Good afternoon. This is the Karofka Conference operator. Welcome, and thank you for joining the Damica International Shipping First Quarter 2020 Results Conference Call. As a reminder, all participants are in listen only mode. After the presentation, there will be an opportunity At this time, I would like to turn the conference over to Mr.
Paulo Damico, CEO of Damico International Shipping. Please go ahead, sir.
Hello to everybody. Good afternoon, and thank you for being with us. Let's go straight to the executive summary. Net result, DIS posted a profit of $1,500,000 on Q1 of 2020 versus the loss of 5.5 last year. As an adjusted net result, so excluding non recurring and non cash items from both periods, The today result for Q1 twenty twenty is 6,300,000 against 4.4 of last year.
Therefore, excluding such nonrecurring effect, this result on its Q1 of 2020, would have been $10,700,000 higher than the same quarter of last year. And I would like to remember that this represents for DIS the 2nd consecutive profitable quarter. On time charter is clear. EIS daily spot rate was 17,364. In Q1 2020 against 13,583 in Q1 'nineteen.
This is equivalent over 27.8 percent or if you prefer $5700 improvement 1 year over the other one. If we plan that we've, we've, with the coverage of the time charter, our term charter contracts. This achieved a total daily average rate of 16,300 91 in Q120 against 14,057 in Q1 2019. On leverage reduction, the net financial position excluding RS 16 to fleet market value ratio was 63.3 percent at the end of March 2020. That was 64% at the end of 2019.
And compared to 72.9% at the end of 2018. As far as the market, at the beginning of the year, the general outlook was rather positive as we all expected. I mean, we have stronger fundamentals with the implementation of IMO 2020. We had a various, limited supply growth. And so we had the skinless sanction element, which was still on the scrubber installation keeping ship in shipyards.
So all this was providing a very good support of But, unfortunately, we provide, coronavirus as you prefer. Started in China. And we had very strong, disruption, let's say, of the demand and refining production involved in that, who was well, who is still today largest crude imported nation. So the product tanker rates suffered out of that. What really made Since real scenario has been in much, early March, the struggle between That's correct.
The reward between Saudi Arabia and Russia on the Thrys. And Saudi Arabia, as you know, very well. Flooded the market and put both crude oil and products in a very State Contango, which has been pushing a lot of traders, basically to average charter in ships for storage. And this of course clearly has been beneficial to the market. By the end of the second quarter, as much as 21% of a tanker fleet, they began up in floating storage today.
So, this is just a few, say, starting shots. I leave the word now. To Carlos for the financials and then I will be back on the market in a more detailed way.
Yes. Hello to to everyone. Everyone, good afternoon. So we talked to you with quick look at our fleet, which hasn't changed that much from 31st December. We have one last car.
So it was PC in the short term that was to be delivered to owners. We now have 40.5 and a half vessels. Of which, just over 50% owned. And, we are an MR play at 32.5 MRs with, an almost equal number of LR1s and Handys. So 6 LR1s and 7 Handys control.
As you all, as you know, well, we we have, implemented an important new building program. We started ordering vessels in 2012 and started taking delivery in 2014. For 2020 buildings, of which 10 MR60001s, the this program terminated, when we move on to the the following page, we see here that we invested the overall 135,000,000, indirect payments to yard plus new building supervision costs, cost of first supply, extras, the overall investment ticket was actually much higher than that, to take delivery of these 22 year buildings. And from 2020, we are much lighter in terms of CapEx commitments we have another $10,000,000 this year, only related to, maintenance of vessels in particular. Dry docks and installation of water malachite systems as the figure drops further in 20212022 to around $4,000,000.
Each year. We are not only lighter in terms of CapEx. We are also lighter in terms of debt repayments. We finished reimbursing this facility we had with Winpizza, which was in addition to the traditional bank finance which started off at $75,000,000. It started with finishing both in it in December last year and therefore from 2020, our repayments on our loans, excluding the loans, cost from 52,500,000 to 35,500,000.
We have some balloons to refinance in 2020. They are they are around $22,000,000, and they are being to the vessels we own in JV with Glencore through Glenda International Shipping. And so we are working on that. 1, but it has to be refinanced in September 3, in December. Next year, we also have some refinancing commitments on balloons on facilities which mature.
