d'Amico International Shipping S.A. (DIS) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the d'Amico International Shipping Second Quarter 2022 Results. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Paolo d'Amico, Chairman and CEO. Please go ahead, sir.

Thank you. Good afternoon, everybody, and thank you for joining us at our usual call. We will go straight to business. If you don't mind, I would skip the executive summary because we are going to repeat everything during the presentation, and I leave the floor to Carlos for the DIS overview. Carlos?

Thank you, Paolo. Good afternoon to everyone. Yes, as usual, we start with the fleet overview. This hasn't changed much since our last presentation. We finalized the sale of the High Priority in the quarter. So now instead of 36 vessels, we have 35. We have, well, 6 LR1s and 6 Handys, and of course, our core fleet is composed of MRs which represent 23 vessels. The 17 are owned, 8 are on bareboat charter and 10 are time-charter of which 1 short term and the remaining long term. So young fleets, as you know, and we have mentioned several times and increasingly an Eco fleet, thanks to the important fleets renewal program we undertook starting in 2012. Here, we show our CapEx commitments and these haven't changed much since last time also. They are -- they have been on a declining trend. Its only -- we only have maintenance CapEx left, but also the maintenance CapEx has been falling. And for the second half of 2022, it's only around $3 million, and it stays at around $4 million for the following 2 years. In terms of bank debt repayments here, the good news is that -- and as you probably saw with our press releases, after having refinanced all the debt maturing in 2022 at the end of last year, beginning of this year, we have now also refinanced almost all the debt maturing in 2023 with the exception of one vessel, which we are going to be -- whose loan, we're going to be signing most likely around September and drawing down around September this year. So -- then after that, we will only have one vessel to be refinanced in 2024. It's the Cielo di Londra and the other one vessel. So it means that we will have a very good runway without having to be concerned about refinancing. In terms of repayments, there is a slight -- we have benefit from the trend of falling repayments. The refinancings that we closed this year meant that we -- a slight -- we drew down slightly more than we reimbursed with some facilities. And therefore, that explains also why the repayments increased slightly in 2023. But thereafter, they should continue on a falling trend. And going on to the next page, we show here the purchase options on our leased vessels. We -- as you know, we exercised the purchase option on the High Priority that we then sold and delivered to the new buyers in Q2 this year. But we also have exercised the purchase options on the High Fidelity and High Discovery, which we have refinanced with new leasing arrangements with very similar terms to the previous leasing arrangements in terms of flexibility of exercising the purchase options on these new contracts, but that's at a substantially lower cost. And then so through these transactions, we reduced our breakeven significantly on these 2 vessels. And yes, we still have the flexibility to exercise them eventually in a few years' time and refinance them with a traditional bank debt. On the remaining 6 options on these vessels, we will monitor them closely, and we are very likely to exercise them gradually over the coming quarters to further lower our breakeven and as part of our deleveraging strategy. Going on to the following slide. This is a new slide we added to our presentation. We previously did not mention this in our presentations because they were all well out of the money. However, the increase in asset -- recent increase in asset prices, coupled with the very strong depreciation of the yen relative to the dollar meant that 2 of these options are now in the money. And because only 2 of these 6 contracts, we had options which were priced in yen. And therefore, now the purchase options on these 2 vessels around 10% below the estimated market value of the vessels. That means that we are likely to be -- to exercise these options in the near future, which will allow us to further reduce our breakeven and hold on to these 2 vessels, which we know are good vessels. We built at very good shipyards in Japan. And so we expect that something might -- will happen most likely in relation to at least 1, if not 2 of these options, which are already in the money in the coming months. Going on to the following page, we show here our average employment rates on -- for the vessels which are fixed through contracts at fixed rates, mostly time-charters, but also on bareboat contract. The blue line shows the blended average of both type of contracts. And the good news is that, of course, the average rates are increasing on these contracts as we move forward. But more importantly, the contract coverage is falling quite rapidly. And for once, we see this as very good news. And it is intentional. We have refrained from extending, renewing some of these time-charters as they were terminating, because we were very positive on the outlook for the market in the coming quarters and years. Of course, as we expected over the course of the last few months, time-charter rates have been moving up. So eventually, they will arrive at a level which we deem attractive and we will then probably start covering again part of our fleet through such contracts. But over the last few months, our preference was really to stay as much as close as possible on the spot market. On the graph, we know we see that the rapid increase in the percentage of our fleet, which is Eco, which is expected to continue rising over the coming years. And here, we show our -- the evolution of our fleet and also the sensitivity of our fleet to every $1,000 per day and $3,000 per day change in the TC equivalent rate. So for every $1,000 per day change the TC equivalent rate in the second half of '22 of sensitivity is just lower than $5 million, and it's around $11 million in 2023 and 2024. And in terms of costs -- the situation is also under control. In the first half of this year, daily operating costs were only slightly higher than in the first half of last year, an increase of around 2%, which given the inflationary pressures that the economy is facing -- most economies worldwide are facing, we believe this is quite a satisfactory result. In terms of G&A, we actually saw a decrease in the first half of this year relative to the first half of last year of almost 3%. And there, the currency effects played a big role, in particular, the appreciation of the dollar relative to the euro since 75% of our G&A expenses are in currencies other than the U.S. dollar, and the large majority of these expenses are in euros. So we expect to continue benefiting from that in the second half of this year and in 2023, also through forward hedges that we already have in place to cover for this FX exposure. Here, we instead show some key highlights of our balance sheet and in particular, the important ratio of net financial position to fleet market value, which since December last year decreased from just over 60% to 52.5%, which is a very healthy ratio. This improvement is mostly attributable to the increase in asset values, in particular, in the second quarter of this year, only in the second quarter of fleet -- the average value of our increased by 9%. So -- and what you would probably also notice is that the cash and cash equivalents hasn't increased much since the end of December, and that is surprising given the strong results that we achieved and that we will discuss briefly. And the reason for this is a negative working capital movements. In particular, we had an increasing number of vessels, which moved from time-charter contracts to operating on the spot market. When that happens, you have to -- upon redelivery of the vessel at the end of the time-charter contracts by the bunkers from the charter. And as you can imagine, bunker prices are very high today, so that tends to be quite a big investment there. And then after that, you then receive your freight income only after discharge. Usual practice in the market is for the freight to be paid around 3 days after discharge. But what we have experienced recently are some important delays in this with freight being paid 1 week or 10 days after discharge. And also, we have seen a lengthening of the voyages, which we have discussed already in our last call and which is one of the reasons why the market is so strong. And that is, of course, related to the war in Ukraine and the disruption to the traditional trade flows. Nonetheless, we want to reassure you in this respect that the delayed freight payments are coming in. And so during July, our cash position has already improved significantly. And we expect to annualize at almost -- with a cash position of almost $70 million. So much better than the $46 million at the end of June. Here, it says the main line items of our P&L. And as you see, we recorded a profit of almost $26 million in the second quarter and of $19 million in the first half. And excluding nonrecurring items, the profit was of $26.5 million in the second quarter and 22.4% in the first half. Also to notice that, also within the second quarter, we have experienced an improving trend throughout the quarter. So April, we were only marginally profitable. We were much more profitable already in May and even more profitable in June. And in July, we are trading at around the same levels that we were trading at in June so far. So if the markets remain at these levels for the rest of the quarter, our expectation is that Q3 '22 could be even stronger than Q2 '22. Going forward, here, we look at the average daily rates achieved for our vessels operating on the spot and time-charter and the blended results. And on Q2 average daily rate on the spot was of almost $28,700, including the TC contracts, the blended rate was almost $23,400. In the first half, the average spot rate was of around $21,000 and including the TC contracts of almost $18,600. I pass it over to Paolo for the market overview.

