Scorpio converts bulker newbuild orders to LR2 tankers

Emanuele Lauro: We have taken these actions to strengthen our liquidity position

DECEMBER 17, 2014 — Scorpio Bulkers Inc. (NYSE: SALT) reports that it has reached agreements with shipyards in South Korea and Romania to modify six newbuilding contracts for Capesize bulk carriers into newbuilding contracts for LR2 product tankers. 

It has reached an agreement to sell four of these LR2 newbuilding contracts to Scorpio Tankers Inc. and granted options to Scorpio Tankers Inc. to purchase the remaining two.

The sale price for each of the four LR2 newbuilding contracts is $51.0 million. The two option contracts, which expire on May 31, 2015, may be exercised by Scorpio Tankers Inc. for a fixed purchase price of $52.5 million for each contract.

The company says it expects to record an aggregate loss on disposal of approximately $41 million on the four modified newbuilding contracts. The company also expects to record an aggregate loss of approximately $14 million on the potential disposal of the two option modified newbuilding contracts, which will be reclassified on the balance sheet as assets held for sale.

The independent members of the company’s Board of Directors unanimously approved the transaction with Scorpio Tankers Inc. A sale of all six modified newbuilding contracts will result in an estimated reduction of future cash obligations of approximately $120 million.

Emanuele Lauro, the company’s Chairman and CEO (who also wears the same hats at Scorpio Tankers), commented “We have taken these actions to strengthen our liquidity position. We will continue to be proactive in further strengthening our balance sheet.” Separately, Scorpio Tankers Inc. (NYSE: STNG) put out an announcement covering the agreements on the LR2 newbuilding contracts and said that it had reached agreements to sell three of its older vessels and had taken delivery of six newbuilding vessels.

It said that the independent members of its Board of Directors had unanimously approved the transaction with Scorpio Bulkers Inc.

Sale of Three Vessels

The company reached agreements to sell Venice (2001 built Post-Panamax), STI Harmony (2007 built LR1), and STI Heritage (2008 built LR1) for approximately $74.0 million in aggregate. In connection with the company’s entry into these vessel sale agreements,  it will record a write-down of approximately $2.6 million in the fourth quarter of 2014.

Newbuilding Vessel Deliveries

The company recently took delivery of the following vessels from the shipyards:

• STI Condotti, an LR2 product tanker, was delivered from Hyundai Samho Heavy Industries. Upon delivery, this vessel began a voyage for 55 days at approximately $30,000 per day.
• STI Battery, an MR product tanker, was delivered from Hyundai Mipo Dockyard of South Korea (“HMD”). Upon delivery, this vessel began a time charter for up to 120 days at approximately $18,000 per day.
• STI Soho, an MR product tanker, was delivered from SPP Shipbuilding Co., Ltd. of South Korea. Upon delivery, this vessel began a time charter for up to 120 days at approximately $18,000 per day.
• STI Finchley, STI Clapham and STI Poplar, Handymax product tankers were delivered from HMD. Upon delivery, each vessel began a time charter for up to 120 days at approximately $14,000 per day.