SFL - Acquisition of three newbuild LR2 product tankers in combination with long term charters
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Insights
The acquisition of three LR2 product tankers by SFL Corporation Ltd. represents a significant strategic move in the maritime shipping industry, particularly within the clean petroleum products sector. The LR2 classification refers to Long Range 2 tankers, which are medium-sized vessels capable of carrying between 80,000 to 120,000 deadweight tons. This segment is critical for the transportation of refined oil products and the demand for such vessels is directly tied to global consumption patterns and refinery output.
The timing of this acquisition suggests that SFL is capitalizing on the current market cycle, potentially expecting an upswing in demand for clean petroleum transportation. Furthermore, the inclusion of the latest eco-design features in these vessels aligns with the industry's move towards more environmentally friendly solutions, a factor that can provide SFL with competitive advantages in terms of operational costs and compliance with future regulations.
The financial implications for SFL are substantial, with a near $200 million addition to the fixed-rate backlog, offering revenue stability. However, the long-term benefits and risks will largely depend on the fluctuating charter rates, geopolitical factors affecting oil trade routes and the overall health of the global economy. The option for the charterer to purchase the vessels introduces a variable that could either lead to capital gains for SFL or result in the loss of assets and potential future earnings if exercised.
From a financial perspective, the transaction involving SFL's acquisition of new product tankers for $230 million, backed by long-term charters, is indicative of the company's growth-oriented strategy and its focus on securing stable cash flows. The deal structure, including minimum five-year charters with extension options and a profit-sharing mechanism, provides a predictable revenue stream while mitigating some of the risks associated with the cyclical nature of the shipping industry.
Investors should note the relationship between SFL and Hemen Holding Ltd., the seller and also the largest shareholder of SFL. This related-party transaction warrants scrutiny to ensure that the purchase price aligns with market valuations and that the terms are favorable to all shareholders. The deal's financing details, which are not disclosed, will also impact the company's leverage and liquidity position, factors important for maintaining financial health in a capital-intensive industry.
Given the forward-looking statements made by the CEO regarding market cycles and future energy needs, investors should also consider the broader energy market trends, including the shift towards renewable energy sources and the potential impact on long-term demand for oil transportation services.
The integration of the latest eco-design features into the new LR2 product tankers is an important aspect of this acquisition. These design improvements are likely to include measures to reduce fuel consumption and lower emissions, such as optimized hull shapes, more efficient engines and possibly systems for treating ballast water and exhaust gases. As environmental regulations in the shipping industry continue to tighten, with the International Maritime Organization (IMO) imposing stricter sulfur limits and greenhouse gas reduction targets, these features will not only help SFL meet current standards but also prepare for future regulatory changes.
While these eco-friendly advancements are beneficial for environmental compliance, they also have financial ramifications. Vessels with eco-design features typically command higher charter rates and have better resale values. Additionally, they can lead to operational savings by reducing fuel costs, which are a significant expense for shipping companies. For stakeholders, the focus on eco-design is a proactive approach that balances regulatory foresight with potential economic gains. However, the upfront costs associated with these technologies and their rapid evolution could pose challenges, requiring continuous investment to maintain competitive advantages.
SFL Corporation Ltd. (NYSE: SFL) (“SFL” or the “Company”) announced today that it has agreed to acquire three new LR2 product tankers for an aggregate purchase price of approximately
The vessels are currently under construction in China, with the latest eco-design features. The sellers are affiliates of the Company’s largest shareholder Hemen Holding Ltd, and the purchase price is in line with valuations by independent shipbrokers.
The Company expects to take delivery of the vessels between the second and fourth quarter of this year, and the charter period will be minimum five years plus up to three years of extension options. This adds close to
Ole B. Hjertaker, CEO of SFL Management AS, said in a comment: “We are pleased to do another milestone transaction in the tanker market at what we believe is an attractive stage of the market cycle. These product tankers are the most desired vessels for carrying clean petroleum products over long sea distances between the largest refineries and consumer centers of the world and will be in high demand to meet the future energy needs of the world. We are also very proud to add another leading energy and commodity powerhouse to our list of high quality clients.”
March 20, 2024
The Board of Directors
SFL Corporation Ltd.
Hamilton, Bermuda
Investor and Analyst Contacts:
Aksel Olesen, Chief Financial Officer, SFL Management AS
+47 23 11 40 36
André Reppen, Chief Treasurer & Senior Vice President, SFL Management AS
+47 23 11 40 55
Sander Borgli, Vice President - IR, SFL Management AS
+47 23 11 40 73
Media Contact:
Ole B. Hjertaker, Chief Executive Officer, SFL Management AS
+47 23 11 40 11
About SFL
SFL has a unique track record in the maritime industry and has paid dividends every quarter since its initial listing on the New York Stock Exchange in 2004. The Company’s fleet of vessels is comprised of tanker vessels, bulkers, container vessels, car carriers and offshore drilling rigs. SFL’s long term distribution capacity is supported by a portfolio of long term charters and significant growth in the asset base over time. More information can be found on the Company's website: www.sflcorp.com
Cautionary Statement Regarding Forward Looking Statements
This press release may contain forward looking statements. These statements are based upon various assumptions, many of which are based, in turn, upon further assumptions, including SFL management’s examination of historical operating trends, data contained in the Company’s records and other data available from third parties. Although SFL believes that these assumptions were reasonable when made, because assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond its control, SFL cannot give assurance that it will achieve or accomplish these expectations, beliefs or intentions.
Important factors that, in the Company’s view, could cause actual results to differ materially from those discussed in the forward looking statements include the strength of world economies, fluctuations in currencies and interest rates, general market conditions in the seaborne transportation industry, which is cyclical and volatile, including fluctuations in charter hire rates and vessel values, changes in demand in the markets in which the Company operates, including shifts in consumer demand from oil towards other energy sources or changes to trade patterns for refined oil products, changes in market demand in countries which import commodities and finished goods and changes in the amount and location of the production of those commodities and finished goods, technological innovation in the sectors in which we operate and quality and efficiency requirements from customers, increased inspection procedures and more restrictive import and export controls, changes in the Company’s operating expenses, including bunker prices, dry-docking and insurance costs, performance of the Company’s charterers and other counterparties with whom the Company deals, the impact of any restructuring of the counterparties with whom the Company deals, and timely delivery of vessels under construction within the contracted price, governmental laws and regulations, including environmental regulations, that add to our costs or the costs of our customers, potential liability from pending or future litigation, potential disruption of shipping routes due to accidents, political instability, terrorist attacks, piracy or international hostilities, the length and severity of the ongoing coronavirus outbreak and governmental responses thereto and the impact on the demand for commercial seaborne transportation and the condition of the financial markets, and other important factors described from time to time in the reports filed by the Company with the United States Securities and Exchange Commission. SFL disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
FAQ
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