improved you sold some assets.
Raise the equity.
When you paid down a little bit of debt just wanted to understand how you are thinking about leverage from going in here you've commented on the converter, but perfect merch, rather, but I just wanted to understand broadly how are you thinking about leverage at this point in the cycle other opportunities around your capital structure. There that makes sense just kind of wanted to get your.
<unk>.
Yes, what we what we typically do when we look at the new project is to try to optimize call. It cash flow from call. It that credit specific silo, if you can call it.
An asset or maybe you'll four of five assets for that matter. If we if we structure it.
Thats one deal in the weekend, we can if we can put together of financing package around that deal and then of course, our focus is on optimizing leverage and debt structure. We tried to focus on minimizing college recourse to ask the fed balance sheet. If we can.
And then the capital we put in it's you can say, it's what we call the <unk> equity in that project credit internal project.
That is a combination of you can say equity or call. It corporate debt at the up at the holding level, including the convertible loans that we may have raised.
So as we have been investing the dos.
Capital at double digit type returns.
We have there has been a nice call. It the arbitrage also by utilizing that type of capital.
In that way. So if you look at asset value is really a collection of projects like that where we try to optimize each and every silo.
We try to.
At the risk between the silo.
If something happens for instance, now the situation, we had with the with the drilling rigs.
This rig where we repay the debt.
Call it call it situation around that and the situation around the <unk> and their filing has no bearing on any over other more than 80 assets. They are totally isolated for from what is going on.
And call it in the in the drilling asset the silos.
And the cash flow has been screaming out just as it should on it without interruption.
All along so so it's a mix of the structure from from from from from a risk perspective, and then optimizing cash flow coming up and of course.
There is no point for us to lever of something.
100%, because then we don't have real capital invested.
In any project, we do it's always a focus on how do we put the money to us. So we can build the distribution capital over time for our shareholders and thereby supporting the dividend capacity and hopefully increasing it again soon.
Got it.
Thinking on the <unk>.
Dividend you've gone through two so just wanted to understand what are the sort of I guess, what do you think of it that it would be like the lessons learned per se about what you could possibly do moving forward, how sort of maybe on the on the capital.
The structure side or maybe on the fleet side.
Potentially.
Mike.
Mike change moving forward given the experience that you've gone through across 2020.
Yes, I think 2020 was an exceptional year.
I would say for for the wrong reasons, we had.
The market collapse and the early in the year as we all know the.
Of the disruption with the COVID-19, and on the oil price collapse. So so what we then at that time.
And.
If you step back more than a year.
The whole of the outlook for the offshore industry was very different than how it sort of.
Call it the developed over the year so.
We have taken some painful steps nsfl.
Bye bye, reducing the dividend and in this period and the last reduction was really designed to ensure that.
All all contribution from those offshore assets are eliminated from the distribution capacity. So it's really visible for for our investors and our analysts.
Hope that this is a sustainable level of nsfl from our other assets not affected by by the offshore space.
And then hopefully.
We will also have more visibility on that situation and also as we hopefully can can invest more capital in new projects.
It's a better timing to then look at doing something.
Fully on the positive side with the dividend, but as a matter of corporate policy. We never guide on forward dividends that is.
That is something of the board is always reserve the right.
And so I cannot I cannot tell you if and when the dividend will be increased but of course, it's our objective here to do something about that.
Otherwise I would say we have failed.
Got it and then just sort of a follow up on that.
One of the.
Michigan's you'd talked about.
The offshore was the potential to actually step into the sub charters.
And if conditions got worse is that something that's still on the table like further down the road in terms of like looking for some sort of.
Central to for lack of recovery out of this and we'll do that.
That might be happening happened in terms of upside just kind of wanted to understand if that was still something that could potentially happen longer term.
Thank you Unfortunately, given the ongoing charge.
Chapter level of processing and seat growth.
<unk>.
I cannot really comment any more specifically on the rates and what we have disclosed in the in the press release.
Of course as time goes on the.
I'm sure there will be more clarity.
On the outcome of those proceedings, the important thing for us and I'm sure for all of the other stakeholders. So so and <unk> is to ensure that the two reached out of working for oil majors continue uninterrupted activities.
No impact on the service.
Remember the of chapter 11 process is typically a process where.
The business remain.
The unaffected.
All of the financial stakeholders and owners.
Restructure for the balance sheets et cetera. So so we are happy to see that.
Two of our rigs are.
Our on good.
<unk> with the very strong counterparties.
But I cannot give any more specific guiding on on what what could what could be <unk>.
After the chapter 11 proceedings.
Got it.
Some one more sort of point.
The follow up on the something you've talked about a couple of times already which is.
Of the tanker market.
Seemingly make sense cyclically, but you do have an ESG concerns so as opposed to talking about like the sector broadly is something that is interesting other particular types of deals in the space the.
You might still find appealing that might mitigate some of those concerns that you have and that's all for me.
We try not to be too specific on guiding on that but I would say that we have we have of focus on on equal at the ESG type.
Type factors.
And particularly on on factors concerning emissions from vessels.
And of course, the fact that tanker vessels, both consume oil stay as they are being run but also transport oil.
Wace.
Call it down on our Workers' day on our on our appetite in that segment, but we havent. We Havent said debt. We are excluding any segment now, but I'm thinking of that our focus is on on.
The primary on the segments, where we see less carbon.
Carbon footprint, the SPN message going forward.
Thank you.
Thank you.
There are no further questions at this time please Kelly.
Okay.
Thank you then I would like to thank everyone for participating in our fourth quarter conference call and also thank the <unk> team for their efforts and a challenging time with all of the disruption caused by the COVID-19 situation. Both on board the vessels and onshore if you have for any follow up questions. There are contact details in the press release and you can.
You get in touch with us through our contact pages on our webpage Www Dot SSL Corp Dot com. Thank you.
That does now conclude.
For today. Thank you all for participating and you may now disconnect.
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