Ship Finance International Limited – Interim Report January – March 2004


  • Ship Finance reports a quarterly result of $44.1 million for the first quarter of 2004
  • Ship Finance announces a cash dividend of $0.25 per share.
  • 25% of Ship Finance’s common shares to be distributed to Frontline’s common shareholders
  • Ship Finance expects to list its common shares on the New York Stock Exchange on June 17, 2004
Ship Finance International Limited (“Ship Finance” or the “Company”), a wholly-owned subsidiary of Frontline Ltd (NYSE:FRO), was incorporated in Bermuda in October 2003 for the purpose of acquiring certain of the shipping assets of Frontline. In December 2003, Ship Finance issued $580 million of 8.5% Senior Notes. In the first quarter of 2004, Ship Finance has used the proceeds of the Notes issue, together with a refinancing of existing debt, to fund the acquisition of a fleet of 47 crude oil tankers (including one purchase option for a VLCC) from Frontline and has chartered each of the ships back to Frontline for most of their remaining lives. Ship Finance also entered into fixed rate management and administrative services agreements with Frontline to provide for the operation and maintenance of the Company’s vessels and administrative support services. The charters and the management agreements were each given economic effect as of January 1, 2004.
The long term time charters to Frontline extend for various periods depending on the age of the vessels, ranging from approximately seven to 23 years. Nine of the vessels that we acquired are on existing long term time charters and three vessels are on existing long term bareboat charters. Ship Finance has agreed with Frontline that it will treat all of these vessels as being under time charters from us, on the same terms and effective on the same date as the other 34 vessels for all economic purposes. With certain exceptions, the daily base charter rates, which are payable to us monthly in advance for a maximum of 360 days per year (361 days per leap year), are as follows:
2003 to 2006
2007 to 2010
2011 and beyond
Under the terms of a charter ancillary agreement, beginning with the 11-month period from February 1, 2004 and for each calendar year after that, Frontline has agreed to pay Ship Finance a profit sharing payment equal to 20% of the charter revenues for the applicable period, calculated on a TCE basis, realised by Frontline from use of our fleet in excess of  average rates of $25,575 per day for each VLCC and $21,100 per day for each Suezmax tanker.
Based on the existing charters Ship Finance will, have a free cash flow of a minimum of $200 million before debt repayments and $100 million after scheduled debt repayments. This excludes amounts receivable under profit sharing arrangements.
In accordance with United States generally accepted accounted principles (“US GAAP”), the Company accounts for 34 of the long term charters to Frontline as sales type leases while the remaining charters will initially be accounted for as operating leases. For those twelve vessels on existing long-term charters to third parties, the difference between amounts earned under those charters and the amounts due to the Company by Frontline will be remitted to Frontline and accounted for as a reduction to stockholders’ equity. This accounting treatment is required due to the related party nature of the charters and in the first quarter of 2004 resulted in a $38.5 million charge to equity.
The full report is enclosed on the following link: