DHT Holdings Inc

NYSE:DHT

Earnings Call Transcript 2023-Q1

[Operator]

Good day and thank you for standing by. Welcome to the Q1 2023 DHT Holdings Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions]

Please be advised today’s conference is being recorded. I would now like to hand the conference over to your first speaker today Laila Halvorsen CFO. Please go ahead.

[Laila Halvorsen, Chief Financial Officer]

Thank you. Good morning, and good afternoon, everyone. Welcome and thank you for joining DHT Holdings first quarter 2023 earnings call. I’m joined by DHT’s President and CEO, Svein Moxnes Harfjeld. As usual we will go through financials and some highlights before we open up for your questions. So link to the slide deck can be found on our website dhtankers.com.

Before we get started with today’s call, I would like to make the following remarks. A replay of this conference call will be available at our website dhtankers.com until May 11th. In addition, our earnings press release will be available on our website and on the SEC EDGAR system as an exhibit to our Form 6-K.

As a reminder, on this conference call, we will discuss matters that are forward looking in nature. These forward-looking statements are based on our current expectations about future events as detailed in our financial report.

Actual results may differ materially from the expectations reflected in these forward-looking statements. We urge you to read our periodic reports available on our website and on the SEC EDGAR system including the risk factors in these reports for more information regarding risks that we face.

We have a solid -- work solid balance sheet represented by low leverage and significant liquidity. Financial leverage is about 18% based on market values for the ships and net debt per vessel was $12 million.

The quarter ended with total liquidity of $346 million, consisting of $117 million in cash and $229 million available under revolving credit facilities. You should also note that we have no newbuilding CapEx commitments.

We achieved revenues on TCE basis of $93.9 million during the quarter and EBITDA of $71.9 million. Net income was $38 million equal to $0.23 per share.

We continue our good cost control with OpEx for the quarter at $18.4 million and G&A at $4.6 million. The vessels in the spot market earned $54,600 per day and the vessels on time charters made $35,000 per day. The weighted average TCE achieved for the quarter was $49,100 per day.

Earnings were impacted by 112 scheduled off-hire days in connection with installation of exhaust gas cleaning systems and unscheduled off-hire mainly related to one of our vessels which encountered bad weather damage.

IFRS adjustment for the quarter amounted to $5.4 million equal to $3,900 per day. Hence, adjusted TCE for the vessels in the spot market was $58,500 per day. The IFRS 15 adjustment is simply due to the timing of when revenue is recognized and it’s impacted by low days. These earnings will be transferred into the second quarter.

We started the quarter with $125.9 million in cash and we generated $71.9 million in EBITDA. Ordinary debt repayment and cash interest amounted to $5.4 million and $61.9 million was allocated to shareholders through the cash dividend pertaining to the fourth quarter of 2022.

We invested $14.8 million in our fleet, with $2 million in maintenance CapEx and $12.8 million for installation of exhaust gas cleaning system. In January, we terminated seven interest rate swaps and received $3.3 million in connection with the termination. In addition, we refinanced one of our large credit facilities with a net zero effect and the quarter ended with $117.5 million of cash.

In January, we entered into $405 million secured credit facility, including $100 million accordion. This refinanced the outstanding amount on the ABN AMRO facility and is secured by 10 of the company’s vessels. That is payable in quarterly instalments of $6.25 million, equal to 625,000 per vessel, with maturity in January 2029. The new loan bear interest at a rate equal to SOFR+ 1.9%, which is equivalent to LIBOR+ 1.64%.

The mentioned refinancing is in line with DHT-style financing, which includes of 20-year repayment profile and a fixed year tenure. In connection with the refinancing, and as mentioned on the previous slide, we terminated seven interest rate swaps that would have matured in the second and third quarter of 2023. We received 3.3 million in cash in connection with the termination.

Switching now to capital allocation. Our cap -- our dividend policy was updated last year. Our key thought behind this was the combination of our strong balance sheet and no newbuilding CapEx amidst distributing 100% of net income of good business.

