Scorpio in Trafigura product tanker swoop

Sep 27 2019

Following Frontline’s purchase of 10 Trafigura Suezmaxes (see below for an update), Scorpio Tankers (STI) has agreed to acquire subsidiaries of Trafigura Maritime Logistics, which have leasehold interests in 19 product tankers in a deal valued at $803 mill.

The acquisition of the leasehold interest in the vessels includes a finance lease arrangement with a financial institution under a bareboat contract arrangement. 


As mentioned, the aggregate value of the 19 vessels is $803 mill, and after the assumption of the present value of the finance lease arrangement of around $668 mill, STI will issue about 4.7 mill shares at $29 per share to Trafigura for an aggregate market value of around $135 mill. 


STI also announced private placements with Trafigura for $35 mill and Scorpio Services Holding, a related party, for $15 mill for an aggregate of $50 mill or 1,724,137 shares at $29 per share. 


Both transactions were expected to close before the end of this week.


STI CEO, Emanuele Lauro, commented; “This transaction represents a close alignment between Scorpio Tankers and Trafigura, a strategic customer and now a valued shareholder. We share common beliefs in quality assets, quality service, and most importantly, the favourable fundamentals currently unfolding in the product tanker market. 


“This fleet of 19 ultra-modern product tankers is a singular opportunity in an otherwise diminished global orderbook. The average age of our fleet will be reducing (from 4.1 to 3.7 years) and our fuel efficiency is expected to increase with the addition of these modern scrubber fitted vessels. At the same time, IMO2020 and other demand drivers are set to increase tonne/mile demand significantly over the coming months. 


“In addition to Trafigura being a long standing customer, their investment in Scorpio Tankers represents a new stage in our partnership which we believe will serve all our shareholders and stakeholders well,” he said.


Rasmus Bach Nielsen, Global Head of Wet Freight at Trafigura, added: “Trafigura enjoys a close working relationship with Scorpio Tankers, a company that we consider to be very well run. Today’s decision completes a strategic decision to crystalise financial benefits now and to move long term leasing obligations into leading shipping equities, a place where we see significantly more value and upside potential in the period ahead.


“We are delighted that through these agreements Trafigura has become a significant shareholder in Scorpio Tankers. In our view, minimal supply growth and an expected demand spike through oil market disruption and bunkering inefficiencies, are making product tanker market fundamentals look healthier than we’ve seen for many years,” he said.


The acquisition consists of leasehold interests in four LR2s and 15 MRs. Fifteen of the vessels are currently on the water with an average age of 0.5 years, and the remaining four MRs will be delivered in 2020. 


Upon delivery to STI, all the vessels will be fitted with exhaust gas cleaning systems. Their commercial and technical management will be transferred to STI, following the closing of the transaction. 


BofA Merrill Lynch and RBC Capital Markets acted as financial advisors to STI and Seward & Kissel acted as legal counsel. Clarksons Platou Securities acted as financial advisor to Trafigura and Reed Smith acted as legal counsel.


In addition, STI intends to establish an ‘at the market’ offering programme by which the company may sell up to $100 mill of its common shares, par value $0.01 per share.


The company said that it expects to enter into an equity distribution agreement with a sales agent that has been identified, by which sales of the company’s common shares may be made from time to time in transactions by means of ordinary broker transactions through the New York Stock Exchange or in negotiated transactions at market prices prevailing at the time of sale or as otherwise negotiated prices, or as otherwise agreed with the sales agent.


****Meanwhile Frontline has announced that it will not exercise the first option to acquire two additional Suezmaxes from Trafigura. The second option to acquire two Suezmaxes has therefore been terminated.


Frontline had originally agreed to acquire 10 Suezmaxes, with two separate options to acquire two plus two additional Suezmaxes.


Robert Hvide Macleod, Frontline Management CEO, explained: “We added significant scale through our acquisition of 10 Suezmax tankers from Trafigura, and we are satisfied with our exposure to this asset class.


“We are pleased to see that the tanker market is tightening and earnings increasing in all our segments. Our market view remains positive and supports further fleet growth, but our main focus will be on VLCCs, where we will seek to add exposure,” he said.


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