Petros Pappas - Chief Executive Officer Hamish Norton - President Christos Begleris - Co-Chief Financial Officer Simos Spyrou - Co-Chief Financial Officer

Frank Galanti - Stifel Noah Parquette - JPMorgan Fotis Giannakoulis - Morgan Stanley Amit Mehrotra - Deutsche Bank Herman Hildan - Clarksons Platou Magnus Fyhr - Seaport Global Harsha Gowda - Blueshore Capital

Thank you for standing by ladies and gentlemen and welcome to Star Bulk Carriers Conference Call on the Third Quarter 2017 Financial Results. We have with us Mr. Petros Pappas, Chief Executive Officer; Mr. Hamish Norton, President; and Mr. Simos Spyrou; and Mr. Christos Begleris, Co-Chief Financial Officers of the company. [Operator Instructions] I must advise you the conference is being recorded today. We now pass the floor to one of your speakers, Mr. Pappas. Please go ahead, sir.

Thank you, operator. I am Petros Pappas, Chief Executive Officer of Star Bulk Carriers and I would like to welcome you to the Star Bulk Carriers conference call regarding our financial results for the third quarter of 2017. Before we begin, I kindly ask you to take a moment to read the Safe Harbor statement on Slide #2 of our presentation. Let us now turn to Slide #3 of the presentation for a summary of our third quarter 2017 financial highlights in comparison to the same period last year. In the 3 months ending September 30, 2017, net revenues adjusted for non-cash items less volume expenses amounted to $63 million, 44% higher than the $43.7 million for the same period in 2016. Adjusted EBITDA for the third quarter 2017 was $28.6 million versus $11.9 million in the third quarter 2016, an increase of 141%. Adjusted net loss for the third quarter amounted to $5.3 million or $0.08 loss per share versus $20.3 million adjusted net loss or $0.44 loss per share in Q3 2016. Our Time Charter Equivalent rate during this quarter was $9,619 per day compared to $6,885 per day in the same quarter last year. Our average daily operating expenses were $3,947 per vessel per day. On the commercial side, we have expanded our vessel operating capability with a new Geneva-based subsidiary, Star Logistics. The new entity will focus on expanding our cargo flow on Kamsarmax, Ultramax and Supramax vessels through direct contact with end-users of dry bulk commodities. On the financing side, we have refinanced our senior notes due in 2019 effectively pushing back the maturity by 3 years to 2022. I will now pass the floor to our Co-CFO Simos Spyrou for an update on our operational performance for the quarter.

Thank you, Pedro. Slide #4 highlights Star Bulks’ strong liquidity position. We currently have an all-in cash breakeven including OpEx, corporate overhead, interest, lease payments and dry-dock provision is approximately $7,600 per vessel per day. Our lower breakeven has enabled the company to have positive free cash flow of $15.7 million during the third quarter of 2017. On the right hand side, we provide recent balance sheet information on our cash and debt positions. As of November 17, 2017, our total cash balance stood at $263.7 million. Total debt as of the same date stood at $1.445 billion. Both figures above are adjusted for the acquisition of the Cape Triumph, which will be delivered to us within December. The remaining CapEx on the three new Newcastlemax vessels that we are due to take delivery is $103.5 million, all of which is expected to be due in Q1 2018 when we will be taking delivery of the three vessels. One of the three vessels have bareboat financing with fixed data amounts and no LTV test at drawdown. The remaining two new buildings are being financed with $30 million of delivery financing for each vessel that we believe around $3.5 million of cash required in order to take delivery of all three vessels. Finally, on the bottom right hand side of the slide, you can see the evolution of our adjusted EBITDA, which has been growing continuously as the market has been improving from the historical lows of the first quarter 2016. We aim to continue keeping our costs low in order to be able to increase our profitability as charter rates improve. At this point, we would like to highlight that Star Logistics will be using freight derivatives to hedge its market exposures. Accounting standards may result in recognizing gains or losses on the derivatives before recognizing the revenue, which is being hedged. Star Logistics net market exposures will, however, be very small. In Slide 5, we want to update you on our fleet employment. We have fixed 28 vessels, mostly on short-term periods with 3 deliveries around the end of the second quarter 2018. In addition, 4 index-linked Newcastlemax vessels are employed with a major minor for a series of consecutive voyages and another Newcastlemax vessel is employed on a time charter contract with a major trading house at BCI plus 32%. Please turn now to Slide #6 where we summarize our operational performance for the third quarter 2017. The combination of our in-house management and the scale of the group provides us significant advantages in terms of cost and quality, which our customers and shareholders can enjoy. OpEx was $3,947 per vessel per day for the quarter in line with our performance over the previous quarters. Net cash G&A expenses, adjusted for one-off restructuring expenses, were $1,074 per vessel per day for the quarter. Our low cost structure is complemented by excellent seat management capabilities as Star Bulk is ranked among the top 3 among managers evaluated by Rightship. We are focused on having the highest standards of vessel safety and maintenance to meet the requirements of our strictest and most demanding clients. Slide #7 shows that Star Bulk is one of the lowest cost operators among the U.S. listed dry bulk peers based on the latest publicly available information. Star Bulk is one of the leaders in cost efficiencies among the industry, with OpEx approximately 10% below the peer average. In addition, we have been ranked number one in the latest Shipping Benchmarking Initiative of the Boston Consulting Group with OpEx 15% below the peer average. The dry bulk sample includes 26 reputable peers, owning and managing 755 dry bulk vessels and is based on the 2016 financial year. This is the 5th consecutive year we have participated in this benchmarking exercise as we remain committed to improve our overall management practice and optimize our daily running costs in order to maximize shareholder value creation. We always continue paying a lot of attention on the condition of our vessels in order to remain at the top of the list of our commercial partners. I will now pass the floor back to Petros for a market update and his closing remarks.

