In a single breathtaking deal, John Fredriksen’s Frontline will take on up to 14 Suezmax tankers from commodity trader Trafigura to lift its fleet to 30 vessels and take over the ’King of the Suezmax’ crown
Frontline’s tie-up with commodities trader Trafigura has deepened beyond securing bunkers in the post-IMO 2020 environment with the announcement it has acquired 10 South Korean 2019-built, scrubber-equipped Suezmax tankers from companies associated with Trafigura.
The names of the Suezmax tankers have not been released, but there are believed to be the 10 ’Marlin’ series built at Hyundai Heavy Industries and Hyundai Samho in 2019:
In addition, Frontline has options to acquire a further four Suezmax tankers from companies associated with Trafigura – a possible 14 Suezmax vessels in total.
Adding the 14 Suezmax tankers to the 16 Suezmax tankers already in the Frontline fleet (live and on order – source VesselsValue) will increase the fleet to 30 vessels, overtaking Dynacom’s 29 Suezmax tankers.
On the finance side, payment for the vessels is a mix of shares and cash: 16,035,856 ordinary shares of Frontline at an agreed price of US$8.00 per share issuable upon signing; and a cash amount ranging from US$538M to US$547M, payable upon the closing of the deal. Financing of the deal comes in the form of US$547M commitment from a company associated with John Fredriksen’s private company Hemen Holding Ltd, with the remainder of the financing in discussion with banks. DNB Markets has acted as mandated advisor to both parties.
The announcement states that Frontline is taking the initial 10 Suezmax tankers on time charter at US$23,000/day from what appears to be immediate effect until the closing date of the deal, which is expected between 15 November 2019 and 15 March 2020. Frontline has also agreed to charter back five of the vessels to Trafigura at US$28,400 with a 50% profit share above the base rate.
Frontline Management AS’ chief executive officer Robert Hvide Macleod said “This transaction is backed by our strong belief in tanker market fundamentals and reflects our ability to act swiftly and decisively with the support of our largest shareholder. We welcome Trafigura as a strategic shareholder and believe the acquisition reflects the value Trafigura ascribes to our equity. In addition to Trafigura being a longstanding customer of Frontline, we now have a unique partnership that we believe will lead to further synergies going forward. The structure of the transaction creates an immediate impact to our earnings at a time when we expect freight rates to increase significantly. Moreover, we expect the acquisition to boost our dividend capacity going forward.”
Trafigura’s global head of wet freight, Rasmus Bach Nielsen commented “This marks the continuation of an approach that has long been integral to Trafigura’s strategy, namely, investing in infrastructure assets in support of commodity flows and collaborating with a market leader like Frontline to maintain sufficient access to those assets for our trading business. Trafigura trades around 5.5M barrels per day of oil and petroleum products around the world and has a market-leading position in strategic commodity flows, notably as a leading exporter of crude oil from the US. The significant increase in US export volumes, an ageing global fleet, particularly of crude vessels, and a historically low orderbook all support our constructive outlook for the sector. We therefore see significant upside potential in our equity investment in Frontline, a company with vast commercial scale and capabilities with whom we already enjoy a close working relationship.”
Frontline has elected not to exercise the first option to acquire two additional Suezmax tankers. The second option to acquire two Suezmax tankers has as a result terminated.
Frontline Management AS’ chief executive Robert Hvide Macleod commented “We added significant scale through our acquisition of 10 Suezmax tankers from Trafigura, and we are satisfied with our exposure to this asset class. We are pleased to see that the tanker market is tightening and earnings increasing in all our segments. Our market view remains positive and supports further fleet growth, but our main focus will be on VLCCs, where we will seek to add exposure.”
This reduces the Frontline fleet by four Suezmax tankers and places it in second place behind Dynacom.