Fredriksen wins in tale of two shipping owners

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When the shipping world last got together in Athens in June 2010 for the biennial Posidonia shipping exhibition, John Fredriksen and Peter Georgiopoulos cut very different figures.

Mr Fredriksen, founder of the formidable group of shipping companies that includes Frontline, the world’s biggest tanker operator, spent much of the get-together drinking beer in the foyer of the Astir Palace hotel, recounting how he had turned nearly all his assets into cash. He wanted to be ready for a bad shipping market.

Meanwhile, Mr Georgiopoulos, founder of General Maritime, one of the world’s most important tanker owners, was deep in conversation secretly agreeing a deal, announced shortly afterwards, to spend $620m on buying seven tankers from Metrostar Management Corporation.

The consequences of the two stances have become clear over the past three weeks. On November 17, General Maritime, weighed down by the debt associated with the Metrostar purchase, sank into Chapter 11 bankruptcy protection.

Yesterday, Mr Fredriksen was able to announce Hemen Holdings, the vehicle for his private interests, was putting up $505m in guarantees to set up a new company that would take over many of the obligations that could have forced Frontline into the same plight.

The move means that Hemen, which controls only 34 per cent of the old Frontline, will control up to 90 per cent of a new company, Frontline 2012, that will seek to be a “consolidator” by buying up ships from round the fragmented tanker industry to form a new powerful force.

The move is typical of a man known for making bold bets on the shipping markets where he has worked for all of his adult life.

“It’s a pretty gutsy move by any standards,” says Johnny Plumbe, chief executive of ACM Shipping, a London-based shipbroker specialising in tankers.

The attempt is particularly bold since the worst tanker market since the mid-1980s has been caused not by a temporary shortfall in oil demand but by a long-term oversupply of ships.

Tanker capacity is expected to grow by about 9 per cent next year, well ahead of oil demand growth of about 2 per cent.

“He’s been brave enough to put his own money into this,” Mr Plumbe says of Mr Fredriksen.

“Will he then be brave enough to go out and buy tonnage? I just think at the moment even he might not go out and do that.”

Yet investors and banks may back Mr Fredriksen and the new company out of simple faith in his remarkable instinct, demonstrated over decades, for spotting bulk shipping market trends and exploiting them.

That has been particularly honed, according to Paul Slater, a veteran shipping financier, by Mr Fredriksen’s experience of seeing cash bleeding out of the company in previous depressed markets.

Each of Frontline’s very large crude carriers lost on average $17,600 for every day they operated in the third quarter.

Mr Slater contrasts Mr Fredriksen’s instinct for that danger – and determination to slim down the old Frontline – with the approach taken by other owners, including Mr Georgiopoulos, who entered shipping from investment banking.

“He knows that the only way to stop the cash going out of the door in a market that shows no sign of recovery is to completely shrink the company,” Mr Slater says of Mr Fredriksen. “For every ship you get rid of, even if you take a loss on it, you’re saving yourself the cash lost.”

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