Nov 14, 2013
Executives
Angeliki Frangou – Chairman and CEO Ted Petrone – President Leonidas Korres – CFO
Analysts
Justin Yagerman – Deutsche Bank Michael Webber – Wells Fargo Jon Chappell – Evercore Chris Snyder – Sidoti & Company
Operator
Thank you for joining us this morning’s Third Quarter 2013 Earnings Conference Call for Navios Maritime Acquisition Corporation. With us today from the company are Chairman and CEO, Angeliki Frangou; President, Mr.
Ted Petrone; and Chief Financial Officer, Leonidas Korres. As a reminder, today’s conference call is also being webcast.
To listen to the webcast, please visit the Investor Relations page of Navios Acquisition’s website at www.navios-acquisition.com. Before I review the structure of this morning’s call, I’d like to read the Safe Harbor statement.
This conference call could contain forward-looking statements under the meaning of the Private Securities Litigation Reform Act of 1995 about Navios Acquisition. Forward-looking statements are statements that are not historical facts.
Such forward-looking statements are based upon the current beliefs and expectation of Navios Acquisition’s management and are subject to risks and uncertainties which could cause actual results to differ from the forward-looking statements. Such risks are more fully discussed in Navios Acquisition’s filings with the Securities and Exchange Commission.
The information set forth herein should be understood in light of such risks. Navios Acquisition does not assume any obligation to update the information contained in this conference call.
Thank you. I’d now like to outline the agenda for today’s call.
First, Ms. Frangou will offer opening remarks.
Next, Mr. Petrone will provide an operational update and an industry overview.
After Mr. Petrone, Mr.
Korres will review Navios Acquisition’s financial results. Finally, we’ll open the call for question-and-answer.
And now I’d like to turn the call over to Navios Acquisition’s Chairman and CEO, Ms. Angeliki Frangou, Angeliki?
Angeliki Frangou
Thank you, Laura, and good morning to all of you joining us on today’s call. I’m pleased with our results.
We grew revenues by 41% and EBITDA by 22% over the third quarter of 2012. As a result of the strong performance, we declared a quarterly dividend of $0.05 resulting in a yield of 5%.
Turning to Slide 3, we have a fleet of 44 vessels, of which 34 in the water and 10 vessels are to be delivered. Today, Navios has one of the largest product tanker fleet in the water among our U.S.
listed peers. In addition, as we will discuss in a moment, we have recently purchased three VLCCs with an average age of approximately three years.
Navios has thus established strategy. We try and provide stable flow while also capturing the market recovery.
Our fleet has long-term cash flow visibility as we are virtually at 100% fixed for 2013 and 74% for 2014. Our charters with strong counterparties and the profit sharing mechanism creates our profit balance of stable cash flow and our cash flow fencing [ph].
In fact, 86% of our entire contracted revenue fleet and 90% of our product tanker contracted revenue fleet has profit sharing. For every $1,000 of profit share, we receive $9.5 million in free cash flow or $0.07 per common share annualized.
Turning now to Slide 4, Navios has agreed to acquire three VLCCs for an aggregate acquisition price over $163 million. We acquired these vessels for a number of reasons.
The purchase price is near the all-time low on an inflated adjusted basis with deadweight tons of VLCCs. Our entity dry is only part of the reason we invested in the VLCCs.
In the VLCCs, our cash flow positive in today’s low rate environment. Our daily breakeven cost for result including all costs is $19,440 per vessel per day.
These rates [indiscernible] compare our breakeven cost to the available rate. The current one year time charter rate is $20,000 per day.
And the current spot rate is $39,881 per day. With market recovering, rates should return back to historical averages between approximately $50,000 per day for 10-year average rate and $41,000 per day for 20-year average rate.
And surprisingly given the $19,440 they just breakeven there, the company result have mixed cash flow generation should remarkably then to historical lows. Now let’s turn to Navios strong competitive position.
Navios have positioned as very active [indiscernible] market. Year-to-date we have raised $320 million in equity market and in finance on existing notes with the newly offered $610 million of 8.125% Senior Secured Notes to position, Navios will strengthen the balance sheet.
As well as most recent bond refinancing, lowering our coupon by 50 basis points and extended the bond maturity by about four years to the fourth quarter of 2021. Also we have delevered the balance sheet by 19.9% since December 31, 2012.
