Robert MacLeod - CEO Inger Klemp - CFO

Herman Hildan - Clarksons Platou Michael Webber - Wells Fargo Fotis Giannakoulis - Morgan Stanley Amit Mehrotra - Deutsche Bank Erik Stavseth - Arctic Securities

Good day, ladies and gentlemen and welcome to the Q1 2016 Frontline Limited Earnings Conference Call. For your information, today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Robert McLeod. Please go ahead, sir.

Thank you very much. Good morning and good afternoon. Thank you for dialing into Frontline's earnings call for the first quarter of 2016. It was another good quarter for Frontline with very strong earnings. We outperformed the market which saw periods of significant strength and continued high levels of volatility. As we are not well into the second quarter, right-hand softened, that we expect forward tanker demand to be strong. So I will start this call going through the highlights of the quarter. Following that, Inger will run us through the financials. We'll then look at Q1 earnings, sector-by-sector. And I will guide you on our Q2 earnings. Moving on, we'll look at our time charter cover, and specifically at the growth in crude transportation over the last two years, the single biggest reason for the tanker market recovery. We will then move onto the crude order book and the market outlook. The call will be concluded by taking your questions. Let's get started and look at company highlights from Q1 and events subsequent through the end of the quarter. As I mentioned, earnings for our first quarter were very strong. We achieved net income of $78.9 million. VLCC's spot earnings for the quarter were above $7,000 per day, a level we have not reached since the third quarter of 2008. Frontline declared a cash dividend of $0.40 per share for the first quarter which represents approximately $0.70 of adjusted earnings per share. We believe there are attractive investment opportunities in the markets, asset values seem disconnected from the earning power of vessels on the water. We further believe the disconnect is based upon access capital. We continue to see strong support from both, our banks and Hemen Holding, and we expect to conclude an acquisition at attractive prices shortly. We are also pleased to report recent developments on the financial side which Inger will discuss in greater details, with bank debt financing secured with China Exim Bank and our loan facility from a company affiliated with Hemen Holding Limited, our largest shareholders. Moving on, we have taken delivery of five LR2 newbuildings so far this year, four of them in Q1. We have also terminated the long-term charter of the 1998-built VLCC Front Vanguard and we expect her to seize operating as a conventional tanker. Please turn to Slide 2, we'll have a look at our earnings in Q1 and I will guide you on our spot earnings so far in Q2. The year started off very strongly, especially on the VLCCs. We saw this as a good opportunity to fix our ships forward. In other words, we took long voyages rather than short. This was a right strategy as February and March were not as robust as January. On the VLCCs, we have raised $70,200 while the Suezmax's generated $33,400. The LR2 made just under $25,000 and the MRs just over $20,000. Into Q2, the market has softened; however, we have locked in 83% of our VLCC trading days at $52,000 per day. On the Suezmax's we have fixed 90% of our trading days at $27,000 per day. On the LR2s, we have relatively few trading days in the quarter due to the number of vessels out on time charter but the number is about $24,000 and 77% is covered. The MRs have come down from Q1 and we currently stand at 82% done at just above $16,000 per day. We believe the market will be volatile like it was throughout 2015 but that the fundamental outlook for both the crude and product markets are promising and we expect the markets to perform well going forward. With that, I will hand the call over to Inger who will give us a detailed financial review of the quarter.

