Sunday, August 25, 2019

Shipping Magnate John Fredriksen Goes ‘All-In’ With IMO 2020 Wager (FRO)

From FreightWaves:
When John Fredriksen — the world’s most famous living shipping magnate — makes a big move, a common response is to ask: What does he know that we don’t?

Fredriksen just made a big move, actually, two related ones. What they amount to is a very large bet that the IMO 2020 rule, which will cap marine-fuel sulfur content, is going to be highly profitable for the tanker sector.

To put it another way, it’s a wager that it will be more expensive to ship cargo by sea. If so, there would be consequences for all transport modes, including those on land — because if the cost of marine fuel surges, diesel will almost certainly follow suit.

The transactions
Before market open on Aug. 23, Frontline (NYSE: FRO) announced the acquisition of 10 Suezmaxes (a Suezmax is a tanker that carries 1 million barrels of crude oil) from global commodities trading giant Trafigura, with an option for four additional Suezmaxes. The largest shareholder in Frontline is Hemen Holding, Fredriksen’s private investment vehicle.

IMO 2020 requires all ships to burn marine fuel with a sulfur content of 0.5% or less beginning Jan. 1, 2020, unless they’re equipped with exhaust gas scrubbers. Ships with scrubbers can continue to burn less expensive heavy fuel oil (HFO). All of the Suezmaxes being acquired by Frontline were delivered from the shipyard this year and all of them have scrubbers.
Frontline is paying a combination of $538 million to $547 million in cash and $128.3 million in shares. Trafigura will be given just over 16 million shares of Frontline, equating to an ownership stake of 8.5%.....