Frontline Declines to Lowest Since 1999 on Bond Payment

Frontline Ltd., an oil-tanker company led by billionaire John Fredriksen, fell to an almost 14-year low in Oslo on concern it will lack funds to repay debt and stockholders would lose out in the event of a restructuring.

The Hamilton, Bermuda-based company tumbled as much as 14 percent, the biggest drop since 2011, to the lowest intraday level since May 1999. That adds to the 6.8 percent slide on Feb. 22 after Frontline said there was a risk it wouldn’t have money to repay a $225 million convertible bond loan due April 2015. The company has lost 31 percent of its value this month.

“We struggle to see that there will be any meaningful value left for current shareholders,” said ABG Sundal Collier Holding ASA in a note today, cutting its price estimate to zero.

Frontline fell 12 percent to 13.20 kroner by 11:40 a.m. in Oslo, valuing the company at 1 billion kroner ($178 million).

Frontline said Feb. 22 that if the tanker market doesn’t recover before 2015, and the company can’t raise additional equity or sell assets, there’s a risk it won’t have enough cash to repay the convertible bond loan. That may force the tanker company into a restructuring that includes modifying charter lease obligations and debt agreements, Frontline said.

The company, split in two in December 2011 to avoid running out of cash, has said its fleet of very-large-crude-carriers, or VLCCs, needs on average $24,200 a day per ship to break even.

Crude tankers are going through one of the “worst winters ever,” with VLCC rates near zero, a limited number of shipments and high availability of vessels, Frontline said on Feb. 22.

Whole Industry

Should this continue, it’ll probably to lead to significant financial problems for the whole tanker industry, the company said. The tanker market won’t “experience sustained recovery until overcapacity is removed,” it added.

Supertankers shipping 2 million-barrel cargoes of crude are earning $7,518 a day, near the lowest level on record, according to data stretching back to 1997 from Clarkson Plc, the largest shipbroker. Tanker demand will grow 5.9 percent in 2013, beating fleet capacity growth of 5.3 percent, according to Clarkson.

Benchmark freight swaps that traders use to bet on future shipping prices show earnings no higher than about $15,000 a day by 2015, according to data from Marex Spectron Group, a broker.

Inger Klemp, chief financial officer of Frontline’s management unit, wasn’t immediately available when Bloomberg News called seeking comment.

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