Thank you, Simo. Please turn to Slide 8 for a brief update of supply. During 2017, the dry bulk fleet has grown by 2.9%, a total of 36.5 million deadweight has been delivered and 13.3 million deadweight has been sent to demolition for a 23.1 million deadweight net inflow. Dry bulk contracting during 2017 has remained relatively low with a total of 22.5 million deadweight reported by Clarksons as firm orders, but also with approximately 25 million deadweight of identified LOIs and options pending to be confirmed or canceled, the dry bulk order book, therefore, ranges between 8.3% and 11% of the fleet, depending on the percentage of LOIs and options that will, ultimately, materialize. This compares to 12% order book during the same period last year and 18% the year before. As previously projected, full year net fleet growth is expected to end up around 3% during 2017, up from 2.2% during 2016. This is a result of a slowdown in demolition activity from 29.3 million deadweight during 2016 to around 14 million deadweight during full 2017. Dry bulk fleet growth is expected to be around 2% during 2018 as bulk scheduled deliveries and scrapping are bound to decrease. Let’s now turn to Slide 9 for a brief update of demands. As per Clarksons’ latest report during 2017, total dry bulk trade will grow by 4.2% in tons, up from 1.3% during full year 2016. Dry bulk ton miles will expand at a higher pace, closer to 5.3% from 2.1% during 2016. We expect ton miles trade to continue to grow at a higher pace than tons during 2018 and ‘19 due to Brazil iron ore and West Africa bauxite mine expansion, increasing distances for coal trade and healthy grain trade from the Atlantic to the Pacific. During Q3, international steel prices and steel mill profitability experienced a strong increase, which has supported a 6.9% year-on-year increase in global steel production. Upper end crude steel consumption in China has increased by 14.8% during the same period on the back of infrastructure and real estate investment growth and substitution of low quality steel from induction furnaces. These sub-towns have led to regional shortages of steel and have provided strong support for blast furnaces and pig iron production. Looking forward, we expect steel mill utilization to correct on the next month due to seasonality and steel fab mandates to lower pollution. This is expected to lend support to steel prices and profitability over the next months and inflate iron ore consumption as of March 2018 forward. Strong growth in China hydropower generation and the rebalancing of domestic production has kept coal imports relatively flat during the third quarter. Having said that coal imports have rebounded by 13.7% during the first 10 months of 2017 on the back of strong electricity demand growth. We find it encouraging for medium-term coal imports prospects that domestic coal production growth has slowed down. Domestic production currently runs below 2014 levels, while total electricity generation during the same period has increased by approximately 15%. Furthermore, it is worth mentioning that coal stocks at [indiscernible] power plants have decreased to extremely low levels and are expected to support the imports in the short-term. We are generally positive about the market for at least the next couple of years where supply will be relatively restrained and demand will remain solid. Thereafter, the impending environmental regulations will contribute to vessel scrapping and slow steaming as well as reduced vessel utilization and efficiencies. However if ship owners embarking massive undisciplined new building ordering such regulation led market upturn may prove to be short lived. I will now pass the floor over to the operator to answer any questions you may have.

