Nordic American Tankers Limited (NYSE:NAT) - A different company with a strong balance sheet and a unique operating model.
Link to complete release as PDF:
http://hugin.info/201/R/1552325/478249.pdf
Hamilton, Bermuda, October 5, 2011
Dear Shareholder,
I'd like to share with you some of my thoughts about the current capital market and its impact on stock prices. You may recall I wrote you a letter on August 30ththat carried the headline, "NAT is different".
I believe that NAT is fundamentally different from other stock listed tanker companies, and thus should not be lumped with them. Let me be more specific in outlining the main points that differentiate NAT.
First, NAT has only one type of vessels - the suezmax vessel. This type of vessel (150,000 deadweight tonnes) can carry 1 million barrels of oil and is highly versatile, able to be utilized on most long haul trade routes.The vessel can load/discharge in many ports.
The VLCCs (very large crude carriers, with a dwt of 300,000 tonnes) can carry 2 million barrels of oil, and normally load only in a few places in the world due to their large size and draft.
The advantages of trading a suezmax fleet are particularly reflected in today's rate environment. As we speak, some VLCCs have negative earnings in the spot market, i.e. they do not at all cover the operating cash costs. That means that the voyage revenue generated by a VLCC, minus the fuel needed and other cost items to complete the trip, have recently been negative on occasions. This also means that the operating costs, such as crewing, spare parts etc., and administration costs are not covered.
By contrast, at the time of this message, suezmaxes are earning about $7,000 to $14,000 per day depending on the route. The average figure in early October is somewhere near our cash break-even level of about $11,000 per day per vessel, and that includes all operating and administrative cash costs.It is important to keep in mind that the tanker market may change quickly and unexpectedly.
A homogenous fleet also helps keep down operating and administration costs, which contribute in keeping our cash-breakeven level low.
Second, NAT has a unique balance sheet with little net debt and a credit facility available. Upon delivery of the last newbuilding from Samsung (the Nordic Zenith) later this month, we expect to have drawn about $200 million for working capital and investments. The net debt is then approximately $7 million per vessel, a very comfortable level.The credit facility is not subject to reduction by the lenders and there is no obligation to repay principal during the term of the facility. The Company pays interest only on drawn amounts and a small commitment fee for undrawn amounts. This means that our cash breakeven rate of about $11,000 per day per vessel is significantly lower than that of companies witha high leverage. Many companies would typically have a cash break-even rate between $15,000-$25,000 per day per vessel.
Third, NAT has a full dividend payout policy that we will continue to follow. The actual dividend to be paid is always decided by the Board of Directors. We believe that the present dividend rate reflects a support to the shareholders from a unique and financially strong company. For 2Q2011 we paid a dividend of $0.30 per share and as indicated in my letter of August 30th, 2011 we expect to keep that dividend for the third quarter in spite of the weak tanker market during the period.
Dear friends, when investing in shipping, it is important to realize that companies differ. Shipping companies are not all over-encumbered with debt, they are not all exposed to the most volatile revenue streams, and they are not all seeing their equity wiped out. I have said many times that NAT is in excellent shape and we remain firmly committed to protecting the underlying earnings and dividend potential through a disciplined and conservative policy. I am more convinced now than ever that this is the case for Nordic American. Significant opportunities lie ahead!
Sincerely,
Nordic American Tankers Limited
Herbjorn Hansson
Chairman & CEO
http://nat.bm/
