Good morning and good afternoon. Welcome to Frontline's Q3 earnings call. This is my first call in the hot seat. I'm both excited and honored to serve our companies in this capacity. Frontline's long-term strategies are well cemented by the board. We run a very professional organization that has easily adapted to this management transition. This has been a volatile quarter and an extraordinary year to date. I'm tempted to bring in black swans. They seem to have become common to the shipping industry. The global COVID-19 pandemic has affected us all. Even though we still need to endure the situation a bit longer, there is now a glimmer of hope on the horizon. Let's have a look at the highlights on slide three. Frontline came into Q3 2020 on a high note. As the quarter progressed, freight rates started to correct.
We still landed the quarter at good returns on a load to discharge basis, earning $49,200 per day on our VLCCs, $25,100 per day on our Suezmaxes, and $12,800 per day on our LR2/Aframaxes. This yielded a net income of $57.1 million, or $0.29 per diluted share. Our adjusted net income came in at $56.4 million, rounded to $0.29 per diluted share. We are very happy to report that Frontline has entered into three term loan facilities of up to $485.2 million. Inger is with me here today, will elaborate more on our financing activities later in this presentation. Far in the Q4, we have booked 74% of our available VLCC days at $22,600 per day. 61% of our available Suezmax days at $12,600 per day, and 65% of our LR2/Aframax days at $13,800 per day.
The booked earnings are a reflection of the challenges this market faces, and although we want to be upbeat on the future, there are uncertainties going forward. Frontline has therefore decided to refrain from paying a dividend this quarter to preserve the company's cash position. I'll now let Inger take you through Frontline financial highlights.
Thanks, Lars. Good morning and good afternoon, ladies and gentlemen. Let's turn to slide four and look at the income statement. Frontline achieved total operating revenues, net of voyage expenses of $178 million in the Q3, also an adjusted EBITDA of $108 million in the Q3. Frontline reports a net income of $57 million, or $0.29 per share, adjusted net income of $56.4 million, or also $0.29 per share in the Q3. The adjusted net income this quarter decreased about $150 million compared to the previous quarter. That was primarily driven by a decrease in our time charter equivalent earnings due to the lower reported TCE rates that Lars went through in the Q3, also more off-hire days in this quarter due to drydock of four vessels. We also recorded a $13.9 million increase in ship operating expenses.
That was mainly due to increase in drydocking costs of $4.3 million, increase in repairs and maintenance of $2.1 million, and we also had $4.8 million additional crew costs due to COVID-19. We also had a reduction of $12.4 million as a result of that three in the Q2. We'll see. Let's take a look at slide five. We have completed loan facilities in a total amount of approximately $920 million during 2020, $725 million out of that was going to refinance four existing loan facilities, which were due in December 2020 and the H1 of 2021. Also we have completed two financings of $196 million to finance new vessels. All these loan facilities were done at very attractive terms with LIBOR plus 190 basis points or even better, maintaining our competitive cost structure.
In November 2020, the company entered into three new term loan facilities in a total amount of $485 million, where two of these facilities were to refinance two existing term loan facilities maturing in the Q2 of 2021. The third facility was in an amount of $133 million to partially finance the four LR2 tankers under construction. The details on the refinancing of the two facilities were first, that we had one senior secured term loan facility done with a strong banking group consisting of the largest global shipping banks in an amount of up to $250.7 million to refinance the former $66.5 million facility which was maturing in April 2021. The new facility matures in May 2025 and has an amortization profile of 18 years.
The facility was fully drawn down in November 2020, and $236.8 million of the refinanced facility has been recorded as long-term debt as of September 30th, 2020. Further, we entered into one senior secured term loan facility with ING and Credit Suisse in an amount of up to $108 million to refinance the $109.2 million facility which matured in June 2021. This new facility matures now in November 2025 and has an amortization profile of 17 years. The facility was also fully drawn down in November 2020, and $78.6 million of the refinanced facility has been recorded as long-term debt as of September 30th, 2020. The slide shows debt maturities prior to refinancing in the gray columns and following the refinancing in the blue columns. You will notice that following the refinancing, we have no material debt maturities until 2023, and the debt maturities from 2025 onwards have increased substantially.