On a pro forma, basis for this recent bond financing, we have delevered the balancing by around 17%. Additionally, our relationships had granted us access to distressed deals.
We have acquired 15 vessels year-to-date, whereas the sales transaction also provides a compelling opportunity to acquire vessels with minimal investment. Our brand name continues to attract quality counterparties and Navios is well positioned to obtain 2013 run rate EBITDA with $115 million, with an incremental EBITDA of $39.3 million that Navios will earn from the contracted vessels, 14 of these are in 2013 and three will deliver in 2014.
Our profit sharing mechanism for our product tankers provides Navios with $4.4 million for the nine months ended 2013. Again 86% of our entire contracted fleet and 90% of our contracted product tanker fleet includes profit sharing mechanism.
Slide 6 demonstrates that our vessel deliveries are increasing EBITDA and building cash flow. During 2012, our available days were 43% and our fleet by 36%.
During 2013, available days will grow by 67% and our fleet will grow by 79%. These results significantly increase in EBITDA.
EBITDA has grown by 33% in 2012 over 2011. On a nine-month basis, the 2013 over 2012, EBITDA has risen by 23%.
I would also emphasize that this growth have been visible with Navios identifying the market opportunities years ago still focus of creating scale and physical mass in technical and commercial operations while takeover investments with previous charters from more than 2,000 parties. Slide 7 presents our CapEx requirement and delivery schedule of our fleet year-to-date.
As the fleet is [indiscernible] CapEx. For the 10 vessels to be delivered, we need to bring a total of $131.4 million.
Of this amount, about $22.6 million is due in 2013 and a $102.7 million is due in 2014 as we take delivery of these vessels. $6.3 million is due in 2016 as we take delivery of another two vessels.
Slide 8 demonstrates our liquidity, with the total liquidity of $148 million at the end of third quarter, including $108 million in cash. Our balance sheet must be considered growth in the context of our capital requirements.
We have enough cash on hand to freely fund, the remaining balance of our new building programs on secondhand vessels. Also we have done refinancing and we have no significant debt maturities until the fourth quarter of 2021.
We expect the leverage ratios, which is in operating as we deliver cash flow benefit our new built vessels keeping in water. Indeed, our net debt to capitalization of 61.6% at the end of the third quarter is a significant reduction over the last few quarters.
Slide 9 shows our cash flow cushion from our low breakeven. 99.5% of our fleet is contracted for 2013 and we will earn in average contracted daily charter-out-rate of $20,124.
For 2014, 74% of our fleet is contracted out and we will earn in average contracted daily charter-out-rate of $19,320. As to our all-in costs or fully loaded cost is $17,143 per day for 2013 and this will be reduced by a $1,000 to $16,155 per day in 2014.
Actually no agreement revenue cost include drydocking, general and administrative expenses, interest expense and capital repayments. And at this point I would like to turn the call over to Mr.
Ted Petrone to take you through the fleet and the industry section. Ted?
Ted Petrone
Thank you, Angeliki. Please turn to Slide 11.
With the recent acquisition of three modern VLCCs, our fleet has grown to 44 vessels. Year-to-date we have committed $505.3 million to acquire 15 vessels; nine MR2s, two chemical tankers and four VLCCs, all at favorable prices.
Five MR2s and the two chemical tankers are on chart, two MR2s buildings will deliver in 2014 and two in 2015. One VLCC has replaced a 1996 VLCC, earned an existing current for the remaining duration was about 3.2 years at $42,705 a day daily net.
In the date we have taken delivery of 13 tankers. Two LR1s, ten MR2s, two chemical tankers and one VLCC.
Please turn to Slide 12. Navios Acquisition’s diversified fleet consists of totaling 44 vessels, totaling 5.1 million deadweight.
The fleet consists of four chemical tankers, 21 MR product tankers, eight LR1 product tankers and 11 VLCC crude tankers. All the fleet statistics includes vessels in the Asia Pacific region.
Navios Acquisition currently has 34 vessels in the water with an average age of 4.6 years. Since December, our product tanker fleet in the water has grown by 120% to 22 and the total fleet in the water grew 79% to 34 vessels.
