The biggest single transactions undertaken in May and June this year involved deals by Scorpio Tankers. A total of 21 tankers, aged between one- and five-years old, were traded in sale and leaseback deals with Far East finance houses.
The deals included the sale and leaseback to China’s CMB Financial Leasing of six MR product tankers – STI Battery, STI Milwaukee, STI Tribeca, STI Bronx, STI Manhattan and STI Seneca. Altogether, 17 MR2 tankers were exchanged for debt reducing cash now, against future earnings, but with the option of re-purchase at a later date.
The other big sale in the tanker sector was the breaking up of the Callimanopulos Group’s former Toisa tanker fleet. Shipbroker Clarksons Platou was tasked with the sale of the fleet, which is reported to have raised US$350M. This included four Suezmax tankers, three LR1s and three LR2s. All are reported to have been sold to various Greek buyers.
A pair of more traditional sales took place in the VLCC sector. It is well-known in sale and purchase circles that the major Japanese trading houses charter in VLCC newbuildings from their associated shipping companies for 15 years. The associated shipping companies order a new VLCC before the end of the charter from an associated Japanese shipyard, and in due course, the new VLCC replaces the old. The old VLCC will have been written down over the 15 years, and the sale is something of a bonus. These Japanese-built VLCCs are much sought after by certain Greek owners.
A careful study of which Japanese built and operated VLCCs are approaching 15-years old gives the sale and purchase broker the knowledge to advise a Greek client when a VLCC is likely to be available.
The two VLCC sales that took place in May and June follow this pattern. The Rokkosan was built in Japan in 2003 for MOL, which recently reorganised its tanker division. The VLCC was sold to New Shipping Ltd (Adam Polembros) for an undisclosed sum. The Mitsubishi built 14-year old Takamine was sold for US$22.7M by NYK Line to Hellenic Tankers (Andreas Hadjiyiannis).
A quick scan of the VLCC fleet reveals that NYK Line has two VLCCs that are in the 15-year old age range. The company has four VLCCs on order, with two to be delivered in 2019. Therefore, it is a fair bet that the older two VLCCs will be on the sale and purchase market sometime in 2019.
Vitol makes a move
May and June also saw a number of VLCCs ordered for future delivery. The most interesting orders were those of trading house Vitol. Vitol is a privately-owned trading house which, in 2017, had a turnover of US$181Bn, traded 7M barrels of crude oil, and performed over 6,000 ship journeys.
Trading houses generally keep themselves asset-light, profiting from the arbitrage between the prices of commodities. In the past, the surplus of tanker supply meant there was always an owner or operator willing to ship commodities at near breakeven rates, but Vitol must have seen something in the future supply-demand matrix to make it want to secure its own VLCCs.
Thus in May, Vitol ordered four VLCCs from Hyundai Heavy Industries for a reported US$92M each. The price is around US$8M higher than VesselsValue newbuilding price values in May, and possibly reflects a premium for the fitment of scrubbers and water ballast treatment systems, although Vitol made no comment. However, given the Hunter deal below, there is certainly a premium in the price.
The other contracts for VLCCs were placed by Apollo Asset and the Hunter Group. Together they ordered seven VLCCs in May.
Apollo Asset is an investment vehicle of Monaco-based Norwegian, Arne Fredly. Since the deal was made, Mr Fredly has launched the Hunter Group on the Oslo stock exchange. The Hunter group describes itself as an investment company formed to purchase VLCCs fitted with scrubbers that will be able to continue to burn high sulphur fuel post the 2020 sulphur cap. There are no reported charters for the vessels. Indeed, if the price of high sulphur fuel collapses, producing a short payback period on these VLCCs, they may well be sold at a considerable profit after the sulphur cap is introduced.
Apollo is said to hold a third of the shares in Hunter and has folded in the Apollo Asset VLCCs. Other well-known Norwegian shipping names are said to be have invested in the speculative VLCC hunting party, whose exchange ticker is “HUNT”.
The offer document from Apollo Asset Ltd for one-third of the shares in Hunter Group lists the price of the first three VLCCs at US$82.5M, and scrubbers at US$2.7M giving a total of US$85.2m. The fourth VLCC is listed at a slightly higher US82.8M, with the same price for scrubbers. All four VLCCs are to be delivered in 2019. The document states there is no mark-up by Apollo Asset on these prices. According to the Hunter Group, the scrubbers are to be supplied by Wärtsilä.
The document discloses that Apollo Asset has an option for a further three VLCCs from Daewoo at the higher price of US$82.8M. V.Ships is listed as undertaking the newbuilding supervision at a cost of US$180,000 per VLCC.
The payment terms are 10% deposit following receipt of the refund guarantee, followed by 10% in February 2019, then 10%, 10%, and final payment of 60%
To scrub or scrap?
The price of US$2.7M to fit Wärtsilä scrubbers to the aforementioned VLCC newbuildings sets a baseline for those owners calculating the cost of refitting older VLCCs. Is it worth spending 10% of the value of a generic 13-year old VLCC (currently valued at US$27M by VesselsValue) to fit scrubbers?
The scrubber fitment would be done during a dry-docking, typically around US$3M. Add in another US$1M or so for a ballast water management system and around US$7M to push a VLCC through a Special Survey and bring up to the required trading specification.
This raises doubts about the value of a US$40M 10-year old VLCC. Is there enough trading life left in the vessel to justify the outlay of US$7M? So far, we have not seen any decade-old VLCCs being sold for scrap. The youngest in May and June was the 2001-built Silver Glory, which was sold by Sinokor Merchant Marine for a reported US$436/ldt for recycling in India. This was a relatively firm price for Indian sales, but two VLCCs achieved US$448/ldt from Bangladeshi recycling yards.
DS Tankers sold the 2001-built Tor and the 2000-built DS Tina for breaking in May. DS Tanker has no VLCC on order.
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