Great Eastern Shipping Company Ltd

NSE:GESHIP

Earnings Call Analysis

Firm Asset Prices Amidst Strong Demand

The company reported a net profit of almost INR 600 crores and a consolidated net asset value (NAV) of INR 1,263 per share, with the stand-alone NAV surpassing INR 1,000 per share. This period marked the declaration of the seventh consecutive quarterly dividend. Both product and crude tanker sectors witnessed a dip in performance from Q1, while dry bulk also saw weakening compared to the previous year. Notably, an increase of nearly INR 200 in NAV was driven predominantly by cash accrual, as opposed to solely mark-to-market gains. Asset prices remain strong, with low order books for crude tankers at 4% and product tankers at about 10%. The demand for shipping services, especially from the Middle East, remains robust and is leading to higher pricing in successive tenders. This growth narrative is supported by the lack of new rig or vessel orders over the past 4-5 years. Despite the rise in absolute share price, the share price to consolidated NAV ratio remains modest at around 0.65 to 0.67.

Sturdy Performance Amid Market Headwinds

GE Shipping showcases a perseverant quarter with a net profit nearing INR 600 crores on a consolidated basis. Despite unfavorable market conditions, the company's consolidated net asset value (NAV) made a solid climb to INR 1,263 per share, while stand-alone NAV surpassed INR 1,000 per share. Showing consistent shareholder consideration, GE Shipping declared a consecutive, second interim dividend, marking the seventh in a quarterly series. The earnings reveal not just a nominal gain but reflect significant cash profit accumulation, with a total increase of almost INR 200 in NAV attributed mainly to hard cash accruals within the company. A further reassurance to investors is the dividend payout of approximately INR 36 over the past year.

Segmented Sectorial Analysis Reveals Mixed Fortunes

Delving into specific market sectors, the company felt the pulse of diverse trends across its operations. Product and crude tankers showed a slight softening in Q2 compared to Q1. Notably, the current market rates for Aframaxes and Suezmaxes have seen an uplift to levels exceeding $55,000 a day. LPG remained stable under time charters, yet spot rates neared a remarkable $100,000 a day. Dry bulk segments waned in comparison to the previous year, with spot rates around $15,000 a day at present. These rate fluctuations underpin a narrative of varied sector performances, with the company's diversified portfolio mitigating overall exposure to market volatilities.

Market Dynamics and Asset Valuation

The resilience of GE Shipping's results can be traced to multiple market dynamics. While the seaborne crude trade plateaued, the refined products segment grew year-on-year. Market strengths were dampened due to OPEC cuts but the anticipation of their reversal, aligned with strong demand, augurs well for the company. Asset prices have firmly maintained a post-global financial crisis peak, coupled with an exceptionally low order book for crude tankers at 4% and product tankers around 10%. Reflecting on asset price movements, despite ebbing from 2022 highs, the valuation of dry bulk assets remains robust, as do those of product and crude tankers. This supports a stable asset base for the company against potential market shifts.

Operational Challenges Turn Into Opportunities

Operational bottlenecks, such as the Panama Canal's elevated waiting times due to El Niño-induced water issues, fortuitously boosted demand for LPG shipping. Increased ton-mile demand resulted from vessels taking alternative, longer routes to bypass canal delays, tightening the VLGC market and leading to exceptional spot market performance. Despite this, the LPG segment's order book remains high, above 20%, indicating potential future pressures on rates.

Robust Offshore Demand Signals Bright Prospects

The offshoot of vigorous demand in the offshore business over the past two years has been a steady ascent in rates, with each successive tender fetching progressively higher prices. The Indian market, in particular, corroborates this trend, with rates now sitting at attractively profitable levels. As older rig contracts phase-out, the potential for significant rate hikes upon contract renewal promises lucrative days ahead. Furthermore, the controlled fleet supply, with negligible new rig or vessel orders over the past several years, hints at a supply-side advantage for GE Shipping in negotiations for future contracts.

Earnings Call Transcript 2024-Q2

[Operator]

Welcome to the GE Shipping earnings call on declaration of its financial results for the quarter ended September 30, 2023. [Operator Instructions]

I now hand over the conference to Mr. G. Shivakumar, Chief Financial Officer and Executive Director at The Great Eastern Shipping Company Limited to start the proceedings. Thank you, and over to you, sir.

[G. Shivakumar, executive]

Yes. Thank you. Can we put the presentation on the screen? I'm not able to see. Yes. Thank you so much. Good afternoon, everyone, and thank you for joining us for the discussion of the Q2 results and market. As is customary, we'll take you through a short presentation, and then we'll move on to the discussions.

Customary caveats apply. We are not forecasting markets. We are just giving some views of how we think the markets can pan.

Highlights. Net profit of just under INR 600 crores on a consolidated basis. Our consolidated net asset value has moved up to INR 1,263 per share. That's at the midpoint of range of offshore asset valuations. Our stand-alone NAV has moved past INR 1,000 a share. We also declared a second interim dividend. That makes our seventh consecutive quarterly dividend.

You've seen the results, so I'm not going to go through the numbers in detail. And we have the normalized financials as well. It's not too far from where the reported financials are. So again, I'm not going to go through these in detail.

You can see what's happened with the markets in this quarter. Product tankers, crude tankers, both were slightly weaker than in Q1, and product tankers were significantly also weaker than in Q2 of the previous year. Crude tankers were slightly better than in Q2 of last year. LPG again shipped around time charters, so it's much over muchness.

Dry bulk were much weaker than they were in Q2 last year and slightly weaker than in Q1 this year. And when we discuss the market, we'll see what led to this market performance. Again, I must say that crude tankers, which are showing $40,000 on average for Q2. Current spot markets for Aframaxes and Suezmaxes are probably in excess of $55,000 a day. That's spot market as of yesterday or today. Product tankers are a little lower than this -- around or a little lower than this. We are probably in the low to mid 20s.