12 product tankers have delivered in 2013, five will be delivered in 2014 and two in 2015. Available fleet days will grow from 9,672 in 2013 to 15,879 in 2015, a 64% growth in available revenue days.
Turning to Slide 13. Navios Acquisition continues the Navios Group policy of locking in secured cash flow with credible counterparties.
Year-to-date we have chartered out 12 MR2s for total of 16.5 years, similarly we have extended the charters of six LR1s for nine years and four chemical tankers of six years contract. All 22 vessels are contracted to high quality counterparties and rates above our fleet cash breakeven with upside potential to profit sharing agreements.
Included in new acquisitions, we have fixed 99.5% of capacity for this year. In what is expected to be an improved condition next year, we have fixed 74.1% and 42.3% of our vessels in 2015.
90% of our product tanker fleet now has profit sharing. The average daily chart out rate for our fleet is $20,124 per day for 2013.
The rates of 2014 and 2015 are $19,350 and $22,641 respectively. Please turn to Slide 14.
Our chartering strategy revolved around capturing market opportunity while also developing dependable cash flow from the diverse group of first class charters. As a result, the average duration of all our charters is 2.3 years and our VLCC charters have an average duration of 5.6 years.
90% of our contracted days for product tankers incorporate profit sharing arrangements to provide us with potential significant upside. Please turn to Slide 15.
Slide 15 recaps a strong relationship with our key participants in our industry. We continue to build a portfolio of quality counterparties which provide vessel employment with a strong diversified customer base.
One of the attributes we seek in our counterparties is strong credit quality. Please turn to Slide 16.
Navios Acquisition enjoys vessel operating expenses significantly below the industry average. Currently, Navios Acquisition’s daily OpEx is about 16% below the industry average.
We achieve these operational savings through a management agreement with Navios Holdings. The operating expenses under this management agreement extended until May 2014 at current levels.
Please note that the operating cost shown here include all drydocking costs. Turn to Slide 18.
According to the IEA refinery capacity is expected to increase by 9.5 million barrels per day for the period 2013 to 2018. About 80% of that capacity will be added in Asia and the Middle East with the IEA projecting China and other non-OECD Asia to increase refinery capacity by 4.3 million barrels per day and 1.3 million barrels per day respectively.
New low-cost capacity in Asia is forcing nationalization of old high-cost capacity in the OECD. Recent refinery closings in Europe and the Caribbean as well as closures due in Australia and Japan can be partly attributed to the aged and inefficiencies of these facilities.
Because of this structural shift, the growth in ton miles of refined oil products is expected to outpace the general demand for refined oil products in the long run. Please turn to Slide 19.
U.S. crude production has increased by over 49% since the end of 2008, reaching 7.5 million barrels per day in August.
Since the U.S. crude oil exports are prohibited by law, the U.S.
has increased its total product exports by 290% to about 3.7 million barrels per day since 2014. U.S.
exports have exceeded imports consistently since 2011. U.S.
Gulf refineries which benefit from inexpensive domestic crude and natural gas supplies are finding a natural export market in neighboring Mexico and Latin America as well as Africa. U.S.
product imports have declined over the past couple of years, but continue to come from further away adding to product tanker ton miles. The fundamentals of product tanker trading patterns continue to adjust in relation to these changes.
Turning to Slide 20. Oil refineries vary greatly in the quantity, variety and specifications of products that they produce.
As depicted in Slide 20, regional surpluses and deficits combined with relative low-cost transportation drive arbitrage trades and increase product ton miles. As an example, requirements for gasoline in Europe and Latin America can be met by shipping the oversupply westward from Asia and the Middle East or eastward from U.S.
Similarly, requirements for gasoline in Asia can be met by shipping the excess supply eastward from Europe and the Middle East, increasing worldwide product imbalances point to increased ton mile development. This global multi-directional trade pattern enables product tankers to triangulate thereby minimizing balance time and maximizing revenue.
Please turn to Slide 21. In the products sector, demand for transportation expressed in terms of ton miles increased by about 78% in the period 2004 to 2012 equivalent to a CAGR of 7%.
Projections indicate similar growth in 2013. The increase in tanker ton mile demand was greater than the increase in overall trade due to the growth in long haul product tanker trades.
