Moving from the theoretical to the concrete, the following examples illustrate the real cost of today’s crises:
Genco Bites the Bullet
On Tuesday, Genco Shipping & Trading (“Genco”) made the correct but painful decision to cancel the previously announced acquisition of six dry bulk newbuildings, including three Capesize and three handysize vessels, from Lambert Navigation et.al., at an aggregate purchase price of $530 million. As part of the agreement, the sellers will retain the deposits totaling $53 million. The three Capesize vessels and three Handysize vessels are being constructed in the Daehan and Jinse shipyards in South Korea, with deliveries commencing in the 4th quarter 2008 (two Handysize) through 2009.
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carisk | Categories:
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The Week in Review | November 6th, 2008 |
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Sometimes doing good deals isn’t just about finding attractive acquisitions, even for public companies that act as lessors and focus on stable long-term returns. For example Ship Finance International this week entered into an agreement to sell two suezmax tanker newbuildings under construction in China with delivery scheduled for 2009. At a price per vessel of $111 million, net of construction costs and broker commissions SFL expects to recognize a book profit of $34 million per vessel upon their delivery to the new owner.
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Last week it was announced the Frontline was planning a spin-off of Independent Tanker Corporation (ITC). This week Frontline announced that it would begin this process with the distribution of a special dividend of 20% of the capital stock of its Bermuda subsidiary ITC; this is not unlike what initially happened with Ship Finance International. However, unlike Ship Finance ITC will be traded on the Oslo OTC Market. It will maintain its share register through the VPS, and all shareholders must hold VPS accounts.
Non-US holders of Frontline will receive one share in ITC for every five Frontline shares they hold, as will US QIBs who hold 15,000 or more Frontline shares. Other US holders will receive a cash distribution based on the market value of the ITC shares on the OTC market as ITC’s shares will not be listed for trading in the US. The record date for the dividend will be February 28 and the share distribution will take place around March 6.
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carisk | Categories:
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The Week in Review | February 21st, 2008 |
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Frontline Exercises Purchase Option with Dr. Peters, Makes a Buck or Two
Frontline reported this week that they have exercised their purchase options on two vessels from Dr. Peters, the German KG house where Frontline is chartering ten ships, as shown in the table below. Front Champion and Front Century were acquired by Dr. Peters for $160 million in 1999 and placed on a ten-year charter to Frontline. Frontline has now acquired the vessels at $142 million and sold the vessels to Ship Finance International for $196 million, needless to say making a healthy profit. The market value of the ships was reported to be over $200 million. Frontline is now working at exercising another purchase option on VLCC Golden Victory, and as the tables show, they have plenty of opportunities to make more good deals.
Frontline reported this week that they have exercised their purchase options on two vessels from Dr. Peters, the German KG house where Frontline is chartering ten ships, as shown in the table below. Front Champion and Front Century were acquired by Dr. Peters for $160 million in 1999 and placed on a ten-year charter to Frontline. Frontline has now acquired the vessels at $142 million and sold the vessels to Ship Finance International for $196 million, needless to say making a healthy profit. The market value of the ships was reported to be over $200 million. Frontline is now working at exercising another purchase option on VLCC Golden Victory, and as the tables show, they have plenty of opportunities to make more good deals.
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carisk | Categories:
Equity,
Freshly Minted | January 25th, 2007 |
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Last week it was dry bulk. This week, all the fuss seems to be revolving around the tanker market. A Wall Street Journal “Money & Investing” section cover story on the popularity of shorting tanker stocks drew some attention. As did a bearish report from R.S. Platou, a much-talked-about, products-focused IPO from Aries Maritime, positive reports form Jefferies and Banc of America and tanker stock coverage initiations from First Albany. So what, exactly, are the arguments going around, and of what should tanker market players and their financiers be aware? It’s still impossible to predict the future, but we can tell you what some of the competing arguments are.
