Investors had been wondering how shipping tycoon John Fredriksen would bail out Frontline Ltd (OSE: FRO), since it seemed unlikely he would let what was the original root of his entire business empire to rot. On fundamentals alone, it seemed like the company might even go under. Fredriksen came up with an interesting solution whereupon a new company will be started and Frontline sells 6 VLCCs, 4 Suezmax tankers and 5 VLCC newbuilding contracts to this company called Frontline 2012 at current fair market value of 1.12 billion USD. This considerably lessens Frontline’s debt and did not throw retail investors under the bus either.
Frontline 2012 is even planning to order numerous new tankers. The rationale here is that technological advances help newbuilds consume that much less bunker and since their prices have also come down that it may be a better investment than buying old ships from other industry companies even though the entire industry struggles with overcapacity. Fredriksen thinks he is sniffing a market bottom.
Frontline agreed on charter rate reductions with major counterparties during the quarter. Fourth quarter net loss was 343.7 million USD and loss per share 4.41 USD. Excluding sale of assets and deferred gains the numbers were 30.8 million and 0.40. Frontline is left with 66 vessels and two newbuilds.
General market activity has increased with many issues tied to Iran tensions. Frontline says that shipping lending banks are squeezing the firms in the industry and thus delivery slippage will continue. Frontline has eliminated bank debt and financial covenants and says it now should have the strength to honour its obligations created by the weak tanker market. The company is hoping for a market rebound in the next few years. The stock is up slightly on a positive morning for the exchanges overall.
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