Thank you, Carlos. Here is our usual slide, the last trend on asset value of the MR and on the time-charter and spot rates. So you can see the improvement and the fact that we are not far away from where we were in 2006, but we still have some room to go. The Ukrainian war and the trade flows, it happened on 2 things. Number one, the Russian crude and products had to travel more because with basically Europe not buying or trying to avoid to buy any more crude and the products from Russia, even if they still buying something. But the Russians are forced to sell to the countries who are remaining, these countries are China and India. So they have to carry these products by far for a longer distance than before. And this is absorbing a certain number of sales, even if we are talking mostly of Russians and Chinese sales, because not only the independents like us are trading with Russian counterparts. We avoid that. In the meantime, Europe has to buy his own crude and its products far away. So they are buying mostly from the Middle East and the United States. And also this element is increasing with tonne mile and so it's creating more and more demand for titers. On the supply side, we expect -- I mean, the International Energy Agency is expecting an increase of supply from the non-OEPC countries, excluding, of course, Russia. And we, as you know, Biden released the part of the Strategic Reserve in United States. A good part of these reserves are going for export, and they didn't stay in the States. Going ahead the COVID is still with us, but is not effective -- is not as negative as used to be in the beginning, thanks to vaccination. The only country who is suffering, I would say, heavily from COVID today is China. The rest of the world is, let's say, business as usual. The demand, oil demand is increasing. The market is still very strong. And the refining throughputs are let's say, at maximum levels. We have a little bit of -- not a little bit. We have a bottleneck here, because a lot of refining capacity before COVID and during COVID is being shut down and new refining is coming in, but it's not matching the reduction, let's say, on a timely basis. So -- and China is not using the full capacity of their refinery because they claim that they are consuming less due to COVID, and they are not increasing the use of their own refineries. So we have a bottleneck in the refining system, but this tells us also had the demand keeps being very strong. And I would say the demand, as you remember, in the past calls, we always said that fundamentals were there. Of course, the Ukrainian war accelerated the system. The inventories -- product inventories are very low. We are under the 5-year average. So we -- even if we have a little bit of a slowdown in a certain point in the market, you have the restocking effects, which should supply -- this should increase the demand then. The vehicles, they hit the road again. We are sealing a very strong driving season in U.S. and in Europe. Of course, U.S. is driving more gasoline demand. Europe is driving more diesel demand. Jet-fuel is rising. We have a cap on the jet-fuel due to more operational problems and a real lack of demand, because as you know, we have a total chaos in the European skies and this is limiting a number of flights, which they could fly today. And we have a lot of also strikes going on. The long-term demand is there. And we the participation of refining products, a share of it to the total oil seaborne trade is increased a lot over the last decades. And the change in the refinery landscape is basically most of it happening far away from the consuming markets. So it means this is a stronger demand effect on tankers -- on our tankers on product guidance. The U.S. shale oil is coming back slowly because it's mostly in the hands of private companies, but is coming back, and it would be -- the share of it of the future increase of our production would be mostly out of U.S. Talking about demolition. We have a lot of, say, forces pushing possible increase of demolition of ships. Next year, we have 2 indexes coming out to rate our ships in -- on the emission that they emit. And this is going to create, one, of course, a reduction of speed, which, of course, creates a reduction of supply. And second, a lot of older ship will be noneconomic to run and I think they will go for a scrap yard. The pool of the demolition candidates is growing. The yellow line are 15 years old ship. 15 years is a commercial limit. It's not a technical one, but it's a commercial limit, where the first-class oil companies they do not charter ships anymore. And 20 years, of course, is -- are the ages where you start thinking of scrapping your fleet -- your ship. The -- of course, the demolition grew a lot recently because due to COVID. All the shipyards were closed, so we are restarting, and we have quite a number of ships in the backlog to scrap. The new building orders are highly limited, I would say, close to 0. This is view, number one, the fact that shipyards are full up to 2025, and this is mostly due to container vessels and LNG carriers, which have been filling the yards everywhere. Secondly, today, we have a problem to understand the future fuels for our ships. So the technology, even if it's there -- they have various type of technology there, but we still do not know which is going to be the most common one, the most manageable, I would say, one, in the future. So ship owners are reluctant to order new vessels due to this technology limit, and on top of that, the new building prices are by far more expensive than the second-hand ones, of course, on a parity. And then we do have a lot of second-hand activity, but not on the new building one. And all this is creating a very low growth close to nil. Maybe we in '23, we think of net fleet growth, which is not even touching 1% when the demand will be by far higher. Saying that, I leave it to Carlos for the NAV evolution.