Thank you, Robert and good morning and good afternoon, ladies and gentlemen. I would like you to move to Slide 3, financial highlights. Frontline achieved a time charter revenues net of voyage expenses this quarter of $192 million. EBITDA came in at $141 million, and the net income came in at $79 million which is equivalent to earnings per share of $0.50. After adjusting for non-recurring items, we show a net income from operations of $89 million this quarter, which is equivalent to $0.57 per share. Frontline declares a dividend of $0.40 per share this quarter, as already mentioned by Robert, the board has decided to reserve approximately $0.17 of the adjusted earnings per share to put finance potential accession since they believe that our attractive investment opportunities in the market presently. As asset values seem disconnected from the earnings power of vessels on water. Frontline share price closed at $8.02 May 27, and the company's market cap is down $1.026 billion. Dividend represents an annualized yield of 20% basis the latest declared dividend analyzed divided by share price. Then I would like you to move to Slide 4, income statement. In the following I will explain the change in itself in the first quarter compared with the fourth quarter based on the combined result of Frontline and Frontline 2012 in the fourth quarter which now does not reflect the impact of the merger. The first quarter show net income of $78.9 million against $62.7 million in the fourth quarter. And after adjusting for these non-recurring items, we show a net income from operation of $89.4 million this quarter compared with $60.7 million in the fourth quarter. The increase in this observation in the first quarter of $28.6 million is mainly explained by a net reduction in cost. First of all, we have a decrease in contingent rental expense by $35.6 million, since fourth quarter included profit share expense of $20.6 million to Ship Finance and also $11.6 million to German limited partnerships while the first quarter includes a contingent rental income of $3.4 million. The contingent rental income relates to the 14 charter party contracts with Ship Finance, and due to the fact that the actual profit share rising in the first quarter or $24.7 million was $3.4 million less than the amount accrued in the lease obligations payable when the leases are recorded as fair values at the time of the merger with Frontline 2012. Further we have had a decrease in running expense of $2.8 million, and also a decrease in dry docking expenses by $6.5 million. We also have a decrease in other expenses by $1.7 million. This was partly offset by an increase in depreciation of $12.9 million, primarily due to the Ship Finance leases we recorded at share value at time of the merger with Frontline 2012. This counts for $11 million increase this quarter. We also had increase in finance expense of $1.5 million and the increase due to reduced Ship Finance needs to third quarter as fair value at the time of the merger with Frontline 2012 comes for $4.7 million. This was partly offset by reduction in interest expense as the Ship Finance note was repaid in the fourth quarter of 2015 and we also have reduction related to key efforts. Finally, we've had an increase in charter hire expense of approximately $1 million this quarter due to the KG vessels forthcoming in as chartered end vessels during the quarter which was partly offset by some coming off charter. Then I would like you to move to Slide 5, impact of low cash breakeven levels. The estimated average cash breakeven rates for the 2016 are approximately $22,500 for VLCCs, $17,900 a day for Suezmax's, $15,300 per day for the LR2 tankers, and finally $14,000 a day for the MR tanker. These rates are the daily rates that our vessels have to earn to cover their budgeted operating costs and dry dock, estimated interest expense, bareboat hire, installment on loans and G&A expenses. We believe these breakeven rates are highly competitive. On this slide we have tried to show the impact of our low cash breakeven rates on a quarterly EBITDA basis and also cash generation. If we assume a 25%, a 50%, a 75% or a 100% increase in time charter rates about cash flow even rates. Both for our current sailing fleet and also for our newbuilding fleet when it is truly delivered. Looking at for instance than 100% increase about cash breakeven rates which assumes VLCC rates of $45,000 per day, Suezmax rates at $35,800 per day, LR2 tankers rate at $30,000 per day, and MR tanker rates at $28,000 per day, Frontline's quarterly EBITDA and cash generation would be $97 million and $65 million respectively for current sailing fleet and for our newbuilding fleets to fully delivered $56 million and $37 million respectively as we can see from the graphs on the slide. These numbers clearly show the importance of having low cash breakeven base. Then I would like you to move to Slide 6, balance sheet. The changes to the balance sheet in March 31, 2016 compared with December 31, 2015 are minor and the total increase in balance sheet value is approximately $100 million. The changes in assets are mainly related to increase in vessels over $140 million approximately due to the delivery of four LR2 tankers in the first quarter which was partly offset by depreciation. Newbuildings came down with $23 million this quarter due to transfer of the four LR2 tankers although carriers at this came down by $29 million. Our changes in liabilities are related to increase in debts of $75 million and we also had an increase in equity with $21 million. Then I would like you to move to Slide 7, newbuilding program. From last newbuilding program as for the end of the third quarter, our contract only consists of 24 vessels where seven vessels are scheduled to be delivered during 2016 and 17 during 2017. In May 2016, we took delivery of one LR2 tanker, Front Leopard. The remaining CapEx as per end of first quarter of 2016 was $1.293 billion, with $528 million approximately payable in 2016 and $765 million payable in 2017. In May 2016, we secured a commitment for senior secured term loan facility in an amount upto $328 million with China Exim Bank. The facility matures in 2029, carries an interest rate of LIBOR plus a margin in line with Frontline's existing loan facilities and has an amortization profile of 18 years. We will use this facility to finance eight of our newbuildings and it will be secured by four Suezmax tankers and four LR2 tankers. This financing is subject to Frontline documentation. The company has also received a term sheet and is in the processing of obtaining a commitment for a further facility with China Exim Bank in an amount of upto $325 million. It will mature in 2033 and will have -- has an amortization profile of 15 years. This facility ensures back in the third [ph] will be used to finance eight of our newbuildings and will be secured by another four Suezmax tankers and four LR2 tankers. Additionally, we assume bank set on the sixth of this newbuilding contracts that we have led in the amount of 60% contract values which is approximately $337 million. Based on commitment and assumed bank debt of $2.156 billion [ph] Frontline needs further $237 million secured delivery of its current newbuilding program. The actual needs might be higher or lower depending on development in banking market and market value. Then with a new unsecured loan of upto $275 million, and the cash-on-hand that we have adjusted for cash balances required to be maintained by the financial covenants in other loan agreements, and also the cross-balances required to be maintained by our vessels leasing agreement which are financed reached over $74 million as per March 31, 2016. The company believes it should be in a very good position to both, take delivery of the current newbuilding and also have financial capacity to secure further growth. With this, I leave the word to Robert again.

Thank you very much, Inger. Let's move to -- turn to our coverage on Page 8 please. At present 35% of our fleet is chartered out. We captured the strengthen in the TC markets during Q4 2015 and Q1 this year, and also in forward earnings. Our timing was good as rates have come off quite a bit since then. Our TC cover reduces our exposure to market weakness while reducing our cash breakeven levels for the vessels in our fleet trading spots. For the balance of 2016, the breakeven is below $18,000 per day for our VLCC, and just over $10,000 on our Suezmax's. On the LR2s, we have locked in five out of nine ships on time charter, leaving us booked trading LR2s with a cash breakeven below $4,000 per day. On our MRs we have no cover at present. Our time charter coverage forced about 20% of January 1, 2017, and also January 2018 we will be down to 10%. We will continue to capture market strength and secure forward cash flow through time charters if we believe it is in the interest of the company's shareholders. We will also continue to explore opportunities to charter in ships if our market outlook supports that. Let's have a look at the big driver behind the tanker market on Page 9. Oil supply has increased by about 6 million barrels per day in the last four years. In 2014, daily worldwide oil supply was in the region of 93 million barrel per day. Since then, this has increased to about 97 million barrels per day. It was during this period that rates started increasing onto several slow tanker years. What's important to isolate though is the amount of oil actually shipped on the tanker. This increase is the real driver behind the tanker markets. As can be seen from this draft, sea-borne trade of crude oil has increased by about 8% in the last two years, a significantly larger percentage change than the change in crude oil supply in the corresponding period. As can also be seen on the graph, there has recently been a drop in sea-borne crude oil trade. This was caused by supply disruptions in West Africa which reminds us that the tanker market, it's very vulnerable to unforeseen circumstances. Please move to Slide 10 and we will have a look at the Suezmax and VLCC order books. Newbuilding deliveries are accelerating particularly in the second half of 2016 and into 2017 as can be seen from the graphs in the side. Looking at the number of vessels left and 20 years old we see some favorable long term trends. Ships over 20 years are virtually impossible to trade in the scrap markets. And we expect them to go into permanent storage contracts or conversion projects. Normally they would be scrapped but we expect scrapping to remain at the minimum due to the relatively weak scrap prices achievable in the markets. We find that our customers increasingly prefer ships less than 15 years old and the trend here has been clear. Speculations are getting stricter; lifespans of the tankers trading in the spot markets is decreasing. We believe steady demand growth and increasing discrimination against older vessels will help absorb newbuilding deliveries, but overall the fleet growth is substantial and we can expect some periods of volatility and softer earnings as vessels are delivered. We also expect that constraints in debt financing will continue to a strict newbuilding orders. Shipyards are under pressure to restructure and the reduction of capacity at certain yards is expected. As an example on May 27, STX Offshore and Shipbuilding applied for courts receivership. We have 4 newbuildings on order at the yard for delivery in 2017. We have refund guarantees in place from first-class banks and we have commenced discussions with STX. Let's move to the final slide please, market outlook. The tanker market is driven by global oil supply and its increase over the recent years. The development of oil supply is key. Current estimates support strong demand for tankers going forward. We see a further falling U.S. production as likely and as posted for tanker markets. Current U.S. production leaves the U.S. short about 7 million barrels per day. For every barrel exported a barrel needs to be imported and we see the Middle East as the main point of supply. The high volume of crude in the market keeps congestion and delay high imports around the world and creates what we call full-storage. We expect this to remain an important factor and to absorb vessel capacity. As for container-driven storage, we have seen very little activity lately and we don't expect this to change unless there is a drastic fall in oil prices. Let's get through the risk factors. We believe that the primary downside risk for tanker demand relates to decrease in global oil production which have outpaced global fleet growth. Rise is oil prices is another factor which can affect our markets negatively through a fall in oil demand and rise in fuel costs for our vessels. Specifically, a decline in non-OPEC and non-U.S. production also has the potential to negatively affect tanker demand. We see it as unlikely that OPEC will cut production as Iranian production is increasing and Saudi Arabia have indicated an unwillingness to reduce production. An OPEC cut in production would have an immediate effect on the demand of the tankers. A change in trade lines although unlikely in our opinion could decrease ton miles [ph] which in turn will hit the demand for tankers. Another factor would be inventory drawdowns, the world inventories are at very high levels and although many are categorized as strategic, it is a factor to watch. A further order book build up is another concern but this risk has lowered lately and preference seems to shift towards ships on the water. With that, I would like to conclude this presentation and move to your questions.

