Report: Sanctions Force Sovcomflot to Seek Sale of Tankers
Russian tanker shipping company Sovcomflot is reportedly scrambling in advance of the tightening ring of sanctions imposed on the company and the Russian oil industry. The latest report indicates that the tanker giant might be conducting what is tantamount to a “fire sale” for as much as a third of its fleet in the next 10 days as first reported by Lloyd’s List.
A week ago, Sovcomflot effectively defaulted on the interest payment due against its second tranche of Eurobonds. The company cited the March 15 EU sanctions followed by the UK sanctions on March 24 which it said prevented it from making the nearly $8.3 million coupon payment due on April 26 for the Eurobonds. “The payment agent has refused to accept payment from the issuer or guarantor and make coupon payments to Eurobond holders,” the company wrote in its update saying it had $600 million in cash on hand and was seeking special licenses and clarifications that would allow it or the guarantor to pay the coupon.
Sovcomflot, however, is facing additional challenges as the sanctions order banks and financial institutions to wind down the deals and cut ties with the sanctioned companies including Sovcomflot by May 15. The leading P&I groups also placed pressure on the fleet by announcing they had either withdrawn or were in the process of canceling insurance coverage for the tankers. Further adding to the pressure is the announcement today from the European Union of the plan to accelerate to a full ban on Russian crude oil and refined oil products by the end of 2022.
With the deadline less than two weeks away, Lloyd’s List quoted an unnamed “senior industry official with direct knowledge of the deals,” reporting that as much as a third of Sovcomflot’s fleet has been put up for sale. They identified Chinese and Middle Eastern interests as the likely buyers. So far, they are reporting that eight vessels have been sold with four going to interests in Dubai.
The company reported in March that its fleet consists of 133 vessels with a total deadweight of 11.6 million tons. Excluded from the sale would be a few vessels owned through joint ventures. Lloyd’s put the available vessels at 121. About 80 vessels have an ice class as the company was working to rapidly expand its fleet to serve the northern gas fields in the Arctic and just over half the fleet is crude oil tankers. Sovcomflot also has a dozen tankers on order due for delivery between 2022 and 2024.
Industry analysts have been speculating that a growing portion of the fleet was likely to go into layup. Although, it has also been noted that some of the vessels went dark and there might be attempts to hide the ownership of vessels similar to the response to previous sanctions enacted against both Iran and Venezuela.
Lloyd’s estimated that Sovcomflot has $2.1 billion in outstanding bank debt with the vast majority held by western financial institutions. In addition, there is nearly $1 billion in the two issues of Eurobonds, which are due in 2023 and 2028.
The sources told Lloyd’s that the transactions are being handled in a professional manner. They believed that several deals were pending and would close in the next few days to help Sovcomflot payoff its western debt.