LPG spot. Again, our ships around time charter. LPG spot markets are close to $100,000 a day. We don't currently have any ships on the spot market. And dry bulk, the spot average across our type of ships is probably somewhere in the $15,000 per day range as of today, just giving weightages for different classes of ships.

Changes in the net asset value from a year ago. We have had a INR 200 increase in net asset value, a little lower INR 200. Of which INR 200, INR 194 is contributed by just the cash accrual into the company. So it's not just a mark-to-market gain on the asset prices. That is there, that is INR 53 per share in fleet value, but most of the gain has come from actual cash profit, whichever. Of course, in the last 12 months, we've also paid out about INR 36 in dividends. Again, so we've had significant gains on net asset value over the last 5 years.

On a consolidated basis, again, we've had INR 400 -- sorry, INR 300 increase, of which INR 223 has come from cash profit. Fleet value improvements have happened more than on a stand-alone basis because the offshore assets have been going up steadily in value as the market strengthens.

Just looking at the shipping market, Suezmaxes, so both of them, both the sectors that we are looking at, crude and refined products, both are significantly -- in the last quarter were significantly below their Q2 last year numbers. Though obviously, much about the FY '22 numbers, and showing signs of an uptick, a big uptick in Suezmax earnings in October and a smaller uptick in [ MRMs ].

Now what's led to this performance? We have seen seaborne crude trade was flat. Product rate grew year-on-year. However, you had a very high quarter in the last year. So Q2 FY '23 was an exceptionally strong quarter because of the war impact, which was still being felt in the markets. This year, we've had OPEC cuts, which has reduced the amount of cargo available for carriage, which meant that markets were a little weak. As the OPEC cuts get reversed, as we hope they will be going into the winter if demand stays strong, markets should see some strength.

Asset prices continue to be firm. They are at their strongest since the global financial crisis. And the order book continues to be exceptionally low for crude tankers and at 4% and for product tankers at about 10%. In recent times, the order book is building up a little bit. So we've seen some crude tanker ordering. But even with all that ordering, we are still only around this 4% mark.

Bulk carriers, who are again better than -- for Capesizes, who are better than in FY '23. So you can see it higher than the orange line. While for the sub-Capes, so these are Supramax index here, it was worse than in FY '23. Last year, we saw significant outperformance from the smaller ships, vis-à-vis, the Capesizes. This year, it is -- or at least in the last quarter, it reversed somewhat.

Spot earnings were low-ish during the quarter, but they have had some recovery in September. We've had an improvement in ton-mile demand, while China seems to be -- the headline is that it seems to be slowing down. And we can see that steel consumption, et cetera, is lower in China. However, the fact is that iron ore imports into China is still pretty strong, have grown year-on-year. In fact, China seems to be exporting surplus steel. We've seen big increases in coal imports into China because of the problem with hydropower generation. And therefore, coal imports have significantly increased. Order book continues to be very low at 8% of the fleet.

LPG markets were spectacularly high in the last quarter, mainly due to Panama Canal issues or other. Demand for ships was high, but this was exacerbated by the higher waiting times at Panama Canal. The Panama Canal is facing water issues due to the El Niño conditions. And therefore, the waiting times at the Panama Canal has gone up. Many ships are deciding to take the long route rather than wait for Panama Canal transit, and that's increased ton-miles. So that's resulting in tightness in the VLGC market, and therefore, the markets have been exceptionally high. The order book still continues to be high in excess of 20%.

Looking at fleet supply. I mentioned this on the order book, 4% for crude tankers, 8% for bulk carriers and 10% for product tankers.

Looking at asset price movements. Asset prices continue to be strong. Dry bulk, also after dipping a little bit, have picked up while they are much lower than what they were in the highs of 2022, around beginning of calendar 2022, but still at fairly high-ish levels. Product tankers and crude tankers, of course, remain very strong and so do NPT ships.

Scrapping hasn't been much. We have seen no crude scrapping, though in the last week or 2, we've heard of some crude ships getting scrapped and some 25-year-old crude tankers being scrapped. But otherwise, there's really nothing of scrapping happening.

Looking at the offshore business. And we've -- the headline news -- and no need to go through each of these points. The headline news is that demand is very strong. And it started about 2 years ago, and demand from the Middle East, it continues to be strong. In the Indian market, every successive pricing that we are seeing in the rates is higher than the last one. So the most recent pricing in a tender was higher by about 12% to 15% from the pricing that we got on our rig, so in the last tender, which was a few months ago.

So rates continue to climb, and they are now at very profitable levels. Of course, our rigs will come off from their old contracts in a staggered manner. And once they get repriced, then they will be able to -- if the markets stay at these levels, then they will be able to enjoy these rates.

On the vessels as well, every pricing that we are seeing is higher than the last. The vessels are now in -- very much in profitable territory already, the vessels business. The rigs will take a little time to catch up because of the timing of the old contracts getting over.

Fleet supply is under control. Obviously, nobody has ordered any new rigs or vessels in the last 4 to 5 years. We have on paper and order book, and these all rigs which were ordered many years ago and supply vessels, which just are waiting to be delivered. They should have been delivered at least 4 or 5 years ago, but there was no business for them, so that delivery did not happen. So let's see the market continues to be tight, and we expect it to be tight going forward also.

Utilization, paper utilization is at 75% for jack-up rigs. However, practical utilization is probably in the high 80s and close to 90% based on the marketed utilization. So about 10% of the fleet is actually cold-stacked for more than 3 years, and we see that here -- sorry. Yes, you can see the number here, cold-stacked for more than 3 years, 54 rigs. Those are unlikely to come back unless rates go up to very high levels. So effectively, the utilization is already in the high 80s.

Looking at how many assets are coming up for repricing, and now this is a good picture. 2 years ago, we would not have liked to see this picture where lots of assets are coming for repricing. But now that the market is much stronger, it's good because then we will get the impact of the stronger markets on earnings of these ships. So we have 7 vessels which are repricing in this half year. That's between October and March. And then another 8, which will be priced in the first half of next year. We have one rig which will come up for repricing in H1 FY '25, another in H2 FY '25 and then in H2 FY '26. The fourth is -- will be coming off contract now and going into a new contract some time in December, January.