Thank you, sir. [Operator Instructions] We will now take the first question from Herman Hildan from Clarksons Platou. Please go ahead.

Good afternoon. First, basically on numbers all numbers you have about $236 million of available equity available for additional investments. If you leverage that on 60% to 65% on the acquisitions you have well above half a billion dollars of investments. First of all, could you give us some light on what, within what timeframe you would potentially show further growth preference for assets, and whether you would be considering repurchase of shares or acquisition of shares in the equity markets given the disconnects on top -- between asset prices rates and also shares? Thank you.

I can try to answer, I think I would prefer to believe that it's quite clear that we will have preference so to say by vessels at the water which is based on the disconnect between the rates and values. So that will be our main preference.

And then particular type of vessels?

Sorry?

Any particular type of VLCC or Suezmax's or products tankers?

Sorry, I will just apologize for this; it is quite a bad reception so we couldn't hear you clearly on the last. So what our focus is vessels on the water I think as you said and from where we see values now and the earning potential, then it's VLCC segment that looks the most attractive.

And then just finally also on timing, I mean obviously you seem to be quite positive on the tanker market, do you expect to utilize your spare liquidity fully within, call it a year or will you take a more conservative approach going forward on growth, compared to what you have done in the call it last decade?

We will move here as we will recognize as we will announce on something pretty soon here. So, we find the current pricing attractive.

Okay. Thank you, that's all from me.

We will now take our next question from Michael Webber from Wells Fargo. Please go ahead.