In the beginning of the year, and we will also soon be starting to to look at that, with $21,000,000 to to be refinanced next year. So it's not the not the big number this year or next year, 2022 is very important in terms of refinancing for us. Going on to the following page, our purchase options. We we have now out of the 9 sale and leaseback deals that we closed 6 are already exercisable. My day this year.
So now, and, all of them are in the money or theoretically in the money. So this is a situation we are closely monitoring because this could be, a potential use of funds for us to deleverage our balance sheet to reap and lower cost of financing, at the right moment. So depending also, of course, on the market developments and then on the cash generation over the course of the next over the next few months. Going on to the next page, we see that our coverage We have a closer look at our coverage. And on a quarterly basis, we see how, we actually have been quite covered in Q1, this year, 65% at an average of around 59 coverage falls throughout the year, but we are still quite covered also in Q2.
At an average rate of around 16.2. And for Q3, we are just over 50% covered at an average rate of 16.4, and then that drop further to 42% at an average rate of 16.6 in Q4, twenty twenty. But it is, I think is, we are quite happy with the coverage. Although the market is extremely strong right now as you will see later in the presentation, there is also a lot certainty regarding how long these very strong markets can last. And, so, we, we, if there, if we want to experience a softening, we will be able to, rely on, on this coverage to to protect our cash flow.
Also a positive is that the advantage of, echo vessels in our fleet increases, over the next few years as we dispose off some of the vessels and that, that we intend to sell and that we have classified as held for sale, some of our older vessels. Going on to the following stages. We look at the the fleet evolution, and the the the fleet, decreases slightly over the next 2 years, as we we delivered some of our, short term PC inverters. And as we sell some of these older vessels that we already have, declared new tank for sale. Our pocket for this, nonetheless, increases over the forecast period, because, as as per previous slide, hard coverage falls quite sharp in 2021 and in 2022.
And with all we have the sensitivity, for every $1000 per day change and $3000 per day changed into fee settlement earnings, for 2020 see the $1000 per day sensitivity is $5,000,000, which rises to around $10,000,000 in 2021. A closer look at the costs. We have also worked on the costs, not only on the top line, And, we achieved, we started, we achieved some savings last year relative to Q1 'eighteen and, Q1, twenty twenty is even lower than Q1, twenty nineteen in terms of daily operating costs for our own vessels. And that was vessels on the G and A front. We also achieved some savings, the savings has been driven now on the operating cost front, has been linked to technological development, the use of condition being maintenance, which allowed us to better assess when to, replace the parts, reducing downtime of hires, but also increasing the average life span of the third parties.
It has been made up also to the strong dollar. Since we also have, although most of our operating costs are in dollar, we do also have costs which are in, in other currencies, and therefore, we have benefited, in the back from the stronger dollar in the same and even more so up as to the G And A where 75% of our costs are incurred which are different from the US dollar. So the strongest dollar there, definitely helped us, as well as the reorganization of some of our activities, which allowed us to obtain some savings. Of course, in Q1, 2020, there are on additional savings with Charlene, to the COVID outbreak, which we didn't plan on, and, but, it did affect our, of course, our traveling and entertainment budgets. With some significant savings in that respect.
Going on to the next page, net financial position to keep market value, improved from 64% to 63%. Plus the marginal improvement since December 19. But if we look at the ratio at December 18, it was at around 73%. So We're talking about the 10% improvement in the ratio, and that is quite significant. It is the result of, the stronger markets, which helped us to generate cash in the last two quarters.
This is the result of the increase in the vessel values. Yeah, then, of course, it was also the result of capital increase that we pursued last year. Also important to note that, on the weekends, now one vessel, which is complete, that free the Ceramic Guangzhou, we we paid the balloon on on this vessel in, in March, just at the end of the month. And now the vessel is, completely debt free. So that's an unload handy vessel in our in our Halifax vessel in our fee, which is classified as held for sale.
We also have another vessel which are not in feet, which is that free and which we just announced the sale of, which is the Glenda Meredith. Which we sold for our $19,000,000. And so the JVs percent by us, so generating around $9,000,000 in cash, for us. Going on to the following page, the financial results. Q1 2020, bottom line $1,500,000.
That's which, but excluding our recurring items, it is a $6,300,000. So that's a much better figure. There were a number of nonrecurring items in Q12020. Mostly linked mark to market of interest rate swaps, which are not deemed hedges, which had an added effect of around $3,000,000 in our results. But also asset impairments and results on disposal of assets, which had an impact of around another $2,200,000 and also the impact of IFRS 16, which was negative by around $400,000.
