Prospectus Supplement
Table of Contents

Filed pursuant to Rule 424(b)(5)

Registration No. 333-210284

CALCULATION OF REGISTRATION FEE

 

Title of Each Class of Securities to be Registered (1)    Proposed Maximum
Aggregate Offering
Price (2)
  

Amount of

Registration

Fee (3)

8.25% Senior Notes due 2019

   $57,500,000    $6,665

 

 

(1) The securities registered herein are offered pursuant to an automatic shelf registration statement on Form F-3 (Registration No. 333-210284) filed by Scorpio Tankers Inc., effective March 18, 2016.

 

(2) Includes an additional $7,500,000 8.25% Senior Notes due 2019 that the underwriters have an option to purchase.

 

(3) Calculated in accordance with Rule 457(r) and is made in accordance with Rule 456(b) under the Securities Act of 1933, as amended.


Table of Contents

PROSPECTUS SUPPLEMENT

(To Prospectus dated March 18, 2016)

 

 

 

 

LOGO

 

 

 

$50,000,000 8.25% Senior Notes due 2019

We are offering $50,000,000 aggregate principal amount of our 8.25% Senior Notes due 2019 (the “Notes”). We have granted the underwriters the option to purchase, exercisable during the 30-day period beginning on the date of this prospectus supplement, up to an additional $7,500,000 aggregate principal amount of the Notes. The Notes will bear interest from March 31, 2017 at a rate of 8.25% per year. The Notes will mature on June 1, 2019. Interest on the Notes will be payable quarterly in arrears on the 1st day of March, June, September and December of each year, commencing on June 1, 2017. We may redeem the Notes at our option, in whole or in part, at any time on or after December 1, 2018, at a redemption price equal to 100% of the principal amount to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date, as described in “Description of Notes—Optional Redemption.” In addition, we may redeem the Notes in whole, but not in part, at any time at our option, at a redemption price equal to 100% of the principal amount to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date, if certain events occur involving changes in taxation, as described in this prospectus supplement under “Description of Notes—Optional Redemption for Changes in Withholding Taxes.”

The Notes will be senior unsecured obligations and will rank equally with all of our existing and future senior unsecured and unsubordinated debt. The Notes will be effectively subordinated to our existing and future secured debt, to the extent of the value of the assets securing such debt, and will be structurally subordinated to all existing and future debt and other liabilities of our subsidiaries. The Notes will be issued in minimum denominations of $25.00 and integral multiples of $25.00 in excess thereof.

 

 

Investing in the Notes involves risks. Please see “Risk Factors” beginning on page S-11.

 

 

 

     PER NOTE      TOTAL  

Public offering price

   $ 25.00      $ 50,000,000  

Underwriting discount

   $ 0.75      $ 1,500,000  

Proceeds, before expenses, to us

   $ 24.25      $ 48,500,000  

 

 

We have applied to list our Notes for trading on the New York Stock Exchange under the symbol “SBBC.” If approved for listing, trading on the New York Stock Exchange is expected to commence within 30 days after the Notes are first issued.

 

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus supplement or the accompanying base prospectus. Any representation to the contrary is a criminal offense.

 

 

Joint Bookrunning Managers

 

Stifel   Janney Montgomery Scott

Co-Managers

 

Ladenburg Thalmann   Wunderlich   Drexel Hamilton

We expect that delivery of the Notes will be made to investors on or about March 31, 2017, through the book-entry system of The Depository Trust Company for the accounts of its participants, including Euroclear Bank S.A./N.V., as operator of the Euroclear system, and Clearstream Banking, société anonyme.

The date of this prospectus supplement is March 28, 2017.


Table of Contents

TABLE OF CONTENTS

PROSPECTUS SUPPLEMENT

 

 

 

IMPORTANT NOTICE ABOUT INFORMATION IN THIS PROSPECTUS SUPPLEMENT

     S-i  

SERVICE OF PROCESS AND ENFORCEMENT OF CIVIL LIABILITIES

     S-ii  

INDUSTRY AND MARKET DATA

     S-iii  

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     S-iv  

PROSPECTUS SUMMARY

     S-1  

THE OFFERING

     S-5  

SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA

     S-8  

RISK FACTORS

     S-11  

USE OF PROCEEDS

     S-16  

RATIO OF EARNINGS TO FIXED CHARGES

     S-17  

CAPITALIZATION

     S-18  

THE INTERNATIONAL OIL TANKER SHIPPING INDUSTRY

     S-19  

BUSINESS

     S-28  

MANAGEMENT

     S-43  

SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT

     S-51  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     S-52  

DESCRIPTION OF NOTES

     S-57  

DESCRIPTION OF OTHER INDEBTEDNESS

     S-79  

MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

     S-94  

MARSHALL ISLANDS TAX CONSIDERATIONS

     S-97  

UNDERWRITING (CONFLICTS OF INTEREST)

     S-98  

EXPENSES

     S-101  

LEGAL MATTERS

     S-102  

EXPERTS

     S-103  

WHERE YOU CAN FIND ADDITIONAL INFORMATION

     S-104  

BASE PROSPECTUS

 

ABOUT THIS PROSPECTUS

     1  

PROSPECTUS SUMMARY

     2  

RISK FACTORS

     4  

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS

     5  

RATIO OF EARNINGS TO FIXED CHARGES

     7  

USE OF PROCEEDS

     8  

CAPITALIZATION

     9  

PLAN OF DISTRIBUTION

     10  

DESCRIPTION OF CAPITAL STOCK

     12  

DESCRIPTION OF DEBT SECURITIES

     13  

DESCRIPTION OF WARRANTS

     18  

DESCRIPTION OF PURCHASE CONTRACTS

     19  

DESCRIPTION OF RIGHTS

     20  

DESCRIPTION OF UNITS

     21  

TAX CONSIDERATIONS

     22  

SERVICE OF PROCESS AND ENFORCEMENT OF CIVIL LIABILITIES

     23  

EXPENSES

     24  

LEGAL MATTERS

     25  

EXPERTS

     26  

WHERE YOU CAN FIND ADDITIONAL INFORMATION

     27  

 

 

 


Table of Contents

IMPORTANT NOTICE ABOUT INFORMATION IN THIS PROSPECTUS SUPPLEMENT

This document is in two parts. The first part is this prospectus supplement, which describes the specific terms of this offering and also adds to and updates information contained in the accompanying base prospectus and the documents incorporated by reference into this prospectus supplement and the base prospectus. The second part, the base prospectus, gives more general information about securities we may offer from time to time, some of which does not apply to this offering. Generally, when we refer only to the prospectus, we are referring to both parts combined, and when we refer to the accompanying base prospectus, we are referring to the base prospectus.

If the description of this offering varies between this prospectus supplement and the accompanying base prospectus, you should rely on the information in this prospectus supplement. This prospectus supplement, the accompanying base prospectus and the documents incorporated into each by reference include important information about us, the Notes being offered and other information you should know before investing. You should read this prospectus supplement and the accompanying base prospectus together with additional information described under the heading, “Where You Can Find Additional Information” before investing in the Notes.

