Frontline Ltd. (`Frontline`) announced that its Board of Directors has approved Frontline`s entering into a transaction with parties associated with Cambridge Fund Management LLC, which ultimately will lead to Frontline acquiring control of three shipowning structures: Golden State Holdings, Windsor Holdings Ltd. and California Petroleum Tankers Holdings Ltd. Through the purchase of these interests Frontline will add six VLCC newbuildings and four modern Suezmaxes to its fleet. All of the vessels are secured with long term charter coverage with major oil companies and are fully financed in the US bond market. The aggregate minimum length of all of the charters with oil majors involved with these vessels is approximately 100 years. The completion of the deal is expected to increase Frontline`s earnings per share, and to further strengthen the Company`s profile as the leading consolidator in the tanker market.
Frontline has paid USD 9.5 million in order to acquire the shares in the three corporate companies. Valuations given by independent third parties indicate that the theoretical net value of the assets acquired could be substantially higher. It is expected that the three companies, the results of which will be consolidated with those of Frontline, will generate a net profit of approximately USD 4 million in 1998 and increase gradually thereafter, increasing to approximately USD 10 million in 2002. The EBITDA generated from the three companies is expected to be approximately USD 37 million in 1998, and to increase to approximately USD 90 million in 2002.
California Petroleum owns four Suezmaxes built in the period 1992 - 1994. All four ships were upon delivery fixed to Chevron for 20-year bareboat charters, with the right for Chevron to terminate after year 9 against a termination payment. The charter hire represents a full pay out charter, and Chevron has a right to acquire the ships at the end of the charter period. The ships are financed through the issuance of two series of notes in a total principal amount of USD 285 million.
Golden State Holdings has two double hull VLCCs presently under construction at Samsung, scheduled to be delivered in February and July 1999. The ships will immediately after delivery enter into eight-year fixed bareboat charters to Chevron at a bareboat rate of USD 27,199 per day. Chevron has the right to extend the charters for another period of up to 10 years based on a charter rate of USD 28,500. In order to finance the acquisition of the vessels Golden State has issued two series of notes, in a total principal amount of USD 178 million.
Windsor Holdings has four double hull VLCCs presently under construction at Samsung, scheduled for delivery in the period December 1999 - November 2000. The vessels will after delivery enter into a 9 - 10 ½ year charter to BP Shipping, at a bareboat rate of USD 24,895 per day. BP has the right to extend the charter after termination of the first period at a prevailing market rate, which can be no lower than USD 20,000 per day for the first four years of the extension. The ships are financed through the issuance of two series of notes in the aggregate pricipal amount of USD 350 million.
Frontline will through the use of its 100 % subsidiary Independent Tankers buy the shares of the companies controlling the three ventures. As a part of the transaction Frontline will be appointed new manager of each venture. The results and balance sheet of Independent Tankers will be consolidated with those of Frontline. However, all of the notes issued in connection with the financing of these vessels will be non-recourse to Frontline.
Frontline`s Board expressed satisfaction with the transaction, which confirms Frontline`s long term intention to act as a lead consolidator within the tanker market. It is the Board`s view that the tanker market is in a process of transition, and that charterers will likely prefer to do their future business with larger groups, which can provide a more flexible service. Frontline believes that the importance of having substantial financial and operating resources will be another important factor in order to create the tanker company of the future. The high quality of the new vessels, the flexible financing arrangements and the long-term relationships with two major oil companies were important factors taken into account by Frontline`s Board in evaluating the quality of this transaction. After delivery of the new vessels, Frontline will have a total fleet of 16 modern VLCCs and 23 modern Suezmaxes including newbuildings, and expects to become the world`s largest operator of modern tanker tonnage. Frontline will use the coming months to consider the future organisational structure of these new assets.
Frontline`s ADRs are currently listed on the Nasdaq National Market under the symbol `LOFSY`. Commencing May 12, 1998, the symbol for Frontline`s ADRs will be `FRONY`.
Hamilton, Bermuda May 11, 1998
Tom E. Jebsen, CFO Frontline Management AS Tel: +47 23 11 40 00