Business Context and Reporting Period
This Form 6-K filing by Ship Finance International Limited (SFL) covers the month of July 2018, with the report dated July 13, 2018. The filing discloses material asset divestitures and a new strategic investment as part of the company's fleet renewal and diversification strategy.
Key Financial Metrics and Transactions
- Asset Sales: Agreed to sell the 2007-built jack-up rig Soehanah and three 2002-built VLCCs (Front Page, Front Stratus, Front Serenade).
- Proceeds: Net proceeds from the VLCC sale are approximately $77.6 million, including $10.1 million in an interest-bearing loan note. The sales price for the Soehanah is confidential.
- Book Value and Impairment: The aggregate book value of the three VLCCs is approximately $99 million. A book impairment is expected to be recorded in the second quarter due to the sale price being below book value.
- Profitability: The sale of the Soehanah is expected to generate a book profit. The rig is debt-free.
- Charter Backlog: Over the last three months, the company took delivery of 19 vessels with long-term charters, increasing the fixed charter backlog by nearly $600 million.
- Current Income: SFL continues to receive a bareboat charter rate of approximately $10,000 per day for the Soehanah until delivery.
Material Changes and Strategic Moves
The company is executing a strategy to divest older vessels to renew and diversify its fleet. Key changes include:
- New Investment: SFL acquired a 17% interest in ADS Crude Carriers Ltd. ("ADS"), a newly established company formed to acquire the three VLCCs.
- ADS Capital Structure: ADS raised $58 million in equity (including SFL's contribution) and $30 million in non-amortizing secured debt.
- Future Operations: ADS intends to list on the Oslo Mercur Market, target a 100% payout of net cash flow, and upgrade vessels with scrubbers prior to 2020.
- Fleet Composition: Following the transaction, only five vessels will remain on charter to a subsidiary of Frontline Limited.
Outlook, Risks, and Management Commentary
CEO Ole B. Hjertaker stated that the company expects to reinvest proceeds from these sales into new assets. Management believes the tanker cycle is near a low point with limited downside to recycling values, viewing the minority stake in ADS as an opportunistic investment with significant upside potential and low risk exposure.
Risks and Contingencies: The filing includes standard forward-looking statement disclaimers citing risks such as fluctuations in charter hire rates and vessel values, changes in OPEC production levels, bunker prices, regulatory changes, and potential litigation.
Investor Verification Checklist
- Verify the exact sales price of the Soehanah rig, which is currently confidential.
- Confirm the timing of the book impairment charge in the second-quarter financial results.
- Monitor the delivery dates for the Soehanah (expected H2 2018) and the three VLCCs (expected Q3 2018).
- Track the listing progress of ADS Crude Carriers Ltd. on the Oslo Mercur Market.
- Assess the impact of the $600 million increase in fixed charter backlog on future cash flow stability.