Overall, if we look, therefore, the nonrecurring results, of 2020 2019, we see an improvement of $10,700,000, which is quite significant, and also a very significant improvement in terms of EBITDA, which rose 47% as relative to the first quarter of last year to $33,000,000. Going on to the following page, we have a closer look at the at the the daily average results of our vessels. And we see that the spot we see equivalent rate, was of a 73 which, which is good and, by historical standards and is in line or lesser results achieved in Q4 'nineteen. We had a quarter which was, that was quite a volatility for out of volatility within Q1. We had a very strong start to the quarter, but we also had some weakness around mid February.
And then, it's, recovered in the last part of the quarter. As the the Chinese economy started coming out from the from the coronavirus lockdown. And the big surge in rates that we have seen has actually occurred only in April. So that doesn't impact the Q1 results. Also important to note that Q1 result was impacted by a nonrecurring adjustment of 0.9000000 related to voyages performed last year.
So, if we exclude that and you look only at the results of the voyages performed this year, we are where we are closer to $18,000 because we have an impact of $600 per day on the spot price. Overall, the blended results, including the CCE coverage, had an average rate of around 59 years of, lots of, around 1400, which is also a good result and, higher than Q4 'nineteen. I'll I'll leave it to Paolo now. For the market section.
Thank you, Carlos. So if you look at asset value and if we start from as we did in all our presentation from where the bottom was in October 2016, we can see that the values have been recovering quite a lot, like both for a five year old and We thought that's 36% and for a ten year old, and, that's 33%. And time charter rates also improved. And we are currently 66% higher than gross days. The impact of COVID 19 on our market, which has been on one side, of course, the demand destruction because everybody has been locked down and 60% of our work population has been closely at all.
In the meantime, a series of factors happened. As we have said before and as you know very well, we have this struggle between Saudis and Russians, which made flooded, basically, the market was cool. And, due to, to to to the spreads that all the supermarket created, which is basically ended up on our storage at the end of the day. A lot of clean shifts and talking about LR2s mostly switch from dirty to, to sorry. It's to switch from clean to dirty.
Creating tightening up more the clean fleet. So this was the first positive thing. The second positive thing has been that the price of banker went down, but went extremely down. And the the spread between the high sulfur and the low sulfur went so so narrow that I think a lot of people are postponing their investments in scrubbers or even cancelling them altogether. It started also new, so got trades because NASDAQ became extremely competitive against Italy and RPG, And you know, at NASA, he's a he's a totality where RPG has a feedstock for from a petrochemical industry.
And so increase the demand of naphtha on longer distance. From the Middle East, or you look to Aytu Asia and even out of the United States. And last but not least, of course, what we will say the increase of the floating storage and a series of known efficiencies like quarantines, I mean, if a ship was arriving in a port where quarantine is required and the ballast to that port was shorter than 14 days. The ship had to wait outside the port to consume the remaining days up to 14 days before entering. And this is something which, especially in the mad where you have very short trips.
Was happening over time. As a matter of fact, the clean trade in the med and the fewer trade in the med has been extremely strong. Now, very fact that we had this big fall in refining volumes because, of course, refineries start cutting down runs when we solve this situation. But the historic element has been so strong that has been offsetting these, these limitation on, on on the refining throughputs. And it's been strong enough to support the market and and, another take the smaller supplier.
So It's clearly a situation where we have big floating storage. We are leaving, let's face it. I mean, we are leaving as paradox. So which final demand, rather now more controlled supply and the and the stronger demand on ships. And all this is due to one element, which is storage in between.
So it's clearly up to this situation. We'll continue. We are going to have a certain time of positive, let's say, market. How long is it going to be? This has to be seen We have this first start now with May of 9.5000000 barrel per day.
Which are coming in force. But, clearly, the turquoise getting narrower. And less attractive. But in the meantime, we are still producing more than what we are consuming or storing. So the yard somewhere has to go.
It's 22 what it was our, let's say, page 22, it it was, our reference story on slide because that was this before let's say the pandemic because the pandemic clearly changed. You're saying what we can say is still today that the refined product participation to the oil, the oil, the trade or the move at sea is still very high. Is 34%. So it's more than 1 third of the yard moves around. Almost we have a potential upside on asset values because we are still very low against what the year in terms of, of time charter rates And here in terms of five year old and ten year old vessels value against repeat, I guess, with that speed.
