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Navigator Holdings Ltd (NYSE:NVGS)
Q4 2019 Earnings Call
Apr 3, 2020, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to today's Navigator Holdings Conference Call on the Fourth Quarter and Year-End 2019 Financial Results. I have with us Mr. David Butters, Executive Chairman; Mr. Harry Deans, Chief Executive Officer; Mr. Niall Nolan, Chief Financial Officer; Mr. Oeyvind Lindeman, Chief Commercial Officer.

At this time, all participants are in a listen-only mode. [Operator Instructions] I must advise you that this conference is being recorded today, Friday, 3rd of April 2020. And I would now like to pass the floor to one of your speakers, Mr. Butters. Please go ahead, sir.

David Butters -- Executive Chairman

Thank you, Kaes, and good morning, everyone, and welcome to Navigator's fourth quarter earnings conference call. I hope everyone is healthy, safe, and secure. Before we actually begin our formal remarks, I would like to point out: as we conduct today's conference call, we will be making various forward-looking statements. These statements include, but not limited to, our expectations, plans and prospects from both the financial and operational perspective. These forward-looking statements are based upon management's assumptions, forecasts, and expectations as of today's date, and as such are subject to material risks and uncertainties. Actual results may differ significantly from forward-looking information and financial forecasts. Additional information about those factors and assumptions are included in our annual and quarterly reports filed with the Securities and Exchange Commission.

First, let me apologize for the late reporting of our results. I know this may have caused some concern. The nature of the delay stems from the decision made almost two years ago to change our auditors from KPMG to E&Y. We made this decision based upon good corporate governance and its practice, and our continued search to improve our accounting platform. We fully understood that in doing so, it would likely result in a two or possibly three-week delay in getting our year-end audit complete. That is exactly what happened. But unfortunately, this delay pushed us into a quarantine shutdown in our London office and forced everyone, including the auditors, to work at home. Naturally, the consequence of everyone working from home, resulted in a much-delayed audit process.

So, today, our speakers will include Harry deans, our President and CEO; Niall Nolan, Navigator's Chief Financial Officer; and our Chief Commercial Officer, Oeyvind Lindeman. So, let me pass the call over to Harry, who wants to make introductory comments. Harry?

Harry Deans -- Chief Executive Officer

Thank you, David, and good morning to everyone on the call. I hope you're all well and keeping safe. The world, well, it's a completely different place today compared to when we last had our Q3 call in November 2019. Since then, the COVID-19 pandemic has swept the globe with as far-reaching consequences for human health, social interaction and the world economy.

The first economic effects felt in China before spreading to the rest of Asia, and now to Europe, the Americas and beyond. All markets are experiencing huge volatility and unprecedented turbulence with considerable headwinds in many sectors. However, among all the doom, there are some glimmers of hope with China slowly and purposefully starting to turn to some degree of normality, with both manufacturing and demand gradually starting to recover.

As we speak, several Navigator vessels are on route to China and Southeast Asia with LPG and petrochemical cargoes. At Navigator Gas, the safety, security and welfare of all our colleagues is paramount, whether that be on land or at sea. We successfully retested our business resilience procedures last month. And following government advice, in both the U.K. and Poland, we decided on the 18th of March to temporarily close all our offices and to run our business remotely.

For just over two-and-half weeks now, we've been running our business operations remotely without disruption. I'm very pleased that all of our business continuity preparations have enabled this seamless transition. Through the use of technology, we've increased the level and frequency of our communications, West and between our onshore and fleet staff.

Of course, our shore-based activities are only part of the equation. Our seafarers continue to crew and safely operate our 30 vessels, which as we speak, are plying the seas, delivering the vital cargoes of gases to our customers across oceans and between continents, and by so doing, are keeping the global economy moving. This is no mean feat, as we, like many companies, have experienced considerable operational challenges brought on by the pandemic. On both the vessels, we have stepped up our infection protection and control precautions. We've implemented increased hygiene measures and increased both health screening and medical supplies.

Given the numerous travel restrictions, the company and our third-party managers have temporarily suspended all crew changes until it is both safe and feasible to resume them.