According to the new dividend policy, we will pay $0.23 per share for the quarter, returning $37.5 million as a quarterly cash dividend. The dividend will be payable on May 25th to shareholders of record as of May 18th and this marks the 53rd consecutive quarterly cash dividend. The shares will trade ex-dividend from May 17th.

In March, our Board of Directors approved a renewed share repurchase program of $200 million of the company’s security. The repurchase program has a 12-month duration and replaces the prior $50 million program. We have no immediate plan to deploy this program, but like to have our toolbox equipped should the capital market present the right opportunity.

With that, I will turn the call over to Svein.

[Svein Moxnes Harfjeld, President and CEO]

Thanks, Laila. Our time charter book currently consists of seven contracts. Three of them are coming off during the third quarter and it is our intention and ambition to rebuild the time charter portfolio through the right opportunities with the right customers.

We have recently secured a three-year time charter for the DHT Puma. The contract has a profit sharing structure that includes the fixed base rates of $33,500 per day. The profit sharing structure is based on certain indexes with the ship’s actual economics. As such, including the benefits of being an eco-vessel fitted with a scrubber.

The first year of earnings from the base rate to $40,000 per day will be allocated 100% to us. Earnings above this level will be equally shared between the customers -- the customer and us. We have good experience with these structures from past time charters, and as an example, I reference, this time charter earned about $62,800 per day during March.

We are here updating you on our bookings to-date for the second quarter of 2023. We expect 620 days to be covered by our term contracts at an average rate of $34,800 per day. We further expect to have 1,390 spot days for the quarter, of which about 65% has been booked at an average rate of $70,300 per day. Combined, and as of today, this indicates bookings of 75% of the total days at weighted average earnings of $55,800 per day.

In the last line, we are estimating the spot P&L breakeven rate of $24,900 per day for the second quarter, allowing you to model a net income contribution based on your own assumptions for the unfixed spot days.

The bookings for the second quarter-to-date is a healthy start to the quarter with good prospects for the quarterly cash dividend. We have, however, seen a drop in freight rates since the beginning of the quarter. Current rates from eco scrubber fitted vessel starts with a four-handle [ph] though the current sentiments suggest softening in rates.

We discussed this on our prior call, and in order to avoid any misunderstanding, we take the liberty to show this slide again. The estimated P&L breakeven for the fleet as a whole is about 27,500 per day for the remaining three quarters of the year. When adjusted for the fixed income that we have, the P&L breakeven for the spot fleet is about $24,600 per day.

For the remaining three quarters of the year, we estimate the cash breakeven for the fleet as a whole to be $18,500 per day, with the spot ships requiring to make $12,800 per day for the company to be cash neutral.

Keep in mind that our cash breakeven numbers include all true cash costs, OpEx, G&A, maintenance CapEx, cash interest and debt amortization. This illustrates a headroom of about $9,000 per day between cash breakeven and net income breakeven for the fleet, with the potential annualized cash flow of some $70 million that will be allocated to general corporate purposes. This cash flow, combined with the capacity in our balance sheet will enable us to invest when the time is right and the opportunities offer rewarding prospects.

Here we provide you with an update on our project to retrofit the remainder of our fleet with exhaust gas cleaning systems. We have to-date completed six of eight of the retrofits and thus have two remaining.

We have not fixed the time for these two, but intend to use air pockets in the freight market to execute them. The project execution thus far has been according to plan, both from a cost perspective and in terms of planned off-hire days for the ships.

The fuel spreads have alongside weakening refining margins come off, but are still offering premium earnings for the ships with systems installed. We now have 21 of 23 ships operational with systems and plan to be 100% fitted within this year. As we have mentioned earlier, these ships are the focal point of clients wanting to pursue term charters.

On this slide, we illustrate developments in seaborne crude transportation over the past three years or so and ton-mile development over the same time period. As you’re all aware, the conflict between Russia and Ukraine disrupted trade patterns, which drove premium earnings for our smaller siblings. With the slightly longer retrospect following the COVID setback, it has been a fairly steady and positive development.

