Norwegian Tanker Giant Frontline to Restructure
Shares of Frontline Ltd. (FRO: Charts, News) rose +0.66 or 18.64 percent to close at $4.20 per share as over 8,593,000 shares changed hands on the NYSE on Tuesday - four times the stocks average daily volume. Shares hit a high of 4.87 intraday after the troubled company announced a major restructuring approved by its board, which would shift debt and assets to a new entity called Frontline 2012.
The new company would be listed on the Oslo stock exchange and would have the full backing of Norwegian shipping magnate John Fredriksen. Billionaire Fredriksen already indirectly controls a large percentage of Frontline shares through trusts held by his investment group Hemen Holding that is providing guarantees of $505 million for the deal. Daily Chart
Frontline, a Norwegian company based in Bermuda, is the world's largest independent operator of oil tankers, and along with other major tanker ship companies, has struggled significantly with the global economic downturn. The world's second largest crude oil tanker operator, Marshall Islands based General Maritime Corporation filed for bankruptcy protection last month. The bankruptcy illustrates the effects from the slowdown in the industry which began in 1999. Frontline stock traded as high as 27.24 per share as recently as February 25th of this year, falling dramatically as business slumped and making its yearly low of 2.52 on November 25th. The company is currently losing -2.54 per share (TTM
), which it hopes to reverse with the restructuring. The restructuring deal, which goes before lenders and counterparties in the next few days for approval, will allow Frontline to avoid bankruptcy. The new company, Frontline 2012 will buy $1.1 billion of its assets and assume $666 million in bank debt and an additional $325.5 million in newbuilding commitments. In addition, the new company will raise $250 million in new equity. The existing company would continue to operate with greatly reduced bank debt. The plan would also reduce vessel construction costs from $437.9 million to $112.4 million and take considerable pressure off the tanker company which had previously warned it would have difficulty meeting payments for contracts and revised chartering agreements for 2012-2015 to lower shipping rates for its counterparties. Frontline has been the victim of a downward trend in tanker rates over the last two years with an oversupply of tankers and limited demand. According to analysts, the restructuring could make Frontline very competitive in the low market for tankers that are expected in the coming years. Nevertheless, other analysts are of the opinion that profitability may not return to Frontline until the spot market for oil tankers begins rising. Because the company negotiated a reduction in rates for three years with Ship Finance International Limited (SFL
), some analysts believe that excess capacity in the industry will not begin to be filled until after 2015. Despite the current weakness in the industry, tanker rates could rebound if the global economy begins to pick up. Nevertheless, given current conditions, Frontline will still face an upward battle to return to former levels of profitability regardless of the restructuring. Whatever the outcome, the company will most likely continue in business in the near and mid terms. Whether it will return to profitability depends largely on the global economic situation. Other News About FRO Press Release From Frontline
The details of the restructuring from the company's website Frontline Reorganization Offloads Debt Onto New Entity
Wall Street Journal article about the restructuring. Other Stocks in the News Citigroup to eliminate 4,500 jobs
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Published on Dec 7, 2011
By Jay Hawk