I would like to say thank you and pay tribute to our hardworking, dedicated and professional seafarers, who are currently separated from their families for extended periods at this difficult time. We have therefore increased the level of support and advice for all our employees to protect their overall well-being and mental health, while providing increased internet access and capacity to allow crew members to keep in contact with their loved ones.

Our teams have been working with the flag states, the classification societies, the various inspection institutions, and of course our charterers to postpone or alter mandatory dry dockings and inspections as they become due. This pragmatic approach, coupled with the additional measures ports have called and put in place, has ensured our operations continue without any major disruptions on a comparable levels to 2019.

In late December last year and early January this year, the initial phase of our Morgan's Point joint venture ethylene terminal was started up. With the first cargo of ethylene leaving on the Navigator Europa, sailed for China on the 8th of January.

Commissioning of Phase 1 is now virtually complete, with Phase 2, namely, the construction of the storage tank proceeding safely, on time and on budget. We expect the time to be operational by the end of November this year.

The stack really taking shape, as you can see in the slide in the supplemental information pack. However, the key to fill operational effectiveness of our export terminal is dependent on the completion of the underground ethylene storage cavern, currently being built by enterprise Mont Belvieu.

This upstream cavern will commingle ethylene from a variety of producers and direct it down to our joint terminal in an orderly manner. As is common in these types of infrastructure investments, the conditioning and commissioning by enterprise of the cavern has taken a little longer than expected.

We currently understand that these works will now be completed in the next few days or at most few weeks, with notice given to initiate the terminal take-or-pay contracts in set shortly thereafter. That being the case, these contracts should take effect at the latest by the end of Q2. Therefore, the terminal will have a limited throughput until these contracts are effective.

A few weeks ago, we were very excited to announce that Luna Pool with Greater Bay Gas and Pacific Gas, which will provide customers with increased flexibility and improved access to ethylene-ready vessels. The pool is expected to be operational in the second quarter of 2020.

Our vessel utilization rates in January at 97.3%, continued where Q4 left off. However, since the scale of the COVID-19 pandemic and its effects became apparent, our utilization rates have subsequently dropped and are now running at mid-80% levels, levels last seen in mid-2019, which will impact our results in Q1 and probably Q2.

Thankfully, TCE rates have been pretty resilient so far and have held up better than expected in the face of the economic slowdown. How long this will continue, remains to be seen, given the current unprecedented economic turbulence. Rest assured, the management team at Navigator Gas are taking all necessary steps to reduce discretionary spend while minimizing working capital and capex, and thus preserving cash and liquidity.

Some of these interventions are outlined in the supplemental information pack. I'm confident that given our scale, our geographical spread, coupled with our product flexibility and our fantastic counterparty relationships, that Navigator Gas is well placed to weather the current economic turbulence to manage the uncertainties, and will come out of this stronger.

With these few remarks, I would like to hand over to our CFO, Niall Nolan. Niall?

Niall Nolan -- Chief Financial Officer

Thank you, Harry, and good morning, all. Revenue for the fourth quarter was $76.1 million, an increase of $0.5 million from the $75.6 million generated during last quarter Q3 2019, but down 2.8% or $2.2 million from the fourth quarter of 2018. Revenue for the 12 months ended December 31 was $301.4 million, also a reduction of 2.8% from the $310 million generated during 2018.

Net revenue, that is revenue after deducting pass through voyage expenses was $63.9 million for the fourth quarter, an increase from both the $62.2 million generated last quarter and the $62.8 million generated a year ago.

Utilization increased significantly from 86.3% a year ago to 92.7% during the fourth quarter, generating $4.3 million of additional revenue. December in particular, saw utilization at 96.3%. And this higher utilization continued, as Harry mentioned, into January 2000, with utilization of 97.3%, before falling away in February and March to levels around 85%, largely as a result of the impact of COVID-19.

For the full year of 2019, utilization was 86.8% against 89% for the 12 months of '18. Although utilization increased during the fourth quarter, average charter rates reduced slightly from Q3 to an average of $20,204 or $614,500 per month in the fourth quarter, compared to $20,920 per day for the fourth quarter of 2018. Average charter rates for the 12 months of '19 were $20,831, an increase from the average rate of $20,284 achieved for the full year of 2018.