Thank you. [Operator Instructions] Your first question comes from Ben Nolan from Stifel. Please ask your question.

Yes, hi. This is Frank Galanti on for Ben. Just had a question regarding scrubbers, I know we talked about it last quarter, but wanted to get your thoughts on timing particularly when you guys would think about bringing, whichever vessels you are starting to put scrubbers on to shipyards, kind of how long to take to install? And then if you guys anticipate any delay issues from kind of an oversubscription of people trying to install scrubbers at the shipyards?

Our scrapper expert is Hamish. Hamish, please respond.

Yes, sure. So Frank, first of all, the actual time it takes to install the scrubber once it has been delivered to a shipyard and the ship is at the shipyard is really quite short and would, for example, not add to the time of a standard drydocking and it probably can be accomplished within a couple of weeks. And there is certainly no danger of too many people wanting to install scrubbers soon, in 2020 that may change.

Okay. So then kind of following up on that, do you anticipate any additional OpEx increases? I know you guys have talked about kind of a 1 to 2 year payback period, but is there any idea on kind of increased expense from crew training or dealing with the waste product from scrubber technology?

That depends how complex and how complex a scrubber that you install. The scrubbers that we have been considering would not increase OpEx in any material way. There would have to be a certain amount of crew training, but not a tremendous amount and there would not be issues of waste disposal. A scrubber, in operation typically consumes, maybe 1% or 1.5% more fuel than operating the same ship without a scrubber, but of course operating with a scrubber, you are burning much cheaper fuel and that goes into voyage costs, which if the ship is time chartered, those voyage costs are picked up by the charterer. So I hope that’s relevant to your question.

Yes, it’s actually very helpful.

Frank, by the way, while we have been studying this matter for the last 14 months in depth, we have not yet taken the final decisions about which way we are going to go just so that you know.

Yes, that’s very helpful. That’s all for me. Thanks so much.

Thank you. Your next question comes from the line of Noah Parquette of JPMorgan. Please ask your question.

Thanks. I wanted to follow-up on the logistics business you are starting, can you talk a little bit is there certain commodities that you aim to focus on with this as portions of your fleet that you plan on devoting to the business?

You mean on what kind of commodities we will be carrying with the Star Logistics cargoes, is that what the question was about?

Yes. Plans devoting to coal or is there anything or just kind of more about the strategy?

Well perhaps, that gives me also the opportunity to talk a bit about Star Logistics and why we are doing it also. First of all, most of the trades, to answer your question are going to be grain trades, which is good because it is a trade that doesn’t damage the vessels holds. The reason why we are going towards the Star Logo solution is a number of reasons actually. First of all is going to source employment for our vessels in the future, for our own vessels. Then, we get a lot of market information and we get it from the dark sides. The dark side is chartering – is charterers and I don’t mean to – I don’t mean it in any Clandestine way. I mean that us, owners, basically are mostly in the dark as far as what the market is doing and what cargoes are coming and when and all that stuff. And I think that by immersing ourselves in that business as well we have to learn a lot. And we get information that will help us in fixing our own vessels as well. Then, it is also a cheaper solution in a way. When you charter a vessel out, you basically, we pay almost you pay 3.75% of less commission plus one or two brokers depending on who you get the business from. But having our own company will probably be able to lesson that to much less than 3.75%. And through that, we will cover our overhead costs of the company. But overall, if we have a lot of business going through the company, that is going to make it cheaper for us, overall. Then, we will be able to take advantage of opportunities. If we see an owner who is very afraid about the future and is willing to fix below FFA levels, maybe we can charter in and then hedge it on FFAs and make a nice margin in between. Then we will, finally, give some optionality ourselves. We, ship owners, are used to giving optionality. Perhaps, we get the opportunity of getting some optionality going forward. And of course, we will improve our relationships with the cargo owners and cargo movers, and hopefully, then, we will even make a trading profit out of this company. So you give me the opportunity to talk about Star Logo a little bit.

