John Fredriksen’s Frontline has closed a deal with Trafigura subsidiary Trafigura Maritime Logistics (TML) to acquire 10 new Korean-built suezmax tankers.
The news follows last week’s tie up by Fredriksen companies – Golden Ocean and Frontline – to form a bunkering joint venture with Trafigura.
The 10 vessels, all built in 2019, are all fitted with scrubbers and take Frontline’s fleet to a total of 75 tankers, including newbuilds. It also has options to acquire four 2019-built Chinese suezmaxes.
Frontline will acquire the vessels using a mixture of cash and shares. It will issue just over 16m ordinary shares and pay a cash amount between $538m to $547m. The deal is scheduled to be closed between mid-November and mid-March 2020. In the meantime, Frontline will time charter the 10 vessels at a daily rate of around $23,000, and will charter back five of them to Trafigura for a period of three years.
Robert Hvide Macleod, chief executive officer of Frontline Management, 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.”
Following the closing of the deal, Trafigura will own a stake of around 8.48% of Frontline.
“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,” said Rasmus Bach Nielsen, global head of wet freight at Trafigura.
Applauding the deal, J Mintzmyer, lead researcher at Value Investor’s Edge in the US, wrote in a note to clients: “If rates are strong, FRO is going to make a killing on this acquisition. If not, the parent FRO is protected by the nature of the special purpose subsidiary.”