The map at the bottom of slide 21 depicts existing product trade routes as well as prospective routes based on anticipated eastward shift in global refinery capacity. Please turn to Slide 22.
Through October, tanker non-deliveries equaled approximately 60%. The fleet experienced a limited growth, as 1.9 million deadweight was delivered, but 0.8 million deadweight was scrapped.
About 3% of the product tanker fleet is not double haul and 4% of the fleet is 20 years of age or older. The order book totaled 15.3 million deadweight or about 25% of the fleet, a level usually considered adequate for regular replacement of existing fleet with little or no demand growth.
Higher scrap prices should encourage further scrapping of older or single haul units, demolition prices appear in depend on overall steel prices and not to supply vessels. Please turn to Slide 24.
The IMF projects global GDP growth for 2013 and 2014 at 2.9% and 3.6% led by emerging and developing markets growth of 4.5% in 2013 and 5.1% in 2014. The IEA projects global oil demand growth to rise by one million barrels per day to 91 million barrels per day in 2013 and by a further 1.1 million barrels a day to 92.1 million barrels a day in 2014.
This growth remains well below the historic averages, is expected that all of the projected growth will come from non-OECD countries. Please turn to Slide 25.
China is the world’s second largest consumer of oil, importing more than half of its requirements. China’s imports have more than doubled since January 2009.
However, on a per-capita basis, China’s consumption is less than one-third of European usage and one-eighth of U.S. usage.
In September, China has imported 6.3 million barrels of crude. Current projections show China’s oil consumption and crude oil imports will maintain their growth as the country continues the urbanization, industrialization, and motorization of its economy.
Please turn to Slide 26. Tanker demand is driven by demand for oil and distance of transport.
As noted in the chart in the lower left, in terms of ton miles, the movement of crude from West Africa and South America to China uses about many of VLCCs as the movement from the Arabian Gulf even though the Arabian Gulf shipped 1.8 times more oil to China. The growth in VLCC ton miles will continue as China imports more crude from South America and West Africa as it diversifies its sources of oil more than offsetting any decline in the U.S.
imports. In addition, Indian companies recently secured crude oil from Brazil to reflect existing or remaining supply increase in VLCC terminal demand.
With demand for oil increasing only marginally on an annual basis, distance has been a key driver to tanker demand. As you can see in the upper part of the slide, an increase of 53 VLCCs will be needed by 2016 according to Clarksons projections.
The shift is expected VLCC trading patterns to Asia and the Far East away from the Atlantic basin can also be seen in these projections. Turning to Slide 27.
In October, new building deliveries represented 49% of the projections, with 8.6 million deadweight delivering on a preliminary basis versus 16.8 million expected. With 189.6 million deadweight at the end of last year, net fleet growth slowed to 2.9 million deadweight or 1.6% due to continued high scraping and non-delivery levels.
The high price of steel combined with high fuel prices led to continued high scrapping year-to-date with 16 vessels of 4.7 million deadweight scrap, of those three were 15 years or younger. According to Clarksons, there is two years of 6% or more fleet growth.
This year’s projections suggest under 2%. Furthermore, the fleet is expected to contract in both 2014 and 2015.
Please turn to Slide 28. Looking at the Slide 28, is the phenomenal and inflation adjusted prices for five year old VLCCs since 1990.
Our recent purchases of three VLCC with an average age of three years at an average price of $54.5 million depends very favorable to these historic values. Turn to Slide 29.
Since 1991, increase in world GDP growth year-on-year have generated the rises in one year, VLCC time charter rates. According to the IMF, world GDP growth is expected to be higher next year which if past patterns continue should lead to approve VLCC rates.
In conclusion, world crude oil and refined product consumption has generally grown for more than 30 years with decline in 2008 and 2009 due to the global financial crisis. Starting in 2010, the world crude oil and refined product consumptions returned to this pattern of growth.
The main drivers are increasing demand from the Asian economies, particularly China as well as the increased of refinery capacity in the broader Asia and Middle East regions. Going forward, we see this trend continuing.
Thank you. I would like now to turn the call over to Leonidas Korres for the Q3 financial results.
Leo?
Leonidas Korres
Thank you, Ted. Now we will discuss the financial results for the third quarter and the nine month period ended September 30 2013.