Okay. That’s interesting, okay. And I just had another question on you touched on the Chinese environmental regulations. You guys think it will change any bit about the seasonality of dry bulk trades, particularly, Q4 and Q1, have you given any thoughts to that and the effects that would have?

Right. We have been discussing this internally. Well first of all first of all, we think that it’s not going to affect the total trade, as a starting point. And the reason we think that is because we see that still make us a healthy still make healthy margins. We still we see that steel consumption in China is increasing by 14.8% this year. And we think that, that is going to continue going forward. What may happen, now what may happen is that this trade could be moved for later on in time so the question is whether the Chinese will continue to import or not. Will they continue to import and stock some iron ore because they would need that after the second quarter or not? It’s possible they will although they will do that to a degree. So we do not believe it’s going to happen to a great degree, because if that happens, we will have a huge spike in the market on Q2 next year. So our opinion is that it will happen to a degree, but not substantially, because if they stop importing right now, let’s say, from now on in Q1, and they start importing just Q2, they will just shoot themselves in the foot and we will see a huge increase in the market. We will see somewhat of a better market in Q2 though because it makes sense that there will be some slowdown in the next few months.

Okay that’s all I have. Thank you.

Thank you. Your next question comes from the line of Fotis Giannakoulis of Morgan Stanley. Please ask your question.

Yes, hi, guys and thank you. Petros, I see your balance it looks quite strong right now. Your net debt has dropped to around 50% of the fleet value and you have $216 million cash in your balance sheet. I wonder how much of this cash is excess cash, how much do you want to keep it in order to navigate the volatility of asset safety, to navigate the volatility of Capesize market. And how much is available for acquisitions or buybacks and how are you planning to use it?

Hamish, you want that?

Sure. Look, Fotis, we are shareholders. The Pappas family are major shareholders. I am relative to my net worth, a major shareholder. And we are always looking at how do we make the most benefit for the shareholders and, obviously, the cash is part of that. Some of it, obviously, is needed to moderate the volatility of the dry bulk market. And some of it, we need to keep in reserve to make sure that we don’t have any hiccups when it comes to refinancing our debt. But you can be assured that we are motivated like shareholders and we are looking at ways to get as much cash into the hands of shareholders as possible.

Thank you very much. Hi Mr. from your answer, I understand that the first priority for anything of this in excess would be returning capital to the shareholders. Is that correct, rather than acquisitions?

We look at acquisitions from the point of view of shareholders. And we are really motivated to make sure the share price goes up and, and obviously, increasing the liquidity of the share is good if we can do that in a way that maintains or benefits shareholder value but we are not motivated simply to increase the fleet, unless that fleet increase benefits the shareholders directly. And that’s not the case with every company but it’s certainly the case with us. So we look at acquisition opportunities and we welcome them, and sometimes they can make sense.

Thank you very much. That’s very helpful. One more question about how you manage your risk. You mentioned about the entity that you have established that you are going to take some FFA positions. I was wondering, how much would be the maximum value at risk of these positions. It is something that you can quantify at this point?

Fotis, this is going to be extremely low. When we fix a vessel, it’s like going long in the market where we will hedge it on the FFA right away. If we fixed on a period then we will keep un-hedged the optional period. Otherwise, I think that a great percentage of our fixtures one way or another going to be hedged.

Yes. And the policy is, at least, at the moment, to have fewer than 500 days value at risk.

Thank you. That’s very helpful pretty much market neutral from what it seems. One last question about the market, Petros, you talked about the policy that induced slowdown in China that you expect to come in the next couple of months. Have you seen any signs, any early signs of this seasonal policy slowdown and what do you expect to be the reaction after that in March? Do you see that it can potentially be disproportionately higher increase after this seasonal slowdown?