And then on page 24 here, I think is a key point because we have this growth in refining capacity. This growth in refining capacity which has been only in 2019 of 2,000,000 barrels per day. And we expect it's going to be 6,000,000 barrels per day between 20202024. And this is going to be happening mostly in China and Middle East. So we are going to have this growth of refining plants which they will work and we will compete against the European and Russian plans which are more obsolete So I think we are going to see a lot of changes in the refining world.
This is repeated basically, it is 25. So certainly somebody somewhere, but probably in, probably in Europe has to shut down. And probably is going to happen quite soon. U. S.
Crude exports where the promising thing of the end of 2019, of course, the, well, this price war put the the resale oil in in distress because they cannot support this type of price. You know, in America, even his transfer said that he was going to cut. He was he knew exactly that he was going to cut what this was going to be bankrupt, basically. So, because in America, I guess, the government cannot control VR production as Saudi Arabia and Russia and so on and so forth. But now the producer of Shell, which are closing down wells, because it doesn't make any more sense to put it to to so the US crude story for the future has to be written altogether.
Page 27 is the fleet growth. And this is a very good element because There are some similarities between what happened in 2015 2016, if you remember, And today, 2015, we saw you again withdraw the the price of a barrel. Everybody has been running like hell to buy oil and to move it around. 2016, we realized that we didn't consume at all. So we all think, collapsed.
But added to that and aggravating that, I would say, was that in 2016, The group of, MR and AR and AR 1 deliveries. So we are talking about our segment. Was 4.8%, so 4.8% of new ships coming in. Today, we are talking less of 1%. We are talking about 0.8.
So this is a point of strength. To which we still have to have slippage, which, obvious due to research, total shutdown of the So it's shipyard for at least 6 months. And Also, not totally sent out, but big problems in in the Koreans because many courriers, yes, are using blocks which are brewed in China. So, which supply chain was disrupted. So, and here again, I'd say it delays at Sculpting can support the market and will support the market risk for the next 2 years.
There are no new building orders. I mean, not exaggerating new building orders in the pipeline. As far as I know, he raised the Japanese and then there is a there is a number of of methanol carrier, which are product carrier, but they do not do exactly the same job that we do. And there is, let's say, owners are not so keen to run for new buildings also technological reason because Haimo has very strong ambition or reduction of CO2 And I would even say that due to the pandemic, it looks like enamel, but we won't even want the more severe in some way, if you can, you wait to take advantage of this fact, but do we like it or not? He had his clearance today, but it's clear because nobody is driving, nobody is moving around and nothing is happening.
So the tighter market is expected. We certainly think that the un wind of all the storage is going to be, let's let's call an address elements. In my opinion, it's going to be by far less adverse on clean rental and conclude. And I think we can expect Steve and satisfactory a good year. I leave it to Carlos for the last points of an evolution
Yes. Hello, again, to to everyone. As you know, we'll look at the last slide the NEV evolution. So, the positive aspects is that, you know, after partnering leaching trucks in around December 16, the 'eighteen started rising. And let's just say G And A D per share, but the absolute number, we had absolutely increases in 2017 2019, of course, which affected the per share figure.
But, but the per share figure also started improving from, June 19. And, so the overall NAB is now at $320,000,000, around and on a per share basis, if it is of $0.26 per share after reaching a profit of $0.23 per share in 2019. It has been, slowly increasing, I would say, but nonetheless increasing. So our share price is currently at a very big discount to a, to NAV. It was at a discount of 64% on the 31st March.
For consistency, purposes, since our NAV is measured on the 31st March, we use the share price at the same base to make the difference as of today. This discount is still very significant, but slightly smaller, around 55%. Which we feel is not justified by the market developments we are currently experiencing is the very, very strong spot market, by the forward coverage we have, which is quite a lot of visibility on profitable cash flows in the in the future. And and also by the general long term fundamentals of the factor that we already mentioned. Although there is quite a lot of uncertainty on the near term, and, correction could be on its way, because of these overhang of stocks that is building up, as we experienced in, in 20 from 2016 to early 2019.
This time around this correction, when it arrives, it's likely to be shorter because as Paolo previously mentioned, the order book is extremely limited. It's at historical lows, and that was not the case in 2015. And so we already entered the, let's say, deal with very, positive prospects We expected the market to be strong and for completely different reasons. And we believe those products that remain intact. If anything, actually, there have been maybe less vessels older than, there would otherwise have been because of this virus.