We prepare our financial statements, including all of the financial statements incorporated by reference in this prospectus supplement, in U.S. dollars and in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). We have a fiscal year end of December 31.

We have authorized only the information contained or incorporated by reference in this prospectus supplement, the accompanying base prospectus and any free writing prospectus prepared by or on behalf of us or to which we have referred you. Neither we nor the underwriters have authorized anyone to provide you with information that is different. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any information that others may give you. We are offering to sell, and seeking offers to buy, the Notes only in jurisdictions where offers and sales are permitted. The information contained or incorporated by reference in this document is accurate only as of the date such information was issued, regardless of the time of delivery of this prospectus supplement or any sale of the Notes.

 

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SERVICE OF PROCESS AND ENFORCEMENT OF CIVIL LIABILITIES

We are a Marshall Islands company, and our principal executive office is located outside of the United States in Monaco, although we also have an office in New York. Some of our directors, officers and the experts named in this prospectus supplement reside outside the United States. In addition, a substantial portion of our assets and the assets of certain of our directors, officers and experts are located outside of the United States. As a result, you may have difficulty serving legal process within the United States upon us or any of these persons. You may also have difficulty enforcing, both in and outside the United States, judgments you may obtain in United States courts against us or these persons.

 

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INDUSTRY AND MARKET DATA

The discussions contained under the heading “The International Oil Tanker Shipping Industry” have been reviewed by Drewry Shipping Consultants Ltd., or Drewry, which has confirmed to us that they accurately describe the international oil tanker shipping market as of March 15, 2017.

The statistical and graphical information we use in this prospectus supplement has been compiled by Drewry from its database. Drewry compiles and publishes data for the benefit of its clients. Its methodologies for collecting data, and therefore the data collected, may differ from those of other sources, and its data does not reflect all or even necessarily a comprehensive set of the actual transactions occurring in the market.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Matters discussed in this document and the documents incorporated by reference herein may constitute forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides safe harbor protections for forward-looking statements in order to encourage companies to provide prospective information about their business. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements, which are other than statements of historical facts.

We desire to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are including this cautionary statement in connection with this safe harbor legislation. This document and the documents incorporated by reference herein may include forward-looking statements, which reflect our current views with respect to future events and financial performance. The words “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “target,” “project,” “likely,” “may,” “will,” “would,” “could” and similar expressions identify forward-looking statements.

The forward-looking statements in this document and the documents incorporated by reference herein are based upon various assumptions, many of which are based, in turn, upon further assumptions, including without limitation, management’s examination of historical operating trends, data contained in our records and other data available from third parties. Although we believe that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond our control, we cannot assure you that we will achieve or accomplish these expectations, beliefs or projections.

In addition to these important factors and matters discussed elsewhere in this prospectus, and in the documents incorporated by reference in this prospectus, important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements include:

 

   

the strength of world economies and currencies;

 

   

general market conditions, including the market for our vessels, fluctuations in spot and charter rates and vessel values;

 

   

potential liability from pending or future litigation;

 

   

general domestic and international political conditions;

 

   

potential disruption of shipping routes due to accidents or political events;

 

   

vessels breakdowns and instances of off-hires;

 

   

competition within our industry;

 

   

the supply of and demand for vessels comparable to ours;

 

   

corruption, piracy, militant activities, political instability, terrorism, ethnic unrest in locations where we may operate;

 

   

delays and cost overruns in construction projects;

 

   

our level of indebtedness;

 

   

our ability to obtain financing and to comply with the restrictive and other covenants in our financing arrangements;

 

   

our need for cash to meet our debt service obligations;

 

   

our levels of operating and maintenance costs, including bunker prices, drydocking and insurance costs;

 

   

availability of skilled workers and the related labor costs;

 

   

compliance with governmental, tax, environmental and safety regulations;

 

   

any non-compliance with the U.S. Foreign Corrupt Practices Act of 1977 (FCPA) or other applicable regulations relating to bribery;

 

   

general economic conditions and conditions in the oil and natural gas industry;

 

   

effects of new products and new technology in our industry;

 

   

the failure of counterparties to fully perform their contracts with us;

 

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our dependence on key personnel;

 

   

adequacy of insurance coverage;

 

   

our ability to obtain indemnities from customers;

 

   

changes in laws, treaties or regulations;

 

   

the volatility of the price of our common shares and our other securities; and

 

   

other factors described from time to time in the reports we file and furnish with the U.S. Securities and Exchange Commission, or the Commission, and the New York Stock Exchange, or the NYSE.

We caution readers of this prospectus supplement, the accompanying base prospectus and the documents incorporated by reference into each not to place undue reliance on these forward-looking statements, which speak only as of their dates. We undertake no obligation to update or revise any forward-looking statements. These forward-looking statements are not guarantees of our future performance, and actual results and future developments may vary materially from those projected in the forward-looking statements.

 

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PROSPECTUS SUMMARY

This section summarizes some of the key information that is contained or incorporated by reference in this prospectus. It may not contain all of the information that may be important to you. As an investor or prospective investor, you should review carefully the entire prospectus, any free writing prospectus that may be provided to you in connection with the offering of our Notes and the information incorporated by reference in this prospectus, including the sections entitled “Risk Factors” on page S-11 of this prospectus supplement; on page 4 of the accompanying base prospectus in our Registration Statement on Form F-3, effective March 18, 2016; and in our Annual Report on Form 20-F for the fiscal year ended December 31, 2016, filed with the Commission on March 16, 2017, which is incorporated by reference into this prospectus. Unless the context otherwise requires, when used in this prospectus supplement, the terms “Scorpio Tankers,” the “Company,” “we,” “our” and “us” refer to Scorpio Tankers Inc. and its subsidiaries. “Scorpio Tankers Inc.” refers only to Scorpio Tankers Inc. and not its subsidiaries. The financial information included or incorporated by reference in this prospectus represents our financial information and the operations of our subsidiaries. Unless otherwise indicated, all references to currency amounts in this prospectus are in U.S. dollars. Unless otherwise indicated, all information in this prospectus supplement assumes that the underwriters’ option to purchase up to $7.5 million aggregate additional principal amount of the Notes is not exercised.

Our Company

We provide seaborne transportation of refined petroleum products worldwide. As of March 24, 2017, we operate a fleet consisting of 79 wholly-owned tankers (23 LR2 tankers, 14 Handymax tankers and 42 MR tankers) with a weighted average age of approximately 2.3 years, and 19 time or bareboat chartered-in tankers (nine Handymax tankers, eight MR tankers, one LR1 tanker and one LR2 tanker), which we refer to collectively as our Operating Fleet. In addition, as of the same date, we have contracts for the construction of eight newbuilding MR product tankers, which we refer to as our Newbuilding Program. These vessels are expected to be delivered to us throughout the remainder of 2017 and first quarter of 2018. Please see “Business” for a table of our fleet as of March 24, 2017.

