John Fredriksen’s shipping company Frontline has signed a deal to purchase ten 2019-built Suezmax tankers, fitted with exhaust gas cleaning systems, from a subsidiary of Trafigura.
Under the contract, the company would acquire a Trafigura Maritime Logistics special purpose vehicle that holds the vessels at a consideration of 16,035,856 ordinary shares of Frontline at an agreed price of USD 8.00 per share issuable upon signing, and a cash amount ranging from USD 538 to 547 million.
Frontline expects the transaction to close between mid-November 2019 and mid-March 2020. Until then, the company would time charter all the units at a daily rate of around USD 23,000 in order to obtain earlier exposure.
The shipowner also agreed to charter five of these ships back to Trafigura on three-year time charters at a daily base rate of USD 28,400 with a 50% profit share above the base rate.
The company is currently in discussions with lending banks who have indicated an interest in providing financing for the vessels. An affiliate of Hemen Holding, Frontline’s largest shareholder, has offered a USD 547 million commitment at closing of the acquisition through a three-year facility.
Following the closing of the deal, Trafigura will own 8.48% of the ordinary shares of the tanker owner, while Frontline will have a total of 189,153,166 outstanding shares par value USD 1.00 each.
Additionally, the company has two separate options to purchase four more Suezmax tankers, 2019 Chinese built and fitted with exhaust gas cleaning systems, through the acquisition of a second TML special purpose vehicle.
The options expire on September 12 and 24, 2019. The second option will expire if the first option is not validly exercised.
“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,” Robert Hvide Macleod, Chief Executive Officer of Frontline Management AS, said.
“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,” Macleod added.
Following the acquisition of the 10 Suezmax tankers from Trafigura, Frontline’s fleet will consist of 75 vessels, including newbuildings, with an aggregate carrying capacity of 14.2 million dwt and an average age of 3.7 years.