Frontline CEO Robert Hvide Macleod has said more transactions could be on the cards following the John Fredriksen company's acquisition of up to 14 suezmaxes from Trafigura.

He told TradeWinds: "Frontline is open for business when the merits of the deal provides value for our shareholders. Hence, we very pleased to announce this transaction."

The shipowner is paying up to $675m in shares and cash for 10 2019-built ships, with options to acquire four more from the trader.

Macleod said the company can move quickly with the backing of Fredriksen, whose Hemen Holding, Frontline’s largest shareholder, has offered a $547m loan commitment at closing of the acquisition through a three-year facility at terms described as “attractive”.

Macleod added: "This transaction ticks all the boxes: it’s backed by our strong belief in the market fundamentals, it will be accretive for our shareholders and boosts our dividend capacity."

He added: "Frontline and Trafigura is a strong fit. We welcome them as a new strategic shareholder and believe this will lead to value creating synergies going forward."

Moving up the charts

Clarksons lists Frontline with 18 suezmaxes, with another 10 lifting it from eighth place in the global chart to third, above Euronav.

The four optional ships would rank it second above Dynacom, and behind only Teekay with its 45 ships.

Adding the first 10 vessels will give an average fleet age of 3.7 years. The majority of Frontline's tankers were delivered from 2016 on.

Deutsche Bank crunches numbers

Amit Mehrotra of Deutsche Bank said: "At first glance, it seems like a high price as we are valuing suezmax newbuilds at just $62m apiece; however, all the vessels are scrubber fitted which adds about $3m per vessel.

"Nonetheless, we think the premium is justified for on-the-water vessels given the firm rate backdrop and looming IMO 2020 catalyst which could drive outsized earnings over the next two years."

He views the deal as a positive development for Frontline and a vote of confidence for crude tanker markets.

"With continued support from John Fredriksen, we expect FRO will remain a player in the S&P market. The one negative is that resale vessels being valued above newbuild pricing will likely spur ordering," he added.

In July, TradeWinds reported there had been talk Fredriksen might seek to buy the fleet of Oslo-listed VLCC owner Hunter Group, which had eight VLCCs on order at DSME with scrubbers.

Macleod said at the time the company was seeking new possibilities to secure growth.

And in May Macleod noted Frontline had taken delivery of over 30 newbuildings in the past five years, sold a number of older vessels and pulled down the average age of its fleet.

“Are we on the lookout for opportunities? Certainly, yes,” he said then.

“And I think we have with the support of our main shareholder we can do stuff that very few others can. And we are on the lookout.

“But we are also seeing a very illiquid market, where currently, everybody is losing money out there. So, yes, we are looking for opportunities.”

Consolidation important

Analyst J Mintzmyer of Value Investor's Edge said the transaction further consolidates a market that "desperately needs it."

He added: "The entire tanker market should be a beneficiary of improving consolidation.

"Will we see more moves in the future? I certainly hope so! I'm cool on FRO's valuation versus peers, but that doesn't stop me from celebrating a positive transaction."

Frontline's share price was trading up 4.6% at NOK 74.35 on Friday.