Recent Developments

The following section describes recent developments that have occurred since January 1, 2017.

Vessel Deliveries and Related Debt Drawdowns

In February 2017 and March 2017, we took delivery of STI Selatar and STI Rambla, respectively, which are LR2 product tankers that were under construction, from Sungdong Shipbuilding & Marine Engineering Co., Ltd, or SSME, and drew down an aggregate of $58.4 million from our senior secured term loan facility with Credit Suisse AG, Switzerland, or the Credit Suisse Credit Facility, to partially finance the purchase of these vessels. The drawdowns are summarized as follows:

 

 

 

DRAWDOWN AMOUNT

(IN MILLIONS OF U.S. DOLLARS)

   DRAWDOWN DATE    COLLATERAL

$29.4

   February 2017    STI Selatar

29.0

   March 2017    STI Rambla

 

 

Time and Bareboat Chartered-in Vessels

In February 2017, we entered into a new time charter agreement on a 2013-built LR2 product tanker, which we then time chartered-in, for an additional six months at $14,360 per day effective February 2017. We also have the option to extend the charter for an additional six months at $15,385 per day.

In February 2017, we entered into new time charter agreements on two 2007-built ice-class 1B Handymax product tankers, which we then time chartered-in, each for one year at $11,250 per day. One agreement is effective in March 2017 and the other is effective in May 2017. We also have options to extend each of these charters for an additional year at $13,250 per day.

 



 

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Credit Facility Updates

2017 Credit Facility

In March 2017, we executed a senior secured term loan facility with a group of financial institutions led by Macquarie Bank Limited (London Branch) for a loan facility of up to $172.0 million, or the 2017 Credit Facility. The 2017 Credit Facility consists of five tranches, including two commercial tranches of $15.0 million and $25.0 million, a KEXIM Guaranteed Tranche of $48.0 million, a KEXIM Funded Tranche of $52.0 million, and a GIEK Guaranteed Tranche of $32.0 million.

The 2017 Credit Facility is expected to be used to partially finance the purchase of eight MR product tankers that are currently under construction at Hyundai Mipo Dockyard Co. Ltd. of South Korea, or HMD. Drawdowns are available at an amount equal to the lower of (i) 60% of the contract price and (ii) 60% of the fair market value of each respective vessel. Other key terms are as follows:

 

   

The first commercial tranche of $15.0 million has a final maturity of six years from the drawdown date of each vessel, bears interest at LIBOR plus a margin of 2.25% per annum, and has a 15-year repayment profile.

 

   

The second commercial tranche of $25.0 million has a final maturity of nine years from the drawdown date of each vessel (assuming KEXIM or GIEK have not exercised their option to call for prepayment of the KEXIM and GIEK funded and guaranteed tranches by the date falling two months prior to the maturity of the first commercial tranche and in the event that the first commercial tranche has not been extended), bears interest at LIBOR plus a margin of 2.25% per annum, and has a 15-year repayment profile.

 

   

The KEXIM Funded Tranche and GIEK Guaranteed Tranche have a final maturity of 12 years from the drawdown date of each vessel (assuming the commercial tranches are refinanced through that date), bear interest at LIBOR plus a margin of 2.15% per annum, and have a 12-year repayment profile.

 

   

The KEXIM Guaranteed Tranche has a final maturity of 12 years from the drawdown date of each vessel (assuming the commercial tranches are refinanced through that date), bears interest at LIBOR plus a margin of 1.60% per annum, and has a 12-year repayment profile.

The remaining terms and conditions, including financial covenants, are further described below in “Description of Other Indebtedness.”

In March 2017, we drew down $20.4 million from our 2017 Credit Facility to partially finance the purchase of STI Galata, a MR product tanker that is currently under construction at HMD and is expected to be delivered before the end of March 2017.

BNP Paribas Credit Facility

In January and February 2017, we refinanced the outstanding indebtedness related to STI Sapphire and STI Emerald by repaying an aggregate of $26.3 million on our $150.0 million senior secured term loan facility with Nordea Bank Finland plc, DNB Bank ASA and ABN AMRO Bank N.V., or the 2011 Credit Facility, and drawing down an aggregate amount of $27.6 million from our amended and restated $62.1 million senior secured term loan facility with BNP Paribas SA, or the BNP Paribas Credit Facility. The drawdown amounts and dates were as follows:

 

 

 

DRAWDOWN AMOUNT

(IN MILLIONS OF U.S. DOLLARS)

   DRAWDOWN DATE    COLLATERAL

$13.8

   January 2017    STI Sapphire

13.8

   February 2017    STI Emerald

 

 

 

 



 

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HSH Nordbank Credit Facility

In January 2017, we entered into a senior secured term loan facility agreement with HSH Nordbank AG for $31.1 million, or the HSH Nordbank Credit Facility. In February 2017, we refinanced the outstanding indebtedness related to STI Duchessa and STI Onyx by repaying an aggregate of $23.7 million on our 2011 Credit Facility and drawing down an aggregate of $31.1 million from the HSH Nordbank Credit Facility as follows:

 

 

 

DRAWDOWN AMOUNT

(IN MILLIONS OF U.S. DOLLARS)

   DRAWDOWN DATE    COLLATERAL

$16.5

   February 2017    STI Duchessa

14.6

   February 2017    STI Onyx

 

 

Repayments on all borrowings under the HSH Nordbank Credit Facility are scheduled to be made in 20 consecutive quarterly installments. The first eight repayment installments shall be $745,669 each and the next 12 repayment installments shall be $648,408 each, the last of which shall be payable together with an additional balloon installment equal to the then outstanding balance of the loan. The facility has a final maturity of five years from the first drawdown date, and bears interest at LIBOR plus a margin of 2.50% per annum. The remaining terms and conditions, including financial covenants, are further described below in “Description of Other Indebtedness.”

DVB 2017 Credit Facility

In January 2017, we received a commitment for a credit facility of up to $81.4 million from DVB Bank SE, or the DVB 2017 Credit Facility, to refinance our previous facility with DVB Bank SE. The DVB 2017 Credit Facility is expected to (i) be used to refinance the existing indebtedness on four product tankers, (ii) have a final maturity of December 2021, and (iii) bear interest at LIBOR plus a margin of 2.75% per annum. The available borrowings may be used to finance up to 63% of the fair market value of the respective vessels.

The remaining terms and conditions, including financial covenants, are expected to be similar to those in our existing credit facilities, as described below in “Description of Other Indebtedness.” The DVB 2017 Credit Facility is subject to customary conditions precedent and the execution of definitive documentation.

2011 Credit Facility

As of December 31, 2016, we pledged seven MR product tankers as collateral under our 2011 Credit Facility, which is scheduled to mature in May 2017. Since January 2017, we refinanced two of these vessels under our BNP Paribus Credit Facility and two of these vessels under our HSH Credit Facility. Additionally, in December 2016, we signed a non-binding term sheet to sell and leaseback, to an unaffiliated third party, the remaining three MR product tankers that are collateralized under our 2011 Credit Facility. This transaction is subject to customary conditions precedent and the execution of definitive documentation.