During 2019, the company undertook a total of nine dry dockings, taking an aggregate of 262 days to complete, which includes the time taken to sale to the respective yards and costing approximately $11.5 million. Three of these dockings were completed during the fourth quarter, taking a total of 80 days. We are scheduled to drydock 10 vessels during 2020 at a provisional cost of approximately $12.2 million. Although, as we have mentioned, there are certain challenges in drydocking vessels at the moment, as a result of COVID-19, including the inability of service engineers and technical super attendants attending such dockings. However, we believe that although some docking may be delayed, with the consent of the flag state and classification societies, we do not believe the cost of such dockings will be materially higher than anticipated.

Vessel operating expenses were $27.7 million for the three months of the fourth quarter, an increase of just 2.4% from the comparative quarter of 2018.

Opex for the full year of 2019 was $111.5 million or $8,037 per day compared to $106.7 million or $7,694 per day for 2018. The compound annual growth in opex over the past 10 years has been just 1.04%.

General and administrative head costs increased by 10.3% year-on-year, principally as the number of employees increased to enable additional vessels to be taken into in-house technical management. We now technically manage a total of 17 of our 38 vessels in-house.

Interest costs for the fourth quarter were $12.2 million, which was similar to the $12 million incurred during the fourth quarter of 2018. The total interest expense increased from $44.9 million during 2018 to $49 million in 2019, primarily as a result of interest on the NOK bonds issued in November 2018.

In addition, we capitalized interest in 2019 of $4.8 million associated with capital contributions made for the construction of the ethylene marine export terminal. As Harry mentioned, the terminal commenced loading its inaugural cargo on Navigator Europe in December. The terminal accounted for a book loss of $900,000 during the fourth quarter, resulting in a charge of $1.1 million for the full year in Navigator's 50% share of that loss. We are not anticipating a profit from the terminal until volumes from the throughput agreements ramp up in the second quarter of this year.

We reported a net loss for the fourth quarter of $2.8 million or a loss of $0.05 per share, including the $900,000 relating to the terminal, marginally better than the loss generated during the third quarter, and better than the $3.9 million loss made during the fourth quarter of 2018. The full loss for the year of 2019 was $16.7 million compared to a loss of $5.7 million for the 12 months of 2018.

With respect to the balance sheet, cash stood at $66.1 million at December 31, against the maximum required liquidity covenant from bank loans and bonds of $44.5 million. The company was in compliance with all financial covenants on all its facilities at December 31, 2019. And we do not currently foresee any covenant breaches in the near term.

However, the company does provide cash collateral security against unrealized losses on this cross-currency interest rate swap. And in the event that the Norwegian kroner weakens further against the U.S. dollar, additional cash security will need to be placed into the collateral account, thus providing less headroom on our liquidity maintenance covenant.

During the fourth quarter, we contributed a total of $12.5 million toward the construction of the ethylene marine export terminal, taking total contributions to-date to $125.5 million against anticipated total cost of $150 million. As we mentioned, the ethylene refrigeration units and ancillary piping loading arms etc. are now complete and operational and the construction of the 30,000-ton ethylene storage tank is expected to be completed later this year.

The terminal loan facility for a maximum of $75 million remains fully undrawn, some of which will be drawn to fund the remaining capital contributions of approximately $24.5 million. The amount available for drawdown are dependent on the level of throughput agreements in place and currently the banks have agreed availability of $36 million based on the first three offtake agreements with compliance requirements ongoing to increase this available amount to $52 million as a result of the fourth offtake agreement signed late last year.

As discussed on the last earnings call, at the end of October, we undertook the refinancing of one of our vessels, Navigator Aurora, through a sale-leaseback transaction. The sale price of $77.5 million provided cash of $69.75 million after a seller's credit of 10%, $44.5 million of which was used to repay the prior loan on the vessel and the remaining $25.25 million available for corporate purposes and to further strengthen our balance sheet. Simultaneously, with the sale, the company entered into a bareboat charter for the vessels for up to 13 years, with the company having break clauses at years 5, 7 and 10.

