Frontline’s mega-deal to buy 24 modern Euronav VLCCs for $2.35bn looks better with each passing day, according to analysis by Clarksons Securities.
The investment bank estimates the fleet as worth $2.6bn already, with the final vessel still to be delivered after the agreement was signed in October.
“Ship values are generally rising as one-year and longer-term charter rates rise,” analysts led by Frode Morkedal said.
For a five-year-old, scrubber-fitted VLCC valued at $115m, a one-year time charter of $58,750 per day would yield nearly 16% unleveraged cash returns, indicating further upside potential of between 10% and 15% in ship values, they added.
“As a result, the 24 VLCCs’ combined value could approach $3bn,” the analysts argued.
In December, Clarksons Securities said the biggest ever tanker sale-and-purchase transaction was already looking like a bargain against a background of rising asset values.
At that point, the value of the VLCCs had risen 3.5% to $2.43bn.
The analysts were tipping a jump to as much as $2.7bn back then.
A 10% increase in ship values would raise the current net asset value from $20 per share to $23.40, the investment bank calculated.
Using Clarksons’ rate estimates of $69,000 per day for non-eco VLCCs in 2024, increasing to $82,000 in 2025, operational cash flows could raise the forward NAV to NOK 350 ($33.24) per share by the end of 2025, the investment bank believes.
More vessel sales possible
Frontline is projected to have net debt of $3.6bn at the close of the first quarter, representing a net loan-to-value ratio of 47%.
“Remarkably, Frontline has managed to keep its leverage within reasonable bounds despite executing one of the tanker industry’s largest fleet acquisitions, supported by $1.8bn in new debt and without issuing any new equity,” Morkedal and his team said.
“Given Frontline’s strategic moves, it would not be surprising if the company decides to divest even more of its older suezmax vessels, particularly the five oldest ones built at Rongsheng, which are averaging 12 years old and could be worth $280m,” they added.
