Trafigura Marine Logistics (“TML”), a wholly-owned subsidiary of Trafigura Pte Ltd (“Trafigura”), announced that it has entered into an agreement to sell ten Suezmax tankers built in 2019 to Frontline Ltd. (“Frontline”) (NYSE and OSE:FRO), through the sale of a TML special purpose vehicle which holds the vessels (the “Transaction”). As part of the transaction, options have also been agreed for Frontline to acquire a further four Suezmax tankers built in 2019 through the sale of a second TML special purpose vehicle.
- TML to sell to Frontline 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 USD8.00 per share issuable upon signing and (ii) a cash amount ranging from USD538 to USD547 million, payable upon the closing of the Transaction.
- Closing of the Transaction 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 Transaction at a daily rate of approximately USD23,000.
- Frontline has also agreed to charter five of the vessels back to Trafigura on three year time charters at a daily base rate of USD28,400 with a 50 percent profit share above the base rate.
- Following the closing of the Transaction, Trafigura will own approximately 8.48 percent of the ordinary shares of Frontline.
- 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.
Rasmus Bach Nielsen, Global Head of Wet Freight at Trafigura, commented:
“This marks a continuation of an approach that has long been integral to Trafigura’s strategy, namely investing in infrastructure assets in support of commodity flows and then 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 order book all, support our constructive outlook for the sector. We, therefore, see significant upside potential in our equity in Frontline, a company with vast commercial scale and capabilities with whom we already enjoy a close working relationship.”
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 transaction reflects the value they ascribe to our equity. In addition to Trafigura being a longstanding customer of Frontline, we now have a unique partnership with Trafigura 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 transaction to boost our dividend capacity going forward.”
DNB Markets has acted as mandated advisor between the parties in the transaction.