As shown in Slide 31, we continue to demonstrate strong growth and excellent operational performance. Our operating metrics for the third quarter of 2013 have significantly improved compared to Q3, 2012 mainly due to the 80% increase in the number of available days from 1,472 to 2,646 days.
During the quarter, we acquired gain from three another vessels [ph] which took over the charter contract [indiscernible]. I will sum up the arrangement by moving substitute in the moving which was already into fleet performance and long-term charter, we get approximately 20 days or higher.
These negatively affected our revenue, EBITDA and net income for the period. However the time lost during the all five days will be accounted during the 20 day period as these charter contracts is extended.
Revenue for Q3, 2013, increased by 41.3% to $53.4 million from $37.8 million in Q3 of 2012. We achieved a 99% fleet utilization and the time charter equivalent of $18,835 per day.
Our strategy to charter our vessels on time charter contracts with profit sharing is paying off. As a result, $1.4 million from profit sharing was earned in addition to our stable base revenue stream.
Operating and voyage related expenses were $22.9 million and G&A expenses were $1.1 million or $543 per day per vessel. We continue to grow our EBITDA for the second quarter of 2013 increased 21.8% to $29.2 million from an EBITDA of $24 million in the same period of 2012.
Other expenses include depreciation and amortization of $17.8 million, and interest expense and finance cost of $14.8 million. Following the termination of contracts for two MR2 product tankers due to charters default, amortization of the intangible assets accelerated by $4 million.
$1.6 million was recognized in Q2, 2013, while $2.4 million affected third quarter. Excluding the $2.4 million non-cash item, net loss was $1.7 million for the quarter compared with a net loss of $1.4 million in third quarter of 2012.
Turning to the financial results for the nine months period ended September 30, 2013. Revenue increased by 32.1% to $144.6 million, from $109.4 million last year, reflecting a time charter equivalent of $21,256 per day and 99.5% fleet utilization.
Operating and voyage related expenses were $54.2 million and G&A expenses were $3.6 million. EBITDA for the nine months of 2013 increased by 32.9% to $86.5 million from $70.4 million in 2012.
Depreciation and amortization was $47.2 million, and net interest expense and finance cost was $42.2 million. Excluding the $4 million accelerated amortization of intangible assets, net loss for the first nine months improved by $3.2 million to $0.9 million from a net loss of $4.1 million in 2012.
As you can see the graphs at the bottom of the slide, since we commenced operation in 2010, we have grown our operating metrics significantly, reflecting the growth of our fleet. With a 45% increase of the available days in 2014, we expect our metrics to continue increasing substantially.
Slide 32 provides selected balance sheet data of September 30, 2013. Cash and cash equivalents including restricted cash was $108 million.
Vessels, net of depreciation increased $1,690 million compared to $940.7 million as of December 31, 2012, reflecting the delivery of 14 vessels in our fleet through September 30, 2013. Vessel deposits of $84.4 million represent deposits and capitalized cost of vessels to be delivered over the next two years.
Total assets amounted to $1.7 billion. Total debt as of September 30, 2013 was $1.1 billion.
Following the $320.5 million of equity raised year-to-date, net debt to book capitalization ratio as of September 30, 2013 declined to 61.6% as vessels delivered to our fleet and we started repaying the respected debt facilities, the ratio is expected to further decrease. Pro forma for the recent addition of $610 million Senior Secured Notes the company has deleveraged by approximately 17% since December 31, 2012.
As of September 30, 2013 Navios Acquisition was in compliance with all of the covenants of its credit facilities and ship mortgage notes. Turning to Slide 33.
Our financial strength has enabled us to announce a dividend of $0.05 per share for the quarter, equivalent to $0.20 per share on an annualized basis. Based on last night’s closing price, our dividend provides an annualized yield of about 5%.
The dividend will be paid on January 7, 2014 to shareholders on record as of December 19, 2013. Please turn to slide 34.
Navios Acquisition has a prudent financial strategy. Approximately half of our debt is non-amortizing, which provides significant cash flow flexibility.
Following the recent addition of $610 million, the maturity of our Senior Notes was extended to the fourth quarter of 2029 and the coupon was reduced by 50 basis points. On the bank debt we have no maturities until 2016.
