September 17, 2010
Frontline and Golden Ocean restructure newbuilding agreements at Chinese yard
Two John Fredriksen controlled companies, Frontline Ltd. and Golden Ocean Group, have restructured their newbuilding programs at China's Zhoushan Jinhaiwan Shipyard Co., Ltd.
In April and May 2008, Frontline ordered six VLCC newbuildings at Jinhaiwan. In May 2009, two of these newbuilding orders were cancelled and the installments paid-in were transferred to two of the retained newbuildings and the two remaining VLCC newbuildings orders were changed into options.
As a result of the re-structuring Frontline has agreed to maintain the two options and has ordered one additional VLCC newbuilding and is committed to take delivery of five 320,000 dwt VLCC newbuildings, with a total contract price of $525 million. The delivery dates for the vessels have been deferred by three months from the original contractual dates, with the first vessel to be delivered in January 2012 and the last in February 2013. Furthermore, payment terms of the previously ordered vessels have been improved
As of September 17, 2010, Frontline's newbuilding program comprises two Suezmax tankers and five VLCCs, which constitute a contractual cost of $650 million, and in addition two Suezmax newbuilding options. Installments of $162 million have been made on the newbuildings and the remaining installments to be paid amount to $488 million, with expected payments of approximately $64 million in 2010, $95 million in 2011, $185 million in 2012 and $144 million in 2013.
Frontline has not yet secured financing for these newbuildings. However, based on recently secured financing for Front Eminence and Front Endurance and indications from banks, it assumes 70 percent financing of market value for these newbuildings. The net required equity investment in the remaining installments is approximately $29 million. The equity investment is fully covered through the recent completion of a $225 million convertible bond offering.
Frontline says the agreement reached with the yard reduces the contract price on the VLCC newbuildings to competitive levels, lowers the total capital expenditures on the previously ordered vessels going forward, improves the payment terms and adds one VLCC to its newbuilding program at a competitive contract price. It says that "it has been of vital importance for the Board that the newbuilding orders can be executed and financed without impacting Frontline's dividend capacity."
Golden Ocean Group's newbuilding program at Zhoushan Jinhaiwan includes six Kamsarmax bulkers that previously had been structured in single purpose companies and the Capesize newbuilding called Golden Nantong.
Golden Ocean will go ahead with construction of four of the six Kamsarmax vessels. The orders for the last two of the six Kamsarmax vessels have been converted into orders for ice class Panamax vessels. It has also been agreed to build two more ice class Panamax vessels.
Golden Nantong is to "have a new contract price more in line with today's market level."
The total cost of the nine newbuildings is $339.5 million, of which $ 74.9 million has already been paid in by Golden Ocean in 2007 and 2008.
The Board says the transaction enables the company to utilize the cash paid in by the six single purpose companies. The company took a $16.8 million impairment on the Kamsarmax vessels in its accounts for 2008. It will reverse this impairment in the third quarter of 2010.
Golden Ocean has entered into an agreement to fix out the four Kamsarmax vessels. Two vessels are fixed out for 10 years on bareboat charter. The agreed daily bareboat rate is $13,300 / day net. Two vessels are fixed out for 5 years on time charter. The agreed daily time charter rate is $19,950 / day net. In addition there are profit share agreements on all four contracts that will give Golden Ocean 50 percent of the income above $23,000 / day.