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This Shipping Magnate Is Calling a Bottom in the Oil Rout

27 Jun 2017 9:30 am
By Costas Paris 

OSLO -- Shipping magnate John Fredriksen is trying to buy more oil tankers despite a glut of vessels afloat, a looming $10 billion in debt and two failed takeover attempts that have left his empire reeling.

The self-made billionaire, who also is a major player in offshore oil drilling and salmon farming, says he is working 17-hour days as he looks to expand his fleet of the most voluminous tankers -- known as very large crude carriers, or VLCCs. He also is pressing forward with a messy restructuring of his offshore-drilling business, Seadrill Management Ltd.

"We used to be the biggest VLCC owner, but now we are No. 4" as his tanker company, Frontline Ltd., shrank while rivals expanded, said Mr. Fredriksen in a rare interview earlier this month. "I'm looking to invest more than two billion [dollars] in acquisitions," he said, noting he is primarily looking to acquire companies outright rather than buying tankers from rivals.

An oversupply of cheap oil and too many tankers chasing too little cargo has respectively hit drilling and shipping hard. Mr. Fredriksen reckons shipping companies will scrap three times as many tankers this year than they did last year, with fewer new vessels coming to market.

"Around 150 very large crude carriers, or about 20% of the existing fleet, will be scrapped over the next couple of years," said the 73-year-old, known in the industry as "Big John." "To have a say in the market you have to have size, so I'm looking to buy tankers all the time."

The price of a five-year-old VLCC has fallen 17% to around $58 million over the past year. Amid this drop, Frontline pressed a $765 million, hostile takeover for Norway's DHT Holdings Inc. earlier this year.

DHT fought off that effort, prompting Mr. Fredriksen to drop his bid and turn his sights on U.S.-listed listed Gener8 Maritime Inc., a deal that would have created the world's largest tanker fleet if sealed. But the talks with Gener8 fell apart over price.

Frontline CEO Robert Hvide Macleod Monday said the company is still on the hunt, but isn't currently involved in any takeover activity. "We believe the market will offer good opportunities in the future, and our strategy is to continue expanding the fleet," Mr. Macleod said.

Despite some consolidation among container liners, shipping remains a highly fragmented industry, marred by overcapacity and lengthy price wars. Dozens of companies that ship containers, oil and commodities like iron ore and grain have declared bankruptcy over the past three years. Others have fallen deeply into the red as freight rates lurk well below break-even levels.

"The tanker market is depressed, so his quest to make Frontline even bigger seems odd," said Mike Sapountzoglou, a director at Athens-based ship management and financing company Flagship Navigation Ltd. "But it will eventually recover and Fredriksen is renowned for his sense of timing."

Mr. Fredriksen said U.S. hedge funds and Chinese state-owned shipping companies were responsible for the cratering of the global shipping market over the past few years. Industry executives say around $30 billion was put into shipping from 2009 to 2015 by U.S. investors, exacerbating a capacity glut.

The son of a Norwegian shipyard welder, Mr. Fredriksen dropped out of high school and moved to Beirut to trade oil. He later supplied fuel to the U.S. Air Force during the war in Vietnam. His tankers moved crude out of Iran during that nation's war with Iraq in the 1980s.

He gave up his Norwegian citizenship in 1996 and became citizen of Cyprus. He also has offices in Singapore and Bermuda, where taxes are substantially lower than in his native Norway.

Mr. Fredriksen has said his empire would be passed to his twin daughters, Kathrine and Cecilie, who are increasingly taking responsibilities in the group.

Apart from Frontline, Mr. Fredriksen also controls dry-bulk shipping company Golden Ocean Group, vessel-leasing firm Ship Finance International Ltd, Seadrill and the world's biggest Atlantic salmon producer, Marine Harvest ASA. He is worth more than $9 billion according to Forbes.

He faces a July 31 deadline to restructure some $10 billion of debt in Seadrill, which operates 49 oil rigs and has an additional 13 under construction.

Demand for the company's rigs, which formerly commanded daily leases of up to $800,000, dropped to around $200,000 as cheap oil from U.S. shale drilling flooded the market. In May the company said it had made significant progress with its banks on the terms of a restructuring plan that would likely require filing for bankruptcy protection in the U.S. or U.K.

"It's hard to answer if it will come out of restructuring, but as long as I back it, we'll be OK," said Mr. Fredriksen, declining to elaborate. "In the past, we've dealt with messier situations than Seadrill, but we came through."

Write to Costas Paris at costas.paris@wsj.com

(END) Dow Jones Newswires

June 27, 2017 05:30 ET (09:30 GMT)

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