Dividend Declaration

On February 13, 2017, our board of directors declared a quarterly cash dividend of $0.01 per share, payable on or about March 30, 2017 to all shareholders of record as of February 23, 2017.

Convertible Senior Notes Due 2019

On February 23, 2017, the conversion rate of our convertible senior notes due 2019, or the Convertible Notes, was adjusted to reflect a cash dividend with respect to our common shares. The new conversion rate for the Convertible Notes was adjusted to 97.9316 of our common shares per $1,000 principal amount of the Convertible Notes, representing an increase of the prior conversion rate of 0.2277 shares per $1,000 principal amount of the Convertible Notes.

Concurrent Tender Offer

Concurrently with this offering, we commenced a cash tender offer, or the Tender Offer, for up to $51,750,000 of the aggregate principal amount outstanding of the 7.50% senior unsecured notes due 2017,

 



 

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which we sometimes refer to herein as the Existing Notes. The Tender Offer provides for an early tender deadline of on or before 5:00 p.m., New York City time, on April 11, 2017, or the Early Tender Deadline, unless we choose to extend that date, and is scheduled to expire at 11:59 p.m., New York City time, on April 25, 2017, unless we choose to extend that date. The Tender Offer is subject to the satisfaction of certain conditions, including, among other things, (i) our having issued the Notes in an amount and on terms and conditions acceptable to us and having available funds sufficient to pay the consideration payable in the Tender Offer and (ii) immediately following the completion of the Tender Offer, our continuing to meet the NYSE’s continued listing standards applicable to the Existing Notes. We intend to use the net proceeds of the sale of our Notes, which are expected to total approximately $48.0 million after deducting underwriting discounts and commissions and estimated offering expenses (or approximately $55.3 million if the underwriters exercise their option to purchase additional Notes in full), to fund a portion of the Tender Offer payable by us for our Existing Notes. A portion of the net proceeds received in this offering will be placed in an escrow account for the benefit of Stifel, Nicolaus & Company, Incorporated, the lead managing underwriter in this offering, to fund all or a portion of the consideration payable for the Existing Notes that are validly tendered (and not validly withdrawn) by Stifel, Nicolaus & Company, Incorporated, at or prior to the Early Tender Deadline.

Corporate Information

We are a Marshall Islands corporation with principal executive offices at 9, Boulevard Charles III Monaco 98000. Our telephone number at that address is +377-9798-5716. We also maintain an office at 150 East 58th Street, New York, NY 10155 and our telephone number at this address is 212-542-1616. We maintain a website on the Internet at http://www.scorpiotankers.com. The information on our website is not incorporated by reference into this prospectus supplement and does not constitute a part of this prospectus supplement.

 



 

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THE OFFERING

The summary below describes the principal terms of the Notes. Certain of the terms and conditions described below are subject to important limitations and exceptions. See “Description of Notes” for a more detailed description of the terms and conditions of the Notes.

 

Issuer

Scorpio Tankers Inc., a Marshall Islands corporation.

 

Securities Offered

$50.0 million aggregate principal amount (plus up to an additional $7.5 million aggregate principal amount pursuant to an option granted to the underwriters) of our 8.25% Senior Notes due 2019 issued in minimum denominations of $25.00 and integral multiples of $25.00 in excess thereof.

 

Issue Date

March 31, 2017.

 

Maturity Date

The Notes will mature on June 1, 2019.

 

Interest

The Notes will bear interest from the date of original issue until maturity at a rate of 8.25% per year, payable quarterly in arrears on the 1st day of each March, June, September and December commencing on June 1, 2017.

 

Use of Proceeds

We intend to use the net proceeds of the sale of our Notes, which are expected to total approximately $48.0 million after deducting underwriting discounts and commissions and estimated offering expenses (or approximately $55.3 million if the underwriters exercise their option to purchase additional Notes in full), to fund a portion of the Tender Offer for our Existing Notes that we are commencing concurrently with this offering and to repay any Existing Notes not repurchased in the Tender Offer. Any remaining net proceeds will be used for general corporate purposes and working capital. Please see “Use of Proceeds.”

 

Conflicts of Interest

Stifel, Nicolaus & Company, Incorporated, the lead managing underwriter of this offering, may own, at the time of the pricing of the offering, 5% or more of the outstanding Existing Notes, and may therefore receive more than 5% of the net proceeds of the offering by reason of the repayment or redemption of the Existing Notes. A portion of the net proceeds received in this offering will be placed in an escrow account for the benefit of Stifel, Nicolaus & Company, Incorporated, the lead managing underwriter in this offering, to fund all or a portion of the consideration payable for the Existing Notes that are validly tendered (and not validly withdrawn) by Stifel, Nicolaus & Company, Incorporated, at or prior to the Early Tender Deadline. Accordingly, Stifel, Nicolaus & Company, Incorporated may be deemed to have a “conflict of interest” within the meaning of Rule 5121 of the Financial Industry Regulatory Authority, Inc., and this offering will be conducted in accordance with Rule 5121. See “Underwriting (Conflicts of Interest)—Conflicts of Interest.”

 



 

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Ranking

The Notes will be our senior unsecured obligations and will rank senior to any of our future subordinated debt and rank equally in right of payment with all of our existing and future senior unsecured debt. Our Notes will effectively rank junior to our existing and future secured debt, to the extent of the value of the assets securing such debt, as well as to existing and future debt of our subsidiaries. As of December 31, 2016, we had $1,952.1 million of outstanding indebtedness (of which $1,498.1 million was secured and $454.0 million was unsecured) and as of March 24, 2017, we had $1,993.5 million of outstanding indebtedness (of which $1,539.5 million was secured and $454.0 million was unsecured).

 

No Security or Guarantees

None of our obligations under our Notes will be secured by collateral or guaranteed by any of our subsidiaries, affiliates or any other persons.

 

Change of Control

Upon the occurrence of certain change of control events (as defined in the indenture governing the Notes), you will have the right, as a holder of the Notes, to require us to repurchase some or all of your Notes at 101% of the principal amount, plus accrued and unpaid interest to, but excluding, the repurchase date. For additional information, please read “Description of Notes—Change of Control Permits Holders to Require us to Purchase Notes.”

 

Covenants

The indenture governing our Notes contains certain restrictive covenants, including covenants that require us to limit the amount of debt we incur, maintain a certain minimum net worth, and provide certain reports. These covenants are subject to important exceptions and qualifications. For additional information, please read “Description of Notes.”

 

Additional Notes

We may “reopen” our Notes at any time without the consent of the holders of our Notes and issue additional notes with the same terms as our Notes (except the issue price, issue date and initial interest payment date and/or amount), which will thereafter constitute a single series with our Notes, provided that if the additional notes are not fungible with our Notes for U.S. federal income tax purposes, such additional notes will have a separate CUSIP number.