Overall, our strategy has provided lenders an additional level of comfort relating to the stability of our balance sheet. Our liquidity position is strong, our CapEx is fully funded and we have significant cash flow visibility, since 99.5% of our available days are contracted in 2013 and 74.1% in 2014.
Moreover, our long-term charters on the crude side have an average remaining duration of almost 5.6 years, while our company is very well positioned to capture the upside of the product market, thanks to the increasing product and chemical tanker fleet and the profit sharing on 26 out of the 29 chartered out vessels. And now I will pass the floor call back to Angeliki.
Angeliki?
Angeliki Frangou
Thank you, Leo. This concludes our formal part.
We’ll open the call to questions.
Operator
(Operator Instructions) Your first question comes from the line of Justin Yagerman of Deutsche Bank.
Justin Yagerman – Deutsche Bank
Hi, good morning. Thanks for taking my call.
The first question I think obviously – the most obvious here is on the VLs. How are you thinking about chartering these vessels?
Is this going to be long-term in nature? I mean you called out rates on VLCCs which I think are at multiyear highs right now.
So how realistic is it to go out and charter a VL for a year at $20,000. Can you get profit share on that, which seems to be some of the shorter-term and longer term charters?
How are you thinking about this conceptually?
Angeliki Frangou
Okay, the answer of this question is first of all, opportunistically we’re stepped in because if you see the rates we are going with – on the three vessels, we are going at the all historical low for double haul vessels over 25 years of data. And also you have a quite significant upside potential.
Your breakeven which is unique because you’re buying at the low historical is $19,100. Your one year rate which for multiple counterparties to commit if awarded is in the low $20,000, even low $20,000 I can say.
And the spot market is around $40,000.
Justin Yagerman – Deutsche Bank
Yes.
Angeliki Frangou
So overall if you see the net result, and what is making it very attractive part is that – we would show that net result here is 1.6% and net here is negative vessels for ‘14 and ‘15. So you are coming at a good point of time, when we see economies recovering last year and we believe that we can have the upside potential of between, well year-to-date on one years and 10 years average is $50,000, 20 year average is $40,000.
Our strategy is to go on a combination of one year with profit sharing and even do entering [ph] the spot market as well more you can see that clearly you cover your cost. Your big competitive advantage is your cost.
Justin Yagerman – Deutsche Bank
Okay. So it’s kind of an asset play that’s covered with cash flow right now, probably stay short-term, and as a result I would expect that this isn’t something where you’d be expecting to drive a lift in your dividends the way that you had substantially at the cash flow from the long-term VLs?
Angeliki Frangou
Yes. You have 1,100 days from this record [ph].
So at $20,000 you are obviously – I mean, you automatically know you have covered your downside, but as we will keep one spot, one would probably say that – I mean if you do like a $10,000 differential, you are talking about $11 million to your bottom line. So it’s a very – it can be quite attractive with the recovery of the rates.
We are not going to look in on – let’s say time charter, one time charter with profit sharing and the other most probably spot.
Justin Yagerman – Deutsche Bank
All right. That’s helpful.
And then just a bigger picture question on the company as a whole. When you think Angeliki about Navios Acquisition, I mean obviously you guys have got done a significant amount of vessel expansion, but you’re in crude, you’re in product, you’re in tankers.
We recently saw at the MLP for Navios, you guys are entering into the container market. I mean, are you limited to these three sectors in crude, product and chemical, or how are you thinking about the company’s growth as we go forward?
You obviously – the VL exposure that you had was much more charter and now it looks like you’re going into some shorter term VL exposure. I’m just trying to get an idea.
Angeliki Frangou
I mean we have – the Navios Acquisition is in the tanker segment and it’s clearly in every segment opportunistically. We created a fleet of product tankers that is all echo designed, top quality that provided a good stable cash flow with the upside of that market.
And on the VL, we did a counter position, a head position with nice cash flows when we expect that the market goes low. As the market we believe, the net growth and the demand potential is recovering, we are able to capture this upside.
If you see on the 14,000 days that we have, one-third is VL, and on that the majority 60,000 days are chartered [ph] and 10,000 – two-thirds we have spot. We have a portfolio of product.
And so you one-third VL, have two-third product targets. And I mentioned you are able to capture the upside.
We are – Navios Acquisition being a tanker company and always expand in other areas, that is oil-related but of course that has to do with an opportunistic timing on entry points.