Thank you, Paolo. Yes. So as usual, we also cover this slide here where we show the NAV evolution. And it did increase quite a bit since the end of the year. We are at above $400 million now, $420 million. And it's important to highlight here that we slightly changed the methodology with which we calculate our NAV. In the past, the impact of the net working capital on the NAV calculation was not that significant. So we decided to leave it out. However, for the reasons I previously mentioned, it became much more important at this year, in particular at the end of the second quarter, where we ended with $54 million in net working capital, so an increase of $33 million relative to December '21. And that is the reason also why our cash and cash equivalents, as we saw before, did not increase by more. So we felt that it was important to take that into account in our calculations. I would like also to stress that the calculations here, however, are not taking into account, for example, the vessels which are TC-IN, but which are in the money. So the value of those options are not being taken into account in our NAV calculation here. But nonetheless, yes, we saw this important improvement in the overall NAV and of course, also in the NAV per share, which is now at $0.34 per share, which means that we are still trading at a very big discount to NAV despite the very strong share price performance that we experienced this year. We are still at around 40% discounts to NAV. And even more positive is the outlook going forward because, of course, with the cash generation that we expect in Q3 and the rest of this year. And the trend of increasing asset values, which we expect to continue, we expect this NAV to continue rising throughout the course of 2022. And we hope that as investors gain more conviction on the sustainability of the recovery, this discount will fall as it has already in the past. So we still see quite a lot of upside to our share price despite the very strong share price performance already recorded year-to-date. That's it, I would say, in terms of presentation. So we pass it over to you for the Q&A.