Just some financial things. And just a reminder, we levered up in the low markets we bought. Now we are levered down. We are sitting on a lot of cash, and we are waiting for opportunities to buy. We have done it in a small way. We sold our oldest bulk carrier, the Jag Rohan. And we announced at Friday that we have contracted to purchase modern Kamsarmax and eco Kamsarmax bulk carrier. So that's a switch that we did from a smaller size to a larger size and to a more modern unit. We have also committed to buy -- or we have taken delivery of an MR tanker as well.

Our share price to consolidated NAV, while the absolute share price has gone up, in terms of valuation metrics, it's still not much above where it was, let's say, in FY -- in end of FY '22. It was at 0.6 to NAV. Currently, it's still at about 0.65, 0.67 to net asset value -- consolidated NAV.

You can go on to our website and see the details of our ESG and our CSR activities. And we welcome you to visit our website.

Thank you. Now we're happy to take questions.

[Operator]

[Operator Instructions] The first question is from the line of Dhruv Jain from Ambit Capital.

[Dhruv Jain, analyst]

Sir, am I audible?

[G. Shivakumar, executive]

Yes, Dhruv.

[Dhruv Jain, analyst]

So sir, I just had a couple of questions on the offshore business. So you mentioned that the outlook remains very strong. So I just wanted to understand from your perspective, what are the risks to this? And another question on offshore was that we understand that on the REIT side, there is a tendering process on the contract. But if you could also mention what's the sort of the way it works in the -- on the vessel side.

[G. Shivakumar, executive]

Yes. Thanks, Dhruv. So first, you look at what -- I'll answer the question on the potential risks to the business. And you can see what happened in 2019/'20, where utilization was climbing from the 50s to -- and it climbed up to the 65% mark. You can see the orange line here, right? And that got choked off by COVID. So -- and we were speaking about market strength happening. In early 2020, we were talking about market strength in offshore again. That got choked off by COVID.

So that's the risk, which could be there. Otherwise, the fundamentals are lining up well. So the risk is really of an unexpected event or something like the one is not expecting it. So your global financial crisis, if it happened and you -- it took oil prices down and, generally, oil consumption down. So that's one of the risks. Otherwise, the fundamentals are lining up all very positively.

Second is on the contracting process. Vessels also in India go through the same tendering process. Most of the business is done by the same tendering process. So they will go through, and the vessels are going through the same process. We are also looking at taking vessels out of India for -- because markets are available outside and some of the markets outside are paying more than the Indian markets for some other types of vessels. So we will have vessels in India and a lot of vessels in India. At least 50% to 60% of our fleet will be here.

But a lot of the ships will go outside India as well. This is what was the case till 2014 when the market was doing -- started doing badly and we brought the vessels into India. At that time, we had more than 30% of our fleet outside. So in India, it will be -- it continues to be tenders. Most of the business is awarded by tenders. That's a PSU system. Otherwise, if you're dealing with a private player, which is a small part of the Indian market, that happens on a bilateral basis.

[Operator]

Our next question is from the line of Himanshu Upadhyay from O3 PMS.

[Himanshu Upadhyay, analyst]

See, my first question is, see, I could understand the rationale for dry bulks, okay, what we did. But sir, I wanted to have more clarity on MR tanker. See, what I wanted to have was if you look at the prices of tankers, they are at the highest decile in last 10 years or maybe even 15 years, okay? And we have stated that as charter rates are generally high at the peak, okay, and hence, evaluating on those cash flows is not the best metrics, okay. Because the cash flow are high and hence, you can justify, but they can be in revert, okay?

So how -- what was the thought process in purchase of this MR tanker? Because if we look at the valuation multiple or, let's say, value, it is -- we cannot say it is in lowest decile or leverage quarter [indiscernible]. And the cash flow is also -- so some clarity on that.

[G. Shivakumar, executive]

Yes. In terms of absolute price, certainly, it's not low, okay? So a couple of points on this. One is it's a very small part of the amount that is -- sorry, you were saying something, Himanshu?

[Himanshu Upadhyay, analyst]

No, no, I'm not saying anything.

[G. Shivakumar, executive]

Yes. So it's a very small part of our investable surplus. Our cash itself is in excess of $600 million. This is a very small part of that. So it's a small step we have taken. So it's on the margin.

Second and the bigger rationale for it is we have a fairly old-ish section of our MR fleet. We have 4 ships which are built 2004, 1 built 2003 and a couple built in 2005 as well. So that's an old part of the fleet, and we are looking to see -- and some of those ships will have -- will not be able to freely trade in the international market once they turn 20. So while we can find other employment for them and we will find other employment for them, we thought we should hold on to our position in the international markets and continue to have our exposure. So that's what we've done by adding on this one ship.

So on the margin, it's a small deal. I agree with you that it's a high point in the cycle. So it's not one of those [ screaming ] value buyers. But it's more to hold on to our position in the markets in which we are operating. We don't want to vacate that space. We have won 2003-built ship also, which is currently working in India after she completed her 20-year [ drive ].

[Himanshu Upadhyay, analyst]

Okay. Okay. And what is your view on crude tankers also, okay? Because we are at one of the lowest fleet in last [ 10 ] to 15 years on crude tankers. And the asset prices there also are very high, okay? So any thoughts on that? How are you evaluating that market?

[G. Shivakumar, executive]

Yes, you're right. When you say the fleet is at the lowest in 15 year, you mean our fleet, right?

[Himanshu Upadhyay, analyst]

Yes, yes, yes.

[G. Shivakumar, executive]

Yes, that's right. You're right. We have 6 crude tankers. And yes, that is the lowest level we've been in so many years. Yes, we think the market is -- we have a constructive view on the market. We think the market will stay strong for some time. Unfortunately, the prices are also very high.

So we are not sure yet what exactly we want to do, but we are looking at options. We're trying to see how we can play this cycle considering that the markets have gone up so -- I mean asset prices have gone up so much. But yes, you're right. It is a conundrum. We don't yet have the answer for it, but we are looking at options. Let's see if we can find some way around it.

