Analysis Of The Golden Ocean Group Sale And Lease-Back Deal With Ship Finance International

Summary

  • Golden Ocean will sell eight cape size vessels to Ship Finance International on a 10-year sale and lease-back deal.
  • Terms of the deal include a base hire, profit sharing and a purchase option at the end of the term.
  • Ship Finance will earn a 4.25% IRR on the base hire and will have a 33% profit sharing over the next 10 years.
  • Golden Ocean will obtain off-balance-sheet financing at a reasonable rate and will keep commercial control of the vessels.

On March 31st, Knightsbridge Shipping Limited formally merged with the "old" Golden Ocean Group Limited, with the surviving entity becoming the "new" Golden Ocean Group Limited (NASDAQ:GOGL). Only a few months ago, Knightsbridge had agreed to merge with Frontline 2012 Ltd. (OTC:FLINZ). The two transactions bring under the same roof the investment holdings of John Fredriksen in dry bulk carriers. Following the merger, Hemen Holdings Limited, a trust controlled by John Fredriksen, will retain the majority of shares (approximately 53%) of the combined entity.

John Fredriksen is of course no stranger to the shipping industry, arguably being one of the most successful shipowners during the last cycle. What I like the most about him is that he never stands still, always trying to be a step ahead of the competition in one of the most volatile segments of the broader energy complex.

Case in point, it took less than a month to strike another blockbuster deal. Or three deals if we want to be precise. In a press release last Monday, Golden Ocean announced the sale and leaseback of eight modern cape size bulk carriers to Ship Finance International Limited (SFL), another company where Hemen Holdings has an investment holding, albeit a minority one. The company also announced the sale of four cape size vessels currently under construction to a third party, and agreements with yards to delay the delivery for several of its new-building vessels.

In this article, I will analyze the merits of the sale and leaseback deal. The eight vessels have an average age of approximately five years and are scheduled for delivery to Ship Finance in July. The vessels were sold for $34 million apiece, and will be chartered back to Golden Ocean for ten years at a base rate of $17,600 for the first seven years and $14,900 for the remaining three

This article was written by

Lambros Papaeconomou is a business writer and owner of NYFEX Research, a strategic advisory firm specializing in shipping, logistics, and capital markets. He has over 25 years of work experience in the shipping industry.Prior to founding NYFEX Research, Lambros was the US Correspondent for Lloyd's List, focusing on news reporting, analysis and commentary on capital markets and publicly traded shipping companies.Lambros studied Naval Architecture & Marine Engineering at the National Technical University of Athens. He holds an MBA from the University of California at Berkeley, and he is certified as a CPA by the State of Illinois.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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