[Operator Instructions] The first question is from Daniele Alibrandi of Stifel.

Today, I have a few. So if you don't mind, I'll proceed step-by-step. So the first one is on spot rates. In July, MR rates have been comfortably above $30,000, which is above the already very strong average of Q2. And we all know that Q3 is historically a low seasonal quarter. So what are your expectations for rates for the remainder of the year? Do you expect a deceleration in Q3 and the reacceleration in Q4 or the other way around? Just to understand what are your expectations on this front. This is my first question.

Daniele, thanks for the question. Look, what we can say is what we are -- that Q3 has started off on a very strong note. You are very right to point out that it is usually a softer quarter, especially September tends to be a bit softer because you start -- the market is generally affected by the maintenance of refineries before the winter season in that month. But the very strong start to July, which already involves fixtures, which go well into August means that we have quite high expectations for a very strong Q3 that should be higher than -- stronger than Q2. And what we can tell you is that on the days fixed for -- on the spot days fixed for our vessels in Q3, we are well above $30,000 per day. And that is including both -- that is including the Handys, the MRs and the LR1s and the spot base fixed well above $30,000 per day.

You just mentioned the young size vessel spot rates. So when I look at the Clarkson data, I noted that there was an improvement since the beginning of the year, and they reached basically a level of $50,000-$70,000 above MR in some cases. I guess this is because some average numbers include some route from the Black Sea and the Baltics, which are above $100,000. And clearly, if you don't trade those markets, your levels are clearly lower. So I was curious to hear which kind of spot rates you saw in Q2 for Handysize vessel -- and what level are you seeing now?

We saw a lot of volatility on the Handysize vessels. I mean, we saw rates that during a few weeks were well above $50,000 per day. And then we saw rates come down to mid-teen levels. So there is a lot of volatility in that market. We are seeing that some of these Handysize vessels are now also being fixed on longer voyages. We recently fixed one of our Handysize vessels on a transatlantic voyage, which is not that common. So they are -- because of the very tight market for the MRs, they are now also performing voyages which would typically be performed by the MRs. But generally speaking, what we are seeing -- excluding not referring only to the Handysize vessels, but also to the other vessel segments, is that there is a lot of volatility in different regions. And you can see rates drop to low-20s. Usually, I mean mid-teens, we only saw in Handys for -- but not on the MRs, really. But -- and then we can see the rates go up to $50,000 or more within a few days. I mean the market moves very, very fast. And there is a lot of trading activity whereby the vessels are chartered and we have a lot of options for discharge. And the traders, they -- sometimes they slow down and they wait for the right window to open before selling the cargo to -- and sending it to its final destination. So that creates further inefficiencies. And it means also that when you're going to fix a vessel, you don't know which vessels are going to be open where until the very last minute and this uncertainty on the fleet, which is available for fixture, plays in our favor very much because then the charterers, they sometimes they have a program that they have to respect and they need to send some cargo out. And so if you happen to have a vessel open with where you can guarantee a firm dates at, then you can get a very, very, very, very attractive rates. We fixed on some -- we also saw on some short voyages fixtures of $100,000 per day on some of our vessels.