Importantly for DHT, in particular, the graph on the left shows VLCCs handling close to 50% of seaborne crude oil on a nominal basis, and surprisingly and due to its size and competitive cost of transportation, it represents about 70% when measured on a ton-mile basis. The VLCC it’s a true workhorse of the crude oil transportation markets and you think it’s reasonable to expect this to prevent going forward.

These are extraordinary times from a geopolitical perspective and our businesses as one would expect impacted. We shall not offer you any geopolitical analysis or act as an oil market expert that would be beyond our capacity.

However, lifting the beams a bit, the three basic pillars for our business are positive. We have a growing demand for oil, because increasing transportation distances and basically no new supply coming on. We think we are in the early innings of experiencing the benefits of these pillars and it should likely continue to be volatile and seasonal.

OPEC+ surprised the market with its announcement a month ago. War, sticky inflation and increased interest rates, falling refining margins raising concerns about demand and certain financial turmoil are all tempering near-term expectations. Maybe OPEC+ was ahead of the curve, but trying to reduce the impact on oil price now and targeting a higher price for the forecasted recovery later this year, our $0.02 only.

China is, however, opening up an increasing consumption and we do have a sense that non-OPEC supply will step up to compensate at least for part of these impacts and that will mean longer transportation distances.

The tanking market has historically been prone for disruptions. As we speak, there are tankers involved in seizures in the Middle East growth. A certain significant flag state is due to security alert to its members and they understand some owners failing under this flag have concerns about entering the area. If this plays out, it can abruptly decrease supply of ships in this highly important loading area. This certainly has risk to the upside in the freight markets.

Unrelated, there was recently an explosion followed by significant fire and fatalities in an older tanker anchored in Southeast Asia. We are seeing incidents and now accidents related to ships in the shadow fleets. If this trend evolves, it could make users of these ships, authorities controlling territorial waters and niche the transit and terminals accepting these ships, think twice about accepting and using them. If this plays out, it could remove capacity, and again, it certainly has risked the upside.

There are some near-term headwinds in the market, but we think one should not let this blur the long-term tailwinds supported by the key market pillars. Going forward, our plan is consistent and we will stick to our knitting. You should expect continued strong discipline in executing our business model and strategy.

We have a great team of people in a no-nonsense company culture, all focused on delivering safe and reliable services to our customers and strong results for our shareholders. We are tuned to operate in the tanker market with the quality of fleeterships, all in the water able to generate premium revenues, a rock solid balance sheet, a low cost structure with robust breakeven levels. We think returning 100% of net income to shareholders to be fair and square.

And with that, we open up for questions. Operator?

[Operator]

Thank you. [Operator Instructions] I will now take our first question. Please standby. This from the line of Chris Tsung from Webber Research. Please go ahead.

[Chris Tsung, Webber Research]

Hey. Good afternoon. Good morning. Svein and Laila, how are you?

[Svein Moxnes Harfjeld, President and CEO]

Doing very well. Thank you, Chris.

[Chris Tsung, Webber Research]

Good. On that time charter for the Puma, just to confirm, if it reached 50,000, DHT gets 40% plus another 50% and the upside over 40%, is that right?

[Svein Moxnes Harfjeld, President and CEO]

Yes, Chris. So about $40,000 a day on the calculator is the 50-50 share of income.

[Chris Tsung, Webber Research]

Okay. Thank you.

[Svein Moxnes Harfjeld, President and CEO]

But I think…

[Chris Tsung, Webber Research]

And then…

[Svein Moxnes Harfjeld, President and CEO]

…rest of it, I say, that there is a pre-agreed calculator using this ship’s specific economics. There is not a standard index shift. So the equal benefits of the ship and the scrubber benefit of the ship is in that calculation.

[Chris Tsung, Webber Research]

I see. And then for the increase or the option at the year and is that -- will that increase for the base of loan or is that for both the base and the profit share?

[Svein Moxnes Harfjeld, President and CEO]

The base and the threshold for the profit share will increase.

[Chris Tsung, Webber Research]

All right. Great. That was one question. And just on the second one, on your cash flow statement, I noticed that investments in vessels are a little bit higher than expected. Is that just for one scrubber and how should I think about what future investments could look like?

