Frontline gets $603 million for ship shopping

MAY 31 2016 — John Fredriksen’s Frontline Ltd. today reported unaudited results for the quarter ended March 31, 2016 that saw net income reach $78.9 million, or $0.50 per share.

It also said that in May it had obtained commitments for up to $603.4 million of new financing, comprising $328.4 million in bank financing for eight newbuilding contracts and a senior unsecured facility of up to $275.0 million from a company affiliated with Mr. Fredriksen’s Hemen Holdings, which is Frontline’s largest shareholder.

Commenting on the first quarter result, Robert Hvide Macleod, CEO, of Frontline Management AS, noted that it was Frontline’s first full quarter following its merger with Frontline 2012 Ltd. and said performance, particularly in the VLCC segment, was strong, despite some market weakness in February and March.

Frontline says that record crude production and oil prices, which are expected to be relatively low, coupled with steadily increasing demand for crude oil, have significantly tightened the crude tanker market and continued to generate strong freight rates.

“Crude oil demand continues to increase from China and India. Notably, in April, China imported 7.96 mbpd of crude oil, and Chinese crude oil imports rose 11.8% over the first four months of 2016 compared to the same period in 2015. Incremental demand is being generated by Chinese teapot refineries, a trend that is expected to continue in the coming months, according to IEA forecasts. Growing Chinese car sales and healthy refinery margins have also been a positive for the product tanker market. In addition, increasing near-term OPEC supply and declining U.S. production supports tanker demand by increasing voyage lengths, which has the effect of reducing available supply.”

Frontline believes the primary downside risk for tanker demand relates to decreasing global oil production and says rising oil prices are another factor that can affect its markets negatively through a fall in oil demand and rising fuel cost for vessels.

Frontline also notes that newbuilding deliveries are accelerating, particularly in the second half of 2016 and into 2017, but believes steady demand growth and increasing discrimination against older vessels may help absorb these deliveries.

“Thus far in 2016, 17 VLCCs have been added to the global fleet without a noticeable impact, but the number of vessels due to be delivered in the next 18 months remains substantial,” its says. “There has been a noteworthy absence of new orders placed in 2016. We expect that constraints in debt financing will continue to restrict newbuilding orders. Shipyards are also under pressure to restructure and a reduction of capacity at certain yards is expected. In our opinion these factors support a positive long-term outlook for the tanker sector. All factors considered,we believe in a healthy tanker market with only modest decrease in utilization in the near term.”

Read Frontline’s full first quarter announcement HERE