Lastly, we also entered into a senior secured term loan facility with SEB and Synnor in an amount of $133.7 million to partially finance the remaining cost of $142.3 million for the four LR2 tankers under construction. The facility will have a tenor of 12 years and an amortization profile of 17 years. Following that, the new building program is fully funded. Let's take a look at the balance sheet on slide six. The main happenings in the Q3 affecting the balance sheet were that we entered into the two new loan facilities, which I went through, to refinance the two loan facilities with total balloon payments of $324.4 million, which were due in April 2021 and June 2021. This has led to that short-term debt and current portion of long-term debt decreased with $311 million, and long-term debt increased with $283 million.
Further, we paid $97 million in dividends, and we earned adjusted net income of $6.4 million. At the end of September 30th, 2020, Frontline had $432 million in cash and cash equivalents, including the undrawn amounts under our senior secured loan facility, marketable securities, and minimum cash requirement. Let's take a closer look at the cash break-even rate and the OpEx on slide seven. We estimate that the average cash cost break-even rate for the Q4 of 2020 will be approximately $21,900 per day for the VLCC, $20,400 per day for the Suezmax tankers, and $15,700 per day for the LR2 tankers. The fleet average estimate is about $19,500 per day. These rates are the all-in daily rates that our vessels must earn to cover the budgeted operating costs and dry dock, the estimated interest expenses, TCE payable higher installments on loans and G&A expenses.
The Suezmax tanker cash cost break-even rate in the Q4 of 2020 is impacted by that we would dry dock four Suezmax tankers in the Q4. We'll also dry dock one LR2 tanker in the Q4. As already discussed, the Q3 OpEx was affected by increase in dry docking costs, increase in repairs and maintenance, and additional crew costs due to COVID-19. As usual, we would like to draw your attention to Frontline's cash flow generation potential. In the graph on the right-hand side of the slide, we have shown incremental cash flow after debt service per year and per share, assuming $10,000, $20,000, $30,000, or $40,000 per day in achieved rates in excess of our cash break-even rates. These numbers include vessels on time charter out. We are looking at a period of 365 days from October 1st, 2020.
As an example, with a fleet average cash cost break-even rate of $19,500 per day and assuming $30,000 on top of the average fleet TCE, then the fleet TCE would be $49,500 per day, and Frontline would generate a cash flow per share after debt service of $3.42. With this, I leave the word to Lars again.
Thank you, Inger. Let's move over to slide eight and recap the Q3 in the tanker market. Global oil demand bottomed in May, and in June we were already in recovery and demand surpassed supply amidst deep cuts by OPEC and other key producers. The oil market switched from inventory build to inventory draws. This can be seen on the slide at the bottom left with the yellow bars. Subsequently, OPEC+ increased production slightly but kept the cap significantly below Jan 2020 levels and the draw cycle continues. When in draw mode, it's normally the expensive barrel that draws first, and this is typically floating storage. The majority of OPEC cuts have been geographically centered around the Middle East Gulf. This has led to recovering economies, in particular in Asia, sourcing their oil from further afar. This incurs longer ton-miles.
In the end, this has favored the VLCC market as these vessels offer the best economies of scale. We also saw continued demand for product storage during the quarter, and specifically jet fuel storage, keeping LR2 markets relatively firm. This development is well reflected in our results for the quarter. Let's move to the next slide nine, and look at the fleet and order books. Tankers have continued to enter the market during the quarter, but many have been engaged directly from yard in product storage. This has limited the impact on crude spot markets. There has been reports of a significant delivery backlog due to the COVID-19 related disruption, but this backlog seems to have been cleared. There are recent speculations of mammoth orders in clips of five and 10 vessels being placed in Asia.
