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Shareholders in one of the largest operators of oil product tankers are facing heavy dilution of their stakes under an agreement with the owners of the company’s ships and its banks.
The announcement on Wednesday by Denmark’s Torm appears to end the lengthy battle by Villy Panayotides, its 52 per cent shareholder, to retain control of the heavily-indebted and lossmaking operator of the world’s second-largest product tanker fleet.
The Financial Times on Monday reported the collapse of efforts to arrange an injection of $100m to $200m in new equity that Torm had hoped would improve its financial position. The deal’s collapse left the company’s banks to devise a means to reduce its $1.9bn debt burden and rescue it from potential insolvency.
Torm said on Wednesday that it had reached a “conditional framework agreement” in principle with the co-ordinating committee of its banks – made up of Danish Ship Finance, Danske Bank and Nordea. The deal would provide Torm with a working capital facility and “substantial amortisation and covenant relief under the existing credit facilities,” the statement said.
The company added it had also reached a “conditional agreement” with the main owners of the ships it charters. Torm has been suffering from paying high rates agreed during the shipping boom to charter ships, while earning rates far too low to cover what it pays out. The main owners had agreed to adjust their charter rates to the latest heavily depressed levels, Torm said.
If the agreements are finalised, both the banks and shipowners would receive a “significant equity stake” in return for their concessions to the company.
“Thus, it is expected that the new shares in Torm will have a substantial dilutive effect on the existing shareholders,” Torm said.
The “exact consequences” for existing shareholders would be presented when the agreements are finalised, it added.
Torm has been one of the highest profile casualties of a prolonged collapse in earnings for nearly all major ship types as a result of a glut of ships ordered during the industry’s 2002 to 2008 boom.
In November, the crisis pushed one of the largest US-based operators of crude oil tankers, General Maritime, into Chapter 11 bankruptcy protection. In December, it forced John Fredriksen, the world’s highest-profile shipowner, to put up $505m in guarantees from his personal companies for a rescue deal for Frontline, the world’s biggest specialist owner of crude oil tankers.
Torm’s shares, which are listed in Copenhagen and on Nasdaq, fell DKr0.08 in Copenhagen to DKr2.83.