MPC Container Ships ASA

OSE:MPCC

Earnings Call Transcript 2021-Q3

[Operator]

Thank you all for standing by, and welcome to today's Q3 2021 earnings conference call. [Operator Instructions]I would now like to hand the call over to your speaker, Mr. Constantin Baack. Thank you.

[Constantin Baack, Chief Executive Officer]

Thank you, operator. Good afternoon, and good morning, everyone. This is Constantin Baack. I'm the CEO of MPC Container Ships. And I would like to welcome you to our Q3 2021 earnings call.Thanks for joining us to discuss the third quarter earnings. This morning, we have issued a stock market announcement covering MPCC's first quarter results for the period ending September 30, 2021, and the release as well as the accompanying presentation for this conference call are available on the Investor and Media section of our website.Please note and be advised that the material provided and our discussion today contain forward-looking statements and certain indicative figures. Actual results may differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with our business.Now let me start the presentation with a quick look at the agenda. I would very much like to, and that is on Slide #3. I would very much like to give a quick company update on the company highlights for Q3 and year-to-date, 2021, followed by a market update before we then look forward, and I will provide an outlook on the company going forward.On that note, let me start off with an executive summary on Slide #4. You see a few key indicators. Let me run you through some of them. We're obviously in a continuously very strong container market, both in terms of freight rates, freight volumes as well as charter rates. As a reference, the OBX index increased by almost 300% year-to-date. If we look at our very own company, we look at significant EBITDA -- sorry, significant revenue backlog on the back of 53 fixtures concluded year-to-date. And since January, we have contracted revenue volume of $1.1 billion, some of which we have already basically digested in the actual figures.Furthermore, we have taken a number of portfolio management steps by acquiring 12 vessels and selling 11 vessels. I'll elaborate on that in a bit more detail as we go through. Furthermore, we have commenced in June, July this year, a substantial balance sheet optimization program, which is a combination of replacing debts and also delevering the company. We have taken out, in that context, $180 million in additional financing from HCOB, which will be drawn in the weeks to come. And we have also concluded a $70 million RCF with CIT. More on that later on and how that will positively affect our company going forward.Furthermore, we have improved our EBITDA guidance for full year 2021 to above $300 million. So $305 million to $315 million is our official guidance for 2021. This -- and it is important to note, includes sales or sales gains on certain vessel sales of around $100 million. Furthermore, and that is a combination of our continuous backlog and our efforts to also optimize the balance sheet, we are now ready for significant quarterly distributions to shareholders starting as early as early next year in Q1 2022. And we will distribute as a quarterly and recurring distribution, 75% of adjusted net profit. I will get to that in a bit more detail in a minute.Furthermore, we have seen a significant improvement in our share liquidity. We are now -- we have been included, as of September, in the OBX index with the 25 most liquid stocks on the Oslo Stock Exchange, and we look at average turnover of more than NOK 115 million per day.On that note, let me continue with some KPIs. I think very importantly, as a general comment, we have obviously now digested most of the legacy charters that we still brought into 2021 from 2020. And we have now renewed a number of vessels. I mentioned a number of fixtures this year with 53, which is a reflection of us being able to roll over the charters into a much better market environment with significantly higher rates and significantly longer periods. As a result of that, the net revenues have increased significantly from Q2 to Q3 from $63.5 million to more than $110 million.Similar picture on EBITDA and even more on net results, where we have seen a very significant increase in profitability and performance and the same applies to earnings per share as a result of, as I just said, significantly improved charter book and improved TCE per day across the fleet and consequently, EBITDA per day in vessel, which is part of our operational performance in the middle part of this slide where you can also see a very solid fleet utilization. And as I said, a significant improvement in both average TCE and average EBITDA quarter-on-quarter.Finally, and very importantly, looking at the balance sheet, we have increased our cash position, and we will continue to increase the cash position on the back of profitable operations as well as some of the vessel sales, and I'll allude to that later on. And we look at a very moderate leverage, and that's just the balance sheet leverage of 35%. We will continue to delever the business going forward, but not at the expense of distribution to shareholders, but that can happen in parallel given our significant charter and EBITDA backlog.Let me now highlight a few corporate and financial developments in Q3. First of all, to start with the corporate side, we have been able to close the Songa Container acquisition early August, adding another 11 vessels to the MPCC fleet. I'll look in more detail on the acquisitions and how we have been able to derisk those acquisitions and actually already bring them into the money later on in the presentation.On the ESG side, we have continued to work on our ESG strategy to meet new and upcoming regulations. We have also taken part in the initial rating with Oslo Bors or Oslo Stock Exchange, the ESG 100 program where we have been rated B-minus by an independent organization of Oslo Stock Exchange, which is among the shipping peers that have taken part in that program, a very positive outcome, and we will, nevertheless, continue to work on improvement of this rating.Furthermore, and some of which I already mentioned earlier, we have worked on the optimization of our balance sheet by replacing existing financings with cheaper and more flexible financings and by obtaining kind of additional financing that we will use to delever the company and gain more flexibility within the balance sheet more on that soon.On the financial side, we have, from Q4 onwards, around almost a shape below $1 billion in revenue backlog. We have fixed EBITDA from Q4 onwards of around $840 million, which includes roughly $100 million of secured gains from vessel sales or assumed gains from vessel sales, some of the vessels still have to be handed over. And furthermore, we see potential additional upside in EBITDA of more than $350 million. From vessels that we expect to renew the charters on until Q2 next year based on, obviously, current market rates and periods. So that number is subject to change, but it is an indication of what we believe can be achieved over the next couple of quarters in what we believe will remain a strong market.Now from the corporate and financial side and the highlights to the market and operations. We, obviously, looking at the market, we have seen the continuous improvement of the macroeconomic outlook, obviously, differing from region to region, but the GDP growth of shape below 