Frontline crisis as shares plummet

FRONTLINE, the huge master company of super-rich Norwegian shipping magnate John Fredriksen, is facing a new crisis.

The group, faced with a collapse in the revenue it can achieve for transporting crude oil, might have to sell some of its huge fleet of supertankers if it cannot renegotiate its $1.9 billion (£1.3 billion) of bank debt.

The shares slumped to a new low of $4.25 on Wall Street last week from a high of $18.

Fredriksen became the world's biggest tanker owner last year and will take delivery of two more supertankers before the end of the month, increasing his fleet to 40.

But freight rates have collapsed as the oil nations of Opec have restricted production. At a meeting of Opec leaders in Japan last week, the organisation rejected calls from the West to increase output.

Two years ago, one of Fredriksen's ships could have expected to earn about $100,000 a day. Now, the rate on the open markets is down to about $14,000, though Frontline claims its earnings are higher because it has some longer-term contracts, struck when times were better.

But still the company needs to earn nearly $24,000 a day per tanker to break even. And its chances have been undermined by a contract it signed this year with BP under which Frontline agreed to pay the British oil giant $33,000 a day for the use of each of four of its tankers.

Frontline plunged into the red by $32 million in the second quarter of this year and has seen its shares, which are listed in London, New York and Oslo, savaged as shareholders run scared of its high debt. The value of the company has slumped by more than 65% this year.

Ola Lorentzon, Frontline's managing director, told Financial Mail: 'If the current low rates continue for a long time, we will need to do something.'

He denied that Frontline, 40% of which is owned by Fredriksen, had to take immediate action, but he admitted the company might be forced to renegotiate debts with its bankers or consider selling and leasing back some tankers - or even selling them outright.

In the past, Fredriksen, 58, has used part of his enormous personal fortune to help Frontline through troughs in the industry.

Lorentzon said the company, which has an agreement with its banks to keep its cash reserves at $70 million or more, was confident that shipping rates would pick up by the end of the year and that it could avert a dramatic restructuring.

Fredriksen made much of his fortune, estimated by The Mail on Sunday's Rich Report at £860 million, from running tankers in the Persian Gulf in the Eighties during the war between Iran and Iraq.

Though analysts predict that Frontline will be forced to hold talks with its bankers, one said the company had a reputation for 'pulling rabbits out of a hat' when needed.