Yes, well, we have seen the market slowdown in the last 2 weeks, especially, on the smaller sizes, but not as much on the Capes. We have seen a slowdown there well but not a big one. It was more on the smaller sizes. I think this was the result of a number of things. It wasn’t just the slowdown that we are talking about. I mean, in overall, there were a number of things, like, for example, hydropower production in China was strong in the last couple of months and that actually influenced coal imports negatively. Then, the U.S. grain markets has not really gone to full steam yet. Then the Duchen railroad is under maintenance and that has obliged coastal fleets in China to get out in the open market and increase competition, always, actually, I think, the smaller sizes. Also, we had lower iron ore imports in October, like 79.5 million tons versus but that may also be because we had very record imports of iron ore in September, which was 102 million. So there was a slowdown. On the other hand, however, we saw that 31% of this 79.5 million tons of iron ore imports came from Brazil, instead of the average of 21%. So, those additional tons actually come from a triple distance away than from Australia. So overall, I think that it is not just the environmental rules in China. I think it is a number of things that have influenced, but you see that haven’t influenced them a lot. And yes, we think that it is possible to a certain extent that the market might start improving in Q2 versus Q3 this year, exactly because of all these reasons being mended and the environment regulations of China coming to an end at the end of March next year.

Thank you very much both of them. It has been very helpful.

Thank you.

Thank you. Your next question comes from the line of Amit Mehrotra of Deutsche Bank. Please ask your question.

Yes, thanks everybody for taking my questions. So, my first question is just a follow-up on the Geneva-based enterprise logistics or Star Logistics. It’s not super clear to me or not clear to me why you would need to create a whole new enterprise to basically hedge with FFAs, it seems like that can kind of be done at Athens. So there is obviously the question is really related to there is obviously a very big charter, if not the biggest charter of dry bulk vessels based in Geneva. And so the natural question, I guess for me is do you have any partnerships with large commodity houses or trading houses or a companies like this that would, maybe, make this an interesting strategic, sort of longer term strategic move. Just any help there around why it’s based in Geneva. Are there any partnerships, anything to understand the long term economics of these businesses will be helpful? Thank you.

Thank you, Amit. First of all, at the beginning, we will be not be chartering our own vessels, we are just at the first 3 weeks of this. So what we are charging vessels from the outside, and those need to be hedged. We’re not when we hedge our own vessels in at Star, we basically charter them out for 7 periods. Like, for example, in the last couple of months, we have taken a view that Q1 next year should be covered at relatively good rates that we have seen over that period and we have fixed a good percentage of our fleet through Q1. And that is because, seasonally, Q1 is a difficult quarter; so we have done that. And that is hedging in the fiscal market. We don’t need, really, to hedge in on the FFA market especially, because the FFA market, actually, has been rather low and market has been higher. It didn’t make any sense to hedge there. What we are doing is yes, we are close to some important charterers, important owners of cargo or traders of cargo, but if I can, I would not like to give out the name right now. But yes, we are close to people like that. We need to be in Geneva because that’s where the center of trading is. We took over an operation that had stopped trading in during the last few months and therefore, we started with very low operating expenses, the startup expenses. And the goal is to be able to fix our own vessels in the future, but we are talking about years from now. At the beginning, we are starting very carefully with chartering in with fixing cargoes within the Atlantic mostly, and then chartering vessels against them. When we fix the cargoes, we also hedge them, when we charter the vessels, we un-hedge them. If we can do it at the same time and we see some profit there, we will take that as well.

Got it. So just if I understand then it seems like it’s a small step in a direction that may ultimately whether its years from now lead to a more comprehensive strategic relationship between the asset owner and the cargo owner. Is that the way I should think about it, the very longer term in nature?

Yes, it could be. It could be, yes.

Okay thanks. And then just a couple of other quick ones for me, Petros, there has obviously been a lot of like one-off acquisition and divestiture activities in the market and I think you guys have also participated in some of that one-off activity, but just wondering if there has been any appetite out there for something bigger whether it’s a larger ship for ship for share, ship for stock deal. It would be kind of appealing for Star Bulk, I think, because it allows you guys to invest in the recovering point of the cycle, expands, diversifies your share capital base, which I think is, somewhat, needed. You could argue, and I would obviously, be very appealing to. Just any thoughts there in terms of the scope of what you are seeing in the market, if there’s scope for, actually that to happen and if you are thinking about potentially engaging in something like that, if the right opportunity comes by?

Hamish, would you like to take that?

