Frontline loses $120.3m, mulls scrapping vessels over 15 years

The impairment loss is related to three vessels, Front Century, Front Champion and Golden Victory, on lease from Ship Finance.

For the first half of the year, average daily TCEs for VLCCs and suezmaxes fell to $15,600 and $14,100 respectively, from $28,200 and $18,000 in the same period last year. Estimated breakeven rates for the rest of 2013 are $25,000 and $19,000 for VLCCs and suezmaxes, respectively.

"The board is of the opinion that the tanker market is massively oversupplied today and that it may take some time before a reasonable market balance is restored and sustained recovery of the tanker market occurs." The company said in its earnings announcement.

"Facing a market where tanker vessels are operated below cash cost breakeven rates, the board is of the opinion that we as owners should seriously consider the investment we have to make in vessels which are more than 15 years old in order to take the vessels through special survey. Based on market rates it is likely that these investments will be unprofitable and we will be better of scrapping these vessels." Putting its money where its mouth is, Frontline went on to say that with no improvement in the market, its two vessels due for special survey in the second half of 2013 are unlikely to continue trading.

The company has a fleet of 18 suezmaxes and 32 VLCCs including commercially managed vessels and those owned by Independent Tankers Corporation, a company 83%-owned by Frontline. Frontline has newbuilding commitments of $87.9m, $6.2m to be paid in 2013 and $81.7m due in 2014.

Repeating its previous warning for its future, the company stated, "If the tanker market does not recover in the short term and no additional equity can be raised or assets sold there is a risk that Frontline will have insufficient cash to satisfy liquidity requirements and to repay the existing $225 million convertible bond loan at maturity in April 2015."

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