Hellenic Shipping News interviews Michael Bodouroglou, President and CEO of Paragon Shipping
Paragon Shipping, one of the Nasdaq-listed Hellenic shipping companies operating in dry bulk trade, provides Hellenic Shipping News and its readers some valuable insights on how a ship owner can hedge effectively against a downward market cycle,
but also be positioned in order to take advantage of the inevitable investment opportunities rising in such occasions. Mr. Michael Bodouroglou, President and CEO of the company gave us a rather interesting interview, claiming that demand for dry bulk commodities will remain strong for the following years. “Asia accounts for about 65% of the total market” he says.
As for the way Paragon has shielded itself and its investors from the latest drop in freight rates, he explains: “lately our strategy has been to charter for 3 years or more. As our leverage remains at comfortable levels and our cash flow is strong over the next 2.4 years, not only we are not overly concerned about a possible softening in rates but on the contrary we will be looking to take advantage of investment opportunities during the lower part of the cycle”. The full interview with Mr. Bodouroglou can be read below:
First of all, could you give us a brief profile of Paragon Shipping?
Paragon shipping is a shipping Company in Dry Bulk trade. It currently owns 12 vessels, 7 Panamaxes, 2 Supramaxes and 3 Handymaxes. The average age of the fleet is less than 7 years versus a world average of 13.
We currently pay an annual dividend of 2 dollars per share and still generate extra cash for further growth.
In what ways did the listing in Nasdaq help the company grow? Looking back, do you think it was the best move for Paragon?
I think it helped a great deal as after the IPO the company was able to double the size of its fleet. I can say for certain that without having taken the company public Paragon today would be a significantly smaller company.
Dry bulk trade is the company’s main activity. Lately we’ve witnessed a sharp decline in shipping rates, with BDI plunging recently to a remarkable 9-year low. Do you believe that this drop is justified, or are you detecting signs of speculations infiltrating this market as well?
It is not easy to explain the various ups and downs of the BDI.
There are a number of factors which could be in play here. The China Olympics is one of them as the Chinese mills reduced significantly their output. In addition I would not be surprised if China is holding off on shipments intentionally in order to send a message to the iron ore producers.
China found itself with its back on the wall in recent times regarding huge price increases of iron ore and it is natural that they will want to protect themselves and gain additional negotiating power ahead of future price negotiations.
I have also been hearing in the last few days that many traders have stalled as they have been having problems in securing letters of credit as a result of the credit crunch.
Of course we should not forget the large order book of new Bulk Carriers which is materializing as time goes on and it is bound to affect the charter rates in a negative way.
Is that the reason why BDI’s fluctuations are so steep, either on the upward or the downward cycle, like now?
During the last few years we have been operating in an environment of very high fleet utilisation as a result of the tight supply of vessels. In such an environment any unforseen event which disrupts either the supply or the demand creates spikes. This is I believe the reason for the high volatility.
FFAs are also responsible to some degree but let us not forget that it is because of FFAs that charterers have been able to charter vessels for long periods. This has been very helpful to owners as the latter have been able to secure their investments.
What are your estimates about cargo demand in the months till the end of the year?
I believe that the demand of Dry Bulk commodities will remain strong for the next years. Asia accounts for about 65% of the total market. The commodities that our ships carry are not used in the manufacturing sector and thus their demand is not affected by the appetite of the American or European consumer. They are used in infrastructure projects and these projects will not stop either in China or India.
In addition the high price of oil makes the use of carbon in energy plants very attractive.
What about next year and 2010? Will the market soften due to a rapid increase of tonnage supply?
It is with this in mind that we took the decision in Paragon to fix our latest charters for periods in excess of 3 years.
When we first founded the company we chartered our ships mainly for one year periods as we expected the market to strengthen. This turned out to be correct and we were able to renew many of our charters at much higher rates and over longer periods. Lately our strategy has been to charter for 3 years or more.
Right now we have secured our income for the next 2.4 years on average at levels which are significantly higher than the cash we need to pay all our costs and our quarterly dividend of 0.5 dollars per share.
The downside in shipping is inevitable as it is part of the cycle.
As our leverage remains at comfortable levels and our cash flow is strong over the next 2.4 years, not only we are not overly concerned about a possible softening in rates but on the contrary we will be looking to take advantage of investment opportunities during the lower part of the cycle.
Do you think that all of the new buildings ordered will also be delivered, or will there be more cancellations on the back of the global credit crunch?
I believe that there will be cancellations for this or the other reason but I also believe that the bottom line is that the ships that will be delivered in the end will be more than the ships we need and this will inevitably affect the market.
Which means are available to ship owners, in order to cope with a declining shipping market?
Low leverage, adequate cash flow and ability to control costs effectively.
Will those that have a substantial liquidity be the winners after all, given that the second hand market for vessels is transforming to a “buyers” market?
Are you in the market for second hand vessels and in which types or sizes?
We have secured a good cash flow for the coming years, we are moderately leveraged, we have some of the lowest operational costs among our peers, we have cash and we have undrawn credit lines in place. In other words we are confident Buyers. We are committed to growing Paragon and we will be looking out for the right acquisitions at the right time.
Nikos Roussanoglou, Hellenic Shipping News Worldwide