 

Ratings

The Notes will not be rated by any nationally recognized statistical rating organization.

 

Listing

We have applied to list our Notes for trading on the NYSE under the symbol “SBBC.” If the application is approved, trading of our Notes on NYSE is expected to begin within 30 days after the original issue date of our Notes. The underwriters have advised us that they intend to make a market in our Notes prior to commencement of any trading on the NYSE. However, the underwriters will have no obligation to do so, and no assurance can be given that a market for our Notes will develop prior to commencement of trading on the NYSE or, if developed, will be maintained.

 



 

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Form

Our Notes will be represented by one or more permanent global notes, which will be deposited with the trustee as custodian for The Depository Trust Company, or DTC, and registered in the name of a nominee designated by DTC. Holders of Notes may elect to hold interests in a global Note only in the manner described in this prospectus supplement. Any such interest may not be exchanged for certificated securities except in limited circumstances described in this prospectus supplement. For additional information, please read “Description of Notes—Book-entry System; Delivery and Form” in this prospectus supplement.

 

Additional Amounts; Tax Redemption

Any payments made by us with respect to the Notes will be made without withholding or deduction for or on account of taxes unless required by law. If we are required by law to withhold or deduct amounts for or on account of tax imposed by a taxing authority of a jurisdiction where we are a resident or certain other jurisdictions with respect to a payment to the holders of Notes, we will, subject to certain exceptions, pay the additional amounts necessary so that the net amount received by the holders of the Notes after the withholding or deduction is not less than the amount that they would have received in the absence of the withholding or deduction. See “Description of Notes—Additional Amounts.”

 

  In the event of certain changes of law or official positions of certain taxing authorities that trigger requirements discussed immediately above that we pay additional amounts, we may redeem the Notes in whole, but not in part, at any time, upon not less than 30 nor more than 60 days’ notice at a redemption price of 100% of the principal amount, plus accrued and unpaid interest, if any, and additional amounts, if any, to, but excluding, the date of redemption. See “Description of Notes—Optional Redemption for Changes in Withholding Taxes.”

 

Settlement

Delivery of our Notes offered hereby will be made against payment therefor on or about March 31, 2017.

 

Risk Factors

An investment in our Notes involves risks. You should consider carefully the factors set forth in the section entitled “Risk Factors” beginning on page S-11 of this prospectus supplement and on page 4 of the accompanying base prospectus to determine whether an investment in our Notes is appropriate for you.

 



 

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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA

The following tables set forth our summary consolidated financial and other operating data as of and for the years ended December 31, 2016, 2015 and 2014. The summary data is derived from our audited consolidated financial statements, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Our audited consolidated statements of income or loss for the years ended December 31, 2016, 2015 and 2014 and our audited consolidated balance sheets as of December 31, 2016 and 2015, together with the notes thereto, are included in our annual report on Form 20-F for the year ended December 31, 2016, filed with the Commission on March 16, 2017, and incorporated by reference herein.

 

 

 

     FOR THE YEAR ENDED DECEMBER 31,  

IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AND
SHARE DATA

   2016     2015     2014  

Revenue:

      

Vessel revenue

   $ 522,747     $ 755,711     $ 342,807  

Operating expenses:

      

Vessel operating costs

     (187,120     (174,556     (78,823

Voyage expenses

     (1,578     (4,432     (7,533

Charterhire

     (78,862     (96,865     (139,168

Depreciation

     (121,461     (107,356     (42,617

General and administrative expenses

     (54,899     (65,831     (48,129

Write down of vessels held for sale and net loss on sales of vessels (1)

     (2,078     (35     (3,978

Write-off of vessel purchase options (2)

           (731      

Gain on sale of VLCCs (3)

                 51,419  

Gain on sale of Dorian shares (4)

           1,179       10,924  

Re-measurement of investment in Dorian (5)

                 (13,895
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     (445,998     (448,627     (271,800
  

 

 

   

 

 

   

 

 

 

Operating income

     76,749       307,084       71,007  
  

 

 

   

 

 

   

 

 

 

Other (expense) and income, net:

      

Financial expenses

     (104,048     (89,596     (20,770

Realized gain on derivative financial instruments

           55       17  

Unrealized gain / (loss) on derivative financial instruments

     1,371       (1,255     264  

Financial income

     1,213       145       203  

Share of income from associate

                 1,473  

Other expenses, net

     (188     1,316       (103
  

 

 

   

 

 

   

 

 

 

Total other expense, net

     (101,652     (89,335     (18,916
  

 

 

   

 

 

   

 

 

 

Net (loss) / income

   $ (24,903   $ 217,749     $ 52,091  
  

 

 

   

 

 

   

 

 

 

(Loss) / earnings per share (6)

      

Basic

   $ (0.15   $ 1.35     $ 0.30  

Diluted

   $ (0.15   $ 1.20     $ 0.30  

Basic weighted average shares outstanding

     161,118,654       161,436,449       171,851,061  

Diluted weighted average shares outstanding

     161,118,654       199,739,326       176,292,802  

 

 

 



 

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     AS OF DECEMBER 31,  

IN THOUSANDS OF U.S. DOLLARS

   2016      2015      2014  

Balance sheet data

        

Cash and cash equivalents

   $ 99,887      $ 200,970      $ 116,143  

Vessels and drydock

     2,913,254        3,087,753        1,971,878  

Vessels under construction

     137,917        132,218        404,877  

Total assets

     3,230,187        3,523,455        2,804,643  

Current and non-current debt (7)

     1,882,681        2,049,989        1,571,522  

Shareholders’ equity

     1,315,200        1,413,885        1,162,848  

 

     FOR THE YEAR ENDED DECEMBER 31,  

IN THOUSANDS OF U.S. DOLLARS

   2016     2015     2014  

Cash flow data

      

Net cash inflow/(outflow)

      

Operating activities

   $ 178,511     $ 391,975     $ 93,916  

Investing activities

     31,333       (703,418     (1,158,234

Financing activities

     (310,927     396,270       1,101,616  

 

 

(1) 

In December 2014, we designated STI Heritage and STI Harmony as held for sale and recorded a $3.9 million aggregate write-down to remeasure these vessels at their fair value less costs to sell. In 2015 we recorded an aggregate net loss of $35,000 as a result of the following transactions: (i) in March 2015 we sold Venice to an unrelated third-party and recognized a gain of $0.7 million, (ii) in April 2015 we sold STI Heritage and STI Harmony to an unrelated third-party and recognized a gain of $1.3 million, and (iii) in October 2015 we sold STI Highlander to an unrelated third party and recognized a loss of $2.1 million. In February 2016, we reached an agreement with an unrelated third party to sell five 2014 built MR product tankers—STI Lexington, STI Mythos, STI Chelsea, STI Olivia, and STI Powai and recognized an aggregate loss of $2.1 million for the year ended December 31, 2016.