6% for this year and shape below 5% for next year is a very positive development compared to 2020. And we have also seen a very strong trade recovery in terms of TEU growth TEUs transported of 8% and roughly 4% is expected for next year. The supply chain disruptions is obviously amplifying the situation to a large extent, resulting in tight capacity. What that means on the market and on our business, in particular, I will explain in a few minutes.Furthermore, market fundamentals, supply-demand balance, in particular, favorable in our size and segment, more on that later on. But we are extremely positive about the supply side. And from what I said earlier on the macroeconomic outlook also on the demand side, in particular, for smaller vessels and intra-regional trade.If you then look at the operational side of things, we have been able to achieve a very solid fleet utilization despite COVID, and we are very kind of pleased about this. We have, at the same time, also taken certain measures on the chartering side. Next to the fixtures, we are in the process of dissolving the 1,359 TEU High Reefer Pool as of January 1, 2022. A pool is good in a more shaky market. We believe that the pool membership does not add significant value in today's market environment. And as a consequence, we have decided to dissolve this pool effective January 1, 2022.Certain COVID-related challenges remain, and we are thankful and grateful to the crews on board of our vessels that they keep up the good work and in a very -- in an admittedly very -- still very challenging market environment and are happy to report that we have a very solid technical performance of the fleet as we speak.Looking at the fixture activity at the bottom of Slide 7. Obviously, Q1, Q2 and Q3, what we have seen is strengthening in -- or an extension in durations that we have been able to -- or charter periods that we've been able to obtain an improvement of rates. If you then look at Q4 2021, the periods have come down a bit, and the rates have come down a bit, but there's a very distinct reason for that. And the reason is that out of the 8 vessels, we actually had 4 forward extensions, which are extensions of Q4 2022 positions already now, which, in my view, is a very strong signal as to the continued stability of the charter market.And those we only extended 2 years from Q4 2022 onwards. And therefore reducing the average periods that we have shown here. That is important to note. It's part of a deal where we have actually sold 2 vessels as we have announced today, AS Palatia and AS Petulia, and at the same time, have extended 4 charters of 3 1,700 and one 2,500 TEU vessel. The implied extension rate for those vessels is more than $40,000 for the 2,500 TEU vessel and around $30,000 for the 1,700 TEU vessel. So a very strong signal for those forward extensions in our view.Now let's look at some of the portfolio optimization measures. As I've mentioned, we have acquired 12 ships. We have sold 11 ships. On Slide #8, you can see a bridge of the vessel sales from left to right. Of the 11 vessels that we have sold, 5 vessels have been sold and handed over already with sales proceeds of around $90 million. The corresponding acquisition price for these 5 units was $42 million. So we have been able to generate a significant profit on those units.At the same time, we still have 6 vessels, 6 additional vessels that we have sold that are still to be handed over. The names are shown on this list, amongst others, the AS Palatia and AS Petulia, where the sale was just announced today. We -- so we have in total 6 more vessels that will be handed over, and hence, the sale concluded in the course of Q4 year.Having said that, we would then end up with 11 disposals until year-end and total sales prices of more than $250 million. That compares very favorable to the initial acquisition prices of around $100 million. And we believe this, first of all, was a strategic decision to dispose certain of these assets, but also in order to facilitate the refinancing and free up significant collateral, as I will mention in a few minutes as part of our balance sheet optimization program.Now we have also been active on the buying side because we have seen, and that was actually pre-summer, a market constellation where there was a decoupling of asset prices and charter values that you can actually generate. We have bought 11 ships out of the Songa transaction, and we have bought one additional ship to AS Nadia. In total, the acquisition price, and you can see that at the most right column of this bridge, total acquisition price for those 12 vessels was $225 million. If you then look at how we have been able to derisk that investment already now with significant upside going forward. You can see that we look at a scrap value of around $47 million, and that's a $400 per lightweight ton.EBITDA contribution year-to-date plus the sale proceeds because 3 of the vessels we have already flipped and taken over in August and already sold them in October at a very significant profit. Plus secured EBITDA backlog on this very fleet means that basically we have covered the total acquisition price already to date with more charters coming up in the quarters ahead. And we firmly believe that this will be a significant upside in this transaction that we might be able to realize already over the next couple of quarters with more upside ahead.On that note, I would like to continue with a short market update before we look forward for the company. I would like to start off with some, let's say, more short-term market momentum. On the top right here on Slide #11, you can see the freight rate indicators. The blue line is the SCFI index, so the freight rate index and the red line is the annual world seaborne trade container trade volumes. As you see, both are at a very high point in history, actually at an all-time high. And we see the significant increase certainly in freight rates from, let's say, over the last 18 to 24 months, which is very significant.The interesting part, and the same applies to the container charter market is that not just the rates have increased, also the periods are very solid. So the contracts for -- or the freight contracts that carriers get from their customers, so the liners get from their customers has also increased to up to 3 years even with a longer fixed freight rate and not just index linked, which in turn has stabilized the market and will, in our view, stabilize the market for the years ahead.Furthermore, the significant growth and search and trade volumes has been amplified by port congestions and supply chain disruptions. And that you can see on top left, congestions are still at record high, in particular, at U.S. West Coast and in Asia. And this is a situation that, at least in our view, will not ease anytime soon, whether that's a 2022 event or even beyond remains to be seen. But overall, the combination of very strong trade volumes and congestion and disruptions in the supply chain, in our view, continue to be a very significant driver of the positive market.On the bottom left, you see the idle statistics. Basically since January 2021, we have seen an almost negligible idle fleet. So a very significant part of the vessels have been digested, and we are moving sideways ever since. So we basically have full employment across the fleet.If we then look at the next slide, with charter rates and periods. Very important to note on the top left that we have seen a very significant increase