Sure, sure. So look, we would love to do something like that. And for all the reasons you talk about, it diversifies the shareholder base, it presumably increases the liquidity of the share, if it’s structured properly, it should reduce our overhead per ship per day. And we look at pretty much every opportunity that’s out there. But the main hurdle it has to pass is, it has at least to make sense from the point of view of the current shareholders. And if we see something that makes sense from the point of view of the current shareholders, we would love to do it.

Alright, okay. That’s a fair answer. I appreciate that. One last question from me on the scrubbers, Hamish, just a follow-up, correct me if I am wrong, but it just doesn’t seem like it will probably make any sense for you guys to think about installing scrubbers until really probably late ‘19. For anything else, just given the deflation and the cost that would likely happen if you look at what happened on the Ballast Water treatment facilities, the cost came down precipitously over, call it, a couple year timeframe. And then there’s also kind of this question about what you actually do with sulfur, whether it’s kind of open or closed loop and there’s questions around that and there’s obviously proportion technology, of what that may look like to offset some of that. So I mean, there is just a lot of variables and so is it safe to assume, I know a couple of quarters ago, Petros talked about financing potential. But it’s fairly safe, you would say, if not, please correct me if I am wrong to assume that there’s really no decision that should be made on this for the next, at least, one year, I would imagine?

Well, you are certainly right that installing a scrubber on December 31, 2019 is the optimal date. But there are issues of shipyard capacities, scrubber manufacturer capacity and so on that probably pushes the optimal date into a band before that. But we are looking into when the decision would have to be made to actually get everything installed and trust me, we are paying a tremendous amount of attention to that question. But just as by the way a technical answer to a question you didn’t ask. Closed loop scrubbers, put all the sulfur into the sea. And if all the oil and gas were scrubbed by ships and the sulfur placed into the sea, it would be a negligible increase in the sulfur content of sea water.

Okay. That’s helpful. One last one for me, if I could and some, I think, at the tailwind of the questions here, in terms of the average rates in the quarter, they were a little bit lower than what I had in my model and, clearly, I know that this – my model is not necessarily the most perfect in terms of estimating rates exactly. But I just wanted to understand how you think about the performance relative to the benchmarks when you do have this Capesize pool-like structure, I know it’s not a pool, but a pool-like structure in terms of sharing information, you got the index-linked. Anywhere and any reason to sort of look at the performance in the quarter and say, maybe it should have been a little bit better or maybe am I just over reading it? Thank you.

Amit, when the market is going up, everyone, you will see that everyone will under-perform the market and when the market is going down everybody will over-perform the market. The reason is simple you fix between 5 and 25 days, your vessel prior to opening. So...

I know that, but the question is that even if you average out the average rates in the second quarter with the third quarter, you still – I mean the company still underperformed those rates by a decent amount. That’s – I understand the lag effect, and I think I’m taking that into consideration, but maybe I’m just overlooking into it and there’s nothing there to look at, I was just wondering if there was anything to point out there?

Well, sorry, Hamish. Actually, you know what, the differences could be huge. Like, we have had vessels that over performed and underperformed with the market in single voyages by between 52% and 57% within 2 months. So this can be extremely high. So also we had the 3 or 4 vessels chartered out from a year ago, which kind of lowered our time charter income.

Yes.

But the main reason is – but that’s not a lot – a bigger – a big part of the reason maybe you will see next quarter better results.

Yes, maybe my model was obviously a little bit of optimistic as well. Okay. That’s helpful. Thank you all so much for answering my questions. Have a good holidays, not talk to you before the end of the year.

Thank you. Same to you, Amit.

Thank you. The next question comes from the line of Herman Hildan of Clarksons Platou. Please ask your question.

Hello, everyone. My first question goes on Star Logistics I am just kind of curious on the size of investment that you are going to make into that and your answer there in dollar amounts?

The investment we will make on that – well, we will have the startup expenses which are negligible. We have our overheads, which we think will be in the very, very low 7 figures. And then the rest is going to be cash flow we may need for our – for paying the charter – the chartering vessels and for hedging. That’s it.

They are kind of the [indiscernible]

Therefore the investment, the immediate investment is almost nil.

So the question is relative to the core business Star Logistics is not going to kind of become sizable investment for the company?

