LONDON, Sept 24 (Reuters) - Scorpio Tankers has agreed to acquire Trafigura subsidiaries that have leasehold interests in 19 ships in an all-share transaction worth $803 million, the companies said on Tuesday.
The deal is the latest move by commodities trader Trafigura to convert its investments in ship leases and ships that transport its commodities into shares of shipping companies.
The strategy is in expectation of an upturn in the tanker market in the coming months and an accompanying increase in the value of the equity stakes.
Under the agreement, Scorpio Tankers will take over the roughly $668 million principal balance on the leases and cover monthly costs for the 19 oil products tankers - four of which are still under construction - held in subsidiaries of Trafigura’s wholly owned Trafigura Maritime Logistics.
Scorpio Tankers will separately issue about 4.7 million shares at $29 a share to Trafigura for an aggregate market value of about $135 million.
“Today’s decision completes a strategic decision to crystallize financial benefits now and to move long-term leasing obligations into leading shipping equities, a place where we see significantly more value and upside potential,” Rasmus Bach Nielsen, Trafigura’s global head of wet freight, said in a statement.
“In our view, minimal supply growth and an expected demand spike through oil market disruption and bunkering inefficiencies are making product tanker market fundamentals look healthier than we’ve seen for many years.”
Scorpio Tankers announced separately on Tuesday private placements with Trafigura for $35 million and Scorpio Services Holding, a related party, for $15 million for an aggregate total of 1.7 million shares at $29 a share.
After the closing of both transactions, which is expected before Sept. 27, Trafigura will own approximately 10% of the ordinary shares in Scorpio Tankers with a value of about $170 million.
Scorpio Tankers Chief Executive Emanuele Lauro said the transaction represented “a close alignment between Scorpio and Trafigura, a strategic customer and now a valued shareholder”.
In August Trafigura announced it had agreed to sell 10 suexmax crude oil tankers to another leading shipping group, Oslo-listed Frontline, in a separate share deal that will make the Geneva-based trader Frontline’s second-biggest shareholder.
Trafigura needs to maintain a healthy debt-to-equity ratio as a guarantee for its bank lenders.
The company has struggled to keep a lid on its debt but managed to hit its targeted ratio of below 1.0 times for adjusted debt to equity during its 2018 financial year, though the ratio rose in the first half of 2019 to 1.16 times.
Its total debt was at nearly $33 billion at March 31. (Editing by David Goodman)