in charter rates. That has flattened out somewhat over the last couple of weeks, yet the period business. So the longer-term charters, in our case, that 3-4 year charters, they are still at very high levels. So it's not that the rates fall of the cliff here. To the contrary, we see very active interest of charterers to charter vessels on longer periods. The only thing that has changed, to some extent, is the hype of the very short-term charters at extremely high rates.We have also been able to charter out a few vessels for a few round voyages at above $100,000 in charter rate. This market has come down. Yet the period market remains very, very firm with strong rates and significant interest. Of course, the activity has come down somewhat as a result of more and more vessels being taken out of the market. But that does not mean that the rates or the periods are, in any way, affected. They stay firm.On the top right, you see periods and redelivery spread. Periods have come down somewhat recently. The main reason there is that, in general, the extensions now are or the new charters are smaller vessels. That's one reason. The next reason is that some owners have taken an opportunistic view and have actually chartered out vessels for short periods, which obviously falls into that statistic to benefit from the hot markets over the last couple of months.And lastly, and that is certainly applicable for us, we have been able to secure quite a number of forward fixtures. And then on the forward fixture, like the forward fixtures that I've mentioned earlier, where we were able to extend Q4 2022 positions for 2 years and actually already get an uplift in charters today; that only adds 2 years. So that is only accounted for as a 2-year extension. So those are the effects that -- affect the period statistics here.And finally, you can see at the bottom left, the forward availability, which has basically fallen off the cliff as a result of more and more vessels being chartered out for long periods. So forward availability is at a very, very low point in history, and we believe that will continuously lead to a very sustainable charter market environment.Now let's look forward somewhat more from kind of momentum assessment to the midterm outlook of the market. Here, on the left-hand side, we have seen or we have illustrated the supply demand development for the overall market. You have seen, obviously, in 2020, a significant gap between supply and demand, leading to a disrupted market back then. But we have ever since seen a significant demand growth, and that is also expected to outpace the supply side next year, on the overall market.Coming from the overall market to the right-hand side, the more relevant for our business activities, the intra-regional trades and the vessel sizes that serve intra-regional trades, 97% of vessels employed in intra-regional trades are below 5,000 TEU, so within our target bracket. And there you can see that the order book, so the supply growth is very low to moderate, and the demand growth is expected actually to be very significant for 2021 and 2022.So from that kind of bird's perspective, let's look further down into the different trades. We see a very encouraging midterm outlook for supply and demand, especially for intra-regional trades. If you look at kind of the left-hand side, we look at the fleet development. And if we look at the right-hand side, we see the trade development in terms of demand. And what we do see is that there is a very healthy and solid growth on the intra-regional development when it comes to the demand side, right, there's a very, very moderate development, if growth, at all, in the smaller sizes. And that's the result of age profile of vessels, very limited supply in terms of order book. So we believe that dynamic is very helpful going forward.Now let's look a bit, in a bit more detail on the order book because, obviously, we have seen very significant newbuild contracting activity. The order book to fleet ratio increased quite a bit since autumn last year to more than 20% at present. However, if you look at the detail, you see that the order book is biased pretty much towards the larger tonnage. At the top left, you can see that illustrated. And at the top right, you see how that order book actually will be delivered. I personally would argue that some of the supply chain disruptions will, in fact, lead to further delays in deliveries because shipyards are slower and logistics are much more complicated. So I would actually expect that, that will also have implications on the deliveries.Having said that, the deliveries in our sized segment, over the next 2 to 3 years are not significant and are certainly not significant, when one looks at the age profile at the same time and the required fleet renewal that is needed in that size and segment at least over the next 5 to 10 years. So at the bottom left, you can see that almost 12% of the global fleet below 5,000 TEU is above 25 years of age. So a very significant part that requires replacement over the next 5 years in any event, likely even more. And therefore we are extremely positive and actually believe that the order book will not have a significant impact on our business.Now lastly down is on the demand side. And actually on intra-regional versus global trade and more specifically, on regional trades at the bottom left, you see the types of vessels that serve regional trades, and 98% is below 5,000 TEU. We believe that is a very important indicator because it shows that it's not just about size restrictions or the like, it's about port rotation, port turnaround times and actually capability. So the smaller vessels are in the high demand as we speak, and they will continue to be in high demand in intra-regional trades, which grow significantly as we speak.Now let's continue with the company outlook on Slide 18. If we look at where is our charter coverage at the moment, top left, you see the coverage by quarter for 2022 in terms of open days and fixed days. Dark blue is the fixed days, light blue is the open days. So for this year, we're basically done. We have one more vessel to be fixed. But for next year, we already have roughly 80% of the days covered. And if you look at the red circles on top of those columns, you see that with those 80 days compared to the almost 100% of the days we've covered for this year already, we already have a significantly higher fixed revenue. So on that basis, we expect 2022 to be a much stronger year than 2021 from a pure revenue generation perspective.Also for 2023, we're already at 50% roughly. And also 2024, we have some coverage even going into 2025 at the moment with respect to fixed revenues on top. Now this is obviously a snapshot and the moving elements because if you look at the bottom left, where we have illustrated the charter, upcoming charter renewals based on current redelivery expectations. So one more vessel in Q4. So we have a few more vessels in Q1, Q2, Q3, Q4. And we have illustrated for indicative purposes, the gray circles, the expected additional revenue backlog that can be generated on the basis of current market environment.So on the right-hand side, we have, therefore, illustrated the Clarksons ES for 3-year charters for vessels of our size and segment. And have used those estimates or those current market figures to calculate the additional EBITDA backlog. So we believe there's significant potential going forward and for additional revenue and certainly