Scorpio Tankers is making a decisive move to bolster cash reserves with an imminent sale of 12 LR1s to competitor Hafnia of Singapore, market sources told TradeWinds.

News of the deal began circulating through the tanker market on Wednesday. Scorpio management could not be reached for comment before TradeWinds’ deadline.

The tankers, all built in 2016 except for one 2015-built vessel, represent Scorpio's entire complement of owned LR1s. It has greater scale in other products segments such as MRs and LR2s. Hafnia already owns a large stable of LR1s.

Hafnia confirmed in a statement on Thursday morning that it is in "advanced negotiations" talks to buy the 12 ships.

The BW Group company said it was making the announcement due to market rumours and will pay cash for the tankers.

"Hafnia will provide further information in due time," the company added.

Fearnley Securities said the deal will give Hafnia 41 LR1s. “On paper, this looks like a win-win as it allows Hafnia to acquire a modern high-quality fleet,” it said.

The tankers are all scrubber-fitted.

More runway for Scorpio

The deal also “adds further runway” to Scorpio without adding further debt through sale and leasebacks or equity should the market underperform.

“Further, with the LR1 segment being somewhat of a niche segment where scale is key, combining these fleets looks like a sensible move,” said analysts Peder Nicolai Jarlsby, Erik Gabriel Hovi and Ulrik Mannhart.

"And for Scorpio, having 110, 120 or 130 vessels does not really make much difference to the story," they added.

Fearnleys expects a price in the mid-$30m range per tanker.

The deal is Hafnia's second big acquisition in two months, after it added 32 vessels by buying Oaktree Capital Management’s Chemical Tankers Inc in November.

The liquidity game

The grand move comes as Scorpio has been under scrutiny, and in some cases under fire, from equity analysts over whether it has adequate liquidity reserves to make it through a protracted tanker-market trough into a presumed sector recovery in the second half of 2022.

While a price for the en-bloc sale was not known, the proceeds would likely provide significant reassurance that Scorpio can bridge the gap without resorting to a dilutive sale of shares, as has been speculated by Deutsche Bank analyst Amit Mehrotra.

TradeWinds reported on 14 December that Scorpio president Robert Bugbee told investors in a session moderated by Jefferies analyst Randy Giveans that outright tanker sales would be a preferred alternative to an equity raise.

"We have 140-odd vessels and we have a high enough S&P market," Bugbee told Giveans, referring to the sale-and-purchase market.

"You're more likely now to see a balance, where you have refinancings and sale-leasebacks on the one side and outright sale of assets on the other."

Oslo-listed Hafnia, led by chief executive Mikael Skov, is already a major player in LR1 tonnage. Photo: Hafnia

He said the company does not want to lift its average leverage much further.

"That's a sort of last resort. It won't affect the operating leverage of the company to sell a few ships," Bugbee said.

While he also mentioned asset sales in a conversation with Clarksons Platou Securities a week earlier, there seemed a slightly stronger emphasis in the Jefferies session, which came a day after Scorpio had secured $28m in incremental liquidity on sale-leasebacks of two LR2 tankers.

Both Scorpio and Oslo-listed Hafnia are among the world's largest owners of clean product tankers.

The vessels mooted to be sold are all worth between $30m and $32m each, according to valuation platform VesselsValue. But brokers said valuations have been on the rise. The Scorpio ships have scrubbers and were recently dry-docked, possibly suggesting a premium.

According to Scorpio's website, the tankers to be sold are the 74,000-dwt STI Executive, STI Excellence, STI Experience, STI Express, STI Precision, STI Prestige, STI Pride, STI Providence, STI Excel, STI Excelsior, STI Expedite and STI Exceed.

Brokers indicated that since TradeWinds quoted Bugbee's December remarks, there has been significant buyer enquiry directed toward its tankers.

On 10 November, Scorpio reported $210m in cash on the balance sheet and $281m in overall liquidity. Aside from $69m in convertible bonds maturing in 2022 and a $50m minimum cash covenant, it has few near-term capital commitments, management said.

Scorpio had been carrying out vessel refinancings in its controlled feet of 131 tankers for nearly a year, helped by rising tanker valuations on vessels averaging 5.8 years old.