Shandong Shipping Corp (SDSC) has quietly become a VLCC owner through a specially structured sale-and-leaseback of three Euronav tankers.
The trio could be followed by a fourth sistership.
TradeWinds reported last week that Belgian tanker major Euronav had offloaded the 11-year-old ships in a deal with Shanghai-based ship finance joint venture Taiping & Sinopec Financial Leasing (TSFL).
New York-listed and Brussels-listed Euronav sold the Dalian Shipbuilding-built, 307,300-dwt sisterships Nautica, Nectar and Noble (all built 2008) for some $126m and chartered them back for a total of 54 months at an average rate of $20,681 per day.
A source close to the deal described Euronav's purchase option prices as high but would not be drawn on the undisclosed figures.
Not mentioned in Euronav's announcement was the 307,300-dwt Newton (built 2009), fourth in a series originally ordered by Maersk Tankers at Dalian Shipbuilding Industry Corp. Sources close to TSFL said it is also under negotiation and could follow in the first quarter.
Also undisclosed was a third party, Qingdao-based SDSC, and a three-sided structure that gives SDSC a coveted place at the VLCC table.
Euronav declined to comment on SDSC's involvement, which a Euronav spokesman said was "quite frankly irrelevant from our perspective".
But TradeWinds understands the company, which is indirectly controlled by the government, is the actual bareboat charterer of the ships from TSFL.
A second set of pass-through bareboat charters to Euronav provides SDSC a small margin until the charter runs out. At that point, SDSC has options to extend and take over commercial operation.
Deputy general manager Xu Tao, who heads SDSC's tanker arm, did not immediately respond to enquiries.
More in the works
But TSFL shipping senior vice president Alan Wen Yi confirmed the outlines of the transaction.
"We are focused in developing cooperations with international shipowners in the tanker sector and have several projects under discussion for 2020, both in crude and product tanker shipping," said Wen.
A Chinese financial source told TradeWinds that each party had solved a problem through the three-party deal.
Seller Euronav monetised some veteran tonnage, but kept control of it in a strong freight market, retained purchase options that will allow it to cash in on potential appreciation in the ship's, and also avoided a potentially expensive third special survey.
SDSC for its part fulfilled a long-standing ambition to diversify and expand as a VLCC owner. Although a major player in gas and dry bulk, it has faced challenges in trying to build up its tanker side.
Financier TSFL, a ship finance underdog that has struggled to build a portfolio, managed to pull off its first big deal before its 2019 budget year closed, and with the involvement of Chinese state-owned SDSC to alleviate any credit committee concerns about the risk of VLCC owning.
A source close to the deal said TSFL reckons the deal will be profitable even if it has to scrap the vessels at the end of the bareboat term.
Off the hook
The 54-month charter period takes the ships past third special survey, which Euronav was keen to avoid because of the ships' age and because of the obligation to install ballast water treatment equipment.
Sources close to the lessor said Euronav had wanted a four-year period but TSFL rejected it as too short for a bareboat charter. In return for tacking on six more months, Euronav won an agreement that TSFL would bear the cost of the special survey. TradeWinds understands this expense will be passed on to SDSC.
Euronav confirmed that it is off the hook for the dry-docking costs. "That was a very important part of the deal from our shareholders' perspective," said the Euronav spokesman.
SDSC owns three ageing MR product tankers. In addition, earlier this year ordered a series of 50,000-dwt MR newbuildings for charter to oil major Shell. Eight ships in the Shell series are scheduled for delivery in 2021 from New Times Shipbuilding.
On the VLCC front, SDSC made an unsuccessful attempt in 2018 to acquire the five VLCCs of the former Brightoil Shipping fleet.
The three Euronav VLCCs make up TSFL's entire fleet. Despite the backing of two shareholders with deep pockets, insurance and finance giant China Taiping Insurance Group Ltd and oil major China Petrochemical Corp (Sinopec), the company has struggled to do deals.
Earlier this year, TSFL bought small coastal tankers but Sinopec has exercised purchase options on them. Finance sources believe the Euronav deal has been in the works since the beginning of this year, before the recent departure of TSFL shipping head Terry Chen Zeping.