also EBITDA backlog on that basis.If we now, and I touched on that earlier, look at the refinancing efforts that we have undertaken, not yet reflected in the Q3 financials, but we have here, for illustrative purposes, looked at pro forma debt and debt structure development. If you look at the top left, you can see the gross debt as per the balance sheet date, Q3 2021 with 3 different facilities. One is the senior secured bond, the CIT, RCF and the DNB acquisition finance. We had, at that point in time, and that you can see on top of that column 3, unencumbered vessels. We are now in process of not only reducing the debt, but also replacing the debt with more -- with better priced debt and more flexible debt. And very importantly, we will, in that connection, free up a significant part of our fleet that we will have more than 50% of our fleet actually unencumbered, which is 34 vessels.So what will we do? We will basically apply cash generated from vessel sales and from operations to facilitate the refinancing in conjunction with the newly agreed HCOB financing. We expect to complete those steps in the course of the next couple of weeks, certainly, still in Q4 is the target and the expectation. And we will then end up with pro forma gross debt end of Q4 2021, likely in the vicinity of $235 million, with just the CIT RCF and HCOB remaining.Debt on the top right gives you an idea of the respective collateralization of our assets. And you see the unencumbered vessels at the very left, where we have -- where we expect to end up with 34 on a pro forma basis with 34 unencumbered vessels. What does that give us? First of all, very low balance sheet risk with significantly reduced pro forma debt and cost of debt, a very high flexibility due to the significant number of unencumbered vessels. And very importantly, and that has been a very important goal of that exercise, high discretion on capital allocation decisions because we will have way more flexible distribution covenants, and we will be able to distribute capital to investors, more on that in a minute.Furthermore, we are delevered. We will continue to delever financially. So it's not all about distributions. We will have such a strong revenue generation that we expect to be able to delever further while still being in a position to apply significant distributions to shareholders.Now let me run you through some important capital allocation considerations and the execution of our distribution plan and some indicative sensitivities on open rates. I would start with the latter. On the left-hand side, you see some sensitivities in terms of operating revenues, EBITDA and net profit based on the existing fixed rates and applying certain rate assumptions to the open rates. Again, this is an illustration and an indicative sensitivity. But from top to bottom, we look at the current market rates, we look at 20 year historical averages and 10 year historical leverages for our vessel baskets according to Clarksons. And we have basically looked at Q4 2021 and the year 2022 and 2023.On that basis, we have also, with the Board of Directors, discussed and agreed on a distribution plan that we intend to execute once we have AGM approval, and I'll get to that in a few minutes. That consists of 2 components. One is a component that we call recurring distributions, and that will be based on 75% of adjusted net profits, adjusted in particular for one-off effects, such as vessel sales, et cetera, because they will be covered by event-driven distributions. I'll get to that in a minute. And the idea is to dividend out or to distribute out a significant part of our profit generation, which is in line with what we have said from the very beginning, since inception of MPC Container Ships.On the basis of those assumptions, that would translate roughly for 2022, for example, to a quarterly distribution of around $50 million to $60 million or roughly around NOK 1 per quarter and share. That is what might be expected on the basis of these indicative sensitivities. It will be calculated quarterly, and we plan to commence this in Q1 for Q4 2021. And we also will have an event-driven nonrecurring distribution scheme, which is based on other proceeds such as vessel sales, and that will then be distributed by way of extraordinary dividends or share buyback to be applied according to the discretion of the Board of Directors.Both elements will be kind of presented in AGM, which we plan to convene for early 2022 to get authorization by the general meeting of shareholders for this distribution plan. And I can say, we are excited to present that to everyone and to be in a position to now return capital to investors.On the capital allocation side, 2 other legs that are important to highlight in my book is the leverage strategy. And we have already delevered the company, improved the balance sheet significantly, and we'll do so with the execution of the last steps on our refinancing plan. Yet, we will continue to delever through regular debt repayments and some cash buildup. And that is what we intend to do on the leverage side. Growth should be selective and only if accretive, such as the Songa transaction, as I have alluded to earlier, where we believe we have been able to generate a very attractive and accretive transaction for shareholders on a per share basis, especially adding the distribution capacity of that fleet. And we expect that, that provides a significant opportunity going forward, always considering that we want to maintain our dividend or distribution plan in place, as just alluded to a few minutes ago.That brings me to the kind of concluding remarks on the presentation itself. And then I'm very happy to open the floor for discussion. We will continue to see, in our view, in the short-term, a very strong market. I have alluded to some of the points and believe that the next few quarters will continue to be very strong. We have locked in significant charter revenues, but we are still ideally positioned to benefit from further upswing or at least a further strong market. And in the midterm, as I mentioned, the supply-demand dynamics, in our view, are attractive, extremely compelling, especially in the smaller sizes. The supply side is basically cast in stone for the next 2 years, and we are very positive to that effect.In the long run, obviously, the landscape will be affected by the theme of energy transition and, obviously, decarbonization of the industry, very important aspect. Yet that is, in our view, nothing that will affect the market in the next 1 or 2 years. It will and has to be done, but that will take another 5 to 10 years in our book. Now how do we behave in that market? We believe we are, with our very transparent and what we would argue active and rational capital allocation strategy and professional asset and portfolio management, we will continue to act opportunistic in order to get accretive on a per share basis within our defined strategy with a focus on intra-regional tonnage, and we will continue to reduce residual value risk or mitigate residual value risk as a matter of principle.And on that basis, we believe we are certainly well positioned to now start distributing capital to shareholders, where we have dividends and/or share buybacks. And we will certainly continue our discipline on our capital allocation strategy and decisions and move ahead on that basis.And on that note, I would like to hand over to you, moderator, and I'm looking forward to receiving some questions.

