Eight late

John Fredriksen’s Frontline is facing delays of up to five months on eight suezmax newbuildings on order at Rongsheng.

News of the hold-up in China comes as Oslo and US-listed Frontline admits it will have to find $300m internally to fund its orderbook if market conditions fail to improve.

Such a move could lead to further cuts in its dividend payment, it warns.


Inger Klemp, CFO of Frontline, told TradeWinds: “We are operating on the basis that the delivery of each of the vessels will be pushed back one quarter from what we originally planned. But it could be up to five months for each vessel.”


Klemp adds the delays are due to well documented problems at China’s greenfield yards.


“Many of the greenfield yards have little experience of building vessels and have logistics problems because they have received so many orders,” she said.


“This is not a specific problem for Rongsheng; it is an issue for all of the new yards.”


Frontline expects to take delivery of the first of the octet in the first quarter next year, with the last unit tipped to hit the water in the fourth quarter of 2010. It paid between $71m and $71.5m for each of the vessels.


Its total newbuilding commitment stretches to $1.79bn, Frontline’s third quarter report says.


It has paid $293m in instalments for the vessels, with the remaining payment of $1.40bn due by 2011.


Frontline said: “Based on committed financing and indications given in today’s depressed credit market for possible obtainable financing of the remaining unfinanced vessels, together with fixed contract revenues above cash cost breakeven rates, the company expects a maximum of $300m in additional funds will be needed to complete a full financing of [our] newbuilding commitment.


“If the credit market doesn’t improve before 2012, this might have to be funded from the operational earnings from existing and new vessels. Such a solution might reduce the dividend capacity temporarily.”


Frontline added: “The board is confident that Frontline with its strong presence in the banking market and through possible refinancing of existing tonnage can improve this position further.”


As TradeWinds reports today Frontline has already trimmed its dividend for the third quarter to $0.50 per share due to a squeeze in the credit markets.


The tanker owner banked $107.8m in the quarter, against the $22.7m seen a year ago.


Adjusted earnings per share of $1.79 fell well short of the $2.24 the market was expecting. This was because its VLCC earnings lagged behind its rivals, as leading analysts suggested yesterday. (Click here to read the article)

TradeWinds