At December 31, total debt stood at $889.5 million, which incorporates five bank loan facilities, the unsecured $100 million Norwegian bond and the $600 million NOK denominated Norwegian bond, which equates to approximately $71.7 million. Whilst headline gross debt-to-equity ratio was 48.6% at December 31, if we were to separate out the debt associated with the marine export terminal, which is a 100% debt financed, the ratio relating to the business-- shipping business --reduces to 44.8%, and we pay approximately $70 million or 8% of total debt per year in regular quarterly repayments. The debt-to-equity would reduce below 40% at the end of 2020, all of the things being equal.

As referred to in the 6-K published last night, the company does not have any debt facilities maturing during 2020, and there's only one debt instrument maturing in 2021, a $100 million Norwegian bond that matures in February 2021.

The company has had considered refinancing this bond with a like-for-like bonds prior to the outbreak of COVID-19. But due to the current disruption in the capital markets, the company is now also considering alternatives in the event that the effects of the virus last longer than anticipated. Such considerations include seeking an extension to the maturity of the bond, seeking to raise capital to repay the bond by means of further sale leaseback for a number of the company's vessels, or alternatively raising additional debt, alternative debt, using available unsecured vessels.

And with that, I'll hand you over to Oeyvind.

Oeyvind Lindeman -- Chief Commercial Officer

Thank you, Niall, and good morning, all. The Clarksons 12-month time charter assessment for handysize semi-refrigerated gas carriers increased by 20% during the fourth quarter, from $540,000 a month at the beginning to $645,000 a month at the end of December. As one would expect in a rising market, our utilization across the fleet span similarly rose from an average of 85% during third quarter, to an average of 92.7% during fourth quarter. The increased utilization was generally due to an uplift in the transportation need of LPG during the first winter months.

LPG, as a proportion of earnings base, rose by 4% to 2,104 days during the quarter compared to the previous quarter, amounting to 2/3 of our total fleet earning days. Deep sea petrochemical voyages similarly picked up in demand and reverted back to the more traditional trading routes; ethylene from U.S. to Asia and butadiene from Europe to Asia, bringing additional ton miles to the handysize segment.

The Chinese petrochemical manufacturing demand rose during this period in order to replenish inventory levels prior Chinese Lunar New Year. This resulted in our petrochemical earning days during the quarter to rise by 26% to 877 days compared to the previous quarter.

As you heard earlier in the call, Navigator Europa went all past alongside Morgan's Point terminal during the Christmas period to commence the inaugural ethylene commissioning cargo for the Enterprise-Navigator ethylene joint venture. We successfully completed loading operations of 11,500 tons of ethylene, or in Americans speak, 25 million pounds of ethylene and delivered on-specification ethylene to Taiwan on the 10th of February. Since then, the terminal has loaded four additional vessels.

In the run-up to our expectation of full utilization of the ethylene terminal and in a move to create a larger and broader platform of handysize ethylene vessels, we announced the formation of the Luna Pool last month. Pool enables us to provide a better service to our customers in the form of flexibility in the deep-sea petrochemical trades where critical mass matters. The pool will have 14 handysided ethylene vessels at its disposal to service various existing and new potential contracts and customers.

The beginning of 2020 started off on a good note with healthy utilization and employment across the fleet. However, as you've heard and experiencing, with the manifestation of COVID-19 virus and its global impact, we started seeing a dampening effect on shipping demand from February onwards.

Manufacturing demand decreased alongside consumer demand, resulting in high feedstock and raw material inventories and price volatility. Many market participants chose not to move cargoes or could not move cargoes during the month of February and March; meaning, less amount of seaborne transportation, which in turn, not surprised me, has impacted our utilization rates. This impact is manifesting itself more in the petrochemical segment due to its association with GDP as opposed to LPG, where handysize cargoes are generally associated with domestic consumption for heating and cooking and thus should be less impacted by effects of the virus.

Somewhat surprisingly though, Argus reported earlier this week that petrochemical crackers globally have yet to reduce operating rates as a result of demand or margin reasons. And despite price fall for their finished products, Argus is reporting that producers are still making a reasonable margin.

