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Ship Finance Doubles Down
After entering into its first sale-leaseback with Seadrill for a drillship in May, Ship Finance announced on Tuesday that it had agreed to acquire two newbuilding ultra-deepwater semi-submersible drilling rigs from subsidiaries of Seadrill Limited in combination with 15-year bareboat charters back. The cost of the two rigs is approximately $1,700 million and will be financed with a $1,400 million bank facility (LTV of 82%). The $300 million net investment by Ship Finance will be sourced from existing liquidity, the refinancing of existing assets with low gearing and a substantial profit sharing payment due from Frontline.
The Week in Review
The money, apparently, is in oil as two of the industry’s biggest gurus, John Fredriksen and George Economou, both make aggressive plays into the rig space. Mr. Fredriksen, of course, has long been making investments into various facets of the offshore industry and has either spawned or acquired a bevy of offshore companies to that end. It was hardly earth shattering this week when Seadrill announced that it had acquired 200,000 shares and entered into forwards to acquire 16,300,000 shares in US-listed Pride International, an offshore company with a market capitalization of $7.2 billion. The shares amount to a 9.9% stake, worth around $708 million. The move prompted Pride International to take action to lower the threshold level of ownership to trigger its stockholder rights plan from 15% to 10%. Seadrill has also asked Pride for a meeting to discuss “potential strategic benefits for both parties of a transaction between the two companies.” A merger could be on the cards – or it could not be. Mr. Fredriksen has shown himself as skillful an investor as an acquirer, using each strategy as it suits him.
The Week in Review
While shipping stocks are no longer booming, the underlying shipping markets remain healthy. Jonathan Chappell and his team at JP Morgan are looking for near-record tanker rates at the end of 2007 to drive up 1Q08 EPS for tanker stocks and also believe that the tanker spot markets will hold up better than expected going forward. On the dry side, Urs Dür at Lazard sent out a note this week to correct common investor misunderstandings regarding the BDI, noting that it is not correlated to near-term world trade. He also expects Chinese iron ore price negotiations to be completed by March 2008, which combined with low inventories in China should lead to near-term improvements for dry bulk freight rates. Omar Nokta and his team at Dahlman Rose note that the tanker market could see some support as AG March cargoes come into the market this week while also observing that the dry bulk market has gained some positive momentum, though this has yet to be reflected in stock prices.
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