And, which further attempted the appetite for new buildings. So as the as the demand recovers, and, we we are likely to see, the stock drawing down quite fast and, and the, the adjustment not being, not lasting too long possibly. The the the following page while investing this, I would share it to you with, the same key points that we usually highlight. So nothing that much has changed, and thank you very much for your time and, yeah, pass it over to the Q And A session.
Excuse
me.
We kindly ask to use handsets when asking questions. The first question is from Matteo Bunezoni of Kepler. Please go ahead.
Thanks and good afternoon, I have some questions, quick questions The first one is related to the pattern of the of the rates on the product tankers. So we have seen a very strong, a trailer with raised spot rates, exceeding, 70,000, per day. Now we are see some correction, but I think we are still at satisfactory level around 30,000. So if we under to we have on the correctly, your framework is that, that should be for the spring in next week, sir. And then, a normalization, I soon as the floating storage, is, is over, basically, or is is gradually down.
So or compared to 2000 and, 5 16, I mean, what are the key differences? Should should we expect in the 2nd alfa place to keep relatively satisfactory lender? Or could we expect a steep correction from this level? I think it's a good question. The second one is on the feed cover.
So we have seen that on slide 18, and you projected that the 1 year time charter is now close to 20,000 per day. So my question is the coverage for the q2q4 is currently 53% and I'm going in 2021.
Rafael, can you repeat the last part of your question? We couldn't, we couldn't understand the the the the the line was not very clear.
Yeah. So the question is on the fleet coverage. You show that, the 1 year time charter is close to 20,000 per day. The coverage for the 2nd quarter to 4th quarter, the year is 53% for you. And 2021 is only 20%.
So my question is, should we have do you have the opportunity to increase the level of coverage over the next month, given the satisfactory 1 year and charter level. The third question is on the financial charges. So the financial charges in Q1 were quite high. $12,300,000. There were some extraordinary issues, that penalized the financial charges.
Kind of a little bit comment about that. And what is the level of interest charges, which we should expect in the next quarter? A final question is in general, related to the current crisis. Are you observing, or do you expect a more limited availability of banks to finance your business? Thanks.
I'll try to answer the first one and then I'll I'll leave it to Carlos. I mean, as far as the rates, our coverage for, for, 2020 is is good enough to face, of course, a correction of the market. And I would like to say that we are keep looking to increase the such intolerance, moving it in 2021. So we are not only looking to increase the coverage for the remaining part of 2020, but increase also the 21 and maybe not maybe. And on certain cases, even the 22 because we are looking at a few medium term deals.
So if these deals are coming in, the scenario would be changed quite positively. I would say the time charter market itself, it isn't correct. For the moment that much. So we are not losing elements because it was already, let's say, this counted against the spot rate. Let's assume that spot rate was paying you $35,440,000 a day the time charter was paying 20.25.
So even if from 40 is coming down, from 25, 20 is staying there. And we are, we are trying to, to just take a opportunity out of that in which I repeat to cover more than the 2020 and increase the cover on 2021. How deep is going to be the correction due to the unwinding of the storage. This is only very difficult to say. I think also because, clean products they have a deterioration element.
So we cannot stay on the ship forever and has to, they have to be used against crude, which it can be sitting in a set for years. I think the unwind of the storage for clean cargoes and it's food and diesel, which is, but it's not it's not this really the case, the bulk of a carrier's gasoline and a jet fuel. Will be as fast as possible because I repeat you have a commodity problem or you have a commodity quality problem. So you cannot keep the staff on your ship forever.
Yeah. On the financial part, on the, I believe it was mentioned already, during the call that we had the number of nonrecurring items, particularly I mentioned that there were some interest rate swaps, the mark to market and some interest rate swaps, which are not deemed the hedges, effective hedges. Which, passed through our P and L, and the, of course, the the movement in the forward curve of the U. S. Dollar LIBOR had a big impact on this mark to market in the, in this first quarter.
And, of course, we had a nonrecurring effect of around 2,300,000 because of that. And otherwise, our expenses for the recurring financial expenses for the first quarter would have been around $10,000,000. And that is the figure more or less, which I expect going forward. Of course, you know, as we amortized, that the interest expense is full. And also the U.
S. Dollar library came down during the quarter. So we are also expecting to benefit from that to a certain extent because our coverage through swaps is of around 75% of our, investages. So the rest is exposed to to floating rate. So although we have this negative mark to market, we are through this net, we have a benefit from the reduction in the US dollar LIBOR going forward.