These are yet to be confirmed and not a part of this data set. As the chart indicates, there is room for fleet growth in both 2022 and more so in 2023, assuming 20-year-old ships leave the competitive spot markets and oil demand develops on trend in that time horizon. Frontline follows these developments closely, leveraging on our extensive business platform, there is still a way to go to reach any conclusions. Let's move to slide 10, where we try to explain one of these market mysteries. We have a record number of vessels, literally in all asset classes, reaching or passing the 20-year mark. Average recycling age for tankers is very close to this age, sometimes depending on the underlying freight rates.
We are now in the market with relatively high volumes of inventory still, in addition to a high amount of sanctioned oil volume. This seemed to have supported the demand for tankers in the tail end of their effective lifespan. In the chart below, we illustrate this by comparing the average price achieved on tonnage transacted aged close to 20 years and the reported price achieved for recycling. The disconnect is pronounced and likely explains the muted recycling activity. Selling for alternative use is currently the preferred option for the owners. I think it's important to note that for the competitive spot market where we operate, we are under strict scrutiny from vetting policies, and these vessels play an insignificant part of those balances. Let's move on to Frontline and our approach to ESG. Efficient, safe and transparent operations have been Frontline's core values for years.
Efficient in order to save costs, but also fuel costs. Safe in order to safeguard our seafarers, the environment, and our physical assets. Transparent in order for the investing community like yourselves to easily understand our business model. What we have found as we have familiarized ourselves with the relevant ESG framework for our industry the last couple of years, is that for us it's more about how we structure our communication on policies and routines we already have in place, rather than enforcing completely new routines or altering the way we conduct ourselves. A central part of our business model is for technical management to be clustered or shared, if you wish, with other listed companies we are familiar with. In this, we gain economies of scale as we share knowledge and practices for more than 230 vessels.
This collaboration gives us an impressive leverage to shape and influence the standards we expect to be met, both on social aspects and on governance. We also share synergies when it comes to applying technology to optimize performance, both in the traditional manners as in speed and consumption, but also with respect to our environmental footprint. Frontline is, although potentially a bit under-communicated, very well positioned to comply with the stricter environmental, social, and governance framework the shipping industry has to get comfortable with going forward. Let's move to slide 12 and the tanker market outlook. Increased oil supply is now key in order for the tanker market to balance. We were shielded for a period as tankers were employed by storage. Now we're dependent on volumes to come to the market and normal trading patterns resuming.
The demand for tankers is still capped by the OPEC cuts. We find it extremely encouraging to see oil prices perform strongly as the volumes offered increase significantly, particularly by the Libyan exports that resumed in October. This, in isolation, suggests oil demand might actually be firmer than the market in general expects. Looking at the benchmark Brent oil curve, we see the same tightness expressed in a dramatic move from contango or carry, if you like, to a near flattening of the curve. This signals inventory draws to accelerate and oil markets potentially finding a balance at an earlier stage. It's obviously a bit early to call, just to explain how these mechanisms work.
If we are drawing in a territory of 3 million to 4 million barrels per day from inventories now, that's the volume needed from producers once inventory levels normalize, which in turn can be translated into increased tanker demand. Let me sum up on slide 13. Frontline is financially strong. We have no material debt maturities until 2023. The company is very well positioned towards ESG-related expectations. Despite extended regional lockdowns, oil demand continues to recover. Crude oil price action indicates a change in oil market sentiment, and we expect freight market volatility to increase going forward. Thank you. We can move on to the Q&A.
Thank you. Ladies and gentlemen, we now begin the question and answer session. As a reminder, if you wish to ask a question, please press star one on your telephone. If you wish to cancel your request, please press the hash key. Once again, please press star one if you wish to ask a question. Your first question comes from the line of Randy Giveans from Jefferies. Please ask your question.
Howdy, team Frontline, and congrats again on your promotion, Lars.
Thank you very much, Randy.
First question around the dividend. You brought it back last year, paid a $0.10 dividend despite a loss following 3Q 2019 results. You increased this to 40% or, sorry, 70% of net income following the Q1, fell in the Q2, and now you cut it to zero despite a $0.29 gain. I guess why has the dividend payment bounced around so much over the last year, and what will cause you to reintroduce the dividend? Clearly, it's not just positive net income.
