After thorough consideration, Frontline Ltd. has decided not to extend the conditional offer given to all shareholders in ICB Shipping AB whereby shareholders by accepting the offer would have received SEK 130.- per A share and SEK 115.- per B share. The offer therefore finally expired on December 31, 1997, since relevant conditions for the offer have not been fulfilled.
The offer could not be extended due to the following reasons:
1. The ICB board's handling of the Astro transaction and the negative effects this will have for ICB if this transaction is implemented under current market conditions.
2. The shareholders agreement concluded between leading directors in ICB and the Angelicoussis Group which de facto prevents Frontline from attaining any co-determining influence in ICB despite Frontline's 52% holding in the company.
3. The present uncertainty of the world's financial markets in general and the VLCC tanker market in particular resulting from the recent financial unrest in Asia.
4. The massive resistance against the offer by the ICB board and the Swedish stock-savings association.
5. The negative development of the ICB share price on the Stockholm Exchange.
6. The improved flexibility for Frontline as a result of no longer being committed by the restrictions inherent in an offer situation.
Frontline regrets that outside circumstances contributed towards a situation which made it impossible to lift the conditions from this offer.
As the main shareholder in ICB, Frontline will adopt a long-term policy in order to achieve influence in ICB. Frontline will maintain the view that further development in ICB should take place within the business areas which have traditionally been the company's main areas of engagement, modern VLCC and Suezmax tonnage.
The board of ICB rejected Frontline's offer maintaining that the offer undervalued the ICB shares significantly. When the offer expired on December 31, 1997, the market value of ICB on the Stockholm Exchange was approx. SEK 500 million lower than the Frontline offer. By rejecting the offer the present board of ICB has taken on an obligation to provide a better economical alternative for the company's shareholders. As principle shareholder in ICB, Frontline will closely follow up this responsibility.
The board of ICB has on two occasions informed the market of postponements in the planned timing of the Astro transaction. In view of the uncertainty which has arisen in connection with the implementation of the Astro transaction, Frontline will urge the ICB management to submit a full report to the company's shareholders. This should include information on any outstanding subjects in the transaction, planned date of completion and the consequences of the engine breakdown on one of the Astro ships. Additionally, confirmation will be requested that the aggressive earnings predictions for 1998 submitted by the board will be maintained, and that in accordance with the premises, the Astro transaction will contribute towards an increase in earnings per share in ICB in 1998.
Newbuilding - Hyundai
Through two single-purpose companies, Frontline Ltd. has signed building contracts with the Hyundai Shipyard in South Korea for the delivery of two Suezmax tankers. These ships are sister ships to the three vessels that Frontline already has on order at the same yard and will be delivered in January and April 2000.
The ships will be financed through ordinary bank financing and Frontline's ordinary cash flow and will not require additional supply of equity. Frontline is today the world's major operator of modern Suezmax tonnage. In total the fleet comprises 19 Suezmax ships including 8 OBOs and 5 newbuildings. All ships in the fleet are built after 1991 and 16 of the ships will be double hulls. At the present time, Frontline also operates two chartered vessels in this tonnage segment.
The directors are of the opinion that a moderate order book combined with the high average age for this type of tonnage creates a good basis for further positive development. The new OPA regulations which will exclude Suezmax ships older than 25 years from American ports will further strengthen this situation. More than 40% of the Suezmax fleet will have passed the 25-year age limit during the course of the year 2000. In total, American ports represent approx. 35-40% of all discharge destinations for Suezmax tonnage.
The present-day market situation confirms the existing balance. While the VLCC market has been temporarily weakened resulting from the crisis in Asia, the Suezmax market has continued its positive development. Since the turn of the year, Frontline has fixed four Suezmax tankers at rates higher than USD 30,000 per day on a round trip basis.
As we have previously informed shareholders, Frontline has an option to take over four VLCC newbuilding contracts which an affiliate of the company's principal shareholder Hemen Holding has concluded with the Hyundai Shipyard. These options originally expired on December 31, 1997. An agreement has now been concluded with Hemen for an extension of these options until March 31, 1998. It is Frontline's intention to declare the options, but this will be dependent on satisfactory overall financing and on the general development with regard to newbuilding prices and market rates. Based on the present-day situation, in the opinion of the directors, the share price in Frontline represents a significant discount in relation to the underlying values. Thus, the directors will not consider a financing alternative involving a requirement for major new equity issues.
During the fourth quarter, the Frontline Group signed two new loan facilities. The first facility, managed by Chase Manhattan, concerned refinancing of the three Suezmax ships currently owned by LOF. The other facility, arranged by Banque Paribas, secured the financing of the company's Suezmax newbuildings which are due for delivery during the summer of 1998. The directors are pleased to note that both facilities represent an improvement in terms compared with the terms Frontline has previously attained for equivalent facilities. The improved terms and the quality of the banks participating in the two syndicates serves as a confirmation of Frontline's increased credibility in the bank market.
Frontline has taken over the responsibility for the commercial operation of two of the three Suezmax ships in LOF. The third ship will be transferred shortly. Technical operation of the ships has been taken over by Acomarit, and cost saving measures have been implemented. It is expected that the final merger and listing of the merged company in New York will take place in February or early March.
Hamilton, Bermuda, January 8, 1998
Frontline Ltd. Board of Directors
Questions should be directed at: Tom E. Jebsen, CFO of Frontline Management AS, Tel +47 23 11 40 00