Maybe another one, I'm leaving the floor to others and then maybe I jump in again. Question would be on the capital allocation. Basically, how the cash that you are producing will be used going forward? Will you prioritize the increase of the ship is owned, like you may be mentioned it before, reduce the leverage or there is space for return cash to shareholder? I mean, the last time you paid the dividend, if not, if I remember correctly, it was 2015-'16. Your net debt to fleet market value was around 50%. So we are close to that level, what should we expect on this front?

Our priority is still to continue deleveraging, as we mentioned several times. As I went through the presentation, I touched upon the vessels which are currently leased where we have purchase options and the vessels which are time-chartered-in. So those could be potential uses of funds going forward, which will help us lower our breakeven and be more competitive going forward also after this up cycle ends. Of course, we will also look eventually at other uses for our cash, which might entail also dividends. But our priority is still to now to delever -- to continue the deleveraging process.

The next question is from Matteo Bonizzoni of Kepler Cheuvreux. The next question is from Andrea Bonfa of Banca Akros.

My question is related more from a macroeconomic perspective. Such that you were in, let's say, weak freight rate environment till the first quarter of this year, till let's say the Ukrainian war. But the dramatic shift in your freight rate, according to your opinion, is that more related to, let's say, geopolitical event or to a sharp increase in demand and if stat is the second case, so you will see the increase in jet-fuel and so on and so forth. How much that demand increased sequentially from the second quarter versus the first one?

Sorry, can you repeat the question because we received a very -- we have a very bad line.

The question is more from, let's say, macroeconomic nature. In the sense that your first quarter was still in depressed environment with freight rates. And then you had a dramatic shifting in the value of freight rates from [ Russian ] war or something like that. Was it data related to the geopolitical war, specifically the Ukrainian war or was more related to the sharp increase in demand for refine or non-refined product? And if that's the case, how much of this demand has increased sequentially Q2 versus Q1?

Look, if you take this overview and go basically to the last page, page 16, and you'll see Q1 2021, the daily time-charter equivalent spot is $9,900. This is first quarter last year. If you take the first quarter this year, it's gone up to $12,800. Now what I want to say is this that the first quarter 2022 was not yet affected by Ukraine. So it's not the war. This is proving -- you see a $3,000 per day increase is only due to strong fundamentals who are coming here. Then, of course, the war came in and mix up the old thing, but we were prepared for by far better performance we see on the fleet. Of course, the more exaggerated the thing. And this demand is due mostly for this location of the origin of cargoes because they are far away, and we need more ships to serve the same quantity. I don't know if Pat is answering to your question.

I mean, just to add on to what Paolo said. I mean the fundamentals were very strong. And I mean -- and it is a bit of both. I mean we -- if you see, we are benefiting for sure from all the increase in demand, which is related to the reduction in the -- of the COVID lockdowns, the reopening of the economies. And already last year, we saw a big increase in the use of fuels for driving. And this year, the most important, let's say, factor driving the market instead, is jet-fuel. And as Paolo mentioned, there are some bottlenecks there because otherwise, the demand would have been even higher. So there are logistical problems in airports, logistical problems because of a lack of pilots -- but otherwise, we feel that this demand would have been even higher. And that is demand that we are going to continue benefiting from an increase in demand and jet-fuel also in the coming years, quite a strong increase. And of course, the higher oil price is impacting a bit demand for driving. But otherwise, demand for driving would have been even higher than what we are experiencing. But generally speaking, we are seeing a high increase in demand and a very high increase also in refining throughputs. And this is very important for the market. And this is a trend which is actually going to continue in the second half of this year. I mean we are going to continue seeing an increase -- quite a sharp increase in refining throughputs. And in -- and in oil demand, despite the headwinds, macroeconomic headwinds and the higher oil price. And so that could further provide further support to our market, especially in Q4, maybe -- and of course, that goes without saying that Ukrainian war also made an important role, as Paolo was saying because of the increase in the sailing distances. So I believe that Clarkson was estimating that the demand increased this year volume-wise was -- is going to be of around 7%. And the demand increase this year on a tonne mile basis. So taking into account the -- also the average distances sailed is around 13% to 14%. So I mean, there was -- there's an ongoing positive tonne mile effect because of this location of refineries. But a lot of this difference this year, in particular, is related to the Ukrainian war. So you could probably say that this 6% additional demand increase that difference between the tonne mile and the volume demand increase is -- a large part can be attributed to the Ukrainian war.

