Ship Finance International Limited (NYSE: SFL) (“Ship Finance” or the “Company”) announces that it has agreed to sell the 2007-built jack-up drilling rig Soehanah to an unrelated third party and three 2002-built VLCCs to ADS Crude Carriers Ltd. (“ADS”), a newly established company in which Ship Finance has acquired a 17% interest.
Ole B. Hjertaker, CEO of Ship Finance Management AS, said in a comment: “Divesting of older vessels is a part of the Company’s strategy to renew and diversify the fleet. Over the last three months, Ship Finance has taken delivery of 19 vessels with long-term charters, increasing our fixed charter backlog by nearly $600 million. We see further growth opportunities across our target market segments, and we expect to reinvest the proceeds from these vessel sales in new assets.
The sales price for the Soehanah is confidential, but the transaction is expected to generate a book profit, and the rig is debt free. Delivery is expected to occur in the second half of 2018, and the Company will continue to receive a bareboat charter rate of approximately $10,000 per day from the current charter to an affiliate of Indonesia-based Apexindo in the meantime.
The three VLCCs, Front Page, Front Stratus and Front Serenade, are among the few vessels remaining from the Company’s inception in 2004, and delivery to ADS is expected to occur in the third quarter. Net proceeds from the sale will be approximately $77.6 million, including $10.1 million in the form of an interest-bearing loan note from Frontline Limited. The aggregate book value of the three vessels is approximately $99 million, and a book impairment is therefore expected to be recorded in the second quarter. Following this transaction, only five vessels will remain on charter to a subsidiary of Frontline Limited.
ADS has raised $58 million in equity capital from a wide group of investors, including Ship Finance, and $30 million in the form of a non-amortizing secured debt facility. ADS intends to list its shares on the Oslo Mercur Market, and targets a 100% payout of net cash flow. ADS plans to upgrade the vessels with scrubbers prior to 2020 in order to maximum the benefit of the anticipated spread between various fuel types after the implementation of new emissions controls regulations.
For Ship Finance, the participation in the new venture is an opportunistic financial investment where a portion of the sales proceeds from the vessels has been reinvested in ADS. We believe we are close to a low point in the tanker cycle, with limited downside to current recycling values, and our investment as a minority shareholder in ADS could therefore give us significant upside potential with very low risk exposure at the tail end of these vessels’ commercial life.