The commoditisation of VLCCs made it difficult to tell a new story to potential investors – that is until IMO changed the rules on fuel
Hunter Tankers is a newbuilding project that harks back to a less digitalised, less regulation-bound era of financial innovation that spawned speculative ventures like Bulk Transport in 1983. Bulk Transport was an equity-financed vehicle for investing in modern VLCC (and ULCCs) whose value was clearly under-priced compared to historical values. The following quote from Bulk Transport’s terms of reference could easily be taken from that of Hunter Tankers contemporary offering:
“Its intention is to identify and invest in sectors of the shipping market where the values of ships have fallen to exceptionally low levels, but where the underlying balance of supply and demand has begun to improve. By purchasing tonnage near the bottom of the market, the company expects to achieve significant capital appreciation within a few years.”
This is also the crux of the Hunter Group value statement; that VLCC newbuildings are historically undervalued and the fleet is ageing, with the added incentive that IMO 2020 has disrupted the commoditisation of VLCCs.
The Hunter Group has eight VLCCs on order at DSME in South Korea, with deliveries commencing in Q4 2019 through to Q3 2020. The key component of the venture is the cost; the estimated cost of the Hunter VLCCs including scrubber is US$86M, which according to Hunter Tankers, is below the nominal average cost of VLCC newbuildings over the last 20 years and that in itself is an incentive to invest in VLCCs. As newbuilding costs go up, so will the value of modern tonnage already available.
The Hunter Group also believes the availability of modern tonnage will slow. The VLCC fleet is expecting a relatively high volume of deliveries, especially in the first quarter of 2019, but from 2020 the 38 new deliveries are balanced by 56 VLCCs over the age of 15 years old, and the projected eight deliveries in 2021 are balanced by 46 VLCCs over the age of 15 years old.
Further, the Hunter Group’s VLCCs are modern designs and on a like-for-like basis older VLCCs have higher fuel consumption. According to Hunter Tankers (based on Fearnleys Securities data) the time charter equivalent earnings for a Hunter VLCC will be nearly three times that of a 2002-built VLCC.
Who is behind the Hunter Group?
Hunter Group ASA is a shipmanagement company listed on the Oslo Axess (a sister board to the Oslo Borse but for companies of less than three years trading). Its current shareholders include Apollo Asset Ltd of the Cayman Islands (currently 26.89% of the shares) and 19 other minority investors.
Norwegian investor Arne Fredly is believed to be the main shareholder of Apollo Asset, which had invested in offshore assets, some of which were managed by Hunter Group.Under its latest incarnation, Hunter Group is a financial vehicle for what is essentially a VLCC asset play. It is built around the IMO 2020 global marine fuel sulphur cap and predicated on the expected difference between the price of low sulphur fuel and the cost of high sulphur fuel burnt in scrubber-equipped newbuildings.
The Hunter Group is the registered owner of Hunter Tankers AS, a Norwegian company that owns eight VLCCs under construction at DSME. The first of these is to be delivered in late 2019. As at March 2019, Hunter Group had US$120M in paid-in equity, and needs to raise a further US$160M in equity to secure debt of US$420M to finance the eight VLCCs on order.
In typical Norwegian fashion, the company has a very tight management structure. The chief executive and finance officer roles are shared by ex-Fearnelys Securities manager Eric A. S. Frydendal. The chief operating officer is the highly experienced Sujoy Seal who is overseeing the newbuilding project. Hunter Group has also been appointed senior technical advisor for the four Hartree Maritime Partners LLC VLCC tankers to be constructed at DSME.
“The Hunter Group VLCCs are conservatively designed to meet the requirements of the major spot charterers”
“It is Hartree and Hunter’s intention to form a new scrubber-fitted pool to operate this fleet of eco VLCC vessels," says Hartree managing director Guy Merison. "By combining Hartree’s global trading and chartering experience and Hunter’s technical knowledge this pool will serve to minimise operational costs whilst maximising earnings. We will be working with other scrubber-fitted VLCC operators to expand this pool,” he adds.
The focus of the project are the scrubbers, which are being supplied by Wärtsilä. The scrubber is fitted to a de-rated Tier III MAN Energy Solutions 7G80ME-C9.5 with a NCR of 17,160 kW x 59.0 rpm, burning around 62.9 tonnes of fuel per day.
The VLCC design is dual class LR +100A1 and DNV-GL 1A with a selection of equipment chosen from familiar manufacturers. Jotun is supplying the coating systems, Shinko of Japan providing cargo pumps and Scan-Jet the tank cleaning equipment. The gas and fire detection supplier is Consilium, Survitec is providing life rafts and Norsafe the lifeboats. MMG of Germany is supplying the propeller and the fuel-saving propeller boss cap fins.
Kongsberg plays a major role, supplying cargo tank gauging, cargo control, loading computer, engine room automation and ship performance monitoring. These are integrated in the bridge, where the navigation electronics will be supplied by Furuno. As well as the scrubber, Wärtsilä is providing the stern tube seals.
The Hunter Group VLCCs are conservatively designed to meet the requirements of the major spot charterers. This includes being built to the maximum level of compliance with the requirements of Exxon Mobil as per their Marine Environmental, Safety and Quality Assurance Criteria, 2017 (MESQAC, 2017). In fact, according to Hunter Group, the VLCCs, when delivered, will be the most compliant to MESQAC, 2017 ever delivered from DSME.
The first VLCC is due for delivery by the end of 2019.
And how did the Bulk Transport story end? In 1984, Bulk Transport raised US$21.25M in capital and listed on the Luxemburg stock exchange. Four years later, shareholders decided to approve a change of status from self-liquidating fund to a perpetual company. By then, nearly two-thirds of the then VLCC fleet was over the age of 10 years old and modern units were in high demand. In 1988, Bergersen d.y. offered US$50/share and purchased Bulk Transport for US$135M, representing a compound growth to investors of 39% per annum – a very good return for four years work.
Hunter Group VLCC Specifications
Length: 336 m
Breadth: 60 m
Depth: 29.50 m
Flag: Marshall Islands
Dual class: LR and DNV GL
Main engine: MAN Energy Solutions 7G80ME
Service Speed: 14.8 knots at designed draft of 20.5 m at 70% MCR (17,160 kW) with 15% sea margin