[Himanshu Upadhyay, analyst]

And one related question only. In what type of market or conditions -- market conditions or forecast you have in chartering a ship for a period makes sense? What are the conditions in chartering?

[G. Shivakumar, executive]

If you're expecting that -- so it's -- and the good thing about our business is you can put these numbers all the time, and you know what the prices are, you know what the cost of in chartering would be, and you know what would be -- needs to be the, say, the residual value at the end of the charter period in order for you to make a reasonable return. So you can do that if you're expecting markets -- if the prices have gone up very high and you are expecting markets to, say, mean revert in 3 to 5 years' time, then you would say maybe just set off the premium on the ship or the potential capital loss on the ship versus the premium paid for the charter. Just do that comparison and decide.

So it's -- sometimes, it's a fine comparison and not necessarily exactly right. But you can get a broad picture of whether it makes more sense to charter in or to buy a ship.

[Himanshu Upadhyay, analyst]

So generally, in bullish market, that makes sense or [indiscernible]?

[G. Shivakumar, executive]

So what we've seen in the past -- sorry to interrupt, Himanshu. In a very high market, in general, it makes more sense to in-charter because when you buy a ship, you are paying for more than 3 or 5 years of high earnings. While if you're in charter, you are just paying for those 3 or 5 years of high earnings.

[Himanshu Upadhyay, analyst]

Okay. And one small question. On Slide 14, when we look at our stand-alone NAV, okay, value has gone by INR 53, okay? Because of, let's say, the value of fleet has gone up on INR 809 of previous NAV, okay? So which means that the value of ships have gone up by 6% to 7%, okay?

But generally, what we have seen is the secondhand, older vessel is okay. The price rise has been much higher, okay, means 15%, 20% in tankers or crude in last, I would say, 1 year, okay? So is there something I'm missing out or I'm making a logical error or the right way or where am I making a mistake?

[G. Shivakumar, executive]

No, no, tankers have gone up more. So from a year ago level, tankers have gone up 15% plus. You're right. However, bulk carriers have gone down by some 5% or so. So your overall increase is about 10% in fleet value in this period. So to that extent, you're right that there has been an increase from a year ago level definitely. Was that your question?

[Himanshu Upadhyay, analyst]

Yes. See, it is increased, but it seems very low, okay, because LPG and all those things. Because there is one slide in our presentation itself, where on the asset values, 5-year-old asset values, okay?

[G. Shivakumar, executive]

Okay. So there have been a little bit of difference in the movement in prices at different age levels. Okay, so that also you should keep in mind there. So it won't be an exact parallel to that.

[Himanshu Upadhyay, analyst]

But generally, yes, this is the slide, Slide 22. See, generally, the price rise, what we understand is higher on the older fleet of ships, okay. Newer fleet [indiscernible].

[G. Shivakumar, executive]

Let me just take you through one thing, Himanshu. So just look at this. This is October '22 is between 140 and 150. You can see that for a product tanker, for a 5-year-old product tanker, which today is at about 160. So that's about a 10% move in the price. Yes. In a crude tanker, we were at about 135, 140. That's gone up to 160 plus. So that's a 20% kind of move.

While for bulk carriers, you have -- okay, now it's more or less the same as what it was a year ago. But again, this is taking into account constant age. While your fleet will age by 1 year in this tank, what also happens is that you have, say, a 15-year old ship in '22, it's become a 16-year-old ship. So you could have a normal drop in the price of the ship, which maybe 5% or so, just for the -- it should be more than 5%, which may be 10% or so. But you have a benchmark price increase. So we have a benchmark price increasing by 15% but your age depreciation of 10%, so net-net, you have a 5%. I'm just giving you a broad example.

[Himanshu Upadhyay, analyst]

No. Okay. Yes. It might -- it maybe the gap in my understanding or logic. Yes, then it makes sense, okay.

[Operator]

Our next question is from the line of Sanjeev Pandiya from Lancers Impex Limited.

[Sanjeev Pandiya, analyst]

Sir, this is also about your CapEx cycle. We've seen you in 2017 get aggressive on the CapEx cycle, and that decision has already gone through. Now you're a net cash balance sheet. So the key issue here that this [ both ], we think, will drive valuations will be the message that we get about how you're planning your next CapEx cycle.

At the moment, we seem to be treading water. I mean you're only going to be replacing ships, and your ship count and your DWT count probably is going to stay within the same range. At the same time, we find someone like Frontline taking a leverage bet on 2 views.

One is that crude ordering is not going to pick up for various technological and peak oil demand, not supply, weak oil demand around the corner at 2022. So it depends on your view on what is happening to solar and wind conversion and the difference between renewables and oil, et cetera. So when exactly that is going to hit, whether it's 2027 or 2035. So basically, there's a view of peak oil.

The second is related to that is the LNG carrier. So embedded in these 2, somebody is taking a very brave leveraged bet that VLCCs will go into orbit.

Now this kind of -- the previous questions also and your own answers kind of tell us that you are probably not aligned with this kind of an aggressive view, where somebody is even taking a leverage back. You do have significant cash reserves. And you could sort of provide for the MTMs on -- potential MTMs, should you get it wrong. But some message about what is happening to your CapEx cycle. I mean if we could get your comments on [indiscernible]?

[G. Shivakumar, executive]

Yes. Okay. So yes, we have had other players making dramatically different calls on the market. Our views may not be very different from them, or they may match or they may be very different, whichever. But irrespective of that, what we are playing by is what is our approach to the business. We don't take outsized bets in high markets, okay? So -- and other players, some other players may view it differently that they say, okay, no, I'm 100% convinced of this. I'm going to put all my money to work there. So -- and that's the beauty of the market. There are people with different views. So that's great.

As far as our CapEx approach is concerned, our approach will be to be cautious in this. We did a small investment in an MR tanker. It's a small incremental investment. That's part of modernizing, which you also pointed out that it's a fleet renewal more than anything else. So that's what we will be doing maybe on the margin, 1 or 2 ships here and there, but not a huge amount.

