A strategy change for the next three years
The latest start-up by John Fredriksen, the world’s highest-profile shipowner, plans to turn itself within three years into a world-leading owner of all types of bulk ships, in a surprise strategy change announced alongside first-quarter results.
The board of Frontline 2012, founded at the start of this year, said that it planned to invest in carriers for dry-bulk commodities such as iron ore, liquefied petroleum gas carriers and other forms of bulk shipping besides the crude oil tankers it already owned.
The announcement marks a significant departure for a company associated with Mr Fredriksen, whose publicly listed companies generally specialise in specific shipping areas. Frontline, until recently the world’s largest independent crude oil tanker owner, specialises in the largest oil tankers, while Golden Ocean owns dry-bulk carriers and Golar LNG operates liquefied natural gas carriers.
It also appears to signal Mr Fredriksen’s determination to use his personal fortune – which he puts at between $8bn and $13bn, depending on market conditions – to take advantage of other shipowners’ current weakness.
Mr Fredriksen owns 50 per cent of Frontline 2012, which is listed on Oslo’s over-the-counter exchange. But he put up $505m in personal guarantees from his private holding company to set up Frontline 2012 and plans to use guarantees based on his personal wealth to secure a series of new-ship orders currently being placed.
“The company will have a strong focus on maximising return on equity and Frontline 2012 will to a certain extent use debt to optimise the return,” it said.
Frontline 2012 was formed as part of a complex deal to rescue Frontline amid the worst shipping market crisis in 25 years. It took over Frontline’s newest ships and vessels still under construction because Frontline was struggling to pay the building costs.
Mr Fredriksen outlined to the Financial Times in February plans that he admitted would seem “crazy to most people” to invest heavily in new ships for Frontline 2012, in spite of a prolonged slump in the tanker market. However, the plans were confined to tankers either for oil products or crude oil. Thursday’s announcement is the first hint that the company has wider ambitions.
The statement pointed out that worldwide capacity of the 1m barrel and 2m barrel oil tankers in which Frontline specialises had nearly doubled between 2004 and 2010 while demand had risen far less. The tanker market was consequently likely to remain “challenging” for the foreseeable future.
“The board is of the opinion that a more diversified platform will be valuable and increase credibility versus counterparts and financial institutions in the challenging period ahead of us.”
The company plans immediately to raise $200m in new equity to fund a $578m order for product tankers that Mr Fredriksen has already placed.
Source: Financial Times