[Svein Moxnes Harfjeld, President and CEO]

Laila, do you want to reply to that?

[Laila Halvorsen, Chief Financial Officer]

Yeah. That’s not just one scrubber now. So that relates to the scrubbers installed during the quarter. But it’s also worth mentioning that the cash flow effect is not timed exactly at the time of the installation. So I hope that clarifies.

[Chris Tsung, Webber Research]

Okay. Great. Sure. And maybe just one final one before I pass it on. Just hearing about that vessel that was damaged by bad, but how long will that vessel be out for?

[Svein Moxnes Harfjeld, President and CEO]

The vessel is back in service, but she was out of service for a while in the first quarter. So we had some rough weather damage and that’s been repaired and that took a little while. So, and the ship is back fully classified and servicing its customers.

[Chris Tsung, Webber Research]

Perfect. Thank you guys for the color. I will turn it over.

[Operator]

Thank you. We will now take our next question. Please standby. And this is from Jonathan Chappell from Evercore. Please go ahead.

[Jonathan Chappell, Evercore]

Thank you and good afternoon. Svein, going back to the Puma contract, that’s the terms that we haven’t seen really in some time across the industry, maybe from the last boom cycle pre-global financial crisis. Are those the types of contracts now that are becoming more prevalent given some of the volatility in the market and some of the long-term tailwinds that you mentioned in the presentation?

[Svein Moxnes Harfjeld, President and CEO]

I’d say no. This is a customer and some people we know well. And it’s not sort of a typical structure that is on offer, I think, in any way, but that has been developed between both the customer and ourselves, and it sort of worked well for both parties.

I’d say liquidity in sort of term business is thinner now than it was, say, in the fall and that in the winter, but very few things got executed and the bid-ask spread was quite significant during the first quarter hence basically nothing got out.

So, but we try to have close discussions with all our customers and we do have a sense that there is a genuine concern about supply of ships over the longer term as the order book is a good example of. And also because the significant portion of the fleet has migrated into sort of the shadow trade. The compliance fleet has shrunk quite meaningfully. So it also means that there are less sort of operators or close service providers that they would like to engage in term business with.

So we expect there to be more opportunities to develop good cash flows with longer terms. And we’ve had some brief discussions on both three-year, four-year and five-year opportunities, one even longer. But it takes a bit of time to develop and there’s always a little bit of spread in what the two parties want. But we have a sort of clear focus on and ambition on in developing this.

So I think over the next two, say, call it, six months to 12 months, you should expect the DHT to present more opportunities in different sets and forms, but to get better visibility on earnings and becoming, hopefully, in the long run, a more investable business not as the trading business.

[Jonathan Chappell, Evercore]

Okay. That’s really helpful. Thank you. My second question, you mentioned the China demand reopening, hopefully, tail. I was hoping maybe you can explain a little bit on how you’ve seen that transpire so far. As you noted, the market is weekend of late, OPEC cuts really haven’t kicked in yet. I mean we’re just in the early part of it, maybe a couple of weeks of V bookings. So as Vs being a good proxy for kind of long-haul Chinese demand, and maybe some other industries raising some yellow flags about the China reopening. Has it been what you expected it to be and what gives you the confidence that the country will still go back strong on its crude imports?

[Svein Moxnes Harfjeld, President and CEO]

I think as we said in the press release, right, we have to sort of really see the details of how this cost will play out. I think one sort of reasonable -- also a lot of sentiment of psychology in this market, right? So just a few, we expect the AG East market or Middle East to the Far East market traded at a premium to the Atlantic market. And now sort of that is sort of, if not reversed, is probably leveled out. So that’s sort of a reflection on the sentiment of expected oil coming out of the Middle East.

China is, for sure, reopening, and we’ve seen the latest numbers that refinery runs are higher than what they were on prior months and prior quarters. But we do think that these runs are primarily tuned to increase in domestic consumption.

So we see now in the Golden Week now this -- the mobility in China is a huge increase in flights and driving and whatnot. We’re not suggesting this is a proxy for everything going forward. But it is an example that society is moving in a more normal fashion. And Golden Week is an annual event, right, and it tends to move people in the same way as maybe Thanksgiving in the other country. So that is happening.

