Norwegian shipping firm Frontline said it may have to renegotiate debt and lease obligations as it reported a larger-than-expected second-quarter loss.
The tanker industry has been depressed for years because of an oversupply of vessels. Frontline, part of tycoon John Fredriksen’s business empire, has already undergone major change, splitting in two and shedding costly new-build contracts in 2011.
But the downturn has been longer than most in the industry predicted and Frontline warned in May that it may have to restructure further to repay debt.
“Despite the improved tanker market experienced so far in the third quarter, the company is in a challenging situation with $1,031 million in debt and lease obligations as of June 30, 2014,” Frontline said in a statement.
It said that, based on the current tanker market outlook, it was doubtful whether it could generate enough cash from operations to repay a $190 million convertible bond maturing in April 2015.
“In my view there is a good chance that a restructuring will be painful for shareholders,” said Ole Stenhagen, an analyst at bank SEB, who has a “sell” recommendation on the stock.
“You could imagine there might be dilution – there might be conversion of the convertible loan into equity.”
Main shareholder Fredriksen, one of the world’s richest men, is expected to play a key role in any restructuring, as he did when Frontline was split in two. At the time, he provided a half-billion dollar guarantee to get the deal done.
“The Fredriksen group has a good history in taking responsibility and acting fairly in those kinds of situations,” said Stenhagen.
Shares in Frontline were down 9.45 percent at 0900 GMT. The shares are down 35 percent since the beginning of the year, while the Oslo benchmark index is up 12 percent.
The company made a net loss of $78 million in the second quarter, worse than the consensus forecast of a $30 million loss in a Reuters poll of analysts, compared with a loss of $120 million in the year-ago period.
The results were affected by impairments of $56 million due to lower than expected future earnings for some of its vessels.
Source: Reuters (Reporting by Gwladys Fouche; editing by Ole Petter Skonnord and Tom Pfeiffer)