No, it’s not.

Okay, very good. Second question I have that you kind of touched upon briefly in the Q&A was obviously now going into next couple of years with very little fleet growth and I guess, record low order book does it [indiscernible] the fleet. And I’m already with a fairly decent leverage – or manageable leverage position already and what’s the kind of do you have any guidelines for how you expect to structure your balance sheet going forward? How do you kind of think about how you use the cash flow in the coming years and whether you have any things on the agenda, for example, with the composition of your fleet that you would like to grow or are your happy about the fleet position at this stage?

Herman, hi. This is Christos. As Hamish previously mentioned, we’re always looking at accretive transactions of the shareholders. Therefore, if there is an acquisition of a fleet that makes sense for us, we’ll definitely go for it. As far as sort of main priorities on the balance sheet are concerned, we are here to see, basically, our net debt going down in the next few years. Therefore, we hope that as we get operating cash flow from our vessels, we actually decrease our leverage in order for the next down cycle to find us with a very, very low, if not 0, net debt figure. Therefore, that remains one of our key priorities.

Has there been any, call it, preliminary discussions from putting in place the buyback program or allowing to start to pay dividend at some point during 2018, could you give some color on if there has been any discussions on that so far?

There have been discussions and a dividend – a reinstating dividend would be a second step after reducing our debt to levels that we feel comfortable with in order for us to be able to face the next down cycle with as low debt as possible. But yes, the second step would be reinstating a dividend policy.

Could you then give us some color on kind of what debt levels are you comfortable with going into the next downturn, which hopefully is quite some time away?

I mean as I said before, the closest to a net debt 0 figure, the more comfortable we are for the next down cycle. The goal here is for us to be a very low leverage company that is able to distribute dividends, both in down cycles as well as in up cycles.

Okay, thank you. That’s all from me.

Thank you. Your next question comes from the line of Magnus Fyhr with Seaport Global. Please ask your question.

Yes, hi. Just Petros, you made a very bold prediction at the last conference call that rates would be over 20,000 at the time when I think rates were probably not approaching the teens yet. What does your crystal ball tell you for 2018?

You mean that I made that predictions for what for Q4?

No for all of 2018.

For all of ‘18, right. What does my crystal ball say? I have lost my crystal ball, but I think that 2018 is going to be better on average than 2017. Now to what extent that is going to go, I don’t really know. But as supply is going to be 2% and we expect demand to be above 3.5%, perhaps, with ton miles even up to 4.5%. We think that is going to give a boost to the market. And the only thing we are worried about or what we are most worried about is Q1, which we’re covering for. And otherwise, as I said, on average, I think it’s going to be better, whether that’s going to be 10% or 30%, I don’t really know but I expect that we will see better rates.

Thank you, Petros. I figured out I will try it. Thanks.

Thank you.

Thank you. And your final question comes from Harsha Gowda of Blueshore Capital. Please ask your question.

Good afternoon, gentlemen. How are you?

Good, Harsha. How are you?

I’m doing well – doing well. I just have – a lot of the questions were answered, but 2, maybe, more conceptual questions. One, just from your experience Petros of watching and being active in the drybulk markets for many decades, the persistent strength that we have seen in the second half especially in Capes, but even in some of the smaller vessels, does that – is that an indication that we’re finally balanced right now in the market. And the reason I ask that is because in light of the fact that 2018 and 2019 show, on a historical basis, probably record low fleet growth, maybe, going back until the 80s before we saw less than this. And is there a possibility that we could see a sort of phase shift where rates really have a sharp reaction to an increase in demand over supply?

Harsha, as I said, I am positive about both years. Now whether the difference of 1%, 2% or 2.5% between demand and supply is going to get the market to a boom, I am not sure yet. This usually happens when it is totally balanced. I’m not certain it is totally balanced right now. It could be there, it might not be there. It’s not easy to assess that. But I think that we’ll definitely see better market in the next couple of years. And my hopes actually are even higher for after – once 2020 sets in because I believe that the environmental regulations will have a major positive effect on shipping. Of course, that has a lot to do with what we will be ordering. If we start ordering like there’s no tomorrow, this affect will be not as strong on the market, but that remains to be seen. For now, the new orders, the confirmed orders are not a lot. But including the LOIs, they are pretty much. Of course, above one third of what were those orders in 2013 in the 5 quarters of 2013 and the first quarter of 2014, there were about 110 million tons orders confirmed. And that then killed the market. So I think the fundamentals are better this time around. It’s also good that banks don’t lend. It’s good that the Chinese banks are very careful as well on who to support with their new buildings. So I believe that things look much better going forward and I wouldn’t rule out a very strong market after – in the next decade.