Hey, good morning guys. How are you?

Good morning, I am good, fine, what about you?

Good, just a couple of questions here on Inger, I will start with you just around the dividend and the payout ratio, it's a bit lowered this quarter as in cashes earmarked for further purposes and growth. As we look forward the next couple of quarters, the next year and as you have that large CapEx commitment and where should we expect that payout ratio to wind on a consistent basis?

Our policy to pay dividend payout has not changed but this quarter we have specifically safe deduct. We think we would have various attractive possibilities of acquisitions in the market which leads us to them reduce the dividend payout bit this quarter. Even though of course we do that we still have to remember that the yield is more than 20%, approximately 20% so it's still a very good substantial dividend this quarter.

Sure, absolutely. The question surrounds the idea of this is a one off and you would expect to be back at 100% the next quarter.

With any impact on the future in a way.

Okay, that's helpful. Robert, one for you, just kind of a high level basis; when we think about market dynamics and divergence we seen, seems almost in the past year in terms of day rates and asset values on the water returns remain historically at high levels. What do you think we need to see either within the pool of potential buyers or the kind of the broader shipping landscape to see asset values start ticking higher on a sustainable basis? We would expect, just given where water returns are, we would see more on the incremental capital chasing this space to say drive all growth. I am just curious just what they are going to say to this one, what do you think we need to see before we actually start seeing asset values kick into gear?

I think there are several factors that we need to trade-in, one is that we keep the earnings good over periods and we are able to absorb the newbuildings, that's one and I also think that in terms of the banks and the availability of finance so at that front we are in a great position, I don't think there's many others with the same access as we have so I don't think you need to get that to ask to open up again and also I think with the private owners are more tempted in other segments. Because like dry cargo where the after values are really shot to pieces, you can suddenly see some of these moving into tankers, start believing in the future as well, so I think it will take time. But we see this as an opportunity, we can get more exposure to the market we believe in and we have very good breakeven, low breakeven levels. We would not even dream of selling any of the modern ships so it's many factors but it does no harm to the current situation but I think overtime here it is bound to change.

No, that makes sense. And maybe along those lines and then those drags we have seen those asset values I guess, has there been any change quarter-on-quarter or year-on-year, how aggressive the Chinese have been in marketing their new build swaps? Have you seen any sort of material change at all? Is the pressure easing or is it still kind of consistent?

No, not much change.

Okay, fair enough. Just one more from me and I will turn it over and maybe you can't answer this. Robert in your prepared remarks you mentioned the Frontline Vanguard, you could see some of the charter there, and I think you mentioned it is operating as a conventional tanker, do you know any alternative use for that asset that's on the table or was it I am reading too much into the terminology?

What we saw, what they saw when they were mocking the ship is that the interest was in Asia and it was in various countries where the ship would be laid up and simply used for long term storage and that is not coming back. So I mean, this is an important factor we have to look it as I was mentioning on the order book. This is an 18-year old ship that's coming out. It's getting increasingly difficult to even operate ships over 15 in the swap market and over 20 is actually impossible. So the strictness I think is overall helping and this forms a part of our forward view that this will help sort the order book which as I said earlier, the order book is still substantial so there will be some softer spots there. But coming further, I think the order books looking healthy. I don't think there's going to be much added to it and in the future this cycle might actually prove to be pretty good.

Got you. And just to clarify that I believe that it was bareboat hire and if it's going to some sort of long-term storage contract, would it terminate the charter and so will it still be generating cash?

No, simply because she was coming up to an expensive dry docks. She was difficult to trade in and we are in process of having more on our fleets. We want a modern fleet, we have newbuildings coming and we will tell you to market and sell our older vessels and I am hopeful that within 2016 we will not have any ships older than 2000.

Great, I guess the implication is the return for the long term storage going on was significantly below what you would expect to earn from that capital?

Yes, it's also business that we wouldn't operate our ships in the trading market, not that market.