(2) 

In December 2015, four options that we held to construct MR product tankers with HMD expired unexercised. As a result, we wrote off $0.7 million for deposits made on these contracts.

(3) 

In March 2014, we sold seven VLCCs under construction for net proceeds of $141.7 million and recorded a gain of $51.4 million.

(4) 

In May 2014, we acquired 7,500,000 of our common shares from one of our existing shareholders in exchange for 3,422,665 common shares that we held in Dorian LPG Ltd., or Dorian, in a privately negotiated transaction. As a result of this transaction, we recognized a gain of $10.9 million during the year ended December 31, 2014. Additionally, in July 2015, we sold our remaining investment in Dorian to two unrelated third parties for aggregate net proceeds of $142.4 million. As a result of these sales, we recognized a gain of $1.2 million during the year ended December 31, 2015.

(5) 

In October 2014, we determined that we no longer had significant influence over Dorian’s financial and operating decisions, and we therefore ceased accounting for this investment under the equity method. As a result, we remeasured our investment in Dorian to its fair market value resulting in a write-down of $13.9 million during the year ended December 31, 2014.

(6) 

Basic (loss) / earnings per share is calculated by dividing the net (loss) / income attributable to equity holders of the parent by the weighted average number of common shares outstanding. Diluted (loss) / earnings per share is calculated by adjusting the net (loss) / income attributable to equity holders of the parent and the weighted average number of common shares used for calculating basic (loss) / earnings per share for the effects of all potentially dilutive shares. Such potentially dilutive common shares are excluded when the effect would be to increase earnings per share or reduce a loss per share.

(7) 

Current and non-current debt are shown net of deferred financing fees of $37.4 million, $55.8 million and $47.1 million as of December 31, 2016, 2015 and 2014, respectively.

 



 

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The following table sets forth our other operating data. This data should be read in conjunction with our consolidated financial statements and related notes included in our annual report on Form 20-F for the year ended December 31, 2016, filed with the Commission on March 16, 2017 and incorporated by reference herein.

 

 

 

     FOR THE YEAR ENDED
DECEMBER 31,
 
     2016      2015      2014  

Average Daily Results

        

TCE per day (1)

   $ 15,783      $ 23,163      $ 15,935  

Vessel operating costs per day (2)

     6,576        6,564        6,802  

Aframax/LR2

        

TCE per revenue day (1)

     20,280        30,544        18,621  

Vessel operating costs per day (2)

     6,734        6,865        6,789  

LR1/Panamax

        

TCE per revenue day (1)

     17,277        21,804        16,857  

Vessel operating costs per day (2)(4)

            8,440        8,332  

MR

        

TCE per revenue day (1)

     14,898        21,803        15,297  

Vessel operating costs per day (2)

     6,555        6,461        6,580  

Handymax

        

TCE per revenue day (1)

     12,615        19,686        14,528  

Vessel operating costs per day (2)

     6,404        6,473        6,704  

Fleet data

        

Average number of owned vessels (3)

     77.7        72.7        31.6  

Average number of time chartered-in vessels (3)

     12.7        16.9        26.3  

Drydock

        

Expenditures for drydock (in thousands of U.S. dollars)

   $      $      $ 1,290  

 

 

(1) 

Freight rates are commonly measured in the shipping industry in terms of time charter equivalent, or TCE (a non-IFRS measure), per revenue day. Vessels in the pool and on time charter do not incur significant voyage expenses; therefore, the revenue for pool vessels and time charter vessels is approximately the same as their TCE revenue. Please see the section of our Annual Report on Form 20-F for the year ended December 31, 2016 entitled “Item 5. Operating and Financial Review and Prospects—Important Financial and Operational Terms and Concepts” for a discussion of TCE revenue, revenue days and voyage expenses and “Item 5. Operating and Financial Review and Prospects—A. Operating Results” for a reconciliation of TCE revenue to vessel revenue.

(2) 

Vessel operating costs per day represent vessel operating costs, as such term is defined in the section of our Annual Report on Form 20-F for the year ended December 31, 2016 entitled “Item 5. Operating and Financial Review and Prospects—Important Financial and Operational Terms and Concepts,” divided by the number of days the vessel is owned during the period.

(3) 

For a definition of items listed under “Fleet Data,” please see the section of our Annual Report on Form 20-F for the year ended December 31, 2016 entitled “Item 5. Operating and Financial Review and Prospects.”

(4) 

We did not own or bareboat charter-in any LR1/Panamax vessels in 2016.

 



 

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RISK FACTORS

Before making an investment in our Notes, you should carefully consider the risk factors described below, together with all of the other information included in this prospectus supplement, the accompanying base prospectus and the documents incorporated into each by reference, including those in “Item 3. Key Information—D. Risk Factors” in our Annual Report on Form 20-F for the year ended December 31, 2016, filed with the Commission on March 16, 2017, as updated by annual, quarterly and other reports and documents we file with the Commission after the date of this prospectus supplement and that are incorporated by reference herein. Please see the section of this prospectus supplement entitled “Where You Can Find Additional Information—Information Incorporated by Reference.” The occurrence of one or more of those risk factors or the risk factors described below could adversely impact our business, financial condition or results of operations.

Risks of Investing in Our Notes

Your investment in our Notes is subject to our credit risk.

Our Notes are unsubordinated unsecured general obligations of ours and are not, either directly or indirectly, an obligation of any third party. Our Notes will rank equally with all of our other unsecured and unsubordinated debt obligations, except as such obligations may be preferred by operation of law. Any payment to be made on our Notes, including the return of the principal amount at maturity or any redemption date, as applicable, depends on our ability to satisfy our obligations as they come due. As a result, our actual and perceived creditworthiness may affect the market value of our Notes and, in the event we were to default on our obligations, you may not receive the amounts owed to you under the terms of our Notes.

Our debt levels may limit our flexibility in obtaining additional financing and in pursuing other business opportunities.

As of March 24, 2017, we had $1,993.5 million of total outstanding indebtedness and $150.6 million of availability under our credit facilities. The amount of our outstanding borrowings under our debt facilities will increase following drawdowns in connection with the completion of our acquisition of the eight vessels in our Newbuilding Program that we have contracted to purchase. In addition, we may enter into new debt arrangements or issue additional debt securities in the future. So long as our net borrowings do not equal or exceed 70% of our total assets, the indenture under which the Notes will be issued will permit us to incur additional indebtedness without limitation. Our level of debt could have important consequences to us, including the following:

 

   

our ability to obtain additional financing, if necessary, for working capital, capital expenditures, acquisitions or other purposes may be impaired or such financing may not be available on favorable terms;

 

   

we may need to use a substantial portion of our cash from operations to make charter hire payments or principal and interest payments relating to our debt obligations, reducing the funds that would otherwise be available for operations and future business opportunities;

 

   

our debt level could make us more vulnerable than our competitors with less debt to competitive pressures or a downturn in our business or the economy generally; and

 

   

our debt level may limit our flexibility in responding to changing business and economic conditions.

