STI reports significant loss

Feb 17 2017

Scorpio Tankers (STI) has announced an adjusted net loss of $29.4 mill and a net loss of $29.7 mill for the fourth quarter of last year.

This compares with an adjusted net income of $36.3 mill and a net income of $34.2 mill in 4Q15.

For the full year, STI’s adjusted net loss was $10.7 mill, which excludes (i) a $2.1 mill loss on sales of vessels, (ii) an aggregate write-off of $14.5 mill of deferred financing fees, (iii) a $1.4 mill unrealised gain on derivative financial instruments and (iv) a $1 mill aggregate gain recorded on the repurchase of $10 mill aggregate principal amount of the company's convertible notes. These adjustments resulted in an aggregate decrease in the net loss of $14.2 mill. The net loss was $24.9 mill.

For 2015, STI’s adjusted net income was $221.3 mill and the net income was $217.7 mill.

Below is a summary of the average daily TCE revenue and duration for voyages fixed thus far in the first quarter of 2017:

o    LR2s in the pool: about $16,000 per day for 61% of the days.

o    LR1 in the pool: about $14,500 per day for 50% of the days.

o    MRs in the pool: about $14,300 per day for 53% of the days.

o    Ice Class 1A and 1B Handymaxes in the pool: about $16,500 per day for 51% of the days.

In January 2017, STI received a commitment for a credit facility of up to $81.4 mill from DVB Bank to refinance its previous facility with the same bank. The new credit facility will be used to refinance the existing debt on four product tankers, has a final maturity of December 2021, and bears interest at LIBOR plus a margin of 2.75% per annum. The available borrowings may be used to finance up to 63% of the fair market value of the respective vessels.

During the same month, STI received commitments from a group of financial institutions led by Macquarie Bank (London Branch) for loans totalling up to $172 mill. This facility includes two commercial tranches for $15 mill and $25 mill, a KEXIM Guaranteed Tranche for $48 mill, a KEXIM Funded Tranche for $52 mill, and a GIEK Guaranteed Tranche for $32 mill.

This loan facility is expected to be used to partially finance the purchase of eight MRs that are currently under construction at HMD. Drawdowns will be available at an amount equal to the lower of 60% of the contract price and 60% of the fair market value of each respective vessel.

In December, 2016, STI increased its existing credit facility with BNP Paribas by $27.6 mill. This increase bears interest at LIBOR plus a margin of 2.3% per annum and was used to refinance the existing debt on two 2013-built MRs. In addition, the maturity date of the facility was extended to December, 2021.

Also in January, 2017, STI executed a loan facility with HSH Nordbank, which was fully drawn this month, and the proceeds of $31.1 mill were used to refinance the existing debt on two MRs. The facility has a final maturity of five years from the first drawdown date, and bears interest at LIBOR plus a margin of 2.5% per annum.

As of 31st December, 2016, the 2011 credit facility, which is scheduled to mature in May, 2017, had seven MRs as collateral. Since January, 2017, STI has refinanced two vessels in the BNP Paribas credit facility, two vessels in the HSH credit facility, and the company is in discussions to refinance the remaining three vessels.

In December, 2016, the company entered into agreements to bareboat-in seven Handymax Ice Class 1A product tankers. The agreements include purchase options, which can be exercised through 31st December, 2018. If the purchase options are not exercised, the bareboat-in agreements expire on 31st March, 2019.

Three of the vessels were previously time chartered-in by STI for $15,600 per day. These time charter-in contracts were cancelled in January, 2017 and replaced by the new bareboat contracts at a rate of $7,500 per day. The remaining four vessels will be chartered-in, on a bareboat basis, for $6,000 per day. Two of these vessels were delivered in February, 2017 and the remaining two are expected to be delivered within the first quarter of this year.

The company currently has nine vessels on order orders (eight MRs and one LR2) with HMD and SSME. During 4Q16, the company made instalment payments of $12.7 mill relating to these vessels.

CEO Emanuele Lauro said that the company had seen softness in the product tanker rate environment throughout the second half of 2016. “We think this is mainly due by the reduced oil trading activity that we’ve experienced since the summer of last year, which is negatively impacting petroleum products tonne/mile demand. Inventories remain high; refinery throughputs are slow, and this is impacting the drawdown of those inventories,” he said during a conference call.

He continued; “Although, we remain optimistic for the product tanker market medium-term outlook, the company has taken the decision to scale down its dividend and pay a quarterly dividend of $0.01 per share for the current quarter.

“On a relative basis, we are pleased with our booked TCE earnings for the first quarter so far, which compares very favourably with the last quarter of 2016. We are also pleased with completing our bank financing requirements for 2017 and we remain as always grateful for our lender support on this.

“On the supply side, things are stable and actually close to unchanged, compared to November last year, which is good news, as the activity is close to none. So, the outlook is increasingly favourable with the MR orderbook being close to its 20 year low. We expect this to result in demand growth actually overtaking supply growth in the second half of 2017.

“The shipbuilding industry situation continues to struggle; it struggles to attract new orders in any meaningful way. The yards, which are capable of building product tankers of any acceptable quality, are less than handful now on a worldwide basis. This is helping to maintain a rather bullish scenario on the supply side for the product tanker markets on a medium-term perspective,” he concluded.


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