[Operator]

[Operator Instructions] You have a question just coming through. It's from the line of J. Mintzmyer.

[J. Mintzmyer, Founder & Head of Research]

Congrats on an excellent quarter all around. So you've done everything as well as you possibly could have in terms of execution. All the charter roles have been impressive. You've been selling some ships at high prices. You refinanced the debt. You've guided for a 75% dividend policy. I mean, you've done everything correct. And yet if you look at the stock price, it's still languishing. You're trading at a fraction of adjusted NAV. I've heard some investors a little bit concerned about the taxation structure of the dividend. Is there any way to focus on some value creation arbitrage by shifting to a share repurchase? Or is there any desire to move in that direction?

[Constantin Baack, Chief Executive Officer]

Yes. Thanks for the question, J. Of course, I mean, we are looking at all kind of opportunities to make -- to return capital to investors in the most centered way, right? And as I said, I mean, we have a clear distribution plan. We will want to return capital to investors. And there's the obvious way of a quarterly dividend. And there's obviously also the opportunity for share buyback. And if you look at today's market and if you look at vessel acquisitions, for example, I mean, the cheapest vessel you can buy in my book at least is -- would be on stock.So that is definitely an option looking where the share is trading today and where the implied value of some of the vessel sales is that we have conducted that we want to make use of that as well. So it will be a combination potentially of doing the right thing at the right time. One is certainly a sustainable distribution that is reliable and also sustainable in a way. And at the same time, to act also opportunistic to some extent to potential dislocation in share price versus the NAV. And I do agree, we trade at a significant discount to our NAV. So to benefit from that by buying the cheapest vessel on the market, which is our own stock is certainly an option.

