Sovcomflot Orders One More LNG Carrier, Bleeds Red Ink in H1 amid Market Woes

Russian shipping company Sovcomflot has exercised an option for the construction of a 174,000 cubic metre LNG carrier, the company said.

The order was placed at the end of July and the vessel is scheduled for delivery in September 2020.

Further details of the order had not been disclosed.

The likely builder of the LNG carrier is Hyundai Heavy Industries, which is already bulding a large LNG carrier for Sovcomflot. The 174,000 cbm ship was ordered in January 2018, based on the data from VesselsValue.

At the end of H1, the group had eight vessels under construction, scheduled for delivery from July 2018 to February 2020, comprising six ice-class LNG fuelled Aframax tankers, one Arctic shuttle tanker and one LNG carrier. All newbuilding ships are taking shape in Korea at three separate yards, HHI, Hyundai Samho and Samsung Heavy Industries.

Commenting on the subsequent events, Sovcomflot said it took delivery of the ice-class LNG-Fueled Aframax tanker M/V Gagarin Prospect from South Korean shipbuilder Hyundai Samho Heavy Industries at the end of July.

The company has also secured a a seven-year USD interest swap transaction with an undisclosed financial institution aimed at hedging exposure to interest rate fluctuations on USD 42 million loan previously signed for the vessel’s financing.

The order is being revealed as SCF plunged to a net loss of  USD 57.8 million in the first half of 2018 amid historically low tanker  freight rates.

The company said the loss was party due to a non-cash vessel value impairment provision of USD 42.2 million in relation to a number of older crude oil and oil product tankers, reflecting a reassessment of their longer-term value in use.

The Russian shipping major further added that during the period the conventional tanker freight rates were still well below the average levels seen over the last quarter of a century. Spot tanker earnings in H1 2018 saw a substantial decline and, for some market segments, remained more than 50 per cent below the levels of H1 2017.

“During the first half of 2018, our gas transportation and offshore services returned double digit growth in revenues and operating profits, fully in line with the group’s development strategy. Fixed income from these industrial shipping businesses grew to account for 59.1 per cent of Sovcomflot’s total TCE revenue compared to 48.5 per cent share in 1H 2017. 

“The group continues to pursue its strategic vision of industrializing its business-portfolio, its fleet and developing new fixed revenue streams to sidestep the cyclical nature of the conventional tanker markets, which have hit new lows in 2018 after an already testing 2017,” Sergey Frank, President and CEO of PAO Sovcomflot, said.