And again, it’s a bit too early to say how it plays out. Will all the cuts be implemented by the meter or I don’t know, frankly, but some level of impact, we think it will have, but oil price has not really been able to hold up, right? So I think we need to see it really happening in practice at least for the oil price to respond. So let’s see what happens on that. I think that might be a good indication on how this will develop.

[Jonathan Chappell, Evercore]

Great. Thank you for the color, Svein.

[Operator]

Thank you. We’ll now take our next question. Please standby. This is from Omar Nokta from Jefferies. Please go ahead.

[Omar Nokta, Jefferies]

Thank you. Hey, guys. Good afternoon. Svein, definitely some good color you gave in your opening comments and then just now talking with Jon about the -- sort of the way the market is set up. I want to ask, obviously, the OPEC cuts, they just started and we’ve seen the impact on VLCC rates and you have the headwinds in the near-term off of that. How do you think over the next several -- maybe call it three months to six months, how the potential to replace those barrels are shaping up? Do you think there’s opportunity for cargoes out of the Atlantic Basin to potentially replace what we’re not seeing from OPEC?

[Svein Moxnes Harfjeld, President and CEO]

I think Brazil has increased their consumption steadily over quite a while now and they’re up to 3.1 million, 3.2 million barrels a day. So and they are supplying the Far East market in particular. And we still have one ship on a term contract to the biggest producer in Brazil. We do a lot of spot business and there’s still a lot of inquiries on that. So that’s sort of, I think, the most obvious area.

West Africa, in general, is still lagging a little bit behind and they haven’t been able to step up production wise and for a variety of reasons. But they have the opportunity to sort of step aside for these voluntary cuts, right, because they have other operational issues.

To what extent U.S. will be able to continue to grow, we might sit closer to the action than what we are, but the latest sort of forecast we saw that people expect to increase production of maybe 0.5 million barrels a day this year.

And Europe has been an increasing -- an important market for U.S. barrels and we’ve done a number of shipments on VLCCs to Europe, which is sort of a new business. But there’s still sort of steady exports going to China in particular from the U.S. So there might be some there.

North Sea is now basically all Europe. So we don’t really expect that to go to the Far East to the extent it used to do unless you get sort of willingness to pay for it, i.e., sort of the higher freight cost in particular, right? So it’s predominantly Brazil, and secondary, maybe the U.S. has something to deliver.

[Omar Nokta, Jefferies]

Got it. Thanks for that color. And then maybe just sort of -- there’s been a lot of discussion here over the past few weeks about refining margins haven’t come off from the very high levels earlier this year. How do you see that translating into the market? Are we seeing an effect of that lower crack spreads? Is that impacting vessel demand? And how do you see that going forward if crack spreads were to remain at these sort of levels, does that impact to VLCC trade or is it somewhat insulated from that?

[Svein Moxnes Harfjeld, President and CEO]

I think it’s worth noting that the refining spreads are so positive. So the refineries are making money. As long as they’re profitable, they tend to keep the runs going, right? So it’s more in the event that they turn sort of neutral or even if it’s tariff go negative, then, of course, then runs will pay back and that will impact crude headstock immediately.

So I think for now, it’s still okay. But of course, this is an indication of maybe supply for refined products was too tight at some point lifting this margin and maybe now it’s sort of getting into a more balanced market.

But, so whether it’s sort of pull back in demand or whether it was just lack of supply that created those other below [ph] spreads. I’m not an expert on that, but of course, it’s something we have to follow, because if they get too close to zero, that will impact the transportation of feedstock.

[Omar Nokta, Jefferies]

Yeah. Makes sense. Thanks for that. And maybe just one final one and just a follow-up to your answer to Jon, about the time charters. And you mentioned for us to see -- first expect DHT to do a few things later this year customer-wise. Is that just specific to time charters or have you seen an opportunity to take made advantage of this potential soft patch that’s ahead and acquire assets?

[Svein Moxnes Harfjeld, President and CEO]

So far, there’s no signal of at least estimated asset values to be softening. If they do in our book for us to make these sort of attractive opportunities, there has to be a quite meaningful correction in values.

