An analyst who has frequently criticised the strategy of Scorpio Tankers management is now accusing the New York-listed owner of conducting a "fire sale" of its LR1 product tanker fleet.
The latest client note from Deutsche Bank analyst Amit Mehrotra follows TradeWinds' report on Wednesday that Scorpio is about to sell all 12 of its LR1s to Oslo-listed Hafnia. Hafnia confirmed "advanced talks" with Scorpio in a stock exchange filing on Thursday.
“To be sure, STNG is not doing this from a position of strength, but rather from a position of defence, and it has prospective implications on the earnings power of the company given the sale of assets with among the highest earnings potential over time,” Mehrotra wrote, using Scorpio's ticker symbol.
“Said another way, STNG would be selling about 10% of its fleet in exchange for 3 more months of ‘runway’ on liquidity, by our estimate.”
The tankers — all built in 2016 except for one constructed in 2015 — are estimated to be worth between $30m and $32m each by VesselsValue, but could fetch a premium in a surprisingly escalating market for secondhand tanker sales.
Clarksons Platou Securities analyst Omar Nokta, speaking at a Capital Link webinar on Wednesday, said the market is moving up fast as a “leading indicator” of an expected rebound in tanker rates from their persistent trough in the year's second half.
Best since 2016?
Nokta said on Thursday that if Scorpio does fetch a premium over the $32m figure, it could approach the strongest price for six-year-old LR1s since 2016, when the average price was $36m.
“If they do achieve that type of price, they are selling for values reflective of a strong market,” Nokta told TradeWinds.
“The sale-and-purchase market has really picked up over the last four or five weeks. Ships sold at this point are not going to be anywhere near last-done or current assessments.”
Scorpio management has not issued any comment on the impending sales.
Mehrotra is maintaining his “sell” rating on Scorpio, which he has said carries too much debt and might have to resort to a dilutive equity raise in order to bridge the liquidity gap to a better market.
That danger is now averted in the near to medium-term, he acknowledged, but “this move continues a decade and string of poor timing in asset sales and purchases due to debt problems”.
