As tanker freight rates are still reeling under the pressure of oversupply of tonnage, more and more tanker owners are entering consolidation mode, in a bid to improve economies of scale and avoid financial problems. In its latest weekly report, shipbroker Gibson said that “just before Christmas last year, the tanker market was greeted with the announcement of the proposed merger between two NYSE quoted tanker companies, Euronav and Gener8. At the time of writing this merger has still to be approved but, if the green light is given, the joint company will own 40 VLCCs and 28 Suezmaxes (incl. 4 newbuildings). Part of the deal includes the sale of 6 Gener8 VLCCs to International Seaways, another NYSE company which will raise their VLCC profile to 16 vessels. In a separate deal, concluded in March, DHT Holdings announced the acquisition of all 11 VLCCs from the BW Group (incl. 2 newbuildings). The BW Group promptly then placed an order in May for 4 VLCC newbuildings from Samsung HI for 2019 delivery at an attractive price. These were the only major “consolidation” deals concluded in 2017 in the large tanker sector. DHT had rebuffed several takeover proposals by Frontline earlier in the year”.
The London-based shipbroker added that “the beauty of the agreed deals is that both parties would grow their fleets without adding to the existing orderbook and as a result of clever acquisitions, bring down the age profile of their respective fleets. Euronav has a good track record of smart acquisitions without adding to the orderbook. In March 2015 the company purchased 4 brand new VLCCs from Metrostar. At the same time selling off the older units at good prices to keep the fleet modern. DHT has also been very active in this area too, selling off 5 units in November (all over 17 years of age) to reduce bank debt. Based on the VLCC fleet today (excluding VLCCs on order) and assuming the Euronav/Gener8 deal is ratified, Euronav will own 5.5% of the fleet, while DHT Holdings will own 3.2%. With the recent delivery of two units, Frontline now owns 3.0%, while International Seaways ownership could rise to 2.2%. Of course, consolidation has several strategic benefits for listed companies, as size does matter, making shares more liquid and more attractive to investors. Euronav’s acquisition of the Gener8 fleet will of course swell the Tankers International Pool at the expense of the VL8 pool, providing a stronger platform to counter the charterers”.
Meanwhile, “the VLCC supply is still dominated by the Asian giants such as China VLCC, Bahri and Cosco Shipping (CSET), with NITC’s share slipping. Apart from Euronav and NITC, all of the top ten owners have tonnage on order, which will swell the ranks by another 44 units. Maran, steadfastly remaining independent, will take delivery of 9 more VLCCs before the end of 2019. However, both China VLCC and CSET have substantial orderbooks, which will eventually give them an even more dominant position. The domination of the big fleets and the diverse ownership of the remainder of the VLCC fleet, most 10 units or less, is likely to limit any further consolidation in the short term”, Gibson said.
“The volatility experienced in the US stock market this week, pinned partly by concerns over the prospect of higher interest rates coupled with the current malaise across the tanker markets, heaps more pressure on beleaguered CEOs to keep the shareholders happy. With the prognosis of a tough year ahead for the crude sector, almost certainly, owners in the large tanker sector are unlikely to have further consolidation as a priority”, the shipbroker concluded.
Meanwhile, in the crude tanker market this week, Gibson said that it was“a much busier week for VLCCs…but that’s where the good news ended as the fresh demand was easily met by a solid wall of availability that remains standing as the very last of the February programme shakes out. Rates remained stuck within their lowest range of the year at down to ws 34 East for older units, and at no better than ws 40 for the most modern vessels with straight runs to the West at under the ws 20 mark. Chinese New Year commences later next week, and Owners will be hopeful of concentrated preholiday attention, though with March stem confirmations still to be awaited, there is no guarantee of that. Suezmaxes bumbled along with ballasting from the area not an economic option and a consequent easy tonnage list kept rates at down to 130,000mt by ws 62.5 to the East and to ws 26 West. No early change likely. Aframaxes trod water over the period with little/no support from the inter Far Eastern market either. 80,000mt by ws 85 still to Singapore, and nothing likely to shift that over the near term, at least”, the shipbroker concluded.