No, you absolutely right. It's not only positive net income. We work in an extremely volatile market, and we also normally have quite a good visibility on our earnings going forward. For Q3, the earnings were good, but our visibility or when we look into Q4, it doesn't look too great. We are in the middle of a global pandemic, and the uncertainties are quite great going forward. We decided to keep the cash, but we'll obviously return paying dividends the minute we see that the market has stabilized and potentially is ready to return to levels where we see that suited.
Got it. Okay. More of just a subjective outlook for the market.
Our dividend policy is stated in such a manner that we like to use our discretion when we deem it needed. In this particular case, we found that to be prudent to do so.
Got it. All right. I guess one more question for your quarter to date rates. The VLCC Suezmaxes down from the Q3, for the Q4, which makes sense. However, your LR2 rates are ticking up, they're higher. Maybe what caused this, and how many of your LR2 product tankers are operating in the crude trade?
Well, we have eight of our LR2s are operating in the crude trade. We have 10 operating in the clean, of which one is on time charter. The estimated kind of time charter return for Q4 is probably, in this instance, more colored by the returns we've seen on the clean side.
Okay. Do you have an outlook for crude versus products here in the next 6- 12 months? Which kind of sector do you see most or more attractive? I think you mentioned neither are very attractive.
Well, it's a very good question. The thing is that we've come through seven quarters where the crude part of that equation has outperformed the clean trade. It's only the last quarter and a half where the clean product tankers have actually outperformed, significantly. It's really difficult to call. The dirty Aframaxes are obviously now being penalized by the fact that Russia has cut quite severely, together with OPEC. That's hurt the North Sea barrel or the Baltic barrels coming out of Russia. I think I would wait to make that call until the trade flows have normalized.
Got it. All right. Well, I'll let you go. Thanks so much.
Thank you.
Thank you. The next question comes from the line of Chris Tsung from Weber Research. Please go ahead, ask a question.
Hi, Lars. Hi, Inger. How are you?
Hi, we're good. Thank you.
Great. Good to hear. I wanted to ask about the decision to sell SeaTeam Management. Could you expand on that a little bit more and would you guys also look to divest other JVs like your position in Clean Marine?
Well, first of all to take the SeaTeam, to look at that. SeaTeam has been a really good company for us to have more or less in-house for a period of time. It's obviously not core business. Our business model is outsourcing services like SeaTeam were offering. It's obviously given us great knowledge and it's also made us understand the markets, or the technical management market quite well. Us deciding to divest from that was more related to an opportunity that came rather than something that we strategically wanted to do quickly. An opportunity arised, and we found a solution where OSM will actually continue to run SeaTeam almost in its original form and take care of our vessels that are under management with them, with the same mindset that they were already inside SeaTeam.
It's more like keeping to our strategies or keeping to our original strategy. With regards to Clean Marine. Clean Marine is an investment we're still holding. We're not an active owner in that. We were more like having a listening post. I think I will leave that. The scrubber market or EGCS market is a little bit dormant, as you probably understand. The company is still working. We're just basically looking at it more as a passive investment.
Okay, thanks. Yeah, that makes sense. Just looking at the, not so much guidance but fixtures to date in Q4, the LR2s are a little bit hard and Suezmaxes hasn't typically happened this way and I guess how much of it is driven by the number of clean tankers versus dirty or I guess what factors are allowing the Suezmaxes to trade below LR2 or LR2s to trade above the Suezmaxes for Q4?
Well, as I indicated when I summed up Q3. Q3 was a bit of an atypical quarter when it comes to how freight rates develop because in a normal market, Suezmaxes will perform a little bit below VLCCs and then LR2 Afras will follow suit a little bit below that. This year or this quarter, Suezmaxes have actually underperformed VLCCs by more than 50%. This is a market look. It's not for us in particular. With the OPEC cuts, we've seen that the longer ton-miles have been prioritized or grown. This has put the VLCCs in a much greater position due to their economies of scale. This has penalized Suezmaxes in particular.
