Malaysian carrier MISC, rejuvenated by improving tanker freight rates, could purchase secondhand oil tankers if these are backed by charter contracts.
The company’s new chief executive officer, Yee Yang Chien, made this revelation at a recent briefing for analysts.
CIMB Securities analyst Raymond Yap, who attended the briefing, wrote, “The message was to expect MISC to pursue asset growth opportunities in the next one to two years, in addition to benefiting from the ongoing strength in tanker rates.”
VLCC freight rates have crossed the USD100,000/day mark on low newbuilding deliveries and growing oil trade, fuelled by falling oil prices. The oil shock has also caused bunker prices to fall, slashing operating costs.
The acquisitions can easily be funded as MISC’s net gearing by the end of 2015 is expected to be only 12.3%, falling to 3% by the end of 2016 after USD830 million is received from the recent sale of its entire 50% interest in the low-yielding VTTI tank terminal business.
Yee told the analysts that MISC had been offered attractive rates for three-year VLCC charters at about USD42,000/day, which after deducting USD12,000/day in assumed operating costs, can net MISC USD30,000/day, or USD10.5 million over a 350-day year.
This will enable MISC to cover one-third of the USD95.5 million cost of a 320,000 dwt VLCC newbuilding, or 30% of the USD105 million cost of a newbuilding resale, which is attractive in view of those ships with a natural lifespan of 20-25 years.
MISC is also considering potential purchases of charter-backed floating production storage offloading (FPSO) assets.
Assuming that MISC gears up to 50% net debt-to-equity by the end of the 2016 financial year, it will have the theoretical firepower to purchase 26 VLCC newbuildings at 80% financing.
Yap cautioned, “However, we think MISC may be constrained by its ability to find, negotiate and secure deals with charterers, as well as the time-consuming process of negotiating shipbuilding contracts or secondhand purchases. Although MISC believes that tanker rates can remain strong for two to three years, we think rates may come under downward pressure from 2H16, which could change the dynamic of charter negotiations.”
IHS Maritime’s Sea-web data shows 58 VLCCs will be built in 2016, compared with just 25 deliveries this year and 24 deliveries in 2014.
Yap said, “[Throughout] 2016, we are expecting the average effective tanker fleet to grow some 4.7% year-on-year, which may be marginally higher than demand growth of 4.5%, but significantly faster than the less-than-1% annual supply growth in both 2014 and 2015.
“In addition, if Iran is released from sanctions by the end of 2015, its VLCCs and other tankers may end up competing for cargoes while additional Iranian export barrels may take some time to enter the market.”