Scorpio Tankers has agreed to acquire Trafigura subsidiaries that have leasehold interests in 19 ships in an all-share transaction worth $803 million, reports Reuters.
Upswing in tanker market
The deal is the latest move by commodities trader Trafigura to convert its investments in ship leases and ships that transport its commodities into shares of shipping companies.
The strategy is in expectation of an upturn in the tanker market in the coming months and an accompanying increase in the value of the equity stakes.
Scrubber mania
This is a deal only possible for an acquirer with a large (for listed maritime companies) balance sheet. The financial structure takes the form of Scorpio Tankers assuming financial leases with a present value of $668m.
The $803m acquisition price is rounded out by an issuance of $135m of Scorpio Tankers equity, priced at $29 per share.
The ship seller share buyers need to be believers as Scorpio Tankers shares are still priced below Net Asset Value (estimated to be mid $30s per share) , but the valuation improvement during 2019, and the increased market optimism, has facilitated Scorpio Tanker’s ability to use its shares as a currency.
“Today’s decision completes a strategic decision to crystallize financial benefits now and to move long-term leasing obligations into leading shipping equities, a place where we see significantly more value and upside potential,” Rasmus Bach Nielsen, Trafigura’s global head of wet freight, said in a statement.
He added, “In our view, minimal supply growth and an expected demand spike through oil market disruption and bunkering inefficiencies are making product tanker market fundamentals look healthier than we’ve seen for many years.”
Shares for ships
Scorpio Tankers announced private placements with Trafigura for $35 million and Scorpio Services Holding, a related party, for $15 million for an aggregate total of 1.7 million shares at $29 a share.
After the closing of both transactions, which is expected before Sept. 27, Trafigura will own approximately 10% of the ordinary shares in Scorpio Tankers with a value of about $170 million.
Scorpio Tankers Chief Executive Emanuele Lauro said the transaction represented “a close alignment between Scorpio and Trafigura, a strategic customer and now a valued shareholder”.
In August Trafigura announced it had agreed to sell 10 suexmax crude oil tankers to another leading shipping group, Oslo-listed Frontline, in a separate share deal that will make the Geneva-based trader Frontline’s second-biggest shareholder.
Trafigura needs to maintain a healthy debt-to-equity ratio as a guarantee for its bank lenders.
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Source: Reuters