I think that the rate is a reflection of how severe the situation has been in the Suezmax market where kind of little opportunity to trade during the quarter and quite harshly hit the markets. The LR2s have, throughout the quarter, outperformed literally all the other segments apart from the VLCCs. This is obviously due to their ability to store clean products and in particular jet.
Okay. Storage for clean trade. Okay. Just one last quick question on dry docking. I know, when you prepared, you talked about the dry dock schedule for Suez and one for LR2 in Q4. Can you tell me the number of Suezmaxes in Q4 that are going to dry dock?
The number in Q4?
Four Suezmaxes.
Yes, four.
One LR2.
one LR2, yeah.
Great. Okay. Four Suez, one LR2 in Q4. Thank you, guys. Have a great day.
Thank you.
Thank you. Your next question comes from the line of Jon Chappell from Evercore ISI. Please ask a question.
Thank you. Good afternoon, Lars and Inger.
Good afternoon, Jon.
Inger, first question for you, just quickly on the dividend. Completely prudent given your Q4 rates to date, but you guys are also able to refinance a lot of debt at very good terms at a very difficult time in the market. Were there any restrictions on dividend payouts or payout ratios as part of those new facilities that may have played a role in the decision to suspend this quarter?
No, we don't have any dividend restrictions in our loan facilities. That has not made any difference.
Great. Okay. Lars, you're joining at an interesting time, and Frontline has a legacy of being aggressive when others can't be. You're retaining cash, through no dividend. Inger's done a great job shoring up the balance sheet. You've mentioned the uncertainty and obviously the pandemic. Asset values dropping pretty aggressively. How do you view 2021, in your role and in Frontline's role, in the industry as far as acquiring assets, chartering in assets, just adding more leverage when others are just worried about survival?
Well, as you said, it's in our kind of DNA to be aggressive when others can't. We also have a very strong shareholder in our backs. It's obviously something we're very excited kind of looking forward. Right now, I think the uncertainties are a little bit too great, to be quite honest. Although we are upbeat, there are some risks kind of looking into the next couple of quarters. We think opportunities will probably arise, as we churn and at these levels, particularly on the freight side. I think people will find that the Frontline DNA hasn't really changed even if I'm in hot seat, let's put it that way.
Okay. Appreciate it. Thanks, Lars. Thanks, Inger.
Thank you.
Thank you. Your next question comes from the line of John Riordan from, he's an independent investor. Please ask a question.
Hi. Thanks for taking my call. Two things. One, you mentioned the unwind from the contango storage situation. Could you tell us what you think the percentage of that has occurred? Secondly, Libya has gone from basically not exporting much of anything to, I read the other day, it's over 1 million barrels a day. Is that providing some support for rate-wise for the Suezmax market in the Eastern Mediterranean?
Thank you. Two really great questions. Firstly, the floating storage. In our presentation on slide eight, we have some data there from Clipper Data. The way I look at, or we look at storage is, we look at vessel storing for an extended period of time. So we've put the bar at 21 days. Those levels peaked north of 100 million barrels. Now we're down to 60 million barrels, so there is a 40% decrease. How much oil, when that is finished is difficult to tell because there's also something about the structure of not only the crude curve, but also of the market itself. As I also think I mentioned, we have a record amount of sanctioned barrels or sanctioned production in the world, which probably calls for a bit more floating inventory or inventory, than we normally would observe.
It's on its way down, and I think we've at least taken off 40% to maybe even 50% of the floating storage. With regards to Libya has been really exciting and quite surprising, actually. They've managed to ramp up, and I think the last numbers I saw was up to, they've been able to add 1.2 million barrels per day. This has indeed made it far more interesting to be a Suezmax charter than there has been for the last couple of months. We do see a lot more cargoes appearing in the market. We also see opportunities arising. A lot of these barrels are, or have been for a while now actually, been going east. That is a perfect fit for the Suezmax size of vessels. Yes, it has supported the market in the Mediterranean significantly.
