Trafigura has also agreed to provide options for Frontline to acquire a further four Suezmax tankers built in 2019
Trafigura Marine Logistics (TML), a wholly-owned subsidiary of Trafigura, has signed an agreement to sell ten 2019-made Suezmax tankers to Frontline, through the sale of a TML special purpose vehicle which holds the vessels.
TML said that it has also agreed to provide options for Frontline to acquire a further four Suezmax tankers built in 2019 through the sale of a second TML special purpose vehicle.
Trafigura global head Rasmus Bach Nielsen said: “This marks a continuation of an approach that has long been integral to Trafigura’s strategy, namely investing in infrastructure assets in support of commodity flows and then collaborating with a market leader like Frontline to maintain sufficient access to those assets for our trading business.
“Trafigura trades around 5.5 million barrels per day of oil and petroleum products around the world and has a market-leading position in strategic commodity flows, notably as a leading exporter of crude oil from the U.S. The significant increase in U.S. export volumes, an aging global fleet particularly of crude vessels and a historically low order book all support our constructive outlook for the sector.”
Suezmax tankers are fitted with exhaust gas cleaning systems
The transaction amount will include 16,035,856 ordinary shares of Frontline at an agreed price of $8 (£6.5) per share issuable upon signing and a cash amount between $538m and $547m is payable to TML upon closing of the transaction. The transaction is expected to be closed between November 15, 2019, and March 15, 2020.
Frontline has agreed to time charter all the vessels from the company until the closing of the transaction at a daily rate of approximately $23,000 (£18,774), to obtain earlier exposure to the vessels.
In addition, it has agreed to charter five of the vessels back to Trafigura on three year time charters at a daily base rate of $28,400 (£19,590) with a 50% profit share additional to the base price.
Following the closing of the Transaction, Trafigura is expected to own approximately 8.48% of the ordinary shares of Frontline.
For the transaction, DNB Markets has served as a mandated advisor between the two companies.
Frontline management chief executive officer Robert Hvide Macleod said: “This transaction is backed by our strong belief in tanker market fundamentals and reflects our ability to act swiftly and decisively with the support of our largest shareholder. We welcome Trafigura as a strategic shareholder and believe the transaction reflects the value they ascribe to our equity.
“In addition to Trafigura being a longstanding customer of Frontline, we now have a unique partnership with Trafigura that we believe will lead to further synergies going forward. The structure of the transaction creates an immediate impact to our earnings at a time when we expect freight rates to increase significantly. Moreover, we expect the transaction to boost our dividend capacity going forward.”