With the cracker operating rate holding firm in Europe and U.S. in a weak domestic demand environment, products such as ethylene and butadiene are being exported to Asia as we speak. As an example, Europe exported nearly 50,000 tons of ethylene during the month of March and for East destinations.

Ethylene FOB pricing in Europe and U.S. is currently about $275 a ton and $200 a ton respectively with Asian buying demand hovering about $450 to $500 per ton range.

So, within this range, it still makes possible to justify deep sea petrochemical shipments between the continents, albeit the margins have narrowed considerably over the last two months, making it slightly more challenging.

The slightly positive news is that China is reopening manufacturing site and lifting travel bans, allowing workers to return to their jobs. China manufacturing PMI rose to 52 in March, up from a record low of 35.7 in February. This should stimulate some form of petrochemical demand in the near future. However, it is slightly too early to see the effects of this yet.

And now, I will hand you back to Dave.

David Butters -- Executive Chairman

We can open the call up for the Q&A, Kaes, if that's OK with you.

Questions and Answers:

Operator

[Operator Instructions] First question comes from the line of Randy Giveans from Jefferies. Please ask your question.

David Butters -- Executive Chairman

Good morning, Randy.

Randy Giveans -- Jefferies -- Analyst

Gentlemen, how are you-all?

David Butters -- Executive Chairman

Good. Thank you. Hope you're well too.

Randy Giveans -- Jefferies -- Analyst

Thank you. Yes, all is OK. All right. So, starting on the shipping side; I know your press release stated the company has not experienced any significant decrease in charter earnings thus far, but utilization has fallen from 97% in January to the mid-80% range.

So, a couple of questions; what kind of charter rate levels are you seeing for the spot propane and/or ethylene ships? And then, what was the average utilization for 1Q20? Should we just maybe take the midpoint of the 97%, mid-80% to around 90%?

Oeyvind Lindeman -- Chief Commercial Officer

Hi, Randy. So, you have the utilization rate for the quarter in the press release there. But I think at backend of January, quoted time charter earnings from Clarksons were at its peak at $695,000 a month, so that was at end of January. End of last week, it was quoted at $665,000. So, down a tad bit, but we are not seeing a drop off the cliff, if that was the question.

So, I'd say it's a slight reduction from its peak at the end of January to what we're seeing today. It's smaller, so the rates are impacted less so. But its utilization, as you picked up on, which is somewhat lower than what we had in December and January, because of just dampening effect from -- on the demand side.

Randy Giveans -- Jefferies -- Analyst

Sure. All right. Well, thanks for that Oeyvind. And then a question for Niall. Looking at the sale-leaseback, that transaction freed up around $30 million in liquidity, net of the debt repayment. Any specific use for those proceeds, that percentage staying on the balance sheet? And then, two other questions. What is the effective interest rate on that transactions and/or additional sale leaseback kind of as an available option that market's still open to possibly repay that $100 million next February?

Niall Nolan -- Chief Financial Officer

Yes. So, the existing sale leaseback transaction, first, this is with Ocean Yield and Norwegian outfit. The rate was 4.3% plus LIBOR.

And we have $25.25 million, as I mentioned, of surplus cash. That's really just strengthening the balance sheet, providing additional liquidity that we did in -- so, that transaction was closed in October last year, October 28 of last year.

With respect to any future sale leaseback that we're considering to pay off the $100 million bond in the event that the market stays closed or the capital markets stay closed, we're looking at alternatives. The market, certainly, the Japanese leasing market is very much open. It has remained open throughout, and the rates would probably be less than the 4.3% that I mentioned in the -- relating to the existing leaseback.

Randy Giveans -- Jefferies -- Analyst

Perfect. Niall, thanks for that. And then one more little topic to cover here. For the ethylene export terminal, I know there's still kind of commercial acceptance and those things are hopefully coming, say, in the next few days if not weeks. With that, what is kind of the expected maybe EBITDA guidance update for the second quarter or just the full year 2020, and then kind of on a full run for the full year 2021? And then, can you remind us of the total debts Navigator has on its books for the terminal?