Justin Yagerman – Deutsche Bank
Got it. Okay.
One last question and then I’ll turn it over to somebody else. With rates where they are right now, it looks like some of your VLs may be enjoying profit sharing.
It might be a good time to review just how that works and how that gets recognized here in the fourth quarter?
Angeliki Frangou
There is a combination of open books as [indiscernible] and some of them are done in as well as quarterly and some are in the six months payment. So you will have a combination.
You have seen that in other parts of VL, we were able to capture a profit sale. So for sure if this comes, we will get a profit.
I want to remind you that our base rate is around $42,000 for all our VL. So we have a high base rate when profit sharing is calculated and we have a five out of the seven.
So despite beyond $40,000 is where you will see the profit sharing.
Justin Yagerman – Deutsche Bank
Okay, great. Thanks so much for the time.
I appreciate it.
Operator
Your next question comes from the line of Michael Webber of Wells Fargo.
Michael Webber – Wells Fargo
Hi, good morning guys. How are you?
Angeliki Frangou
Good morning.
Michael Webber – Wells Fargo
Angeliki, I just wanted to piggyback on a couple of those questions. First around the employment for the Vs.
You kind of laid out what you’re going to do for the new builds – I’m sorry for the secondhand acquisitions and you’ve got a couple of your existing VLs rolling off, I think one that’s the 96-built is already off and you’ve got rolling off in 2014. If you do keep those in the spot market, are you going to do that in-house or would you put them in a pool now that we’re?
Angeliki Frangou
We have a [indiscernible] office will do. We are considering different options and we’ll make that determination in the appropriate time.
But we see that the VL has a good potential for recovery. We also see the asset value is being attractive.
Michael Webber – Wells Fargo
Yes.
Angeliki Frangou
You may do replacement that makes sense, meaning VL [indiscernible] vessels acquisition price is today, they do make sense and we will do that in an opportunistic way.
Michael Webber – Wells Fargo
Got you. At the risk of getting too specific here, it looks like TBN III at five year seems like it’s right on top of the printed number, but TBN I and II – again specifically TBN I, the 2011-built, is that closer to two or to three years old because it’s at $57 million, the prices look pretty low.
Certainly kind of splitting the difference between prompts which is going to be significantly higher in five year. Exactly how older are those?
Angeliki Frangou
The one is two years old. The other is three year old.
Michael Webber – Wells Fargo
Okay.
Angeliki Frangou
And the third one is four year old.
Michael Webber – Wells Fargo
That’s fine.
Angeliki Frangou
I mean you can say that – you can never call the bottom, but what we believe is that buying at a very attractive point, I don’t know, I mean if you see in Page 28, you’re really buying at an attractive point of the cycle.
Michael Webber – Wells Fargo
No, it’s interesting that the two and three year old asset values are closer, so closer to the five year and not spread out. So that is just – it’s curious.
Just to piggyback on Justin’s last question also and maybe a bit more specifically. If the right deal came along in the LNG or the LPG space, would you guys look at it?
Angeliki Frangou
We are articulating that this is a company that will be doing all transactions that has to do with energy, so that is a 100% correct that anything we find, but we are very disciplined buyers. And you can see that we will – we like to pick a segment and then asset class where we believe there is a lot of upside potential.
Michael Webber – Wells Fargo
Okay. No, that’s helpful.
One more for me and I’ll turn it over. And forgive me if you already mentioned this, but you guys are engaged in a tender offer right now for you 8.625%.
How far along in that tender are you?
Angeliki Frangou
We closed.
Michael Webber – Wells Fargo
You closed it. Okay, great.
All right. That’s all I’ve got.
I appreciate the time. Thank you guys.
Operator
Your next question comes from the line of Jon Chappell of Evercore.
Jon Chappell – Evercore
Thanks. Good morning guys.
Hate to belabor the VLCC question, but just a few more on those. Can you talk about the circumstances as to how you were able to acquire those?
You talked about the attractive price, but pretty significantly below what I think would be broker market values, which I think have been criticized recently as being a little bit conservative as well. So maybe even better deals than we think.
And then the fact that they are built in Chinese yards. Is the yard that you’ve done business with before, and is it one that you could consider a top quality yard similar to that of Japanese or South Korean built?