Having said that, dry bulk is actually very close to our levels at which we are okay to invest. So we could go -- it's the tankers that are priced pretty expensive. Dry bulk seem to be priced quite reasonably. If you can find a good asset, it's not a bad investment. So we could think it's very close to where we would think of investing.

So yes, we might invest incrementally and on the margin, and we have a lot of investment capacity now that we've deleveraged and we have so much of cash. But we're unlikely to go out and do a large amount of CapEx. We're not going to bet the house on this market no matter what view we have on it.

[Sanjeev Pandiya, analyst]

Sir, a related question that given that the cost of idle funds is now pretty substantial, and it's taking, probably taking away more and more, although it would have reduced somewhat given how interest rates have. But going forward, and from what you're telling me that you're not going to use up all your cash, this is going to be -- I mean if we just project it out 5 years forward and all, the cost of idle funds is going to cumulatively add up quite a bit. So are you thinking about that or doing something out of the box? Or should you just treat it as a cost and just absorb it?

[G. Shivakumar, executive]

Yes, I see the point you're making. The cost, yes. So one thing is the cost of idle fund has come down, as you yourself rightly pointed out. From 0% interest, you've gone up to 4% to 5% interest in dollars, okay? So that's one thing.

However, because the earnings on the business are so much higher, that gap has actually gone higher, okay, because that -- the 5% increase in the earnings on funds is much lower than what is happening to the returns on ships. However, that is a trap that we fell into the last time, which is going for current yield, okay? That is always a temptation that you get a higher current yield from ships than you get from cash. And therefore, you say I'd rather put it into ships and cash.

However, cash remains cash, and ships can depreciate or they can appreciate. But at some points in the cycle, you know that the likelihood of depreciation is higher than the likelihood of appreciation. And that's what we'll be very careful about. So when we look at funds and the cost of holding funds or cost of keeping money idle in treasury, we also look at if you get a 5% drop in the value of the ship or net of the earnings, then that's adding to the ability -- to your decision to hold on to cash. For instance, we saw that the ships we bought in 2007 in a high part of the market, even if you just held on to that cash for the next 5 years until you've got the opportunity to buy it cheap, you were better off than buying it in 2007.

So it's okay. We are not going to go buy current yield by buying when the yield on shipping assets is better than the yield on cash because we've seen that, that can be a trap sometimes.

[Sanjeev Pandiya, analyst]

Am I allowed another question? Or should I join the queue again?

[G. Shivakumar, executive]

Yes, please. Yes, please, last one, yes.

[Sanjeev Pandiya, analyst]

Okay. So what I'm noticing is that, therefore, you continue to talk the language of value as compared to -- I mean, to use market lingo, as compared to momentum. So when I see another shipping company, I see somebody talking momentum, which basically the VLCC crude, their [indiscernible] kind of while you continue to stick with the value philosophy. Now given...

[G. Shivakumar, executive]

Not 100%. Not 100%. So just to -- if you are 100% fundamentalist on value, then we would not be doing anything today. We will not be buying anything today. Maybe on the margin, we'll do, but we will be focused more on value than on buying at high points in the market. But yes, our focus will continue to be on value.

[Sanjeev Pandiya, analyst]

Okay. So then this points to a divergence in the understanding of what is happening to ship ordering and shipyard capacity. If shipyard capacity is mostly today committed to, let's say, containers, then how much is left for any crude bulk, et cetera? And has the downside given higher steel prices, et cetera, because when we were talking in 2017, we were looking at steel prices in the region of $350, $400, and today, it's something else. So the baseline also would have shifted.

Given that, can't we assume that the existing downside, the existing VAR, value at risk, on your existing ship pack portfolio would be almost down to 0 and it is the new ships that will add value at risk given the context of where shipyard capacity is right now, I mean, and the fact that orders are not forthcoming either for technology reasons or whatever the reasons?

[G. Shivakumar, executive]

That's right. I think the risk in buying today is higher than the potential return. Sort of we are -- and when we weigh the 2, we are -- we think that there is more downside than upside to doing those transactions, and that's why we are not doing that.

[Operator]

Our next question is from the line of Vaibhav Badjatya, Honesty and Integrity Investment.

[Vaibhav Badjatya, analyst]

So in terms of global oil flows, I just want to understand a few things.

[Operator]

Sorry to interrupt, Mr. Vaibhav. May we request you to use your handset, please, as you're not audible, sir?

[Vaibhav Badjatya, analyst]

Is it better now?

[Operator]

Yes, sir.

[Vaibhav Badjatya, analyst]

So I just want to understand a few things on the global oil flows. So I think as of now, most of the oil flow from Saudi Arabia, Kuwait and UAE through Strait of Hormuz. Now I want to understand, what are the alternate routes? And what are the capacities of those alternate routes? So one is Red Sea, and another is much longer, probably through Suez Canal.

So I just want to understand the capacity, both in terms of pipeline from -- for Saudi Arabia from the oil production facilities to the Red Sea, and then from Red Sea, [indiscernible]. So I just want to understand this whole alternate routes.

[G. Shivakumar, executive]

In practical terms, there is no alternate to coming through the Strait of Hormuz. There is a lot of oil, and you can't necessarily evacuate it all the way around through the rigs. So in practical, maybe a couple of million barrels can move, but there is a lot. So you have a lot of export capacity from within the Gulf, and that cannot move to the range. So if you have an issue there, it is -- there is no solution to it.

[Vaibhav Badjatya, analyst]

But I think those who [indiscernible] Saudi has some pipeline capacity to push oil to the [indiscernible].

[G. Shivakumar, executive]

Yes, you need the export capacity also. We'll have to see what the export capacity of those terminals is. I don't think it's significant. It's very difficult to replace.

[Operator]

Our next question is from the line of Vikram Suryavanshi from PhillipCapital (India) Private Limited.

[Vikram Suryavanshi, analyst]

Order book, there has been...

