Bonds? No bonds. Scorpio Tankers has ditched a foray into the bond market to raise liquidity after finding lower cost of capital by refinancing more than $100m in bank lending.
The world’s largest product tanker company had announced on 24 September that it would hold fixed-income calls with investors in the hope of arranging a US-dollar bond, subject to market conditions.
The effort was led by SEB and supported by Pareto Securities, Credit Agricole and Nordea.
But there has been radio silence on the campaign since, and Scorpio’s earnings release offered a strong indication why: it had been able to raise $64m through financings including sale-leasebacks, with its sights set on a further $75m.
Alternative path
The raises are part of a liquidity boost that will put at least $390m on Scorpio’s balance sheet by 2021, placing it in a comfortable position to weather even a horrible tanker market that lasts the full year and still show $100m in its coffers.
Jefferies analyst Randy Giveans asked what had happened to the bond plans on the New York-listed company’s earnings call this week, and Scorpio president Robert Bugbee explained the reasoning.
“We didn't continue there,” Bugbee said. “The answer we can give you now that we've been able to disclose is very similar to that you've seen in our press release today ... that we had alternatives to increase liquidity that were just much more competitive.”
When Scorpio first investigated the bond option, a number of owners had recently tapped the Norwegian market, including the likes of Navigator Holdings, Klaveness Combination Carriers, Color Group and Kistefos.
At the time, Norwegian investment bank Fearnley Securities said: "Based on the mandated banks, we expect this to be a larger unsecured issuance, unlike the 7%, $25m note concluded in May.”
Although it ultimately turned away from bonds, analysts seemed satisfied with the alternatives Scorpio had executed.
“Importantly, and this is very important, even in the brutal rate environment we forecast for the next 12 months, with [Scorpio] not expected to return to the black until fourth-quarter 2021, we now believe that STNG can cover all debt amortisation and capital commitments with existing cash on hand, new liquidity from refinancings, and modest cash flow from operations,” Evercore ISI researcher Jonathan Chappell said.
With a bearish view on the near-term market, Chappell was comforted that Scorpio appears to have no need for the type of dilutive equity issue to which it has sometimes resorted in past troughs.
Comfortable position
Clarksons Platou Securities analyst Omar Nokta has a somewhat brighter market view, but seemed equally convinced that Scorpio is well prepared for even the leanest times.
“Given [Scorpio’s] pro forma cash position, we expect it will have plenty of flexibility to meet its 2021 debt repayments and still end 2021 with about $100m of cash under a dire scenario in which it generates zero cash from operations throughout 2021,” Nokta told clients.
“This is a comfortable position in our opinion and a scenario that is unlikely in our view. We expect product rates to improve throughout 2021 as pandemic-related lockdowns gradually ease, global oil inventories decrease and increased oil production comes to market.”