Okay. I can follow-up on the rest offline. I appreciate your time guys, thank you.

Thank you very much.

We will now take the next question from Fotis Giannakoulis from Morgan Stanley. Please go ahead.

Yes, Hi guys and thank you. Robert you mentioned about the lack of floating storage in the market and the fact that you don't foresee, be able to see any floating storage yet there are number of reports from Reuters and others where they are talking about vessels in storage. I assume that these probably refer to the delays that you mentioned. Can you tell us how longer these delays and how many vessels do you see that are delayed and where exactly these delays are happening and how these delays are impacting the tanker market. And also, if you can add about the global inventories if you have seen any draws or if you think that the charters are not willing to buy more crude at this point?

Okay. To start with, what I was saying earlier on the storage is we are not seeing contango driven storage. The contango's not there, the crude has just recently been in [indiscernible]. So I don't think we are going to see that any time soon coming back unless we see a steep fall in the crude price. But on the other side, what Reuters and others are referring to, it's an extremely important factor in the tanker market. It's difficult to put lengths on the delays but I will give you a few examples. Iraq is now two to three weeks, one week and three weeks so volumes are still high, going up. There are a lot of ships inside the Middle East floating around waiting for orders, unsold cargos, at the same time Iran, they have a number of ships sitting and storing crude and condensate off the coast due to the fact that they don't have storage tanks ashore. In China, Quindío is seeing lengthy delays. We have seen up to a month so there is substantial wait and what we call cold storage at various places. And if you look at it unless there’s a fall in the all volume of oil in the market or a significant investment in ports and that investment will be very expensive and it will also take time, unless you see this change, then I think this -- this way to time will stay and like in the products market, we've seen the delay. In East Africa, for example, it's been three to four weeks for the last 10 years.

I'm trying to understand both from the oil market perspective but also from the tanker market. Is there still too much -- the system, it has the amount of inventories rather we have worldwide increase even further the last couple of months and that might mean that the consumers, the charters are probably more prone to draw from this inventories instead of buying more crude and chartering more vessels or you're seeing that this is -- this delays and the port specific bottleneck are just regional and they do not reflect with overall market?

There is too much oil in the market. Other factor is there is this much oil in markets and I think the oversupply of oil has been spoken about. I think that's -- it's not as much as its -- somehow referring to. I think the demand has come up and there might be smoothest play but it's not as high as some report. I mean that is due to the demand being higher than what's being reported.

Thank you. And there was a lot of discussion about the order of VLCCs by your group for a price which seemed quite low; the brokers were reporting about $75 million or $78 million. I don't want to ask you if the price is correct but I want to ask you how do view vessel values from the shipyards. You obviously mentioned that your focus is to buy vessels in the water but if prices have dropped at quite levels from the shipbuilders, is it something that you would consider and where do you see the assets values in pricing from a shippers developing?

Looking at the prices in general, as you say we have a presence for ships on the water. Just a general comment on pricing of newbuildings here, I think at the current levels being talked about, I think yards on entering into contract where they are entering into a loss. And you actually might see some to keep it workforce going but if I was running a shipyard, I wouldn't do too many contracts and lose money on each of them. So I think on the pricing here, this -- we must be close to the bottom is my opinion.

Okay, thank you. And I want to ask you about how do you view your competitive landscape? There are at least four public lease of companies in the U.S. with very similar fleet and the one that you have are -- if you can point out to us what are the major differences between this four company? And what prevents the market from joining forces and creating an even larger entity that is going to be more tradable and if you think that this possibility is still out there in the markets?

Now, looking at so as to what the franchise thought, as we do have the most competitive breakeven levels in the market. We have the fleet that is being renewed month-by-month there, and then we have financial flexibility that is quite outstanding. So that's the main, and as we have been stating before, we believe in consolidation that we will see how things develop over the next year. We're very happy with the fleet; we'll have 65 own ships on the water here next year. So we'll look to opportunities but there is no rush from my side.

Thank you very much, Robert.

Thank you.

