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Tanker giant in over its head: Worse off than Torm

The listed American tanker carrier, Overseas Shipholding Group, which is one of the biggest tanker carriers in the world with a fleet of 150 vessels, is in desperate need of capital in order to secure its survival. The situation is similar to the Torm crisis before bank deal.

One of the largest tanker carriers in the world, the American Overseas Shipholding Group (OSG) loses a lot of money on the New York Stock Exchange following several years of permanent losses and a big debt. Now, the American carrier is in desperate need of a comprehensive and long agreement with its banks in order to survive, a number of analysts think just as the industry fears for the effect of a future sale of tonnage in a purchase and sale market  in which sales prices are pressed fully down.

To ShippingWatch, sources in the industry describe the situation in Overseas Shipholding Group as almost an exact replicate of the crisis in the Danish carrier Torm, with the significant difference that the time is running out for the American company which has informed investments and the market that everything was under control in a number of announcements until very recently.

In the past two years, the OSG share has dropped by 37 percent on the New York Stock Exchange. “It seems that some of the investors have realised the gravity of the situation in OSG”, a source tells ShippingWatch.

New ships in 2013  

Back in October this year, Businessweek reported that Overseas Shipholding Group was running out of capital and that the company was in desperate need of a new loan agreement on top of a recently agreed USD 900 million credit facility in connection with repayments on the company’s debt of USD 1.5 billion and payments for the new ships being delivered to the carrier in 2013.

Earlier this year, the tanker carrier tried to improve its hard-pressed economy and tried to obtain a federal loan guarantee but was rejected by the federal authorities following reports that some of the carriers’ vessels had called at Iranian oil ports in the past year.

“If they refinance the gap between the $1.5 billion and the new $900 million facility, they are left with no financial flexibility, and they still have to repay the bonds. They’ll have a hard time finding new sources of capital”, CreditSights Inc. debt analyst, Roger King, told Businessweek.

On 1 August, Overseas Shipholding Group published the results for the second quarter which showed a loss of USD 55.3 million compared to a loss of USD 37.3 million in the second quarter of 2011.

At that time, analysts at Norwegian Fearnley Securities estimated that OSG would need USD 250 to 300 million before 13 February 2013.

VLCCs for sale

According to Lloyd’s List on Wednesday, the shipping company’s ownership of a total of 11 VLCCs and further two on charter makes the company especially exposed in this sector which experienced a regular collapse in spot rates during the summer.

“We could see some of their VLCCs turn up on sales lists fairly soon”, an S&P broker tells Lloyd’s List. According to the journal, other sources believe that the shipping company ought to look into other opportunities as earnings form a sale would hardly cover the debt in the ships. Sources in ship financing believe that OSG “is too big to fall”, and that a collapse of a shipping company with a fleet size of 150 vessels would affect the tanker sector indescribably hard.

“It’s in everybody’s interest for them to trade. It is absolutely necessary because if you stop the cashflow, you push all the vessel values down, and that will be too much to bear”, a London-based investment analyst says. The analyst thinks that the trouble I OSG will further weaken the capital markets’ trust in the tanker sector.

Recently, OSG has hired an external restructuring adviser and furthermore, the company has hired a law firm working on a restructuring deal. Officially, the carriers’ top management led by CEO Morten Arntzen states that everything is under control.

Earlier this month, on 4 October, the shipping company signed a new five-year service deal with Maersk Oil Qatar with the ship FSO Africa, a floating storage and offloading vessel owned by OSG and Euronav N.V

Fearnley: OSG breaches conditions for Danish Shipfinance loan

DNB: The winners and losers of shipping

Meldgaard: Torm got the best possible deal

Maersk Tankers CEO: Maersk Tankers is considering further sell-offs 

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