[Operator]

Mr. Vikram, may we request you to use your handset, sir? You're not audible, sir.

[Vikram Suryavanshi, analyst]

Is it audible now?

[Operator]

Yes, sir.

[Vikram Suryavanshi, analyst]

I'll just try to be louder, yes. Sir, for order book as a percentage of fleet, if you look at last few quarters, there has been increase from the lowest. So is it mainly because of newer ordering? Or is it fleet has come down because of scrapping?

[G. Shivakumar, executive]

No, no, no, fleet has not come down at all. It's just new orders. Fleet has -- nobody is scrapping any ships. The market is so hard that nobody wants to scrap a tanker. Even bulk carrier owners are holding on to their ships generally.

[Vikram Suryavanshi, analyst]

All right. Right. And this -- yes. Okay. And in fleet size, if you look at -- we have, say, almost like 3% of fleet growth in dry bulk. But just to take into the impact of the congestion, is the congestion impact is normalized now? Or we do see some free-up capacity even going forward with the normalization of trade?

[G. Shivakumar, executive]

So the congestion has actually come down below the normal level. So when we say congestion, the way we define it is fleet which is import, okay, for whatever reason. So it's come down a lot from year ago numbers, and now it's come down even slightly below the normal level.

So you're -- you have less than 25% of the Capesize fleet, for instance, import currently, which is lower than the normal. You would normally be in the high 20s to 30%. So congestion has come down. There is no further room for it to release ships. There is one area where there is congestion, which is mainly of Panamax, Kamsarmaxes, where there is a lot of congestion at grain -- a couple of grain export terminals in Brazil, again, because of some river water issues. So there's -- meaning that is waiting of after 2 months.

[Vikram Suryavanshi, analyst]

Understood. So if the trade recovers, so probably we can see then again -- congestion can again increase and probably that can...

[G. Shivakumar, executive]

Potentially, yes.

[Vikram Suryavanshi, analyst]

Potentially, okay. And then is there any play available with average period of ships here because since congestion is below normal and probably rates are also lower, so we might be running at much lower speed?

[G. Shivakumar, executive]

No. You could have a play on speed. But ships are generally -- you could have a play at still 0.5 hour to 1 hour lower speed, and that could well happen but not related to congestion, really, no. And if that happens, it could cause less efficiency. So I would put that as a cause of some future inefficiency rather than as an outcome of congestion.

[Vikram Suryavanshi, analyst]

Got it. And the last question about this offshore that the repayment is coming next year. So we have sufficient cash, but we -- will we use all the cash to repay or we'll refinance that and keep some cash on the [ offshore ]?

[G. Shivakumar, executive]

Intention is to refinance. Intention is not to use all our cash to repay. Intention is to refinance that loan.

[Operator]

Our next question is from the line of Anuj Sharma from M3 Investment.

[Anuj Sharma, analyst]

See, as per annual report, the estimated life of a few of these tankers and the product tankers would be 20 and 23, respectively. And if I look at our fleet, some of our assets will be close to the estimated life. So my question is, is it sacrosanct or because we have maintained or if efficiently, most of these ships, the life can be far longer than the estimated life? That's question #1. And do we have -- or oils, do we have to take a decision for these assets, which have a residual life of 1 to 3 years in the next period, next 1 to 3 years?

[G. Shivakumar, executive]

Okay. Yes. Thank you for your question. The -- so these lives that we have put, which we use for the purpose of calculating depreciation, useful life of a couple of calculating depreciation. Our assessments of how long they can work, and typically, we take a commercial life. There is no regulatory date as of -- I mean these are not the regulatory dates. There are regulations which will stop you from running the ship beyond a certain point. But these are not those dates.

So for instance, you can still run a crude tanker past the age of 20 though we have put 20 as the useful life. You can still run a product tanker beyond the age of 23. You can still run a bulker beyond 23 also. What happens is that beyond a certain age, the commercial tradability becomes a little more difficult. Some customers -- and you know that we operate mainly in the international market. The international market is 80% of our revenue. Some customers will not be willing to take these assets beyond a certain age. That's where it starts potentially affecting the trading life.

But otherwise, there is no issue. We maintain our ships well. It's only because the birth date is so and so, the date of building, that sometimes the acceptability cannot be great. Otherwise, we are absolutely fine to run these to whatever it is because we try to maintain the ships to be able to trade in all markets at all times.

[Anuj Sharma, analyst]

Okay. So it's fair that we will think of taking a decision on these ships in the residual period. That will be a commercially logical decision, correct?

[G. Shivakumar, executive]

That's right. Yes. We will -- obviously, we would like to renew our fleet at the opportune time and price so that we'll look at in the coming couple of years when they get to those ages.

[Anuj Sharma, analyst]

Okay. And my second question is you talked on the rigs part that the rigs would be 10% to 12% higher than the last renewal. What is -- for the vessels, what is the rough increase in the prices of our vessels since the last contract?

[G. Shivakumar, executive]

So for real comparability, because in the vessels, these are contracts which were fixed about 4 or 5 years ago. Those contracts are getting priced up by -- in the Indian market by anything between 50% and 90%, okay, for time charters. Again, from a low base.

The -- in the international market, so we took one vessel out of the Indian market, and she was earning x dollars per day. We took her into the international market. She is earning 2.5x. So you have a 150% increase. Again, there's a difference between a 3-year charter which -- contract which she was on in India versus, say, a 6- to 1-month -- 6-month to 1-year contract where she is overseas. But still, the headline rate is significantly higher.

To compare it on a like-for-like basis, 5 years ago, the rig rates of the last done contract of our owned rig is 3x of what it was 5 years ago, and now that 3x has gone up by another 12% to 15%. So it is not a forecast for what our next contract could be at. It's just what the market pricing is at.

[Operator]

Our next question is a text question from the line of Samraj N from Dwarka Share Brokers Private Limited. Sir, to get a pulse of the [ SMB ] market, what was the acquisition in million dollars for the AHTSV, MR2 and Kamsarmax and sales price of the Supra? Also what is the DWT of the AHTSV?