Niall Nolan -- Chief Financial Officer

I'm not happy to start off on that. The debt that -- at least the payments that we have are $125 million so far, which is all debt. We expect to pay the other $24.5 million generally throughout 2020 this year. Those payments principally relate to the tank, which as Harry mentioned, is due to come on in November of this year.

In terms of -- I did mention that we are not expecting to be profitable from that terminal until the throughput agreements ramp up or come into play, after which we would expect to be. We've given guidance before about the full operations of the terminal in mid-teens around the $22 million, $23 million EBITDA level. That's based on the full million ton capacity of the terminal when the tank comes into play.

Randy Giveans -- Jefferies -- Analyst

Excellent. And perhaps just making sure that that range is still intact, and I guess you mentioned it there. So last question for me; any updates on that remaining 25% capacity in terms of contracts?

Operator

Thank you. Are you ready for the next question?

David Butters -- Executive Chairman

Harry, did you want to answer that question?

Harry Deans -- Chief Executive Officer

Yes. I was waiting for Oeyvind, but he may have dropped off. Yes, we're still -- it's still work in progress, Randy. We're still trying to get -- as you remember, Phase 1 is already sold out and it's Phase 2 we're talking about, once the tank comes on stream. We're -- Oeyvind and the team and the people in enterprises are in lots of discussions. And those discussions are being a bit halted, to be honest, given the COVID-19 situation. But we're still hopeful that we'll get the terminal sold out imminently.

David Butters -- Executive Chairman

I think the best answer for that Randy would be what Jim Teague at Enterprise had said in his conference call that they work very close to signing the last documents that would result in that terminal being sold out completely.

Now, since that conference call that they had a month and a half ago, there have been a lot of changes in the world. I think, knowing the background of those comments, I would suggest that that interest and that potential signature on the documents will be coming. But I think no one is in a rush to put their name on the document right now. So, I think it's coming, there's a lot of confidence that that will be signed, but it's not signed yet.

Randy Giveans -- Jefferies -- Analyst

Okay. Yes. Got to hear from all four of you, so well-covered. Yes, thanks for that and you-all stay safe.

David Butters -- Executive Chairman

Kaes, is there another question?

Operator

Your next question comes from the line of Sean Morgan from Evercore. Please ask your question.

David Butters -- Executive Chairman

Good morning, Sean.

Sean Morgan -- Evercore ISI -- Analyst

Hey, guys. Yes, Sean Morgan. So, the unrealized lost currency for the interest rate swap, you guys had a cash collateralized that. What was the total amount that had to be posted? And, is there sort of like an upward limit that would need to be posted and how much liquidity headroom do you have, sort of, taking that into account?

Niall Nolan -- Chief Financial Officer

So, the unrealized loss at the end of December was $6.3 million, and the hedge provide bears the first $5 million that we had to put up the $1.3 million into a collateral account. And there isn't actually a headroom -- there isn't a cap on that.

Sean Morgan -- Evercore ISI -- Analyst

Okay. So, it's sort of like a dollar-for-dollar that you have to match to the unrealized loss. So, if were to go up another $5 million, you'd have to post another $5 million effectively?

Niall Nolan -- Chief Financial Officer

Correct, yes.

Sean Morgan -- Evercore ISI -- Analyst

Okay. And then you talked a little bit about the sort of spotty demand you're seeing around the world and maybe a little bit of improvement in China. With India, I think I read that they're now planning to do subsidies for Indian retail consumers for cooking gas. Is that going to be able -- in your opinion, it would be able to offset some of the lost demand from the industrial sector in India? Or are you sort of thinking this is going to be a negative for a while in India or possibly improving demand there?

Harry Deans -- Chief Executive Officer

Hi, Sean. It's a good question. It's a complicated question. So, the LPG in India, at least what is subsidized, is for marginally economic people in India. So, they use LPG for domestic, for heating -- not so much heating perhaps, but for cooking. So, the demand is still there but it's unchanged. It's just that it gets subsidized.