The next question is from Massimo Bonisoli of Equita.

I have 2 questions. The first, I'm curious to hear your opinion on the proposal to put a cap on Russian crude and refining products, allowing traders maybe to buy Russian products on the market. Is that feasible in your opinion and may reduce the tonne mile effect on the market? And the second question, if you can better explain the new regulation measuring the emission per vessel on Page 29.

I have to cap the first line. I mean, I'm not convinced that the cap on oil will work. I'm convinced that the cap on gas will work because gas has more rigid need of infrastructure. I mean you cannot move gas in the same way you are moving oil. Of course, you can move it, but the Russians are not that equipped. Instead, you can move oil in a more easy way as good as this way. So I think that the Russian, they will cheat a little bit on the story of our cap on the oil price. So this how much is going to affect us, but it's affecting us already because most of the fleet is avoiding your Russian trade -- and more we go to the end of the year when new sanctions on the insurance side will come in. As you know, the new sanctions are saying that if you load Russian oil or Russian product, you cannot be insured in Europe, which means you cannot be insured at all because all the insurance -- most of the insurance and the reinsurance industry is sitting in Europe. So at that point, certainly -- those barrel they have to go on different type of ships. And I'm thinking about the fleet, which Iranian and Venezuela have been using the last years to go over oil around. And at this point, we will serve also the Russians. So -- but our market, I don't think will be too much affected by this. The second one it will.

The second one -- so the -- well, we mentioned on that Page 2 indicators, which are being going to be introduced, which measured the efficiency of ships, the EEXI and the CII. So the EEXI stands for the Energy Efficiency Existing Ship Index and the CII stands for the Carbon Intensity Indicator. So the first is an index, which measure the vessel from a technical standpoint, from how it is built. So if it is a vessel which is efficient from a construction perspective. It has no relation to how the vessel is operated. So a young eco-vessel will have -- would score very well in terms of its energy efficiency, existing ship index, whilst older vessels, which are built with old technology specifications will achieve a bad score in this respect. So the fact that we have mostly eco fleets means that we are not too concerned about this particular indicator. The second indicator is a bit more challenging because it relates to how you operate your vessel and it links the CO2 emissions of the vessel during the year to the deadweight ton of the vessel and the distance which the vessel has sailed. It is not a perfect indicator because vessels when, for example, they sail in ballast, they emit less but it's, of course, very inefficient because if you spend more days sailing in ballast, you are not transporting cargo during that time. And therefore, you are emitting CO2 without providing a benefit of the cargo transportation. So -- but your -- if you spend according to this index, if you spend more days sailing in ballast you probably would have a better indicator because we would have lower CO2 emissions since your vessel is lighter when it is in ballast and therefore, it can -- it will emit less for any given speed at which it is sailing. And -- but it is an indicator which is used and will be used to measure the efficiency of vessels. And the vessels which fall in the lowest 2 categories, D&E for 3 consecutive years, will have to take corrective actions to move to a higher category. That means that those corrective actions might mean derating the engine of a vessel, for example, so that it can go at -- it limits the power at which the engine can function and therefore, also the CO2 emissions of the vessel. And it should affect us only very marginally because from our forecast that we have made based on the past trading patterns of our vessels, we have only a few vessels, which could be at risk of eventually falling into one of these lower categories. If you look at it from a market perspective, it could actually be a positive because it might lead to some of the older vessels sailing at slightly lower speeds to be able to avoid falling in these lower categories. And that, of course, will reduce the productivity of the fleet. And it also might encourage further demolition of vessels of all the vessels. So these are going to be coming into force next year. What could be more disruptive for the sector instead is the European emissions trading scheme, which was also supposed to come into force next year, but which has been delayed, and it's now going to come into force apparently starting in 2024. And -- and -- but we still don't know how that will come into force because initially, the initial plan was for there to be a phase-in where in the first year, you were supposed to surrender allowances equivalent to only 20% of the emissions that you generated and then we have an increasing percentage surrendered every year. And right now, there is talk of -- already from the first year having to surrender 100% of the allowances. So that, of course, would be -- have a significant impact on the net earnings of the older vessels, which once again could be positive for the sector because it could encourage the demolition of older vessels. And by doing so, make a market, which is already expected to be very tight because of the very low deliveries over the next 2 years, even tighter.

