Frontline to acquire a fleet of Suezmax tankers from Trafigura
Frontline Ltd. announced that it has entered into a sale and purchase agreement with Trafigura Maritime Logistics (“TML”), a wholly-owned subsidiary of Trafigura Pte Ltd (“Trafigura”) and certain related entities to acquire ten Suezmax tankers built in 2019 through the acquisition of a TML special purpose vehicle which holds the vessels (the “Acquisition”). As part of the Acquisition, Frontline has options to acquire an additional four Suezmax tankers built in 2019 through the acquisition of a second TML special purpose vehicle.
Frontline to acquire ten Korean 2019-built Suezmax tankers all fitted with exhaust gas cleaning systems.
Transaction consideration to consist of (i) 16,035,856 ordinary shares of Frontline at an agreed price of USD 8.00 per share issuable upon signing; and (ii) a cash amount ranging from USD 538 to 547 million, payable upon the closing of the Acquisition.
Closing of the Acquisition is targeted as soon as practically possible with November 15, 2019 being the earliest and March 15, 2020 being the latest expected date.
To obtain earlier exposure to the vessels, Frontline has agreed to time charter all the ten vessels from Trafigura until closing of the Acquisition at a daily rate of approximately USD 23,000.
Frontline has also agreed to charter five of these vessels 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.
Frontline is in discussions with leading lending banks who have indicated an interest in providing financing for the Acquisition. An affiliate of Hemen Holding Ltd., Frontline’s largest shareholder, has offered a USD 547 million commitment at closing of the Acquisition through a three year facility at terms viewed as attractive.
Following the closing of the Acquisition, Trafigura will own approximately 8.48% of the ordinary shares of Frontline, and Frontline will have a total of 189,153,166 outstanding shares par value USD 1.00 each.
Frontline has two separate options to acquire two plus two additional Suezmax tankers that expire on September 12, 2019 and September 24, 2019. The second option will expire if the first option is not validly exercised. The transaction structure for the four optional vessels will be similar to that of the ten firm vessels. The number of ordinary shares to be issued if one or both of the options are exercised will be based on the volume weighted average trading price of Frontline’s ordinary shares on the NYSE over the 20 days prior to the option exercise date. All four option vessels are 2019 Chinese built and fitted with exhaust gas cleaning systems.
Robert Hvide Macleod, Chief Executive Officer of Frontline Management AS commented: “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. We welcome Trafigura as a strategic shareholder and believe the Acquisition reflects the value Trafigura ascribes to our equity. In addition to Trafigura being a longstanding customer of Frontline, we now have a unique partnership that we believe will lead to further synergies going forward. 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.”
Rasmus Bach Nielsen, Global Head of Wet Freight at Trafigura, commented: “This marks the continuation of an approach that has long been integral to Trafigura’s strategy, namely, investing in infrastructure assets in support of commodity flows and collaborating with a market leader like Frontline to maintain sufficient access to those assets for our trading business. Trafigura trades around 5.5 million barrels per day of oil and petroleum products around the world and has a market-leading position in strategic commodity flows, notably as a leading exporter of crude oil from the U.S. The significant increase in U.S export volumes, an aging global fleet, particularly of crude vessels, and a historically low orderbook all support our constructive outlook for the sector. We therefore see significant upside potential in our equity investment in Frontline, a company with vast commercial scale and capabilities with whom we already enjoy a close working relationship.”
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
DNB Markets has acted as mandated advisor between the parties in the transaction.