Another impact of India is that their petrochemical industry, the downstream demand in India is lower. So, the Indian production have to find and oust that elsewhere in Asia and have some knock-on effect on other trades. But for LPG in India, obviously there's the security of supply on the national interest, which is important. So, what we've seen over the last couple of weeks, are that the national oil companies in India have gone out to secure larger stems of LPG for the security of supply to the various ports, so they won't get caught short in this corona lockdown.

So, I think, for handysize, net effect is neutral and there's not that much handysize LPG business in between the Middle East and India. There's a couple of ships, but those will be unaffected. The more impact is that there are new petrochemical cargoes being quoted from India that will go to Asia, which has a positive effect, albeit a smaller volume. So, I think net-net is mostly neutral, Sean. So, not too big impact on [Indecipherable].

Sean Morgan -- Evercore ISI -- Analyst

Okay. That's helpful. Thanks. I'm going to turn it over.

David Butters -- Executive Chairman

Thank you. Kaes?

Operator

Thank you. Next question comes from the line of Omar Nokta from Clarksons Platou. Please ask your question.

Omar Nokta -- Clarksons Platou -- Analyst

Hi, David, Harry, Niall, and Oeyvind. Hope you and your families are safe, and as well as everyone at Navigator.

Harry Deans -- Chief Executive Officer

You too.

Omar Nokta -- Clarksons Platou -- Analyst

Thank you. You know you guys have given a very good overview, I thought, obviously in the comment --

Operator

Sorry, questioner. Can you ask your question again? It appears your line has dropped off. [Operator Instructions] Thank you.

David Butters -- Executive Chairman

Kaes, maybe you can take the next one. And if Omar can hear us, he'll call back with his question.

Operator

Thank you. We'll ask Omar to continue with his question.

Omar Nokta -- Clarksons Platou -- Analyst

Can you hear me?

David Butters -- Executive Chairman

Yes, now we can. Thank you.

Omar Nokta -- Clarksons Platou -- Analyst

Okay. Yes, sorry about that. Not sure what happened. I just wanted to -- just a couple --

David Butters -- Executive Chairman

It's the bug.

Omar Nokta -- Clarksons Platou -- Analyst

It is. It's going around. Maybe just first off, you talked about the operational challenges and this is definitely something that's industry wide that the shipping side everyone is facing, and that is the crew changes and needing to delay that. When you guys think about it, how long do you think it's feasible? Because you guys have specialized vessels and they have very sophisticated equipment on board. How long do you think it's feasible to keep the crews on board without making a change? Is this a number of weeks type thing or can this go on for months you think?

Harry Deans -- Chief Executive Officer

Hi, Omar. It's Harry. Good morning. I'll take that one. Omar, in many respects, the safest place to be at the moment is on one of our vessels, to be honest. And to answer your question: yes, it can't go on indefinitely. But as countries start to open up and as flights start moving again, then what we'll try and do is seek to refresh the crews as quickly as possible.

Omar Nokta -- Clarksons Platou -- Analyst

Yes. Okay. Thanks for that. And then just as a point of [Technical Issues] you mentioned the utilization being down into the mid-80s at this point. Would you say that that's a blended average across the spot in time charter? Or is that just the spot market utilization?

Niall Nolan -- Chief Financial Officer

That is a blended cost of all fleets, which we always quote our utilization numbers basis.

Omar Nokta -- Clarksons Platou -- Analyst

Okay. Thank you. And then just one other thing I wanted to ask. And, Niall, clearly the sale leaseback, you've unlocked a good amount of cash. And as I just think about it looking at the way it's classified in the balance sheet, I may have missed it, but is there a reason why -- it appears to me that it looks like it's a related party transaction. Is that the case with this?

Niall Nolan -- Chief Financial Officer

Yes. This unfortunately is a consequence of U.S. GAAP, because the vessel is owned by a company, which has no equity involvement by Navigator, but Navigator is the sole beneficiary of that company, because we've got buy options at the end of various years 5, 7 and 10. We are required to consolidate that subsidiary into our books. And therefore, on the balance sheet, it's called a related party and on the income statement there is an amount of net income attributable to the non-controlling interest, which is again this sale leaseback. So, it's the most bizarre accounting treatment that we've come across to-date. It is now how IFRS accounts for sale leasebacks. It's a requirement of U.S. gov. But you're right, the non-controlling interest does relate to this sale leaseback.