And in terms of the financing, the availability of bank financing, it is true that generally, banks appetite for shipping has been falling. It has a lot to do with the, the greater attention by, regulators to shipping exposure because of the big losses that some banks had on their portfolios over the last year in the last financial crisis in particular, and that's extended, over the following years for some of these banks. There were, of course, some big successes at the time, vessels were being financed at crazy evaluations and, at very high LTVs and with very low margins. So it was a recipe for disaster. And a lot of especially German banks had very big losses in shipping.
A lot of them exited shipping altogether. So those are portfolios. Other banks in Northern Europe reduced in any case their portfolios quite significantly, and, and generally, shipping exposures today are more penalized. And in addition, thanks, the leading banks have silenced the fact that recently signed this poseidon principles which, and which they commit to reduce the tier 2 for a footprint of the vessels they file. So they would be looking to finance younger tonnage and all the tonnage will be penalized.
And, so these are all trends which we have seen. It is also true, however, that, the situation is different China. There is a very vibrant that's here in this bank market there. The Chinese, at least in house, some of them are extremely big. Has been moving into the sector and feeling part of this gap.
And also, there are banks in Japan, which have been quite active, on a very selective basis. We are lucky to help with relationship in Japan. So we have been, we have been benefited from benefited from this. Nonetheless, we we also have very strong relationships with the European Banks so we believe we are amongst the fortunate ship owners that we'll be able to find the bank financing still at the attractive conditions. But there is, let's say, a a market that developed and, and that for the smaller, less structured owners, the more speculative owners, The financial owners, the they will have to they'll have to pay pay more for their bank debt.
There are alternative funds, which are financing the sector. There are some smaller banks, which have moved in. But the margins they ask are significantly higher.
Hello?
The next question is from Masimo Bonizole of Equita. Please go ahead.
Good afternoon, Paulo and Carlos. I have three questions. The first, if you can give us an indication of the spot rate realized on average in April? And the second, and how many of your vessels have been employed as a storage facility rather than a transportation services over the past couple of months. And the third, what are the implications for the for your economics of the very recent root changes in the sense that the Asian refiners are ramping up again their their runs, whereas the route to U.
S. For gasoline is clearly declining because of the drop in demand.
Yes. Hello. In terms of the, all the results for the, for the 2nd quarter of the spot vessels. We have, yeah, we have an an idea approximately a year, based on the on the current fixtures, we fixed So we already mentioned we have 62 percent of our total employment dates for the quarter, which are at the, on period contracts. At the rate of 162.
And of the remaining spot days, we have 21%. So 55% of the total spot days available, in Q2, which are at a rate of around 25,000. So far. So this is a very strong result, I would say. And, yeah, so we have it still around, 50% or 45% of our spot base still to be fixed.
But, yeah, in the markets after, speaking at very, very high levels have been softening a bit, but there's still very strong in the middle of Eastern Asia. So, so, yeah, so we so we we expect that if they say at these levels, we will be able to we should be able to confirm at least these these results for the full quarter. But there's a lot of uncertainty. There's a lot of volatility out there. So In terms of the vessels, which have been used for floating storage, we we have 2 currently, which have been charted with the option of using it as a token storage.
I can may add a thing. There is also some not official stores. Let's put it this way. I mean, we fixed the ship for 3 purposes happening to everybody. We arrive at this SARSport, we enter in the March rates and they keep us there for months.
So at the end of the day is a month storage, but it's not officially a storage, but please, I'm doing the mileage rate, and it is the storage. Anyhow, So there is a an official one and a concrete one. I was very remunerative anyhow.
Regarding the implication on the change in the route?
If Europe is going to move I think certainly in the States will take care of South America as of now. The change, the game changer can be, can be Europe in terms of refining capacity in Europe. I I I read a lot of articles where, oil companies are rethinking the refining position. As you know, to close the refinery in Europe is not an easy game because there are many factors which from environmental to short children trade unions for us. But certainly, let's face it.
Europe is a loser here. I in the refining game. And and let's say, former, a former, solid union. So that is going to happen. Who's going to substitute them that would be Middle East and China?
And they say that China certainly started as an idea of producing for ourselves and of course, they exaggerated the capacity. When they started exporting to be a closed car, these banks at Singapore Indonesia, Philippines, and so on and so forth. And that way, I understood that we could start selling to United States, you know, United States because the West Coast of United States is totally insulated from the refining centers in the U. S. Gulf.