[Operator Instructions] We will now take the next question from Amit Mehrotra from Deutsche Bank. Please go ahead.

Yes, thanks. Good afternoon, everyone, thanks for taking my question. I wanted to follow-up on your comments about acquiring on the water assets. Just wanted to understand why sellers of crude tankers would sell their ships unless you're willing to offer them relatively attractive cap rates. I mean no tanker company is in distress today, cash flows are strong, obviously not as strong as they were last year but I guess cash reserves have sort of been built over the last year, year and a half to maybe endure a period of relatively lower rates. So the question is why would sellers sell today or maybe is front line or you guys willing to pay a little bit of a higher price than what the market is indicating to get deals done and to get sellers over the fence? Thanks.

Very good, there could be a lot of reasons for selling, I'll give you one example. If you're a private owner and you have a VLCC then you will very -- many of them have two case, VLCC, so that could be a reason. So we're going into too many examples on that but we -- as I said earlier, we wouldn't dream of selling and we find this to be a good opportunity. There are -- we are seeing some interest at very competitive pricing. I think that there is limit of downside from these levels but there are at the same time very few buyers. So it's not even certain that we're at the bottom yet, so we'll see how the summer goes here but we see good value now.

So the acquisitions that you're contemplating or may enter into essentially from private owners that have assets in other areas of the industry that are burning cash, is that a fair characterization of the types of deals that you're actually getting done or plan on getting done?

That could be an angle, and as soon as we have deals planned here we will announce them.

Okay. Let me just ask one more on sort of the deal front; you've obviously talked a lot about acquisitions but just trying to get a sense if there is any additional equity that can be unleashed or created or additional acquisition capacity, maybe that's a better way to put it, that can be freed up from actually asset disposals. I mean you talked about disposing of older assets but are there any sort of other beyond just age that you may be willing to entertain to free up additional equity to go after additional larger -- maybe assets? Thanks.

Yes, we have some optionality in that but I'm not going to go into too much detail.

Okay, all right, fair enough. Thanks so much, appreciate it.

Thank you.

Thank you.

We will now take the final question from Erik Stavseth from Arctic Securities. Please go ahead.

Good morning, good afternoon. Just a real quick question on the financing side and to pursue them. First of all, are there any covenants related to the unsecured debt you announced today? And secondly, you've tapped the Chinese Exim market for the Suezmax and LR2s, what's the stance of the commercial banks, both on newbuilds and the second hand tonnage?

Yes, your first question relating to covenants, it would be the same covenants that we have in our current facilities with respect to these facilities as well. So we don't change covenants, we have the same covenants as in our current facilities. With respect to -- what was the question with respect to the interest from commercial banks?

I'm just saying, previously you've been able to or you have used commercial banks as well as Exim financing whereas this time you're using only Exim financing and we have seen a lot of commercial banks withdrawing or at least reducing their exposure. So I'm just seeing what's the rationale and what are the terms that the commercial banks are offering today and how do they differ from the Exim financing?

Well, I think we are talking about here Chinese newbuildings and obviously it's this quite natural choice in a way then to talk with local banks in China to finance these vessels. And since of course also the Chinese banks will have an interest in doing that for they are listing for the country and itself. So that's the reason behind that we were basically looking for Chinese local funding and in this case, it's not the same as saying that we would not have been in a position to do it by our standard or commercial banks but we saved that power to, let’s say, acquisitions going forward.

All right. And then one final question on the yards, I mean you mentioned that the -- are owners worried about placing orders in South Korea in general these days given the restructuring that are ongoing across the entire yard sector there?

Yes, I will assume so.

Okay, thanks.

Thank you.

[Operator Instructions] As there are no further questions in the queue at this time, I would like to hand the call back to Mr. MacLeod for any additional remarks.

Thank you very much. We appreciate the high number of callers on this presentation. I would also like to take the opportunity to thank everyone at Frontline for their great efforts. Thank you very much.

Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation today. You may now disconnect.