Scorpio Tankers expects to reach its target of roughly $800m in net debt “within the second quarter” and could move on more vessel sales that would speed the process, president Robert Bugbee told TradeWinds on Wednesday.
But those who are hoping the New York-listed shipowner will be talking about a large special or “extraordinary” dividend — or a switch to a “high payout” dividend model — at its next quarterly earnings report may be in for a disappointment, based on Bugbee’s remarks in an interview.
“We can be very clear on the one hand that we’re not going to make any new [tanker] orders,” he said in discussing Scorpio’s capital allocation.
“On the other hand, we’re certainly not going to a defined high-dividend payout policy.
“We believe that the preference of the majority of our shareholders and investors — and American long-only institutions — would be stock buybacks where appropriate, and increases in sustainable regular dividends, rather than high payout or extraordinary dividends, or a hybrid thereof.”
Bugbee spoke in the wake of an announcement on Wednesday that Scorpio had sold the 50,000-dwt STI Larvotto and STI Le Rocher (both built 2013) for $36.2m each. The buyer was not disclosed.
The vessels were unencumbered by debt, so the proceeds are heaped upon the already prodigious cash pile the company has been building with its mammoth fleet of product tankers, now trimmed to 109.
More sales could follow, but it depends, Bugbee said.
“The pricing is strong and the vessels were built in 2013 — they’re a couple of the older vessels in our fleet,” he said.
“We’re in the process of looking at other sales candidates, but I don’t want to offer specifics. With the dislocation of our share price to net asset value, we could continue to sell vessels in an opportunistic way. But it’s going to depend on the pricing, as we have no urgency to sell anything.”
Bugbee stoked investor interest last autumn when he said Scorpio was looking to a target of reducing net debt to roughly the $800m scrap value of its fleet.
At that point, it would shift from a top priority of debt reduction to one of greater capital return to investors, he said.
At its last quarterly earnings report in February, Scorpio did raise its regular quarterly dividend to $0.40 per share from $0.35.
But Bugbee rejected analyst attempts to get him to be more specific about exactly when and how Scorpio would begin the greater return of capital.
His remarks on Wednesday thus cracked open the window a bit, though he was still guarded about discussing other specifics.
“I think it would be extremely unlikely, and inefficient for our shareholders, for us to say, ‘Hey everybody, we’re going to buy back stock now’,” he said.
“Fortunately we don’t have to say anything because we already have a $250m stock buyback authorisation in place.”
Bugbee expressed confidence that most shareholders want to see a company in the strongest possible position to move forward in the market.
“So far in my 40 years in the public markets, I have yet to see a company that has too much liquidity,” he said.
“But I have seen lots of high-dividend structures that have got themselves into a lot of trouble.”