Angeliki Frangou
Yes, Dalian shipyard is one of the top shipyards in China. It is where also they have the military fleet of China is done.
It is a high qualification. And we have seen the quality.
We already know very, very well the designs. And it is where a lot of Japanese are also in the national owners’ contract.
So it’s one of the top yards. Yes, it is – we maybe in the capital markets, but we are interested to say that we really work very hard with the network of relationships we have in the Far East and watching strong insight with owner.
We need to say – I mean you need to really be very much on top of that market and be willing to be a disciplined buyer on how you apply it. I mean we…
Jon Chappell – Evercore
So this directly – this is directly with the prior owner who resulted in arrangement with the bank as you’ve done in previous deals?
Angeliki Frangou
Yes. But you may have knowledge about financial conditions which is one of the things.
Knowledge is an important thing. So if you know exactly who needs to sell is an important way of the way you will structure a deal.
Jon Chappell – Evercore
Okay. And then on the financing front.
I just saw a footnote in one of the slides that you are working to get the bank financing for this. What’s the ideal kind of spread of debt and equity, and do you have enough cash on hand or equity through you prior raises this year to meet the conditions of this VLCCs?
Angeliki Frangou
I mean we have sufficient that’s why we let it out and as you remember some of our refinance of our existing financing was the bonds. I mean the bonds was larger than our previously so we have that raised and put up on the same bank.
Jon Chappell – Evercore
Okay. And I’m just wondering what the aim [ph] is.
I mean it seems like a pretty well timed asset plans you’ve laid out. Do you ultimately want to be a VLCC operator or do you envision monetizing these assets once the market recovers and going back to more of a pure play in the product and chemical space?
Angeliki Frangou
We let portfolio approach. We believe that – and we’ll have to give to our shareholders a much more return.
We will have to keep it for the company, so our investors would be able to capture the upside of this market. So our idea is to have the product tankers in large amount and more stable in nature.
You will go to the high 20s that’s where you’re going to be your margin will return having the VL provides a better upside potential for your investors combined with a nice entry point that will provide you the additional cash flow. And of course we know that we are in a cyclical business, so monitoring that cyclicality in how you will meet cycle – be able to capture the better shareholders is a different matter.
You can do a long-term charters at that point, you can do whatever, it’s a combination that you will secure the value.
Jon Chappell – Evercore
Okay, understood. And then finally, is there any update on what you’re going to do with the Navigator, in sounds in the presentation it’s not a repositioning voyage right now.
I know the market is tight seasonally, but if this is still almost an 18 year old asset. Do you plan on following the lead of some of the industry leaders and sending it to the scrap yards?
Angeliki Frangou
Opportunistically, as I had previously – we look always at substitution and this is something that if you find something more attractive you can always do a substitution of assets if you find it great.
Jon Chappell – Evercore
Okay. Thank you, Angeliki.
Angeliki Frangou
Thank you.
Operator
Your final question comes from the line of Chris Snyder of Sidoti & Company.
Chris Snyder – Sidoti & Company
Hi, good morning guys.
Angeliki Frangou
Good morning.
Chris Snyder – Sidoti & Company
My first question is, I mean obviously these VLCCs you guys got it very discounted from the highs of 2008, but can you kind of tell me where this purchase prices at relative to the current scrap value on these kind of ships?
Angeliki Frangou
The scrap price is about $20 million. So you are buying for about $35 million, you are buying a vessel that is average age is three years old, so you have to 22 years of life.
Chris Snyder – Sidoti & Company
It sounds attractive. And then the second question is are you guys – I know win from the recent offering, is there any dry powder left over after this acquisition, or are you going to use whatever money leftover just for general corporate purposes?
Angeliki Frangou
The company is generating cash as you know, and if there is something opportunistic that we’d like to enter, we’ll always have that ability.
Chris Snyder – Sidoti & Company
Okay. Thank you for the time guys.
Angeliki Frangou
Thank you.
Operator
That does concludes the Q&A portion of today’s call. I would now return the call to Angeliki Frangou for any closing remarks.
Angeliki Frangou
Thank you. This concludes our Q3 results.
Thank you very much.
Operator
Thank you for participating on today’s conference call. You may now disconnect.