StealthGas benefiting from low orderbook and low volatility freight rate environment

2015 is shaping up to become a “trademark” year for Harry Vafias’ StealthGas. The company is due to take delivery of the bulk of newbuilding orders placed for 19 new generation LPG carriers. It will be a major stepping stone in the company’s recent history, which, aided by the low rate volatility market prevailing in the LPG business segment where it’s active, is due to provide huge value to investors.

In an interview with Hellenic Shipping News Worldwide (www.hellenichsippingnews.com), StealthGas’ CEO, Mr. Harry Vafias noted that the company isn’t planning to raise any additional funds at the moment, since it already has enough liquidity through previous placements.

What’s the current state of the LPG market, where StealthGas has developed a leading position in the small-size vessels?

The LPG market has been benefiting overtime by non volatile day rates! Over the last 13 years we have seen rates only fall to $7k per day and increase to $13k per day. The stability and predictability of our earnings is a great advantage to have especially if you are performing a big expansion program like we are! At the moment we are slightly below the mid point of the rate cycle at about $9k per day for modern ships but we are cautiously optimistic for 15 and 16 due to the limited orderbook and steadily increasing demand for LPG.

How has StealthGas capitalized the latest market trends in terms of earnings and financial performance in general?

As discussed above every year we have been profitable due to the stability of the day rates, low running costs and low financing costs. For the first 6 months of this year we generated $66 million in net revenues while for the same period last year we generated slightly below $60 million. But for us the most important factors are to keep having very low costs, running costs, debt costs, G&A costs etc and to keep having the majority of the fleet on period charters to blue chip names.

Will you be looking on drawing additional capital in order to increase your investment targets?

No, we have publically announced in our q2 call that we have raised enough equity for now, don’t forget that in 2013 and 2014 we have raised about $250 mill in total from one follow on offering and three private placements! Moreover we have 19 new generation gas carriers on order mainly in Japan most of which delver by q3 2015!

Over the course of the past few months, we’ve seen a flurry of newbuilding ordering activity in the LPG shipping segment? Does this trend worry you, in terms of future oversupply issues?

Not really since 90 pct of these orders are for larger class gas carriers than ours, mainly 22,000 cbm and 82,000 cbm vessels! The current orderbook in our segment is only 10 pct of the existing fleet so we feel comfortable with that..

Would you be looking to diversify in other shipping segments, through StealthGas, or maybe another company. Is LNG a viable option for you?

Stealthgas will be a pure gas company for the foreseeiable future, LNG yes we will be looking to capitalize on its growth but only with long term charters attached, we would not gamble on the volatile LNG spot market. On the other shipping segments the family has made investments in nearly all the different classes of ships (except containers) through private companies but these investments do not affect stealthgas in any way!

Over the past couple of years, the Vafias Group and especially StealthGas have been investing in “eco” carriers, i.e. vessels with improved fuel efficiency. Have you seen a premium charter rate for these vessels materialize and if so, can you quantify it?

Yes, as discussed the group has ordered 23 vessels mainly in the best quality Japanese yards despite being 10-15% more pricey than similar Chinese ships. These ships not only have better fuel consumptions, better designed hulls and other tech equipment but we all know that when the time comes to fix them they not only command a charter premium but they also have less expenses and thus they create a bigger profit margin for the owner!

Are you looking to push for more retrofits in vessels of the existing fleet and if so, which will be your main technology/system choices for doing that?

Except from water ballast treatment systems and ECDIS machines that sooner or later we need to retrofit on all our vessels, we have in conjuction with our chrts installed mewis ducts in two of our aframaxes coz we have seen great consumption reductions!

Which will be your investment strategy going forward? Will the focus remain on newbuildings?

At the moment we have no additional expansion plans since we have grown dramatically over the last 24 months, we need to take a breather, pay for all these Newbuildings that we have to take delivery soon and try to make as much money as we can for our shareholders.

Would you consider an alliance with a private equity fund, like some of your counterparts have done, most notably in the dry bulk and container segments?

We are never negative on new alliances and cooperations but we have a great list of shareholders including Michael Fell, York, Fidelity and TPG all of which are multi billion dollar funds and thus if we need equity they are always by our side!

What’s your view on the recent law, which introduced the voluntary taxing scheme for shipowners, under which members of the Union of Greek Shipowners will contribute about 400 million euros over the course of the next three years?

It’s a good idea and all should participate to show that even in difficult times the shipping companies are there to help and offer voluntarily capital! Do not forget that shipping companies have over the years given enormous amounts to charities and helping people in need.

Nikos Roussanoglou, Hellenic Shipping News Worldwide