So in some cases, is is cheaper for California to buy out of Korean China and to buy from to buy some use. And of course, Europe is in France because Europe, even, we've always, a project of decarbonization on cars and so on, so forth is the biggest diesel market in the world. So, and it will still be the biggest diesel market for quite a prolonged time.
If I may ask another question, regarding more on the strategy, given the increase in the value of the older vessels, does it change anything on your strategy. You you re very recently divested the, the the vessel with the Glencore on TV. You expect more divestment going forward given the
higher value of those vessels? We are certainly sellers on our ownership, but part of it, and I can tell you we have also a lot of interest on them. The problem is that due to flight restrictions, they are impossible to be inspected and really to sell a ship today is a problem, not only because she needs to be inspected by her buyer, and we expect or cannot get there. But we even have to find once we sell a place where we can deliver the ship to the buyer, and change the crew and changing the crew is a real disaster. For instance, we have many engines that we cannot change engines in Singapore because India doesn't want any more people coming in from everywhere including Indians.
We are in place where we can change our Indian people is in an Indian port itself. Otherwise, we we we cannot we we should talk to them somewhere and wait to to see what to do. And it is extremely agglating for not to not for us certainly but certainly for them because we have people who are who did already there time on board. And I have to say, we are fantastic crew because we didn't create any problem. And, but We are really looking forward to go home and they cannot do it.
Very clear. Thank you.
The next question is from Daniela Alibrandi of MainFirst. Please go ahead.
Yes. Good afternoon, everybody. I have just one question as the other 2 have been answered. Given the surgery dynamics we're seeing, the beginning of this year and lower oil prices likely to be here to stay, and this, gives you a benefit on, on rates and also considering that you are in a strong deleverage mode. I was wondering if, there, which would be the safe level of leverage that you could bring you to make some consideration on returns to measure to shareholders or say in other ways, I just wondering if you maybe can I like your dividend policy as you have in place?
Thank you.
Yeah. We we are, we are navigating, let's say, you know, looking at the the weather on a day to day basis and deciding, then what what is the best course, to take? Because, as I mentioned several times in the call, there is a lot of volatility and a lot of uncertainty. Our priority now is to the leverage, but we also we also realized that for some investors, dividends are important. For us, the most important thing.
And when we say that we believe we are seeing that also in the interest of all the investors is is that, is that the company first has a solid balance sheet and then we can start, we can start also thinking about the dividends That is because it would be in a no one's interest for us in a few years' time to come back to the market, doing another tactical increase and debuting, diluting investors again. So, we want to be on a safe side before. We have a balance commercial strategy, to help us in this respect, but also we need slightly lower gearing arrangements for what we have now, 63% it's, it's okay. We are, let's say, in terms of that providers, I would say, we are in mid cycle, PC rates, well above mid cycle, spot and even, 1 year period rates, but the vessel values hasn't moved as much, over the last few months. And therefore, I would say they are still around mid cycle.
We would like bring this beverage ratio probably around 50%, before we start thinking of, of dividends. But we will also take other factors into consideration as how our forward coverage has changed. What are the prospects for the market when we take the decision to pay dividends or not when the time comes.
If I could add something, it's also very much related to the previous question because if we are capable, if we are if we can, if we are repositioned to be more aggressive on the sale of the older vessels and create more liquidity, of course, creating more liquidity, many things could start being easier, let's put it this way.
And you should put 105 vessels under, I mean, I should tell them, asset fraud disposal. So I mean, I'm so sorry for asking again, do you think that, I mean, the can expect something within this year given that, I mean, one out of 5 is and then, and then this call.
So she inquisitive is done.
I see. Yes.
Certainly. Yes. I think 11 out of 5 certainly years to go.
And the matter that, was one of the 5 is already well. Yeah. Yeah. We would say at least another one we expect to be able to to sell this year, if not 2, maybe.
Gentlemen, there are no more questions registered at this time. Back to you for any closing remarks you may have.
Hey, Ben, let me thank you all for following us. Not too much, I can say. I have difficult times, even I guess, thanks a lot. There are difficult times in positive position. So, but I still, I said that we are there, but I think we are very well equipped to navigate them and overtake them.
So I'm not here with Carlos to make easy promises because it's not our case. And thank you again, and to the next to the next Costco. Thank you.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.