So, but there are different ways for us to invest. And as Leila commented on, we have extended share buyback program, but not only extended it, but also increase it in size. And a reflection of the reason for this is that, number one, of course, the equity value the company has increased as we have delevered. So we wanted to have more muscle.

But also, this is a period that if for some other reason, not just specifically in the tanker market, but if for capital market or economic reasons, things reprice negatively, buying our own ships through buying back stocks is maybe the most interesting investment as opposed to buy hard assets. So we wanted to have our toolbox ready and if these opportunities come along, not that we necessarily wish for it to happen, but if it happens, we want to be ready.

[Omar Nokta, Jefferies]

Great. Very good. Thanks for the time.

[Svein Moxnes Harfjeld, President and CEO]

And just as an example, right? So between the summer of 2021 and summer of 2022, we bought back approximately 6% of the company and at that time, very attractive share prices, but from an investor perspective. So we have been able to do this in the past and it could well happen in the future as well.

[Omar Nokta, Jefferies]

Awesome. Thank you.

[Operator]

Thank you. We’ll now take our next question. And this is from the line of Frode Morkedal from Clarksons Securities. Please go ahead.

[Frode Morkedal, Clarksons Securities]

Hi, Svein.

[Svein Moxnes Harfjeld, President and CEO]

Hi, Frode.

[Frode Morkedal, Clarksons Securities]

And I have a question on the VLCC order book, which is now approaching record lows. And as you have seen, I guess, there’s been some new orders for LR2 product tankers recently. So first, could you just talk about what you think is holding back new orders for the VLCCs, and secondly, what needs to change for people to start ordering vessels again?

[Svein Moxnes Harfjeld, President and CEO]

I guess some of the interest in LR2s is maybe a reflection of the phenomenal performance that asset prices have over the last year or so, right? So they really delivered tremendous earnings. And of course, that might suggest to some people that this time is different, but things are changing. I can’t say whether they are not. But I would suspect that, that is the sort of good reason why people feel confident about that at class. We are not studying that in detail. So I think all the people are probably a better place to comment on that.

There’s also been contracted with some Suezmaxes. I think there’s some simple reasons to this is that prices now nominally are of such significant value that it is a lot of money to forecast, right? And recently Suezmaxes have been in the 70s. There’s some down in the low 80s from maybe some of the real shipyards compared to asking prices in Korea between 125 million and 140 million for sort of a VLCC.

So just the ticket itself is significant. And so, I guess, the barrier is more edible to people at a smaller ship class. You could probably do things in China on the VLCC at a lower price. But I think another key consideration for many people with also with this amount of money being involved in such investment is that the ships will only deliver in the second half of 2026 probably today.

So you’re looking at having debt capital for three and a half years before you’re going to earn any money. And these four deliveries are not offering any opportunities to, for instance, secure fixed cash flow reflecting on the value of the investment.

Whereas you have another market, LNG, which is also a significant order book, but a lot of it is being built against long-term contracts. And other things that maybe some of the private owners that have typically been engaged in tankers, they find the LNG sector very attractive.

And one LNG carrier cost about twice as much as a VLCC, and you get delivery forward, okay, but you also get a long-term contract in five years, seven years, 10 years, 15 years. So it’s a sort of a different business proposition that are attracting capital away from maybe large tankers for a while and we think that this just bodes running well for our space. So we welcome it. But I think those are sort of reasonable and rational reasons why you haven’t seen ordering in large tankers yet.

[Frode Morkedal, Clarksons Securities]

So in order to this to change, I guess, you -- what needs to change, investing values, it’s the rise above newbuild prices on some of that?

[Svein Moxnes Harfjeld, President and CEO]

I think it’s -- if that happens, then it’s because the immediate cash flow is significant, right, and justifying those investments. I think if you -- if delivery time shortens meaningfully, so certainly it was 18 months to 24 months for delivery that might change the picture a bit and also that alternative investments are fewer or maybe not as attractive.