R.S. Platou analyst Erik Andersen drew a lot of attention with his bearish report on shipping, particularly tankers. According to Mr. Andersen, the seasonality justification for low spot rates – which brokers say have dropped into the upper teens for VLCCs on some routes – is badly overblown. He notes that from 1997-2004, the average second quarter rate was about 37.5% lower than the average fourth quarter rate, completely out of order with the drop in rates from $147,000 in the fourth quarter of 2004 to $41,000 so far in the second quarter of 2005. However, this is still above the 8-year average second quarter rate of $35,000 – albeit with higher bunker prices – suggesting that perhaps the $147,000 was more of an anomaly than the $41,000 is a sign of a crash. Still, tanker fleet annualized growth figures of 6-7% compared to a comparable rate of 1% annually over the decade from 1993-2003 are somewhat ominous. Citigroup Smith Barney analyst Charles de Trenck noted how the current weak rates are making the tanker market the first among the shipping sectors to experience the pricing pressures derived from growing capacity. But on the bright side, Mr. Andersen did write that he does not believe tanker markets will weaken so much as to create a weak year for owners.
Analysts Magnus Fyhr and Douglas Mavrinac at Jefferies & Company have a much different take on the current market situation. They said in a report issued to reiterate their buy rating on Ship Finance International that they expect tanker demand to be firm on increasing OPEC production. Importantly, the analysts believe that incremental fleet growth of 21 MMdwt scheduled through the end of the year is likely to be absorbed by increased tanker demand.
Evincing similarly positive sentiments, analysts Daniel Barcelo, Philippe Lanier and Pierre Sargeant of Banc of America Securities issued a report on oil tankers optimistically titled “Hold On for the Summer Heat.” They note that a 5% tanker stock pullback over the past two weeks has been related more to Arabian Gulf VLCC market conditions than to the tanker industry as a whole, much of which has remained fairly strong. Additionally, they point out that the 450 vessel global VLCC fleet has grown by only two vessels so far in 2005, implying that softened rates could not be explained by supply buildup, but rather are a product of a reduction in Arabian Gulf export volume and a temporary buildup of available tonnage in the gulf. Analyst Craig Irwin of First Albany appears to agree, having this week initiated coverage on General Maritime, OMI and Arlington Tankers with a Buy rating. And a group of Asian investors that market sources say recently put their money into a very expensive $140 million VLCC newbuilding have put their money where their mouth is when it comes to predicting a strong VLCC market for years to come.
Much of Wall Street, however, seems to have sided with R.S. Platou on the more bearish side of the debate, as a widely disseminated article titled “Shorts Expect Tankers to Take On More Water” strongly suggests. Teekay, OMI, Knightsbridge and General Maritime are all being subjected to this phenomenon, with Frontline leading the pack. Investors are brazenly betting that tanker stocks will keep falling. Whether or not this will happen is hard to tell, though the practice certainly is not encouraging for those hoping to see their tanker investments appreciate.
Banc of America Securities initiated widespread coverage on the tanker sector yesterday. Companies covered include General Maritime, Teekay, Frontline and OSG – all with a Neutral rating – and Ship Finance International and OMI Corp., with a Buy rating.
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carisk | Categories:
Freshly Minted,
Market Commentary | March 24th, 2005 |
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Ship Finance Launches New $1.2B Refinance Facility at 70 Points
Ship Finance International launched its $1.2 billion refinancing facility last Thursday afternoon at a favorable 70 points over Libor. DnB NOR, which has been negotiating with the company since the summer, was mandated the facility agent. Calyon, Fortis Bank and Nordea are the lead arrangers and we expect the same banks in the original facility to take a piece of the new one that should close pretty soon given the interest in the deal.
Ship Finance International launched its $1.2 billion refinancing facility last Thursday afternoon at a favorable 70 points over Libor. DnB NOR, which has been negotiating with the company since the summer, was mandated the facility agent. Calyon, Fortis Bank and Nordea are the lead arrangers and we expect the same banks in the original facility to take a piece of the new one that should close pretty soon given the interest in the deal.
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carisk | Categories:
Debt,
Freshly Minted | January 13th, 2005 |
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