Okay. Thank you very much.
Thank you.
Thank you. Your next question comes from the line of Greg Lewis from BTIG. Please ask a question.
Yeah. Thank you, and good afternoon. Lars, congrats on the position. I guess I just had a kind of a broad question and, it was kind of talked about, people focused on the dividend, rightfully so. I guess I'll ask it a differently. As I look at Frontline and, the company looks like it trades. Depending on what valuation metric, I know you don't like to talk about NAV, but we could look at something more Wall Street-y, like EV to EBITDA, and the company's at a premium, and the company's been able to leverage that premium to grow and be opportunistic over time. Just curious, what do you think drives that premium?
To what drives our relative pricing to our peers, is that-
Correct. If you wanted to go out and buy a company, it's good to be at a premium if you want to do it. Just curious how you think about that, because it definitely gives you opportunities. Just curious how you think about that.
Well, I think there are many factors that decide on our pricing. Some are maybe not in our making. We're a preferred stock. Our liquidity is high and so forth. We also have extremely low cash break-even levels. We have a relatively high leverage, which gives you relatively quickly a bang for the buck whenever the market moves. Historically, we have proven to be quite rewarding towards our shareholders. I know we've probably said this every quarter, at least ever since I joined Frontline in 2015, but when you invest in Frontline, you invest together with our main shareholder. You're not a sole investor in a big corporation. His history for being interested in returns on his dollars is as well known. I think that's part of it, I would assume, but it's a difficult number to break down.
Okay, great. Just as I think about that, as the company's out there, and clearly you laid out the way to move forward and that, "Hey, the market's not good now, but there's reasons to be constructive in the out years." Is the company, and realizing you have a pretty attractive fleet right now, all good age, big, should we be thinking, are there going to be opportunities to come? Is there any M&A opportunities, do you think, that could develop over the next six to 12 months? It's been all the same players for the last five-plus years, and you don't really see any potential for consolidation?
There is always potential for consolidation, but there is always, then again, the question of price and opportunity, of course. The markets have actually consolidated, but maybe not in the way that the investors would want to do, and that's more like in bigger pools are being built and the trading entities are growing and so forth. The amount of sole owners trading three or four ships has maybe not reduced, but at least their tonnage have been consolidated in a way. With regards to M&A, as you know and I know, there's always kind of the usual opportunities or suspects or whatever you like to call them. We are constantly monitoring them, and we're always in the market to look at opportunities, but maybe not actually in this instant, looking at how the market is performing right now.
Okay. Hey, thank you very much. Have a nice day.
Thank you. The next question comes from Randy Giveans from Jefferies. Please ask your question.
Hey, back for more with two quick modeling questions. First, for the loan facilities, we were done at LIBOR plus 190 basis points, so certainly pretty impressive there, Inger. Following those recent refis, is now the plan to maybe repay the remaining $60 million on the Hemen facility? Also, with the new recent refis in place, what is your weighted average interest expense and debt amort schedule through 2021, in terms of quarter repayments?
Yeah. Did you ask about the ordinary installments? Was that the question? Your last question?
Yep.
Yeah. Okay. In 2021, the ordinary installments based on the current loan facilities we have is approximately $160 million a year.
Okay.
Evenly split between the quarters. It will be some slightly increase in these ordinary installments in 2021 as we then take delivery of the four LR2 tankers and draw down on the new six in SuMi TRUST facility, which we talked through earlier in the presentation.
Yeah.
Your other question was respect to the Sterna facility, was that the other question?
Yeah, the $60 million remaining on the Hemen facility.
We do have an agreement there in place saying that it matures in May 2021. We plan to follow that agreement, and then repay in May.
Got it. All right, then for the total weighted average interest expense, I see your interest expense came down pretty meaningfully from the Q2. Just trying to see where that runs up to in the Q4.
Okay. In the Q3, I think the average cost was around 2.3%, and I think now in the Q4, it's slightly lower, but around the same level.