And two more questions for you, Petros. You talked about what happened in the past and the market really sold off heavily, and a lot of that, it seems, also due to the sharp drop in crude oil prices. Now, you see prices have picked up a little bit and also a lot of doubts are increasing about the true extent of a potential supply growth. So how could your impression of, say, 2018 and 2019 change if we see a real increase in crude oil prices, a sustainable increase from these levels?

Harsha, if you remember in 2013 – sorry, 2014, the last couple of months of 2014, prices of fuel oil went from $700 down to $170. And this was one of the main reasons why the market fell so abruptly. The second reason – a second reason was that China stopped importing bauxite, nickel and coal for a few months. And that started creating problems for the market and then, of course, vessel started – the vessels that were ordered, started pouring in. But the fuel oil was the beginning of the downturn. This time around, I do not believe that we have – we’ll see fuel oil going down. I think we’ll probably see it going marginally up. And therefore, that has a positive effect on the market. We like more expensive fuel oil. But it also – this is an equation that has a lot to do with where charter rates are. So the speed of vessels depends on price of oil and charter rates. So if price of oil goes up, vessels slow down their speed, and then as a consequence, charter rates go up, speed will go up again. It’s like a yo-yo, depending on what happens one thing, it’s the reaction of the other thing. Of course, what is very important, I think, as well is the dollar. The dollar is – if the dollar is weak, this is good for shipping. Because it makes commodities cheaper, it makes freight rates cheaper in local currency terms and, therefore, it encourages trade. And also, it’s good for vessel prices because if dollar is cheap, the Japanese ship owner who would want to sell his vessels will ask for more dollars to get the same yen. So the dollar is also important. And of course, the dollar is related to the oil price as well. So if dollar is down, oil price goes up. So all of that goes together, but the fact that the dollar is weak is a good thing for us right now.

And I mean thank you for that Petros. My last question is kind of in line with what Hamish was saying about being a shareholder and the focus on having the share price reflect the true value and – of the company. When I look at the share price now and I’m sure, it’s confusing also to you, I believe it’s pretty – it’s simply known that the net asset value of the stock is probably close to $11, $12 range and now the company is generating very good cash flows, probably in the double-digit free cash flow yield range. And this fourth quarter looks to be profitable, and possibly, even the first quarter, which is a weaker quarter, historically. Yet, the stock is at a such big discount. Is there – what can the company do to remedy that, I like to hear the fact that you’re thinking about dividends in the future, but this is such a sharp discount and it doesn’t seem very warranted.

Well you hate to buy it.

Yes, that’s true. I wish I could compete with Oaktree.

Well I think that part of the reason why stock prices are lower, perhaps, than their net asset value is that people are expecting to see whether this upturn has legs or not. I happen to believe that this upturn does have legs. But in all, this is also a seasonal market. So if Q1 is, due to the various reasons we already discussed, is down, people will be scared, I mean it’s normal. And then, of course, that gives opportunity to buy, as Hamish said.

Great, great. Well, I hope, you keep considering that dividend idea once the restructuring deadlines have passed. But thank you very much.

Thank you, Harsha.

Thank you. I will now pass the floor back for closing remarks.

Right. As I mentioned at the end of the previous investor call, the world is striving for a clearer environment. We, shipping people, must do our part. I advocate that we should work towards a mandatory slowdown of vessel speeds as the short-term measure and while medium long-term measures are being contemplated. As an example, a 15% speed reduction would result in a 27% immediate, overall emission reduction when we’re presently negotiating a 42% emission reduction by 2050. Why wait for 2050 when we can achieve 65% of that goal in one day effortlessly and at almost 0 cost loss, but to the huge benefit of the environment. That’s all, operator. Thank you very much.

Thank you. That does conclude this conference for today. Thank you for participating. You may all disconnect.