Our ability to service our debt and charter hire obligations will depend upon, among other things, our financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, some of which are beyond our control. Additionally, as described below under the section entitled “Description of Other Indebtedness,” our 2011 Credit Facility, our DVB Credit Facility and the Existing Notes are scheduled to mature in May 2017, August 2017 and October 2017, respectively. In 2017, we refinanced four of the seven vessels collateralized under the 2011 Credit Facility. In addition, we received an offer to refinance the remaining amounts under the 2011 Credit Facility (via a non-binding offer that we received in December 2016 to sell and leaseback three vessels) and a commitment to refinance our DVB Credit Facility which remain subject to the execution of definitive documentation and customary conditions precedent.

 

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If we are unable to repay or refinance upcoming maturities on our existing indebtedness and if our results of operations are not sufficient to service our current or future indebtedness and charter hire obligations, we will be forced to take actions such as reducing dividends, reducing or delaying our business activities, acquisitions, investments or capital expenditures, selling assets, restructuring our debt, or seeking additional equity capital or bankruptcy protection. We may not be able to effect any of these remedies on satisfactory terms, or at all.

Our subsidiaries conduct the substantial majority of our operations and own our operating assets, and your right to receive payments on our Notes is structurally subordinated to the rights of the lenders of our subsidiaries.

Our subsidiaries conduct the substantial majority of our operations and own our operating assets. As a result, our ability to make required payments on our Notes depends in part on the operations of our subsidiaries and our subsidiaries’ ability to distribute funds to us. To the extent our subsidiaries are unable to distribute, or are restricted from distributing, funds to us, we may be unable to fulfill our obligations under our Notes. Our subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay amounts due on our Notes or to make funds available for that purpose. Our Notes will not be guaranteed by any of our subsidiaries or any other person.

The rights of holders of our Notes will be structurally subordinated to the rights of our subsidiaries’ lenders. A default by a subsidiary under its debt obligations would result in a block on distributions from the affected subsidiary to us. Our Notes will be effectively junior to all existing and future liabilities of our subsidiaries. In the event of a bankruptcy, liquidation or reorganization of any of our subsidiaries, creditors of our subsidiaries will generally be entitled to payment of their claims from the assets of those subsidiaries before any assets are made available for distribution to us. As of December 31, 2016, we had $1,952.1 million of outstanding indebtedness (of which $1,498.1 million was secured and $454.0 million was unsecured) and as of March 24, 2017 we had $1,993.5 million of outstanding indebtedness (of which $1,539.5 million was secured and $454.0 million was unsecured).

Our Notes will be unsecured obligations and will be effectively subordinated to our secured debt.

Our Notes are unsecured and therefore will be effectively subordinated to any secured debt we maintain or may incur to the extent of the value of the assets securing the debt. In the event of a bankruptcy or similar proceeding involving us, the assets that serve as collateral will be available to satisfy the obligations under any secured debt before any payments are made on our Notes. As of December 31, 2016, we had $1,952.1 million of outstanding indebtedness (of which $1,498.1 million was secured and $454.0 million was unsecured) and as of March 24, 2017, we had $1,993.5 million of outstanding indebtedness (of which $1,539.5 million was secured and $454.0 million was unsecured). Please read “Description of Other Indebtedness.” We will continue to have the ability to incur additional secured debt, subject to limitations in our credit facilities and the indenture relating to our Notes.

We may not have the ability to raise the funds necessary to purchase our Notes as required upon a change of control, and our existing and future debt may contain limitations on our ability to purchase our Notes.

Following a change of control as described under “Description of Notes—Change of Control Permits Holders to Require us to Purchase Notes,” holders of Notes will have the right to require us to purchase their Notes for cash. A change of control may also constitute an event of default or prepayment under, and result in the acceleration of the maturity of, our then existing indebtedness. We cannot assure you that we will have sufficient financial resources, or will be able to arrange financing, to pay the change of control purchase price in cash with respect to any Notes surrendered by holders for purchase upon a change of control. In addition, restrictions in our then existing credit facilities or other indebtedness, if any, may not allow us to purchase the Notes upon a change of control. Our failure to purchase the Notes upon a change of control when required would result in an event of default with respect to the Notes which could, in turn, constitute a default under the terms of our other indebtedness, if any. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and purchase the Notes.

 

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Some significant restructuring transactions may not constitute a change of control, in which case we would not be obligated to offer to purchase the Notes.

Upon the occurrence of a change of control, you have the right to require us to purchase your Notes. However, the change of control provisions will not afford protection to holders of Notes in the event of certain transactions that could adversely affect the Notes. For example, transactions such as leveraged recapitalizations, refinancings or certain restructurings would not constitute a change of control requiring us to repurchase the Notes. In the event of any such transaction, holders of the Notes would not have the right to require us to purchase their Notes, even though each of these transactions could increase the amount of our indebtedness, or otherwise adversely affect our capital structure or any credit ratings, thereby adversely affecting holders of the Notes.

Our Notes do not have an established trading market, which may negatively affect their market value and your ability to transfer or sell your Notes.

Our Notes are a new issuance of securities with no established trading market. We have applied to list our Notes on the NYSE, but there can be no assurance that the NYSE will accept our Notes for listing. Even if our Notes are approved for listing by the NYSE, an active trading market on the NYSE for our Notes may not develop or, even if it develops, may not last, in which case the trading price of our Notes could be adversely affected and your ability to transfer your Notes will be limited. If an active trading market does develop on the NYSE, our Notes may trade at prices lower than the offering price. The trading price of our Notes will depend on many factors, including:

 

   

prevailing interest rates;

 

   

the market for similar securities;

 

   

general economic and financial market conditions;

 

   

our issuance of debt or preferred equity securities; and

 

   

our financial condition, results of operations and prospects.

We have been advised by the underwriters that they intend to make a market in our Notes pending any listing of the Notes on the NYSE, but they are not obligated to do so and may discontinue market-making at any time without notice.

Our Notes have not been rated, and ratings of any of our other securities may affect the trading price of our Notes.

We have not sought to obtain a rating for our Notes, and our Notes may never be rated. It is possible, however, that one or more credit rating agencies might independently determine to assign a rating to our Notes or that we may elect to obtain a rating of our Notes in the future. In addition, we may elect to issue other securities for which we may seek to obtain a rating. If any ratings are assigned to our Notes in the future or if we issue other securities with a rating, such ratings, if they are lower than market expectations or are subsequently lowered or withdrawn, or if ratings for such other securities would imply a lower relative value for our Notes, could adversely affect the market for, or the market value of, our Notes. Ratings only reflect the views of the issuing rating agency or agencies and such ratings could at any time be revised downward or withdrawn entirely at the discretion of the issuing rating agency. A rating is not a recommendation to purchase, sell or hold any particular security, including our Notes. Ratings do not reflect market prices or suitability of a security for a particular investor and any future rating of our Notes may not reflect all risks related to us and our business, or the structure or market value of our Notes.

