Tanker operator Frontline splits self
Frontline, the largest independent global oil tanker operator, will split in two and has renegotiated lower charter rates in an attempt to secure its future in an industry struggling with weak demand and overcapacity, mb.com reports.
The deal, backed financially by Frontline's main owner and chairman John Fredriksen, will leave the old, listed firm with fewer ships but much lower costs. A new unlisted company, Frontline 2012, will raise $250 million in fresh equity and will take on the old firm's commitments for newly built ships, including related debt, and buy 10 tankers from Frontline at market value.
Investors cheered the deal, sending Frontline shares 30 percent higher in early trade, as the transaction involves no dilution to existing shareholders and is backed by a $500 million guarantee from Fredriksen.
Last month the company warned that its own future would be in jeopardy unless it restructured. The split, subject to creditor and counter-party approval, also includes a deal with Ship Finance International Limited to cut existing chartering rates for 2012-2015 by $6,500 per day in exchange for a one-off compensation, a move that will make it easier for Frontline to return to profit.
''Frontline will, with the restructured cash break even rates and the solid cash position, be amongst the best positioned tanker companies to serve its obligations even if the market remains very weak,'' the company said.
''Until a clearer sign of recovery can be seen in the tanker market, Frontline will remain cautious and focus its resources on the present activities,'' it added.
Frontline will take a 10 percent stake in the new Frontline 2012 entity and will be paid for working capital related to the assets it sells.