You have to wonder what Sergey Frank thinks about the Sovcomflot fleet sell-off. Russia’s former transport minister who created the impressive build-up of the well-respected Russian shipowner must now watch as some of his good work turns to dust due to sanctions.
I tried phoning him to ask but the mobile kept cutting off. Truth be told I have not had a proper conversation with him since we met in Moscow just after he had taken over as chief executive in 2004. One unusual thing I remember about that was him telling me his favourite pop group was Supertramp.
Seems surreal in the current environment but then it is not just Russians who must be mourning the break-up of Sovcomflot.
A lot of Western banks — never mind oil companies — made a lot of money out of their involvement with Russia. Just look at executives from ING, Societe Generale, Citibank, DNB and others keen to get their photo taken when they signed off a $410m loan to Sovcomflot back in 2018. Deutsche Bank and Morgan Stanley had directors on the board at one time — as did Braemar ACM.
Eminent British society figures such as Lord Nicolas Fairfax of Cameron — whose forebears include the famous English Civil War hero Sir Thomas Fairfax — sat for 15 years until around eighteen months ago as chairman of Sovcomflot UK.
Now, many want to disassociate themselves from the company and country. The Baltic Exchange last month told UK members not to carry out any business with Russia-connected people or companies. Norwegian class society DNV has wound down its involvement in 90 Sovcomflot ships.
All despite Sovcomflot’s good record in terms of operations, innovation and crewing.
And there is that effective fire sale of Sovcomflot ships as it struggles to pay outstanding loans to banks that are keen to avoid getting their names mentioned.
It is unclear how many of the 133-ship empire is being thrown overboard. Some speculate it is as much as one-third of the fleet but the company itself insists this is an exaggeration.
What the company has told us is that 22 vessels have been sold so far therefore 111 remain.
The St Petersburg company has been struggling since the US directly placed debt and equity sanctions on Sovcomflot among 13 major Russian businesses in the immediate aftermath of the military operation in Ukraine.
Since then the situation has worsened as bars are put on Russian-flagged vessels entering various of the country’s ports, while marine insurers, charterers and others cut ties in a bid to avoid problems with sanctions.
European countries such as Britain and Germany have declared their determination to stop all Russian oil imports into the country from the end of this year.
Russia’s share of German crude use has already slumped to 12% from about 35% before the war in Ukraine, the Economy Ministry in Berlin says.
Sovcomflot has been told by the UK government to close its office in London, while there is speculation its Cyprus office will also close and vessel management be moved to Dubai.
In recent weeks, there have been drip, drip revelations about particular groups of vessels being bought — not least some of the choice LNG carriers that Sovcomflot recently had built.
Idan Ofer-controlled Eastern Pacific Shipping had bought four modern gas carriers from Sovcomflot for $700m in a sale led by ING bank. Evangelos Marinakis-controlled Capital Maritime & Trading affiliates have bought up four LNG dual-fuelled aframax tankers and Dubai-based Koban Shipping has also been linked with the purchase of five tankers from Sovcomflot.
The company has 52 aframax tankers — believed to make it the largest owner of such vessels in the world. But no doubt the sanctions imposed are hurting both sides with the European Union’s economy now expected to grow by 2.3% in 2022 instead of the anticipated 4%.
Inflation — not least due to $110 per barrel oil — is expected to average 6% in the EU.
Many Asian and Western shipowners are benefiting of course from trade disruptions, longer journeys and higher freight rates even as the cost of bunkers has soared.
Meanwhile, more Sovcomflot tonnage is almost certainly up for grabs and who would have anticipated that three years ago?