Got it. All right. One more last modeling question before we can all get to Thanksgiving, I guess, here in the U.S. For the operating expenses, they had a huge tick up in the Q3. I know you said most of that was due to some dry docking, some one-time crewing costs. Just trying to get a sense for a good run rate there in the Q4 in 2021.
Yeah. As I said, it was a lot of one-time there in the Q3. We have pointed to in the press release that we will also have a kind of one-off in the Q4 with respect to this crew cost in relation to COVID-19 of $1.5 million.
Yep.
That is, of course, down from this quarter, which was $4.8 million. We also have stated that we will have five vessels dry docked in the Q4. I don't think you can expect that the cost will come any down from the Q3 with respect to dry docking in the Q4. Rather, it will probably be a bit higher. Otherwise, I don't think we will have any extraordinary items in Q4. With respect to 2021, I don't foresee that to be extraordinary in a way. The only exception or the separate I have to make is, of course, the development of the COVID-19 pandemic in a way. We can't really foresee that, but it seems like the vaccine is coming in place, and everything should be pretty normal after a while there as well.
It shouldn't be any cost related to crew changes and that sort of thing going into 2021.
Sure. Let's hope so. That sounds good. Thanks so much. Have a good day.
Thank you.
Thank you. Your next question comes from the line of George Berman from CL Securities. Please ask your question.
Good morning, gentlemen. Good afternoon. Thanks for taking my call. I have got a few questions. Number one, you used to be predominantly in the VLCC and Suezmax space. Recently, in the last few years, you moved into the LR2 Aframax area. Can you comment on the reasoning behind that, number one?
Yeah. Kind of over the years, the Frontline fleet has diversified into three key or core segments. The LR2 Aframax market, or rather the LR2 market, is like the VLCC of the clean trade. There has been, for a long period of time, been a development globally where refining capacity has been growing rapidly in the Middle East and also in Asia at the cost of refining capacity in North America and in Northwest Europe. Obviously, that case stumbled a bit on the fracking revolution, meaning that U.S. refineries ended up having a relatively cheap feedstock and were able to maintain kind of run rates and margins for a long period of time. The investment initially was out of the displacement between supply and demand on the product side.
This is becoming kind of increasingly current again, with India claiming to double their refining capacity within a relatively short time. We see the tremendous growth of refining capacity in China, meaning that China could become a significant exporter of petroleum products. At the same time, as we see now, refineries in Europe have struggled and are kind of to a large extent shutting down. That kind of is and was the key strategy behind. What we experienced, obviously, was that the clean markets didn't perform as expected, and the LR2s got engaged in the dirty trade, so drawing a little bit below half the fleet into the dirty trade. These ships can be cleaned up and can move back to the LR2 market again.
Okay, great. Next question. You did a pretty big deal last year with Trafigura. I believe it was for 10 Suezmax tankers, pretty new ones, 2019 built. Are there still several under time charter that you time charter back to Trafigura, and at what rates are those?
There's still five of them on time charter back to Trafigura with a profit-sharing agreement. That's at the level is $28,400 per day.
They are good earners for you at the moment, even though you don't profit share with them, right?
Absolutely.
Okay. Concerning scrapping. You mentioned in your initial remarks that it looks like with the current rate environment. There are many companies, if they still transport, they would do so at huge losses. Do you see any openings in the scrapyards recently that have enabled companies to scrap? You made a remark, other than scrapping, what would some company do in buying a 20, 25-year-old VLCC or Suezmax tanker?
Well, firstly on the scrapping, as far as I understand, we like to call it recycling. As far as I understand, the recycling plants were also heavily affected by the global pandemic, meaning that they had to shut down. There is an increasing activity in the recycling market right now, and we see more and more vessels being sold for recycling, but not necessarily in our asset classes, to put it that way. There are a couple of Aframaxes that have gone, but very few VLCCs and Suezmaxes reported. As I mentioned in my presentation, there is a disconnect between the price these vintage vessels are able to achieve for not necessarily trading, but for storage and other activities than what the recycling company is willing to pay you for the steel.
