Frontline inks sustainability-linked loan as Fredriksen clashes with International Seaways
Norwegian tanker shipping heavyweight Frontline has secured a sustainability-linked loan, totaling up to $129.4 million.
The financing was obtained through a senior secured term loan facility with Dutch banking group ING, which according to Frontline, offers attractive terms and is intended to refinance an existing term loan that is set to mature in August 2023.
The new facility has a tenor of five years, carries an interest rate of SOFR plus a margin of 180 basis points, and has an amortization profile of 18 years.
The loan was revealed as Frontline reports its strongest first-quarter profit since 2008 of $199.6 million and adjusted profit of $193.3 million.
“The most prominent market development during the quarter was that China abandoned its zero-tolerance policy in respect of Covid-19 and started reopening. Freight demand and rates remained firm throughout the quarter, defying historical seasonal patterns,” Lars H. Barstad, Chief Executive Officer of Frontline Management AS, said.
“Our constructive long-term outlook is not affected by short-term volatility, as oil demand is expected to rise significantly in the second half of the year.”
Oil demand and aging fleet
Global oil supply remained stable in the first calendar quarter of the year averaging 101 mbpd. According to the EIA global inventories grew during the quarter by an average of 1 mbpd, continuing to put pressure on the oil price. Demand growth is expected to accelerate in the second half of the year, reaching 103 mbpd in December 2023.
The demand growth comes at a time when the global tanker fleet continues to age amid slow newbuilding deliveries and muted recycling.
According to industry sources, 12.6% of the very large crude carrier (VLCC) fleet is now above 20 years of age, as the orderbook stands at 1.8% of the current fleet. 14.1% of the Suezmax fleet has passed the 20-year age mark and the current orderbook stands at 3%. The LR2 fleet age profile is less pronounced, but 4.5% of the fleet has passed 20 years of age. However, for a product-carrying vessel the 15-year age mark is equally interesting and 22.8% of the fleet is passing this threshold in 2023, whilst the orderbook equates to 13.2% of the existing fleet.
Frontline’s ammonia-ready VLCCs
Frontline has been working on the rejuvenation of its fleet investing in vessel acquisitions, newbuildings and retrofits which can be powered by low or zero-carbon fuel solutions.
Frontline now has six ammonia-ready VLCC newbuildings in its fleet. Namely, in January this year Frontline’s two remaining ammonia-ready VLCC newbuildings, Front Orkla and Front Tyne, were delivered, completing the company’s newbuilding program.
The company’s fleet consists of 91% eco vessels and has an average age of six years, making it one of the youngest energy-efficient fleets in the industry. Frontline’s fleet was able to maintain its emission intensity in 2022 and outperformed the IMO and Poseidon Principles emission trajectories by 16.3% and 13.6%, as disclosed in the company’s ESG report for 2022.
War of words with International Seaways
Meanwhile, Frontline’s director and shipping tycoon John Fredriksen has gotten entangled in a row with another tanker company, this time it is International Seaways.
Following a protracted drama over the failed merger with Euronav which resulted in the departure of Euronav’s CEO Huge de Stoop, Fredriksen’s Famatown expressed ‘frustration’ with the board of International Seaways over its refusal to ‘meaningfully engage’ with Seatankers Group on the ‘shareholder value-creation’.
Seatankers, the holding company led by Fredriksen, has acquired a 16.6 percent stake in International Seaways and has proposed a strategic alliance, emphasizing its access to capital and success in timing market cycles, saying it would benefit both companies.
However, International Seaways has not been on board with the idea and has shown ‘a remarkable level of resistance in discussing future Seatankers’ representation on the board’.
The letter attributed the ‘status quo‘ to ‘various governance shortcomings of the board’ adding it required ‘reform and refreshment‘.
As a result, Seatankers said it would vote against the re-election of two incumbent directors and against ratifying the company’s ‘poison pill’.
In January 2023, International Seaways proposed to extend its ‘poison pill’ for three more years, which is basically a shareholder rights plan to block a possible takeover attempt.
In a response to the open letter, INSW said the claims in the letter were misleading, stressing that Seatankers was targeting two of the three women on the company’s board, each of whom brings significant industry experience and expertise.
This includes the company’s Chief Executive Officer Lois K. Zabrocky, who has been a director of INSW since May 24, 2018.
INWS said that Zabrocky has been instrumental in driving the successful execution of the company’s strategy, including the merger with Diamond S, which has increased the company’s fleet with 60 additional vessels and pushed daily earnings of approximately 220% over the last twelve months, outperforming other market peers.
INSW highlighted its strong performance, including a transformational merger, balance sheet recapitalization, and capital returns urging shareholders to vote “FOR” all of the election of director nominees and ratification of the shareholder rights plan, which serves as a ‘protective measure against abusive takeover tactics and aims to safeguard shareholder value’.
The voting is scheduled to take place at the upcoming Annual Meeting on June 6, 2023.