Harry Vafias “The HARRYcane”

Harry VafiasHe describes himself as a trader, as the nature of his work involves negotiating: from negotiating the freight rate per yard to negotiating with bankers and investors. This is the daily routine of the founder of Stealth and StealthGas, Harry Vafias and, as he says in an interview to Outlook, it is something he enjoys.

The results are visible: in three years, StealthGas has come to own 20\% of the world LPG carrier fleet (3,000 -7,500 cu. metres) and the largest fleet in the world in terms of number of vessels regardless of size, numbering 50 ships including newbuildings. He could have joined his father’s company and worked much less than he does now but, as he says, he preferred to take risks and make his mark, as did his father Nikos, with Brave Maritime in 1973, and his grandfather Charalambos, from Ai Giorgis of Chios, who emigrated to Argentina as a young man and did well in the meat trade.

“I believe that it is more difficult for those who started from scratch to acquire one or two ships than it is to start with ten to fifteen ships and acquire fifty, because when you have nothing and you don’t even have the money for the essentials, it takes a lot of courage to work, make money, not to spend it in order to acquire a share of a ship and gradually buy another ships, and to continue upwards and, believe me, many are those in shipping who started like this,” says StealthGas CEO Harry Vafias, acknowledging the support he received from his family. In any case, the fact that at the age of 21 he succeeded in establishing Stealth Maritime with initial capital coming to $4 million is remarkable. The company manages aframax gas carriers and VLCCs with a total capacity of 2 million dwt. In 2004, he sold most of the ships at a large profit and founded another company, StealthGas. He persuaded the American investors to invest in his new company, which is listed on the Nasdaq, and at present StealthGas’s capitalization comes to over $500 million.

In reply to a question as to the extent to which he believes his career has been a success up until now, Harry Vafias comments: “When you have made promises to your shareholders and bankers and see that you have not only succeeded in fulfilling them but doing something more, then everyone’s pleased and, yes, you can say that I’m proud and have achieved my goals.” He adds: “Especially when you have managed to expand the company, modernize the fleet, keep loans at a low level, employ good crews and experienced personnel and have good charterers, in other words good clients, when you succeed in doing all this, you are successful.”

Nonetheless, obstacles arise along with this success. “Listing your company in itself is strenuous. It isn’t easy; 6-9 months of preparation are needed, it is costly and demands great dedication and a great deal of effort,” Mr Vafias says. “That’s just one part. The other starts from the moment the company is listed on the stock exchange. It has to operate in accordance with specific regulations, you have to have permission from your board of directors to make certain decisions, and for certain greater decisions you have to have permission from your shareholders. In your office you constantly have chartered accountants checking whether everything is being done correctly and is clear to the shareholders. The cost rises, the company must function in accordance with the Sarbanes-Oxley rules. For instance, we had to change our entire computer system both in the offices and on board the ships; that alone cost us €1 million euros. The upside of being listed on the stock exchange, of course, is the ability – if you don’t want to use own funds and bank loans – to raise a significant amount of capital.”

The advantage

Although the size of StealthGas’s ships and the specific type of ship, LPG carriers, do not yield large profits, Mr Vafias explains why he supports this particular market. “I’m persisting in this sector for two reasons: first, because I believe that there’s a great demand for these ships from developing countries, the majority of ports of which are still small, so it is easier for smaller ships to manoeuvre, sail on rivers and reach regions that larger ships cannot easily reach, and let’s not forget that gas is the form of energy used most in developing countries. Hence, in less than three years, we have created the world’s largest fleet in this sector, and this is good because by having the largest fleet, of course, you gain a large share of the market. Given this advantage, therefore, any charterer requiring a ship of this type will come to us and will only turn to our competitors if we can’t provide our services.”

$1.05 billion

The Vafias Group currently has a shipbuilding programme worth over $1 billion under way. It could be the only Greek group having ships built in so many different countries at once: Japan, China, Turkey and South Korea. The shipbuilding programme consists in the construction of 4 MR-type product carriers, 2 aframaxes, 13 LPG carriers, 3 capes and 4 post-panamax bulkers. As for the reason why this specific moment was chosen to invest huge sums in newbuildings and the reasons why importance is attached to the group’s companies, Mr Vafias comments: “First, over the past two to three years, we managed to sell almost all our older freighters at very good prices, and we therefore found ourselves with a great deal of liquidity that had to be invested rather than simply remain in the bank. Second, I very much believe in the tanker market after 2010 and therefore, as we recently announced, we invested $616 million and acquired ten tankers, six of which are product carriers, one chemical carrier and two aframax vessels, all of which have been chartered for three to eight years to serious charterers. As regards the freighters, as we sold a large number, we acquired newbuildings, which have already been chartered. The rest of the newbuildings are LPG carriers, the outlook for which is very different. There are much fewer newbuildings, there is a constant demand for small LPG carriers from developing countries and, as StealthGas is growing at a fast pace and cannot find many second-hand vessels to buy, it has no choice but to order newbuildings.”

The right timing

As regards chartering policy, Mr Vafias stresses: “We are present in all markets and have invested in ships belonging to different categories. As for charters and bank loans, we have always had a very conservative strategy, even though our group has tripled in size in three years, increasing from 25 vessels in 2003 to 78 vessels, including the newbuildings, today. We have succeeded (we were lucky with the timing) in having a low bank loan burden, something which pleases our investors and bankers very much because they feel secure with the Group. In addition, we have managed – in spite of the large number of ships – to charter out 90\% of our ships, including those under construction, once they are delivered (for better or for worse, depending on the market conditions at the time).”

As for whether these moves presage the listing of another company belonging to the Group on the stock exchange, Mr Vafias states: “At the moment, the capital markets are closed and even if we wanted to it wouldn’t be possible. As from 2009, providing the market conditions are favourable, we will look into the possibility of listing one more of our Group’s companies.”

Referring to the lack of skilled crews and resorting to third-party ship management, the CEO of StealthGas states: “If you don’t have the crew you cannot operate the ship and, unfortunately, as there is a huge shortage of crews, especially for specialized ships such as ours, having them is like having gold.” He adds: “When you don’t have crews for all the ships, you have to assign their management to a third party, hoping that they will be managed properly. It is very difficult to control, because they could be managed from the Philippines, Singapore etc. There is no solution. The same applies to office staff: if we were to bring all those ships we have assigned to third-party managers back to our office, we would need much more personnel specializing in different fields and it is not easy to find the right people for these posts.”

Simplicity

Despite the daily stress and the endless hours of work, Harry Vafias finds time to indulge in his hobbies, the collection of books and modern and classic works of art, a number of which are on display at the Selene Gallery he runs with his mother. Furthermore, he says, he has had the same friends for twenty years, he leads a healthy life without alcohol and late nights, and exercises almost on a daily basis. Also, he enjoys relaxing – his workload permitting – at his family’s home in Ai Giorgis of Chios, where his grandfather was born and raised along with another six siblings.

Interview:Markos Kantzios economic outlook April 2008