[G. Shivakumar, executive]

Yes. We don't -- because of confidentiality clauses, we don't give out prices of any of our acquisitions of sales. The deadweight of the AHTSV is probably less than 2,000 deadweight. I'm not 100% sure, probably less than 2,000 deadweight.

[Operator]

Our next question is from the line of Pritesh Chheda from Lucky Investment.

[Pritesh Chheda, analyst]

Am I audible?

[G. Shivakumar, executive]

Yes, yes.

[Pritesh Chheda, analyst]

I couldn't catch the answer which you gave to one of the previous participant on the rig repricing where you mentioned it is 10%, 15% higher. It is 3x, 5x, I was confused there. So what is the pricing that you have got in the renewal contract? How much higher are the renewed contracts, sir?

[G. Shivakumar, executive]

Yes. Okay. Pricing 5 years ago in a 3-year contract in India was x. Our repricing, which happened 4 months ago or 5 months ago, was 3x. The latest repricing, which happened in a similar contract where we did not have a rig, we were not bidding in that contract. But this is just to show you what is happening to the market recently, is another 12% to 15% higher than the 3x. So we are talking of 3.35 to 3.5x. Yes.

[Pritesh Chheda, analyst]

The recent contract where you did not bid the pricing was how much higher?

[G. Shivakumar, executive]

12% to 15% higher than the most recent contract that we got.

[Pritesh Chheda, analyst]

Okay, okay, okay. Understood. Now it was very clear, okay. So it also depends what price in all these numbers.

The other thing is you have these repricing of the 4 vessels. So my guess is you have already got into recontracting. Is it fair to assume that this time around, you would have seen a slightly longer period contracts of 3 to 5 years type in some of these vessels?

[G. Shivakumar, executive]

No, we don't get to choose the periods of the contracts. The customer chooses what time period they want for the contracts, either a 3-year or a 5-year contract in the Indian tenders. So we don't -- this is not a bilateral negotiation, yes.

[Pritesh Chheda, analyst]

Yes. I'm just asking -- okay, what will be the average tenure now in your...

[Vikram Suryavanshi, analyst]

These are typically -- Yes. These are typically 3-year contracts for standard contracts and 5-year contracts for more specialized ones. Again, the pricing there is between 50% and 80% higher -- 50% and 90% higher than the last [indiscernible].

[Pritesh Chheda, analyst]

Is it fair to assume that the whole fleet will be on contract and very less on spot -- your spot?

[G. Shivakumar, executive]

Yes, yes. We have a couple of vessels which there is not really a spot market. The only very significant spot market is the North Sea vessel market. We are not there in that market. The -- so they will be on short-term contracts or long-term contracts. So we do contracts, including for 30 days, 45 days, 3 months also. But a majority of our fleet, which is in India, will typically be 3-year-type contract.

That is the majority [indiscernible].

[Pritesh Chheda, analyst]

And you have very [indiscernible] very less [ fleet ] outside India, right?

[G. Shivakumar, executive]

That's right. Maybe 30% to 40% of the fleet out of our 19 ships will be outside India.

[Pritesh Chheda, analyst]

Okay. And my last question is for the rig that we have -- 15-year rig, what now the asset value for a similar rig, only a rig, if you could share that?

[G. Shivakumar, executive]

Sorry, what is the price of a rig of our type?

[Pritesh Chheda, analyst]

Yes, yes, yes.

[G. Shivakumar, executive]

Yes. Between -- depending on who you ask, it's between $80 million and $110 million.

[Pritesh Chheda, analyst]

And this is a 180 feet or this is a...

[G. Shivakumar, executive]

No. So this is a 350-foot rig.

[Pritesh Chheda, analyst]

One -- so you said it's between $80 million to $110 million.

[G. Shivakumar, executive]

Yes, between $80 million and $110 million, probably in -- somewhere in the $95 million, $100 million range is where I would put a guess. Again, these are not very liquid markets. That's why the wide range.

[Operator]

Our next question is a follow-up question from the line of Sanjeev Pandiya from Lancers Impex Limited.

[Sanjeev Pandiya, analyst]

This is about the evolving technology and the 2030 emission norms and particularly the EU ETS starting from next year. One, how do you expect VLCC rates to be impacted by the carbon tax on EU? Two, where are we on the 2030 norms? Is there any sense that we have? Three, 20 ships, I believe, are already sailing around the world with different kinds of technology, from hydrogen to wind to solar to even sales people are using, I believe. Some big guys, including Maersk and all have also kind of picked up 1 or 2 of these ships for commercial operations.

So how is this technology evolving? Do you think that this is what will kick off the next CapEx cycle across the industry? And where are we on scaling up? I mean which technology is most likely to run ahead of the others? So how do you see the whole situation evolving? And can we anticipate the next CapEx cycle coming from this direction?

[G. Shivakumar, executive]

Yes. So yes, thank you. That's an interesting one. I'll start with the last question first. Yes, lots of people are experimenting with lots of stuff. Wind is an add-on. Nobody is looking at wind as a primary propulsion. It is -- they are adding it on as potentially to do some fuel savings. So it's not a primary propulsion method for the ship. So that's happening. So that's one.

There are lots of other energy-saving devices. We are also putting energy-saving devices, and we've been doing it for the last 10 years now. So let's keep that aside. Fuels, people are doing -- experimenting with a lot of fuels. We hear about hydrogen. I don't think there are any deep sea, long-distance hydrogen ships yet, not that I've heard of. Maybe they are very short-haul kind of ships, but I don't even recall hearing that. There are electric. But again, for very short hauls. People are experimenting with ammonia and methanol. Again, all of these are very experimented.

Your question on the CapEx cycle is very valid. You probably remember that the last time there was a big CapEx cycle and new building cycle and shipping was when the so-called -- not so-called, the actual eco-ships were introduced by the shipyards in 2011, '12, and that kicked off a big round of building from people who wanted to get the eco-ships and be more competitive. And that led to an overbuilding, as sometimes happens. We hope that doesn't happen this time.