[J. Mintzmyer, Founder & Head of Research]

Yes, certainly great, Constantin. It's great to hear that. Yes. I mean, and folks can figure out their own dividend tax situation. There is just a little bit of pushback in the sense that a repurchase is both accretive, right, you're creating an arbitrage, and you're also allowing folks to move in the stock at their own discretion, right? Dividend kind of forces their timing and forces their hand. I noticed some simplification. You're winding down the pool. You sold one of the joint venture assets. Can you talk a little bit strategically about the joint venture? Is that a long-term structure still? Or do you get the sense with your partners that you're looking at monetizing and winding that down as well?

[Constantin Baack, Chief Executive Officer]

I mean, obviously, in this market environment, and we have a partner in there, and we have taken all the decisions jointly so far. And I expect that to continue going forward to -- I mean, on each charter rollover, there is a decision to be made. And that decision is what's the charter value and what is a potential realizable asset value. And that's the point of time when we will reassess that, actually, not only on the JV vessels, also in other vessels. As you have seen, we've also sold a few other vessels. So that is always -- and we factor in the decision.And we factor in dry dock cycle, we factor in technical condition of the vessel, age of the vessel, et cetera. So a lot of these factors will be factored in. I would not rule out, and as I said, I mean, if we can sell vessels at an implied value of NOK 35, NOK 40, it's certainly something to seriously consider at that point in time. So we cannot rule out that we might be a seller of a few more vessels. But I wouldn't say that we desperately sell vessels because we've also concluded very attractive charter deals over the last couple of months and quarters. So we would always benchmark each of those options against each other.

[Operator]

There no questions on the phone.

[Constantin Baack, Chief Executive Officer]

Are there more questions on the phone? Otherwise, there are 2 questions through the web.

[Operator]

There are no further questions as of this moment on the phone.

[Constantin Baack, Chief Executive Officer]

