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Hellenic Shipping News interviews Harry Vafias, CEO of StealthGas

Harry Vafias, dubbed as the “Harry Potter” of shipping, mainly because of his relatively young age, is living up to the hype surrounding his name. StealthGas has witnessed remarkable growth in just over two years since the company went public

, growing its fleet from 9 to today’s 40 vessels. The next reference point for the LPG transportation company is the number of 55 vessels by the end of 2009, according to Mr. Vafias. In his interview with Hellenic Shipping News, he goes one step beyond to state that the company is likely to enter other market segments as well, either in the tanker or even the dry-bulk business. Finally, he adds that one of the prime candidates to go public in the future, should such a decision take place, is Stealth Maritime, another company under the umbrella of the Vafias Group. The latter is currently one the most active shipping groups in newbuildings, having launched a massive programme of 22 vessels, worth just over $1 billion.

How would you evaluate the company’s reception in the stock market, given that the “story” sold, the LPG business, isn’t the easiest one?

Since our listing in October of 2005, our strategy has remained the same, i.e. very conservative. We have very small amount of loans, all of our vessels are time-chartered, mainly to “blue-chip” names, like Shell, which is one of our biggest clients. Just to give you some details, 38 out of 40 vessels that StealthGas owns are under time-charter contracts, thus assuming very low risk in the spot market. This is the reason why the company has been growing so quickly (from 9 to 40 vessels in just two years). We have a high earnings visibility, securing profits and being able to provide high dividends each year. We are giving out $11 million on dividends each year from day one. Our stock is been trading $1.5 below the company’s NAV (Net Asset Value), which is something to look for, in today’s environment (subprime loans crisis, overvalued stocks etc).

What’s a bit frustrating for companies like StealthGas, is maybe the fact that the dry bulk shipping stocks have become a bit of a “fashion trend” among investors, due to record freight rates during these last few months.

Yes, that’s true. But we like to speak in numbers, which are actually pretty simple. We are the number one company in our business field worldwide and I’m talking about LPG vessels with a carrying capacity of 3,000-8,000 cubic meters. Secondly, very few companies can claim they’ve achieved growth, keeping loans at low levels. StealthGas’ loans stand at approximately 18% of our ships’ values. This means that we could buy 20 more ships without having to ask for a stock offering.

You mentioned that you opt for time-charters as employment strategy of your vessels. What’s the usual time frame you choose to charter vessels?

About two years on average. We’re not keen on trading in the spot market. Our preference ““ along with our investors ““ is to renew our time-charter contracts every six months (depending on the vessel) and achieve higher rates, according to the market conditions. On September we announced 16 new time-charters at rates of about 16% higher than the previous ones. Of course some of the ships are under longer contracts, up to three years, in order to have a good “safety pillow”, but most of them are on 12-18 months charters.

What are your plans to further grow the company’s fleet?

We recently concluded our secondary offering, which went very well, probably because, as you mentioned, investors are a bit afraid of the tremendous growth of dry bulk, thus seeking alternative sources of investment, which provide increased safety. Our $130 million on July was oversubscribed by six times, an impressive achievement. Our liquidity is now at a great level, since we haven’t still used any of the proceedings. The company aims to increase its fleet to 55 vessels by the end of 2009.
I’d like to take the opportunity and state what we mentioned in our Q3 presentation last week. We said that we may use our cash liquidity in other sectors as well, like the dry or wet markets. This will apply if we can’t find the required number of LPG vessels that we’re looking for, given that in our market, it’s not that easy to find many vessels available, both in the second-hand and in the newbuilding market. This is an option we may follow, since it’s not smart to keep that many cash idle.

Is this decision of entering new markets on the verge of materializing any time soon?

No, we haven’t a deal waiting to happen. We’ve just said that we’re examining this option, in case such an agreement becomes closer to reality. We’re just providing the proper heads-up to our investors.

Given the record levels that the dry-bulk market is working currently, isn’t it a high risk to enter at this stage?

What you’re saying is correct. But there are options. If we bought a dry bulk vessel, we’d make sure it’s under a long-term time charter, a rather safe option to avoid any market volatility. As for the tanker market, the options are actually two. First of all, you can go for a short-term time charter to see you through these hard times, in terms of freight rates (estimated to last about 18-24 more months) and then charter the tanker again at better terms. The second option is to employ the ship on the spot market, in order to at least have a break-even result for a smaller vessel (not a VLCC) and then move it on time-charter for a period of 5-6 years. We’re on the market solely for young vessels (one year old).

You chose to enter the LPG market, which isn’t quite on the spotlight. Which are the main routes of this market and how does it operate?

Actually, it’s simpler than one thinks. All one has to consider is that LPG is the first flammable material ever used by humans, once burning wood stopped. In Africa, China, Vietnam, Indonesia and other countries, mainly in the Far East, LPG is used to cook, or for heating purposes. Of course, there’s also the industrial use of LPG, which is used to produce other chemical gases, or to produce plastics, tires and fertilizers. About two thirds of our vessels are employed east of Suez, i.e. from the Middle East to the Far East region, while the rest are used in the Mediterranean, in the Northern Europe and 3-4 ships in South America.

Vafias Group isn’t limited in StealthGas, being active also through other shipping companies. Could you provide us some details on the group’s structure and its activities?

Yes, we are active in shipping through four companies, StealthGas included. There’s Brave Maritime, founded in 1973 by my father, traditionally a dry-bulk company, Stealth Maritime, founded by myself in 1999, active in the tanker market, with large investments carried out lately in the second-hand market and finally we have BBT (Brave Bulk Transport), which is based in Melbourne, Australia. It’s handling transportation by sea for wheat products, having exclusive freight agreements with the state wheat companies of Australia and Canada. BBT is transporting about 2 million tons of wheat annually, chartering vessels from other shipping companies, thus it’s acting as a charterer and not as a shipowner. Regarding newbuildings, I can say that, as a group, we are implementing one the largest investment programs in Hellas, regarding 22 vessels of different types. Most of them are LPGs, many are dry-bulk carriers and some are tankers. The total value of the ships stands at about $1.05 billion, with scheduled deliveries from April of 2008 until 2011. Perhaps, we’re the only Hellenic shipping group currently building ships in China, Japan, Korea and Turkey simultaneously.

Why didn’t StealthGas carry out the newbuilding programme of the LPG vessels instead?

We’ve said that StealthGas will have the option to purchase these newbuildings from the parent company, close to their delivery. So, three months prior to each vessel’s delivery, Brave Maritime will hire two independent consultants, in order to evaluate the value of each ship. We’ve chose this process, because investors aren’t fond of newbuildings. This is because they give their money in order to witness instant return, something not possible with newbuildings, which can take up to four years for the investment to mature. Furthermore, they don’t like the foreign exchange risk, since the orders can be placed in yen, or euro, when the company’s earnings are in U.S. dollars. So, the risk will be assumed totally by the Vafias family, instead of StealthGas.

Given this rather aggressive picture you are describing for the group’s strategy in shipping, is there any chance we’ll be seeing more companies going public and if so, which one would be your preference?

This is a scenario that I always keep in mind, because I believe that in this way, you can have two alternative means of financing, the stock market and bank loans. This provides for a quicker way of growing the company. StealthGas would have grown, but not in this degree and so fast, if it had not been for the stockmarket. If I had to choose, I’d choose the tanker company of Vafias Group, i.e. Stealth Maritime and that’s because, especially in the U.S., investors are quite fond of tankers.

Nikos Roussanoglou, Hellenic Shipping News Worldwide

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