Omar Nokta -- Clarksons Platou -- Analyst

Okay. Yes, all right. So, but effectively just from the big picture, obviously Ocean Yield and Navigator, there's no --

Niall Nolan -- Chief Financial Officer

There is absolutely zero commonality or Navigator equity participation in that subsidiary, correct. And effectively, from the balance sheet perspective, look on the balance sheet amount as the amount of the outstanding loan.

Omar Nokta -- Clarksons Platou -- Analyst

Yes. Okay. I'll do that. And I know I'm bouncing around, but I just wanted to ask one more. And Oeyvind, I think you gave a good overview. Despite the drop off in oil prices, there still is a fairly decent gap between ethylene or petrochemical prices in the U.S., Europe and in Asia. From what you're seeing right now in the market, everything is changing in it's dynamic. But based on that spread, and yes, it's coming, are you still seeing a good amount of movements or has that -- or has sort of the overall pandemic really started to impact the movements based on this pricing?

Oeyvind Lindeman -- Chief Commercial Officer

Yes, I mean the downstream demands in Far East is not helping, because obviously it's come off big time in February and March, although March is looking slightly better than February. But the point was that we're filling up base. Far East, companies were filling up their storages before the Chinese lunar year commenced. So, they were already -- their inventories were already full.

And then you have February-March come in, downstream demand was low because workers were at home and so forth, nobody were consuming. So, that had an impact on the inventory management on the availability where you could place cargoes. And at the same time you have the Europeans and the Americans still running their crackers at the high rates, so they're producing. Their domestic situation is similar to as in China. So, they're ramping up inventory. So, as soon as we see mileage being available in Asia, the cargoes will move and they have been moving, albeit a little bit on reduced scale.

So, as I mentioned, there was 50,000 tons of ethylene going from Europe to Asia in March and that is quite unprecedented, so. But the pricing, the narrowing of the arm is also a challenge. So, on paper it works today, but producers and end users and traders, they have to then find outage, so where can you drop off 12,000 tons of ethylene, which is a big cargo. Can they go to one place or do they have to mix up and go to two or three locations? And, what does the pricing do in the meantime because you know the voyages are quite long, it takes from you load till you get to the destination is 30, 40 days. So, you have a lot of complexities in those trades. But they haven't stopped. But, of course, the corona situation doesn't make it easier.

Omar Nokta -- Clarksons Platou -- Analyst

Yes. Just to that end, is floating storage any sort of -- is that a viable option in these trade or is it --

Harry Deans -- Chief Executive Officer

Yes, we haven't seen that yet. Now, we have some larger ships being available on the spot market that could take 20,000 tons and that might come. So, we haven't seen those market calls yet. I think floating storage situation is more applicable in purely commodities or if it's propane or crude or something like this. When you come to petrochemicals, it's a refined product. So, there's less of a scope for floating storage.

Omar Nokta -- Clarksons Platou -- Analyst

Okay. Got it. Well, appreciate the color guys. Thank you very much and stay safe.

David Butters -- Executive Chairman

Good to hear from you.

Operator

Thank you, gentlemen. In the interest of time, I'd now like to hand the conference back to you, for your closing statements.

David Butters -- Executive Chairman

Well, great. Troubling and difficult times. Even making this conference call has been a challenge. So, I hope we're being forgiven for that as well. Look forward to our next quarterly call, which I hope is not as delayed as this year-end call. Thank you for joining us.

Operator

[Operator Closing Remarks]

Duration: 49 minutes

Call participants:

David Butters -- Executive Chairman

Harry Deans -- Chief Executive Officer

Niall Nolan -- Chief Financial Officer

Oeyvind Lindeman -- Chief Commercial Officer

Randy Giveans -- Jefferies -- Analyst

Sean Morgan -- Evercore ISI -- Analyst

Omar Nokta -- Clarksons Platou -- Analyst

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