Again, it'll take time for all these technologies to settle down. The eco-ships were a more evolutionary and incremental. These things are more revolutionary to change your fuel completely from normal hydrocarbon-based oils to, say, methanol or ammonia, which have naturally a lower energy density and, therefore, cost more money, they are less efficient, et cetera. It'll take some time. Maybe it will happen in 3 years' time, maybe 5 years' time, not yet. So that's one thing.

Coming back to your first question, not specifically for VLCCs, but the EU ETS, yes, it kicks in from Jan '24. There will be confusion about it and how exactly to implement it. We know how it is to be calculated. Yes, this will add to the cost of the trade, but it's not different from if a port in the EU charges us extra as port charters. So everybody will price it into the trade. Finally, the cost will get passed on to the consumer in the EU, whoever the customer is.

So while it is a regulatory hassle for shipowners, finally, the cost will be borne potentially by the customers in most normal circumstances. So that's on -- I don't remember what the second question was.

[Sanjeev Pandiya, analyst]

No, the 2030 environment, emerging [indiscernible] developments on emission [ standpoint ].

[G. Shivakumar, executive]

Yes. So 2030, we actually don't know. They've set a target for 20% reduction, aim for 30% reduction and so on and so forth. We don't know how it is to be achieved. They have set a certain trajectory, which is a macro trajectory. We have this thing called CII, where you have to start complying and you get rated under A to E, and you have to achieve certain ratings, so on and so forth. You have to report these. The first step is to report and then try to correct.

However, this is going to be reviewed in 2025, '26, and they will decide then what to do about that rating methodology. So I think 2030 is a long way away. All of this is going to be reviewed in 2025, '26, and then we'll know the new direction that we are going to take. Until then, there's -- we just don't know. We will keep compliant, obviously. We have been reporting our emissions for even calculating and reporting voluntarily even before all the CII and [ arms ] came in for the last 4 years. So we'll just keep going ahead with that. That's all.

[Operator]

Our next question is from the line of Roshan Nair from B&K Securities.

[Roshan Nair, analyst]

So I just quickly wanted to understand your outlook for the second half of our crude and product tankers market and dry bulk carrier market.

[G. Shivakumar, executive]

So while -- it's tough to give an outlook, but typically, and you've been following us for long enough, you know the winter months are the strongest months usually for the tanker market. Apart from that, we've also had inventory drawdowns happening also because of the OPEC cut and the Saudi cut on top of the OPEC cut. All of this has to catch up sometime and, therefore, lead to higher demand for transportation of crude oil and refined products.

Therefore, we would expect -- and we're already seeing it in the crude tanker market. What was $25,000 a day 3 weeks ago is now at $55,000 a day for a Suezmax and for Aframax. Markets are stronger. Product tankers, not yet so strong, at least not the MRs. MRs are slightly weaker than they were 3 weeks ago. But yes, we see strength in -- you should see strength in the second half of the financial year mainly because it's just seasonality.

[Roshan Nair, analyst]

Yes. That's helpful. So another question is at what asset prices you should start comfortably adding fleet in the dry bulk side?

[G. Shivakumar, executive]

So we've -- as you've seen, we've done one transaction. So we'll do that. We will do some transactions potentially. We are not there to go all in at these prices. So it will be incremental rather than a large CapEx. We probably need to see some more drop in prices before we will commit a large amount. It's close to where we'd like to be, but not yet there.

[Operator]

Sir, our next question is from the line of Krishnaraj Venkataraman, who is an individual investor.

[G. Shivakumar, executive]

Hello, Mr. Krishnaraj?

[Operator]

Mr. Krishnaraj, your line has been unmuted. Please go ahead with your question, sir. Mr. Krishnaraj, your line has been unmuted. Please unmute your line from your side to ask a question, please. So there is no response from the participant. May we move to the next question?

[G. Shivakumar, executive]

Yes, please.

[Operator]

The next question is from the line of Vaibhav Badjatya from Honesty and Integrity Investment.

[Vaibhav Badjatya, analyst]

Yes. So continuing on my last question -- sorry to ask on this, but last time in the Strait of Hormuz, how do you think that is [indiscernible].

[Operator]

Sorry to interrupt, Mr. Vaibhav. May we request you to use your handset, please? Your audio is not clear, sir.

[Vaibhav Badjatya, analyst]

Is it better now?

[Operator]

Yes, sir.

[Vaibhav Badjatya, analyst]

So I'm just trying to understand when the last time the Strait of Hormuz closed, how did -- what did you experience last time? Was it just the reduction in [indiscernible] because there was oil flows were not possible? Or what happened last time? It would be interesting to understand.

[G. Shivakumar, executive]

So I don't think the Strait of Hormuz actually closed in the past. We had the Iran-Iraq War going on, where there was shelling and missile, rockets are fired. I don't think the Strait of Hormuz actually closed fully. So we don't have a precedent for any Strait of Hormuz closing. So this has not happened. And again, this is before my time. The Iran-Iraq War happened in the '80s, but I don't think we had it completely closed.

[Operator]

Ladies and gentlemen, that was the last question of our question-and-answer session. I now hand the conference over to Ms. Anjali Kumar, Head of Corporate Communications, for closing comments.

[Anjali Kumar, executive]

Before we close, can we once again ask Mr. Krishnaraj if he wants to still ask because he has again written in chat that he would like to ask a question. Mr. Krishnaraj, are you there?

[Operator]

Yes, ma'am, I'll unmute his line. Mr. Krishnaraj Venkataraman, you can go ahead and ask your question, sir. Ma'am, the participant has left. His line has dropped.

[Anjali Kumar, executive]

Okay. So we'll end this call here. Thank you, everybody, for joining in. And we will be uploading the transcript very shortly. And feel free to reach out to our team for any further queries. Thank you very much again.

[G. Shivakumar, executive]

Thank you, everyone.

[Operator]

Thank you. On behalf of The Great Eastern Shipping Company Limited, that concludes this conference. Thank you for joining us, and you may now exit the meeting.