Frontline Ltd. has on July 1, 2003 through its non recourse subsidiary Golden Ocean Group Limited (GOGL) entered into an option agreement with Hemen Holding Ltd (Hemen). The Option agreement gives GOGL the right to acquire all shares in Independent Tankers Corporation from Hemen for a total consideration of USD 4.0 million plus 4 % interest compensation per year. Independent Tankers owns a total of 6 VLCCs and 4 Suezmaxes which are on long term charters to BP and Chevron. Hemen is a holding company indirectly controlled by Frontline’s Chairman John Fredriksen. GOGL has paid USD 10,041,515 for the option, which expires on July 1, 2010. The total bookvalue of ITC’s consolidated assets was as of December 31, 2002 USD 964 million.
Hemen and Frontline have simultaneously agreed that the old option agreement between the parties which expired July 1, 2003 and had a strike price of USD 14,041,515 shall lapse.
CEO of Frontline Ola Lorentzon says in a comment to the deal: “We are pleased that we through an investment of USD 10 million are able to secure an option to possibly acquire up to 10 state of the art vessels with secured employment to BP and Chevron. The value of this deal can be generated through sale of the vessels after the current charter period. Alternatively the vessels can be employed in the Frontline fleet when the current charters expire. There is also potential upside in restructuring ITC’s financial and chartering arrangements in the charter period.
It is important for the shareholders to understand that Frontline’s and GOGL’s financial exposure in this transaction is limited to the paid option premium i.e. USD 10 million. The downside risk on the ITC equity remains with Hemen, while the risk on ITC’s debt remains with ITC’s bondholders. Frontline will therefore only book the paid option premium in their balance sheet and will not consolidate ITC.