ShippingWatch

Frontline prepares for new restructuring

It's tough times for Fredriksen-owned tank shipping company Frontline, and a market improvement is needed fast if the company wants to avoid yet another restructuring process, says CEO Jens Martin Jensen to ShippingWatch. (updated)

Norwegian tank shipping company Frontline is currently preparing for a possible corporate restructuring after having lost USD 18.7 million in the first three months of the year. And drastic things need to happen on the market for crude oil tankers; if not, it'll be hard to avoid a potential restructuring, says Frontline CEO Jens Martin Jensen to ShippingWatch:

"The market needs to improve fast. If the market doesn't improve we'll have to look at the alternatives left for us. The hard truth, unfortunately, is that we're currently losing money every quarter, and that's not sustainable in the long run," he says.

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The market has improved a little in recent weeks, but not enough for us to start making money. We need the rates to improve further before we reach or surpass break even levels, so it depends on the market.

Jens Martin Jensen, CEO Frontline

In relation to its financial report, Frontline informed that the company was at risk of not being able to pay USD 225 million in bond loans if the market doesn't improves and the company is unable to secure further capital. As a result, the shipping company is looking into various possibilities of divesting tonnage or raising money on the stock market. This happens just two years after Frontline underwent its first restructuring, as the company lacked funds and was having difficulties meetings the terms of its loans. At the time, the restructuring resulted in the creation of the new company Frontline 2012, which purchased the modern fleet of the old Frontline.

Frontline 2012 CEO: The right time for a new fleet

"It's tough times for shipping if you look at crude oil tankers. It's difficult with a fleet that's way too big, pushing the rates down. There's something structurally wrong, and it could take some time before it gets better," says Jens Martin Jensen, pointing out the need for a massive amount of scrapping, something that has yet to happen.

It's hard to say when Frontline will return to being a profitable shipping company, says Jens Martin Jensen:

"The market has improved a little in recent weeks, but not enough for us to start making money. We need the rates to improve further before we reach or surpass break even levels, so it depends on the market," he says.

Frontline 2012 continues to invest

While the old Frontline is struggling, Frontline 2012 is expanding. During the last 12 months, the shipping company has contracted new eco ships in both tank, gas, and dry bulk. And the current prices mean now's the right time, says Jens Martin Jensen, who points out that the market will have changed when the ships are delivered in 2014 and 2015.

"So we're building a new company, this time spread out across several segments."

And Frontline 2012's investments in new ships are most likely not over yet, says Jens Martin Jensen:

"We're looking at deals every day. We don't have a specific target for how many ships we need. But in order to have a presence in each segment you need a certain number of ships. It's always good to have a critical mass, but there's no rush."

Some of the new ships will be placed in pool collaborations. Frontline 2012 is currently negotiating with several parties, including Scorpio Tankers, says Jens Martin Jensen, though he declines to comment further on the matter:

"But we need to work it out soon. We're working on that."

Frontline reaches agreement

After the interview with ShippingWatch, Frontline issued a statement saying that the company hasentered into an equity distribution agreement with Morgan Stanley & Co. LLC, under which Frontline may, at any time and from time to time, offer and sell new ordinary shares having aggregate sales proceeds of up to USD 40 million through Morgan Stanley in an at-the-market offering.

Frontline expects to use the proceeds from this offering for general corporate purposes and to supplement its working capital requirements.

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