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[OSLO] The pace of consolidation in the crisis-hit shipping industry accelerated on Monday after three of Norway's biggest offshore oil industry service vessel (OSV) operators announced plans to merge to create one of the biggest fleets in the sector.
Shipping tycoon John Fredriksen and Norwegian billionaire Kjell Inge Roekke said they had agreed a restructuring plan for Farstad Shipping, via a debt-for-equity swap and additional share issue, solving long-running efforts to address liabilities worth 12.6 billion crowns (S$2.02 billion) at end-September.
The duo will then merge Farstad and Mr Fredriksen's Deep Sea Supply into Roekke's Solstad Offshore.
The move comes just days after Frontline, Mr Fredriksen's listed oil tankers operator, launched a US$475m offer for Double Hull Tankers, a smaller rival, while Fredriksen is also trying to resolve a US$14 billion debt crisis at his drilling rig firm Seadrill, where he is chairman and the biggest shareholder.
It also marks the latest deal in a sector hit by overcapacity and low demand from oil firms, due to a halving of the oil price since mid-2014.
The three-way merger between Farstad, Solstad and Deep Sea Supply will create a newly named company, Solstad Farstad, which will have a combined fleet of 154 ships, making it the biggest owner of large vessels in the supply, anchor handling and construction support segments of the OSV market worldwide.
It would rank fourth overall when smaller vessels are included in the count, and will have an enterprise value of around 30 billion Norwegian crowns , according to estimates by brokerage Pareto. "With this solution, we provide Farstad, Solstad and Deep Sea Supply with an industrial platform to sustain the current downturn in the OSV market and be well positioned to exploit a market recovery," Farstad's chief executive Karl Johan Bakken said in a statement.
As part of the deal, Farstad's banks, bondholders and other creditors have agreed to convert billions of crowns owed into shares. In addition Mr Roekke and Mr Fredriksen are to fully underwrite a share issue by Farstad to raise 650 million crowns.
Subsequent to completing Farstad's restructuring, the companies will then merge, with Solstad Offshore taking over the other two companies under a share exchange, with Farstad shareholders getting 0.35 Solstad shares for every 12.5 Farstad shares and Deep Sea shareholders getting 1.32 Solstad shares for every 12.5 Deep Sea shares.
As a result Mr Roekke's Aker will own up to a quarter of the enlarged Solsted Offshore, while the Fredriksen family's Hemen Holding will hold up to 18 per cent, but following the merger they plan to adjust their holdings to become"approximately equal shareholders," the companies said. "This restructuring proposal means an increase from 39 million Farstad shares to 4.9 billion shares. It is a huge dilution (for Farstad shareholders)," said DNB credit analyst Magnus Vie Sundal.
The move to consolidate the support vessels sector comes as Mr Fredriksen, nicknamed "Big Wolf" for his business tactics, seeks to reinforce other parts of his shipping empire.
A week ago his tanker firm Frontline proposed a takeover of rival DHT, which was unanimously rejected late on Sunday by the DHT board.
Analysts and industry sources say Mr Fredriksen would be looking to scoop up DHT's new fleet of crude supertankers cheaply, to add to his ageing fleet of vessels, some of which are over 10 years old and less efficient.
DHT's tanker fleet, which includes two vessels due to be delivered next year, were currently worth in the region of US$1.18 billion, according to estimates from shipping intelligence provider VesselsValue.
Paddy Rodgers, chief executive of oil tanker company Euronav , which has a commercial tie-up with Frontline, ruled out a counter bid for DHT and saw a successful acquisition by Mr Fredriksen as a positive step. "It would be a major mistake for another ship owner to come in there, counter bidding against it to the point where one of you overpays to the detriment of your own shareholders. We are certainly not prepared to throw our hats in the ring on that basis," Rodgers told Reuters. "We can only hope that he succeeds," he said.
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