And so I think it will take a bit of time. And if we move forward, maybe prices will adjust, but of course, we had also inflation on equipment and labor costs, et cetera, et cetera. So it doesn’t mean that sort of newbuilding prices will fall back to where they were two years, three years ago. So I don’t think there’s going to be a lot of ordering actually in the VLCCs there for a good time to come. So and we will take it for sure.

[Frode Morkedal, Clarksons Securities]

Perfect. That’s encouraging.

[Svein Moxnes Harfjeld, President and CEO]

Now we think.

[Frode Morkedal, Clarksons Securities]

My second -- yeah. So my second question is very simply. You mentioned DHT style financing. Could you just elaborate on that what that means? Thank you.

[Svein Moxnes Harfjeld, President and CEO]

Yeah. So, as Laila mentioned, and we said on a few calls, the two sort of key elements to it. One is that compared to what is the loan in the market is that as opposed to doing a five-year tenure on the loan, we do a six-year tenure on the loan. And a key reason for that is that, we typically like to refinance before that becomes short-term, which is -- it will -- we will do -- will be the last 12 months of a long.

So if you want to refinance in the fiber loan, you need to do it at the end of the fourth year. So it becomes rather short project compared to the fees that we have to pay upfront, et cetera. So we managed to negotiate this with the banks to get it into a six-year period. So essentially, we look at the refinancing latest at the end of the fifth year. So that makes more sense to us.

Secondly is that the amortization of the loan is based on a 20-year economic life on the ship, assuming it’s a newbuilding. And this is a 10-year-old ship, it’s a 10-year remaining life, right? Whereas most of the loans that you will see in commodity shipping like tankers, they have tenures or repayment profile of 15 years, 16 years, 17 years, maybe 18 years, meaning higher amort per year, right, so as fee for slightly -- fee for profile.

And we like this because 20 years has supported cash breakeven levels for us. We paid probably a little bit external margin to achieve this, but we think that has been a meaningful trade-off in how we want to run the company.

So there are also a number of other features inside this that is not disclosed in detail, but that makes us manage, adjust our balance sheet and our debt side very efficiently we think. So this is now -- is not set in stone. It’s at least a good practice when we do financing that it’s a repeat really our terms every time with these features.

[Frode Morkedal, Clarksons Securities]

Perfect. That’s very clear. Thank you.

[Operator]

Thank you.

[Svein Moxnes Harfjeld, President and CEO]

Thanks.

[Operator]

We’ll now take our next question. Please standby. This is from Robert Silvera from R.E. Silvera and Associates. Please go ahead.

[Robert Silvera, R.E. Silvera and Associates]

Hi, Svein. Thank you very much for taking my questions. One of the things I wanted to complement you on is a few years ago, two years to three years ago, we were at $900 million plus in debt and now you’re down significantly to $369 million. And in that interim period of time for whatever reasons, I think, one of the greatest ones is the tremendous reduction in debt the way you ran the company and the price of the shares has more than doubled in that interim period of time. So it reflects good management. And I think, significantly, the reduction of debt. Now one of the things you’ve talked about as far as the new order book, could you mention what you see as having happened in the scrap rate? Do you see the scrap rates staying steady, increasing because of time on ships, et cetera, could you give us a picture of that?

[Svein Moxnes Harfjeld, President and CEO]

Yeah. That’s a good question. So now we’re essentially seeing zero scrapping our large tankers. Brokers estimate that you could get about $520 per light ship ton for the tanker or VLCC. And VLCCs are typically -- they have a weight between, call it, 42,000 tons and 48,000 tons depending on the design and yard and size and so forth. But there’s nothing going on.

And I think the key reason for that is that, the operators in the shadow market, the gray or black or sanction trades, call it, whatever you like, they’ve had a willingness and an ability to pay a significant premium for all tankers way above the theoretical scrap price. So it’s going to been an alternative market or alternative use or to get rid of these ships.

These ships they serve a purpose, if you like, much less productivity than the compliant fleet. So, but it’s a bit of a nuisance and as we’ve said earlier, we think this could be sort of the new scrapping at some point that these ships are essentially disappearing from the trade eventually and some of them are getting very well.