And if I may squeeze in a very quick one. Let's say, in your normal calculation, the working capital per vessel is about EUR 3 million -- or $3 million, if I calculate it correctly on a per ship basis.

On the ship operating on the spot market?

Yes.

Yes, I would say that, that is maybe that maybe is not a bad estimate. Maybe slightly less, but yes, it could be at around those levels because of the very high...

The next question is from Matteo Bonizzoni of Kepler Cheuvreux. The next question is from Daniele Alibrandi of Stifel.

Maybe just a follow-up. You mentioned before that you were refraining to renew some expiring TC contract benefit from the strong spot market, is that right? And if so, how many ships we are talking about? And I mean, is there a possibility for you to moving 100% of your fleet in the spot market like some of your peers did, is that possibility?

I think we are increasing the share of the fleet exposed to spot. But at a certain point, and I think that certain point should start around the next fall. We will start rebuilding our [ car ] because the rates on to the time-charter are following up the spot rates. Of course, they would be lower anyhow, but we start securing the cash flow and a way to secure our future. I mean, so I don't think we will adopt to 100 -- total 100% of our fleet on the stock. And certainly we are going to increase it a lot.

Maybe just a very quick technical question for you, Carlos. You basically exercised the purchase option on 2 of your lease vessels, which are now under your ownership. Can you please give us an idea, more or less, how much will be the impact on the direct operating cost line and on the other side, the benefit in terms of the lower charges...

I can be more precise. Maybe we can talk later. I don't have the exact figures here, Daniele. But it's -- yes, I mean we are talking about reductions in the bareboat rates of around $1,000 per day. On one, it's less -- one of the deals, the reduction is less important on the other one, it's a bit more. It depends on the amortization profile, let's say, of the deals. In terms of cost of funds, -- the -- for the new deals, they are at around -- it varies on when you assume you're going to be exercising the purchase options. But it is between 5% and 5.4%, depending on when the options are exercised all in. So it's very competitive, as I was saying, because if you look at where the swap rates today are for such long periods, it implies a margin if this was -- if this -- that was linked to the U.S. dollar LIBOR, it would imply a margin of around to 100 to 120 basis points which is competitive with very competitive with bank financing for deals, which, however, at a higher LTV. So the reason we have such good pricing on these deals is that they were negotiated at the beginning of the year before the increase in the forward interest rates.

And sorry, really, the really last one, did I got it right that the cash absorption from the working capital will be reabsorbed in Q2? How should we think about the level for the full year?

The working capital in -- we don't expect any major deterioration going forward. I think that I think -- but I'm not sure we can expect this to be reabsorbed because if we expect markets to stay strong and the trading partners to continue being the same. We think that it is most likely we are going to -- and we also have actually more vessels, which are going to be moving into the spot market most likely over the coming quarters. It is unlikely that we will experience an improvement in the working capital before the end of the year. We might experience a further small deterioration or a flat dynamic, I would say.

[Operator Instructions] The next question is from Matteo Bonizzoni of Kepler.

[Foreign Language]

[Foreign Language] We start from your last one, the LNG project is not in DIS, it's on the private side of the company. And -- so it will not affect because we will -- and our idea is to keep the DIS involve in the clean product trade and not mix it up, at least not for the moment with other things. As far as the coverage, that is voluntary done because we are, of course, exposing more and more ships to a spot market because, of course -- spot market is paying by far better. But as I said, with the next call, we will restart thinking about our coverage and recreating our coverage of course at very much higher level. So I think in the next quarter call the situation will be slightly defect.

Gentlemen, there are no more questions registered at this time I'll turn the call back to you for your closing remarks.

Thank you very much. So thank you to everybody. Finally, we had by far nice meeting this time and I hope the next would be even better. So thank you very much, and let's see each other - see, I mean in theory, but let's listen each other at the next quarter. Thank you.

Thank you.