Euronav Is Serious About Its Ambition To Be A Major Consolidator In The Tanker Market

Aug.12.14 | About: Euronav NV (EONVF)


Euronav didn't go into hibernation after acquiring 15 VLCCs from Maersk, as it purchased another 4 vessels.

The acquisition price of $85M per 3-year old vessel is higher than what the company paid for the Maersk acquisition.

This means the current fleet could be undervalued on the company's balance sheet, as the market value seems to be higher than the book value.

The company hints at more second-hand acquisitions.


I have now written two articles on Euronav (OTC:EONVF) in the past eight months; the second article focused on the acquisition of the VLCC fleet from Maersk. This has put Euronav on the world map of tanker owners and operators, and the company was proud to be one of the front-runners in the consolidation of the tanker market. More recently, Euronav has acquired another four tankers, and this article will focus on these new additions to the fleet.

The acquisition of four more vessels

When Euronav went on a shopping spree last winter, it said it was serious about consolidating the tanker market. These definitely weren't hollow words, as just a few months after closing the Maersk deal, Euronav has announced another vessel acquisition. It is purchasing 4 Japanese VLCC tankers with an average age of 3 years, for a total price of $342M.

It also looks like this won't be the last acquisition, as the company has said it "continues to see opportunities on the second-hand market as opposed to newbuilds".

Why this validates my previous statement that the Maersk tankers were bought on the cheap

In my previous article, I stated that Euronav's acquisition of the Maersk fleet happened for a total amount of $980M, which was approximately $65M per VLCC. I considered that to be cheap, given the fact that the acquired fleet was quite young and the price was considerably lower than a new-built or even a VLCC of the same age (using a straight-line depreciation over 20 years). As the vessel price seemed to have hit a bottom right at the moment Euronav finalized its acquisition, I went on the record and stated it was a cheap acquisition.

And this purchase of the four young vessels confirms how cheap the Maersk acquisition really was, as now Euronav had to pay $342M for four 3-year old VLCCs, which works out to be $85.3M per vessel, or substantially more than the Maersk acquisition earlier this year, even though the age difference is quite small.

This means that Euronav's book value might be underestimated, given the fact that the market price for the 15 Maersk tankers is currently $150-250M higher than the official book value. Theoretically, Euronav would be able and allowed to book this on its balance sheet, but the company will obviously refrain from doing so in order to avoid paying taxes on a non-cash gain. But let it be clear, the effective book value of Euronav is very likely higher than the number on the balance sheet.

How was this acquisition funded?

As mentioned before, the total price tag is $342M, which was expected to be funded by cash on hand, a $100M equity raise and $200M in bank debt. Fortunately, there was a strong demand for the equity raise, and just 24 hours later, Euronav had raised $125M at $11.84 per share, which was a discount of just 3% compared to the previous closing price. This is much better than the 22% discount on the placement earlier this year to finance the Maersk acquisition.

Investment thesis

Euronav no longer is the company it was two years ago, as it seems to be very serious about becoming a more dominant player on the tanker market and rejuvenating its fleet. The most recent acquisition of four new vessels fits this strategy perfectly, and I can only applaud this move, as I think Euronav will now offload some of its older tankers.

The charter rates for tankers remain quite weak, but I have become increasingly convinced Euronav will be one of the survivors, and with its young fleet, it can afford to wait for its competitors to send some of their older vessels to the scrap yard, which will re-balance the supply/demand ratio of the tanker vessels.

Unfortunately, the traditional "summer dip" doesn't seem to be happening this year, and I was speculating on this yearly recurring event to take a position

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