So in the near-term, it doesn’t seem to be willingness to -- from the selling side to sell into scrapping, because the price get this load and selling it for further trade into the sanction business or for the scrap yards, they don’t have the ability to pay the price that the competition is willing to pay. So it’s sort of a very big bid-ask spread that is just putting that market to complete holds.

[Robert Silvera, R.E. Silvera and Associates]

So you’d say, net-net, the fleet is staying pretty much the same size then?

[Svein Moxnes Harfjeld, President and CEO]

Yeah. And for the foreseeable future, I would think so, and then maybe next year, maybe two. But then some of these ships are getting very long in the tooth and many of them will have to go to dry dock and spend money. Some of them will have to install maybe ballast water systems to be able to trade, depending on the trade they do. So there’s going to be CapEx for some of these ships.

And then the remaining life is so short, so maybe some of them will just say, by the bullet and say, okay, let’s get rid of this lady now and we’ll move on. But I think also this is the reason why the operators in that trade have bought older ships, because they know that, that market hasn’t got long legs. It’s a period for one year, two years, three years, they can play around with this and then it’s a risk of that market disappearing if you understand what I’m saying.

[Robert Silvera, R.E. Silvera and Associates]

Yeah. Thank you. Very good. Anyhow, you talk about share buybacks. As a shareholder of thousands of shares, I’d like to put my input in from the standpoint of we would like to see you not do share buybacks at all, but rather accelerate further debt reduction, say, take the over $100 million of cash and apply $25 million to debt and that brings me to the idea of what would be your breakeven if you got down to in a theoretical way, if you got down to zero debt, where would our breakevens go to from where they are today?

[Svein Moxnes Harfjeld, President and CEO]

Yeah. So if you look at our past practice, number one, of course, we are committed to the cash dividend and the formula we have on that, 100% of net income. So that’s going to be in place. And if at all we were to consider buybacks in the current environment, it will not be at the expense of cash dividends. It will be in addition, if we decided to do it.

What we have done in the past when it comes to buybacks, we’ve been quite opportunistic. So it’s been in pockets where the share price have been really dislocated from the prospects on the general market, whereby we felt that, that was like buying a ship in the market just at a very big discount. So it was sort of adding earnings growth to the company, if you like, by reducing the outstanding shares. So it has sort of a third priority.

We will still like to continue to delever and so I think the -- with the cash flow we are generating, if we are, say, even if we were a fair of net income, we still generate cash that will enable us to do maybe a bit of both or with priorities potentially towards delevering. So in order of priority, so cash dividends, delevering and then buybacks.

[Robert Silvera, R.E. Silvera and Associates]

Well, we, as shareholders in our group, particularly favor the reduction of leverage. One of my last question would be this. Over this past year, the number of shares increased by over 333,000. We do expect that this year that we’re in now, we can expect the same kind of increase again?

[Svein Moxnes Harfjeld, President and CEO]

So the company has a long-term incentive program in place for Board and management that involves stocks. It’s predominantly rest or it is restricted stock units. They are mostly -- they have some vesting criteria. There are different structures and tranches. So it depends on whether only some or all of them will vest or not.

So when we present our annual 20-F, then you will see what that has been done in the prior year, right? So, but we are not printing shares to raise money on selling stock in the market. It’s only related to the long-term incentive program for border management.

[Robert Silvera, R.E. Silvera and Associates]

Okay. That’s pretty much it for me. I just want to compliment you guys. I think you’ve done a tremendous job over the last few years, doing debt reduction and just running the company in a difficult situation. So thank you very much and we look forward to being in on the next call.

[Svein Moxnes Harfjeld, President and CEO]

Thank you, sir. I appreciate it.

[Operator]

Thank you. There are no further questions at this time. So I hand the conference back to the speakers.

[Svein Moxnes Harfjeld, President and CEO]

Well, thank you very much to all for listening in on DHT and following our company. It’s most appreciated and we’re wishing you all a continued good day. Bye-bye.

[Operator]

Thank you. This does conclude the conference for today. Thank you for participating and you may now disconnect. Speakers, please standby.