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Frontline May Need To Restructure

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May 27, 2014

The VLCC “Front Duke”, file image (c) Frontline Tankers

reuters logoOSLO, May 27 (Reuters) – OSLO, May 27 (Reuters) – Oil tanker firm Frontline reported deepening losses Tuesday and said it may struggle to repay its debts without renegotiating borrowing agreements and charter lease obligations if markets do not improve.

The global tanker industry has been depressed for years because of an oversupply of vessels and Frontline has already undertaken a significant restructuring, splitting in two and shedding costly new build contracts in 2012. But the downturn has been longer than most in the industry predicted.

Frontline, the tanker arm of shipping tycoon John Fredriksen’s business empire, said on Tuesday it expected even weaker operating results in the second quarter as charter rates fall, a major risk for the company as it needs a sustained market recovery to generate the cash needed to finance debt.

“If no additional equity can be raised, assets sold, new loans established or existing arrangements refinanced, there is a risk that Frontline will not have sufficient cash to repay the existing $190 million convertible bond loan at maturity in April 2015,” the firm said.

“Such a situation might force a restructuring of the company, including modifications of charter lease obligations and debt agreements,” it added.

A sale of its 4.5 percent share in Frontline 2012 , a spin off from Frontline in 2012, could bring in around $100 million.

“That could be one possibility, a different call is to sell the new building program. There are a few tools, and all are considered,” Frontline CEO Jens Martin Jensen said in a conference call.

Another option would be to join up again with Frontline 2012 which, separately in its own quarterly report, said the next step in streamlining its business was to sell its crude and product tank business.

“We are looking at various ways to position both Frontline and Frontline 2012”, said Jensen, who is the CEO of both companies.

Fredriksen, one of the world’s richest men, is the main owner of Frontline and Frontline 2012, which placed orders for vessels at a time when the shipping industry is suffering a glut.

While Frontline 2012 has a brand new fleet, Frontline’s fleet is older and less fuel-efficient.

Frontline has raised some equity in recent months but only relatively small amounts compared with its total debt of more than $1 billion.

Its shares fell 11 percent at 1400 GMT and were among the worst performers on the Oslo bourse. Its stock is down more than 30 percent since the start of the year, trailing a 10 percent rise in the Oslo benchmark.

Frontline made a net loss of $12.1 million in the first quarter, worse than expectations for a $4 million loss in a Reuters poll of analysts. (Reporting by Balazs Koranyi and Ole Petter Skonnord; Editing by Mark Potter and Louise Heavens)

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