Frontline Ltd., the oil-tanker company led by billionaire John Fredriksen, said an oversupply of the vessels is preventing the market recovery needed to be able to repay a convertible bond maturing in 2015.
“The tanker market is massively oversupplied and it may take some time before a reasonable market balance is restored and sustained recovery of the tanker market occurs,” the manager of 32 supertankers said today as it reported a fourth quarterly loss. Its cash might run out if the market doesn’t recover and it can’t raise equity or sell assets, Hamilton, Bermuda-based Frontline said, reiterating comments made Feb. 22.
The timing of any recovery will depend on global growth and demolition of excess ships, Frontline said. World trade will rise 3.6 percent this year, the International Monetary Fund estimates, cutting its forecast in January and April from 4.5 percent. Scrapping will slow to 2.1 million deadweight tons this year from 2.7 million tons in 2012, and the fleet will expand another 4.7 percent, according to shipbroker Clarkson Plc.
“The company’s comments are in line with our view of overtonnage being the primary headache for the tanker market,” Erik Nikolai Stavseth, an Oslo-based analyst at Arctic Securities ASA who recommends selling Frontline shares, said in an e-mailed report. “Although we are seeing positive signs on a shift in trade lanes, it does not make up for the number of vessels on the water.”
The global fleet of supertankers swelled 30 percent to 189.6 million tons since rates peaked in 2007, according to Clarkson, the world’s largest shipbroker. Average daily earnings plunged 74 percent in the past year to $8,429, its figures show. Tanker owners lost about $27 billion since 2009, according to Intertanko, the industry’s biggest trade group.
Frontline said its supertankers, known in the industry as very large crude carriers, need $25,500 a day to break even. Each vessel can hold 2 million barrels of oil.
The company had a first-quarter net loss of $18.8 million, or 24 cents a share, after earning $7.18 million, or 9 cents, a year earlier, the statement showed. Frontline said it has a $225 million issue of convertible bonds due in April 2015.
Frontline shares fell 5 percent to 12.3 kroner ($2.09) by 10:54 a.m. in Oslo trading. The stock is down 34 percent this year, headed for a sixth consecutive annual drop. It closed at 178.9 kroner on March 26, 2010, the day the company sold the bonds, according to figures compiled by Bloomberg.