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Frontline results send shivers down spines of large tanker owners

Frontline results send shivers down spines of large tanker owners
John Fredriksen’s mighty Frontline second quarter results released last week will have sent shivers down the spines of owners in the crude tanker market. Despite its legendarily tight operation, the New York-listed tanker giant managed to lose $78m net in the second quarter bringing year-to-date losses to $90m.

Second quarter losses were much reduced on the equivalent period last year but still substantial.

Despite improvements in the third quarter the company was in a challenging situation with $1bn in debt and lease obligations as of June this year said its results statement. “Based on the current outlook for the tanker market it is doubtful if the company can generate sufficient cash from operations to repay the $190m convertible bond loan with maturity in April 2015,” it stated.

Options include raising equity, selling assets, establishing new loans but “a full restructuring of the company including lease obligations and debt agreements might be the only alternative” it warned.

It is only two years since the company was massively restructured to stave off bankruptcy with an injection of more than $500m from principal John Fredriksen, and the creation of Frontline 2012.

Frontline shares tanked after the announcement with more than 3m changing hands.

Its VLCCs averaged just under $14,000 a day in the second quarter and suezmaxes just over $12,000 a day. Earnings in the first quarter were more than double that for both sectors. Breakevens on its VLCCs are $24,000 a day on a cash basis and $17,800 for the suezmaxes.

The fleet now consists of 29 VLCCs and 17 suezmaxes including the separate International Tankers Fleet. One more suezmax newbuilding is to come later this year.

Although general fleet growth has slowed considerably, the ominous tone of Frontline's statement, it being normally an inveterate optimist about the market, suggests there is indeed trouble ahead.