Okay. Then I would just run through some of the questions on the web. The first question here is from [indiscernible]. He is -- and I will read it out and then answer it right away. The share price has been strongly affected the last month by sales from large shareholders. Can you give some comments on potentially new divestments from main shareholders, Star Spike, Pilgrim, Blystad, Klaveness? Those were the questions from [indiscernible].I cannot -- what I can say is that I firmly believe that the distribution plan that we have developed is a distribution plan that finds also the support of those shareholders, in my view, in any event. However, obviously, each of these shareholders has to take their own decisions. Yet, I believe that by implementing this distribution plan, we will have a very clear path to liquidity for investors in a very reliable and certainly plannable outlook given the strong cash backlog. And as such, I think we, as a company, are doing and have done a lot of steps that will make investors sticky. And I'm hopeful, and I expect that, that will also be perceived by most of the investors. So -- but again, I'm not the party that you allude to here. So we will do what we can in order to address that. And I think we're on a very good track to that effect.There's a second question by [indiscernible]. I kindly ask you to reconfirm that the company does not intend to order newbuilds. That is confirmed. We do not intend to order newbuilds. We intend to distribute capital back to shareholders in the short term, in the midterm. So there's currently no plan with regards to newbuilds.Then there's a question from Frode Morkedal, and that's a bit of a longer question. I will nevertheless read it out. Congrats on some very good vessel sales. Is it correct to assume that the $135 million sales announced earlier will primarily be used to pay down debt while the 2 new vessels you announced today of roughly $50 million could be returned to shareholders? That's the first question.We would pretty much -- and that's the bridge on Slide 19, where we show that we will use around $120 million to $130 million, part of which, I mean, you can label it all vessel sales or operating cash. So we will use part of that to definitely repay or to do the -- execute the refinancing. And other cash amounts will be available for a potential extraordinary, let's say, distribution as per our policy. Yes.There's a second part of the question where Frode says, in general, should investors expect that future vessel sales will lead to extraordinary dividends or share buybacks.Yes, that can be the expectation. Again, as I explained, that should then be in the discretion of the Board to decide what's the most accretive way to return capital to investors. But there is a clear intention, as articulated in the distribution plan, to return that capital to investors.Further on, what's the preference for dividends versus share buyback?There will definitely be a dividend. As I've mentioned too, I mean, there's a recurring element in the distribution plan, and share buyback is obviously, to some extent, a very momentum driven opportunity that is being considered and will be considered always when looking at share price and NAV and other aspects. So there is not a clear line in the sense as far as the extraordinary kind of events are concerned.There's another part of the question where he says, and the 2 vessels, you mentioned in the report, that in connection with this, that you've extended charters for 4 ship. Can you elaborate on that, please?I'm very happy to elaborate on that. This is, in my view, a very compelling transaction for MPC Container Ships. We have -- as Frode has rightly said, we have sold 2 vessels, the AS Petulia, which is a joint venture ship, by the way. And the AS Palatia, which is 100% owned and 2,500 TEU ships and we have, in conjunction with that, extended the charters on 4 vessels. One is a 2,500 TEU ship and 3 1,700 TEU ships. And also there are forward extensions I have alluded to earlier. So we have basically extended vessels that run out of charter in Q4 this year -- sorry, next year, for another 2 years.And the extension rate, and you can see that at the very end of the presentation, we have our charter backlog -- or sorry, our charter exposure illustrated in the chart where we also explain the exact numbers. So we basically have concluded a charter -- forward charter for in excess of $40,000 for the 2,500 TEU ship. That gives you an idea that this is a very strong forward fixture in my book. And that is not just extended for 2 years, but we have also been able to increase the charter hire as of today. So we're basically already increasing the charter for the first year, where we're still on certainly way lower charter. So the blended rate will be almost $30,000 for the next 3 years, basically.And for the 1,700s, the relative implied rate is around $30,000, also on a forward extension. So again, those vessels are in or this constellation is in more detailed illustrated at the end of the deck, in a footnote, and in those 2 -- sorry, 3 1,700s and 2 2,500 TEU ships. In my book, it does -- this signals a few things. It signals, firstly, on the chartering side that you are able to fix forward at attractive rates and not at significant discounts, meaning there's a concern about scarcity of assets by operators. And secondly, when it comes to the vessel sales and the sale prices for the 2 vessels that we've sold is around $36 million apiece. These vessels are on, in today's market, below market charter rates, which would imply, in my view, at least roughly a negative charter value of $8 million or $9 million. So effectively, these ships were sold at roughly $45 million apiece, which, in my view, is a very attractive and compelling proposition for selling those vessels.Let me now just continue. So the next question, there's still one more leg to it from Frode. Given the discount to NAV, do you think further vessel sale is reasonable to assume in order to try to close the gap, hang on, to close the valuation discount?As I said -- as I replied to J earlier, I mean, we would always look at charter opportunities versus realizable asset value. And we will be very rational in assessing that and very clear. And that's also why we will not do newbuilds at this stage. So it cannot be ruled out, but it can also not be ruled out. And you can see that from these forward fixture that we simply harvest the value that we have inherent in our vessels by chartering them out.Last part of the question now is, any change you have noticed in terms of buying interest for ships or in other words, opportunity for you to sell ships?Well, not really. And the transaction that we've announced today on those 2 vessels sales speaks for itself. This is basically a sale with irrespective charter attached. In combination with the forward fixture, we do see more appetite by liners and other parties to buy ships, so no significant difference there.And the last question is, what's the appropriate cash level you target going forward?Conservatively, we would look at somewhere between $60 million and $80 million in cash reserve, working capital and cash reserve as kind of a ballpark figure going forward.Then there's a question by [indiscernible]. What will the extraordinary dividend in Q1 be?Well, we will convene the EGM, as I have proposed or announced and as we have agreed with the Board, for Q1 next year. And obviously, we still want to complete the refinancing over the next couple of weeks. And then we will decide and obviously communicate and ask the EGM for approval of what we intend to pay as a dividend in Q1.There's a question by [indiscernible]. How do you view your minimum cash need going forward?I answered that already to Frode.I'm thinking of your statement of a significant distribution in Q1 2022, as you will have around $200 million in cash by year-end. After the recent vessel sales and refinancing, how much do you believe is realistic to distribute in Q1 in extraordinary dividend?Same answer like to [ Jacob ] just now, we will decide that once we have finalized the vessel handovers because 6 vessels still have to be handed over, and there is in excess of $160 million in cash. So let's get that done first. Let's get the refinancing done, and we will then convene the AGM accordingly. But we will act in line with the distribution plan, at least that's what we will propose to the EGM.Then there is a question from [ Alexander Samanski ]. Is listing in the U.S. still considered?Obviously, listing in the U.S. should never be ruled out for a stock listed company. We, however, feel comfortable in -- on the Oslo Stock Exchange. We believe we have a very good kind of investor base. Obviously, the investor base should always be expanded. We believe that with implementation of our distribution plan, we will attain further interest from investors, and we will then assess a potential U.S. move at that point in time.Then there's a question of [ Ola Moin ]. Sevillia only 3 months charter. Is the vessel due to dry dock or sale?The vessel is due to dry dock. That's the short answer. We have fixed that vessel into dry dock because we will have to do some work on the cranes, in particular. And therefore, we decided to fix this vessel for a short period in order to get her ready in Q1.[ Eric Howe ] asked a question to clarify on the earlier question. Is it fair to say that the recurring distributions will be dividends with event-driven to also potentially include buybacks, depending on the market?Yes, that is the plan.[ Thomasian Freeland ] asked a question, will there be more forward fixtures for the available ships in first half 2022?I would not rule that out. We are, in fact, already in discussions on some of those positions. And the question there is, will that be at a discount or not? And as we have shown with our latest 4 extensions, this is actually done at market, if not even to a slight premium to market. So one needs to very carefully balance that because we are obviously derisking the 2020 positions basically every day by concluding forward charters, but we would always factor in what does that mean in terms of charter rate and how does that compare to current spot markets. But certainly there are already discussions on forward positions.There's a question of [indiscernible]. Hello, Constantin, what will be the estimated interest relief with the new credit facility and the intended prepayment of the bonds and the DNB facility?I have the number somewhere here, but it will be significant. I mean we will look at 150 bps less in margin, and we will look at roughly 200 to 250 less debt. So it will basically be that amount times that gap in the interest. So that will be the relief. So it will be quite significant.If we then look at [ Saina Enleeds' ] question here. It says, if we come at a place where there would be armed conflict in South China Sea, has there been any thoughts of what this would do to the container shipping?Not an easy question, not an easy question at all. I must confess, and I don't know. I mean, it depends how long this will take, how that will affect it. I mean, this is certainly not a best case, that would be a very unfortunate and unpleasant development. And it will, in any event, have an effect on the container market, obviously. But I think I'm certainly not the best person to answer the likelihood of that happening, and I personally hope and expect that this is not going to happen. So very, very tricky question, not a clean answer, but as good as I can shoot from the hip on that question.So just checking in, moderator, are there any further questions through the phone line?