With regards to what these tankers are used for, I think I would be a little bit cautious to speculate. Obviously there is oil that is transported outside of the normal spot market. As I mentioned, there are quite a large amount of sanctioned barrels in the world right now, and these need somewhere to be stored.
Okay. Lastly, maybe you can comment again. I read that you're divesting your ship management division, and you look to book about a $7 million gain here in the Q4 on the sale. What are the reasoning behind divesting this division, essentially taking your in-house ship management to an outsourced version? Is that cost efficient for you, more cost efficient?
Well, let me explain a little bit on our model. We do have in-house technical managers, but we do outsource the crewing and effectively the day-to-day handling of the vessels. It means that we have an organization in-house, a technical management department, a relatively large one actually, that oversee third-party technical managers. SeaTeam could be looked upon as a third-party technical manager. Indirectly, we were owning a company that we normally just outsource to put it that way. This maybe explains my comment about it not being a core business. Divesting it was basically due to the fact that OSM came in and offered us an opportunity to continue to run the company. The company will continue to be run in very much the same manner and to the same expectations as we had when it was directly owned by us.
We obviously buy the services of that company going forward, just like any of the other third-party technical managers that we employ.
Okay, great. One last one, if I may. What is your average interest rate on the debt you're absorbing at this point in time? You mentioned that you had a very good debt facility there with a very good interest rate. With rates basically worldwide close to zero, I'm wondering what kind of an advantage is that for your company at the moment, and how long are those rates locked in for?
I'll let Inger answer that question.
The new facilities which we have put in place now, we went through with respect to the tenor of those facilities earlier in the call. That was locked in for, as the margin was locked in for five years on those facilities. Obviously we have also shown our, let's say, debt maturity profile in the presentation, so you can see how this is going to mature going forward at different facilities. The average rate that we are, let's say, having on our loans today is the 190 basis points in margin and LIBOR on top of that, which is a very low level now. The 3-month LIBOR is around 30 basis points or 25 basis points in that area. That is what we are looking at.
In addition to that, of course, we have this Sterna facility, which we talked about a bit earlier in the presentation, where we have a rate of 6.25%, which we pay on that $60 million. That is a very small part of our total loan portfolio, so it doesn't really mean so much for the average in a way.
If LIBOR rates rise, your interest rate costs would also go up a little.
Yeah, it will. We do have interest rate swaps in place as well for $550 million on a certain bit higher level than the 25 or 30 basis points, but even though very competitive. We are not, let's say, totally exposed to rates in LIBOR rates, but to a certain extent, yes.
Yeah. Maybe one quick last one. Concerning scrubbers, is your entire fleet now outfitted with scrubbers where necessary?
No. We have about two-thirds of our fleet is fitted with scrubbers as it is right now. We kind of slowed down the pace of scrubber installing with the diminishing decommissioning, kind of scrubber margin, to put it that way, the spread between high and low sulfur fuel.
Okay.
Not to say that we could easily reinitiate that program in the future.
All right. I've recently heard reports about slow steaming. Would that be a positive effect on day rates and tanker demand?
It could be. I'm not sure what context you're thinking about here. First of all, during the laden leg, when we are in ballast, we can many times decide our own speeds. In this earning environment, we will slow down as much as we can, to be quite honest. There is also a general discussion around when we measure our carbon footprint, how slow speeding could play a role in order for the tanker fleets to comply with the goals of IMO going forward. This is still kind of a bit up in the air. I must admit we haven't really looked deep into that as of yet.
Okay, great. Thanks very much for your time here.
Thank you.
Thank you. As a reminder, once again, if you wish to ask a question, please press star one on your telephone, and if you wish to cancel, the hash key. Star one to ask a question. There are no further questions at this time. Please continue.
Okay, I just wish to say thank you very much for this call, and thank you for listening. Happy Thanksgiving to the ones joining us from the U.S. Stay safe. Thank you.