[Operator]

There are still no questions on the phone.

[Constantin Baack, Chief Executive Officer]

Then we'll give it one more minute to see whether there are follow-up questions or further questions through the web.So there's one more question that just came in from [indiscernible]. How do you view vessel contracts? Do you expect most to last until maximum period?Well, that obviously always depends on the market environment at that point in time. So if you want to be conservative, I would always calculate with the minimum period. But if the market stays strong and is stronger, then obviously, the max period will be used by the charterers. So I'm pretty unsure whether I have the crystal ball answer to that. So conservative wise, you should calculate with the min period. But again, if the market is strong, it would definitely be the max period, certainly on those that we still rollover in this market at a lower charter.Few more question that came in, [indiscernible]. Thank you for a very good presentation. Have any of the large liner companies contacted you for buying the whole company?No, there isn't. At least not to date.Then there's a question by [ Markus Egalan ]. Thanks for the very interesting presentation. You talked about decarbonization of the fleet. And that it would take 5 to 10 years, unless I misheard you. I was just wondering if there are any set plans for decarbonizing the fleet? And if you could talk a little bit more about this.Obviously, this is a -- this could fill a long session. We are obviously considering measures to improve our vessels. But we obviously operate 14-year olds, on average 14-year-old container ships. So we seek to operate as efficient as possible. We seek to find solutions with our customers. As I've mentioned earlier, even potential investments into the vessels, if it improves the efficiency and decarbonizes the fleet. Yet, obviously, you cannot switch a 14-year-old vessel overnight, at least in absence of the right fuels to become completely carbon neutral.So we are effectively working on it with our customers, with our technical team and consider certain improvements. But at least where the technology and the development is at this stage, we will not be able to get those vessels green overnight. We rather think full cycle approach to operate the vessels as efficiently for longer periods, up to a point in time when there is a, let's say, a clear and also efficient way to decarbonization of vessels available. That would be the point in time to switch gears. But at this stage -- and that is what I meant with 5 to 10 years, I believe, especially on the supply of fuel side, that will take another 5 to 10 years. And that's why we feel very well positioned with our company to delever, payout dividends and prepare for whatever is ahead of us in the next 3 to 10 years.There's another question by [ Ola Moin ]. How much is the saving sharing mechanism per ship due to the previous scrubber install installations?Obviously, that is linked to the fuel spread. We generally have 80/20 in our favor or 75%, 25% saving sharing, again, in our favor, and then it depends on the spreads. Usually the vessels, the slightly larger vessels in our fleet, they burn like 40 tonnes a day, slightly smaller vessels, maybe somewhere between 28 and 30. So that's the daily consumption, and you could generally calculate with around 280, so let's say, 250 to 280 sea days when they will actually consume fuel. So that would then be the calculation on that basis. But it really depends on the various input factors. For this year, we probably will get somewhere in the vicinity of $6 million to $9 million out of the savings, but that was obviously a year with fairly low spreads. And as the spread is widening, there's more upside to be gained.Okay. And on that note, I think we're complete here with the questions through the web, unless there's any further question through the phone line. Moderator, I would like to hand back to you and conclude the call. I would like to thank everyone for their time, interest and questions and look forward to a very exciting Q4 and to an AGM early next year. And yes, thanks, everyone, for your time and attention.

[Operator]

Thank you. And that concludes our conference for today. You may all disconnect. Thank you all for participating.