Risks Related to Our Other Indebtedness

Servicing our current or future indebtedness limits funds available for other purposes and if we cannot service our debt, we may lose our vessels.

Borrowing under our debt facilities requires us to dedicate a part of our cash flow from operations to paying interest on our indebtedness. These payments limit funds available for working capital, capital expenditures and other purposes, including further equity or debt financing in the future. Amounts borrowed under our secured debt facilities bear interest at variable rates. Increases in prevailing rates could increase the amounts that we would have to pay to our lenders, even though the outstanding principal amount remains the same, and our net income and cash

 

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flows would decrease. We expect our earnings and cash flow to vary from year to year due to the cyclical nature of the tanker industry. If we do not generate or reserve enough cash flow from operations to satisfy our debt obligations, we may have to undertake alternative financing plans, such as seeking to raise additional capital, refinancing or restructuring our debt, selling tankers, or reducing or delaying capital investments. However, these alternative financing plans, if necessary, may not be sufficient to allow us to meet our debt obligations.

If we are unable to meet our debt obligations or if some other default occurs under our debt facilities, our lenders could elect to declare that debt, together with accrued interest and fees, to be immediately due and payable and proceed against the collateral vessels securing that debt even though the majority of the proceeds used to purchase the collateral vessels did not come from our debt facilities.

Our debt agreements contain restrictive and financial covenants which may limit our ability to conduct certain activities, and further, we may be unable to comply with such covenants, which could result in a default under the terms of such agreements.

Our debt facilities impose operating and financial restrictions on us. These restrictions may limit our ability, or the ability of our subsidiaries party thereto to, among other things:

 

   

pay dividends and make capital expenditures if we do not repay amounts drawn under our debt facilities or if there is another default under our debt facilities;

 

   

incur additional indebtedness, including the issuance of guarantees;

 

   

create liens on our assets;

 

   

change the flag, class or management of our vessels or terminate or materially amend the management agreement relating to each vessel;

 

   

sell our vessels;

 

   

merge or consolidate with, or transfer all or substantially all our assets to, another person; or

 

   

enter into a new line of business.

Therefore, we will need to seek permission from our lenders in order to engage in some corporate actions. Our lenders’ interests may be different from ours and we may not be able to obtain our lenders’ permission when needed. This may limit our ability to pay dividends to you if we determine to do so in the future, finance our future operations or capital requirements, make acquisitions or pursue business opportunities.

In addition, our secured credit facilities require us to maintain specified financial ratios and satisfy financial covenants, including ratios and covenants based on the market value of the vessels in our fleet. Should our charter rates or vessel values materially decline in the future, we may seek to obtain waivers or amendments from our lenders with respect to such financial ratios and covenants, or we may be required to take action to reduce our debt or to act in a manner contrary to our business objectives to meet any such financial ratios and satisfy any such financial covenants. Events beyond our control, including changes in the economic and business conditions in the shipping markets in which we operate, may affect our ability to comply with these covenants. We cannot assure you that we will meet these ratios or satisfy these covenants or that our lenders will waive any failure to do so or amend these requirements. A breach of any of the covenants in, or our inability to maintain the required financial ratios under, our credit facilities would prevent us from borrowing additional money under our credit facilities and could result in a default under our credit facilities. If a default occurs under our credit facilities, the lenders could elect to declare the outstanding debt, together with accrued interest and other fees, to be immediately due and payable and foreclose on the collateral securing that debt, which could constitute all or substantially all of our assets. Moreover, in connection with any waivers or amendments to our credit facilities that we may obtain, our lenders may impose additional operating and financial restrictions on us or modify the terms of our existing credit facilities. These restrictions may further restrict our ability to, among other things, pay dividends, repurchase our common shares, make capital expenditures, or incur additional indebtedness.

Furthermore, our debt agreements contain cross-default provisions that may be triggered if we default under the terms of any one of our financing agreements. In the event of default by us under one of our debt agreements, the lenders under our other debt agreements could determine that we are in default under such other financing

 

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agreements. Such cross defaults could result in the acceleration of the maturity of such debt under these agreements and the lenders thereunder may foreclose upon any collateral securing that debt, including our vessels, even if we were to subsequently cure such default. In the event of such acceleration or foreclosure, we might not have sufficient funds or other assets to satisfy all of our obligations, which would have a material adverse effect on our business, results of operations and financial condition.

The international nature of our operations may make the outcome of any bankruptcy proceedings difficult to predict.

We are incorporated under the laws of the Republic of the Marshall Islands and we conduct operations in countries around the world. Consequently, in the event of any bankruptcy, insolvency, liquidation, dissolution, reorganization or similar proceeding involving us or any of our subsidiaries, bankruptcy laws other than those of the United States could apply. If we become a debtor under U.S. bankruptcy law, bankruptcy courts in the United States may seek to assert jurisdiction over all of our assets, wherever located, including property situated in other countries. There can be no assurance, however, that we would become a debtor in the United States, or that a U.S. bankruptcy court would be entitled to, or accept, jurisdiction over such a bankruptcy case, or that courts in other countries that have jurisdiction over us and our operations would recognize a U.S. bankruptcy court’s jurisdiction if any other bankruptcy court would determine it had jurisdiction.

 

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USE OF PROCEEDS

We intend to use the net proceeds of the sale of our Notes, which are expected to total approximately $48.0 million after deducting underwriting discounts and commissions and estimated offering expenses (or approximately $55.3 million if the underwriters exercise their option to purchase additional Notes in full), to fund a portion of the Tender Offer for our Existing Notes that we are commencing concurrently with this offering and to repay any Existing Notes not repurchased in the Tender Offer. Any remaining net proceeds will be used for general corporate purposes and working capital.

 

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RATIO OF EARNINGS TO FIXED CHARGES

The following table sets forth our ratio of earnings to fixed charges for each of the years ended December 31, 2016, 2015, 2014, 2013 and 2012.

 

 

 

     YEAR ENDED DECEMBER 31,  
     2016     2015     2014     2013     2012  

Earnings:

          

Add:

          

(Loss) / income before income or loss from associate and income taxes

   ($ 24,903   $ 217,749     $ 50,618     $ 16,646     ($ 26,537

Fixed charges (calculated below)

     112,985       96,761       41,784       11,614       12,263  

Amortization of capitalized interest

     1,188       1,103       363       165       39  

Less:

              

Interest capitalized

     (6,274     (5,571     (17,482     (6,379     (3,220
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings

     82,996       310,042       75,283       22,046       (17,455
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fixed charges:

          

Interest expensed and capitalized on bank loans

     81,308       77,434       33,368       7,221       6,494  

Amortization of deferred financing fees

     28,628       17,418       4,834       332       4,093  

Interest component of rent

     3,049       1,909       3,582       4,061       1,676  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fixed charges

     112,985       96,761       41,784       11,614       12,263  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ratio of earnings to fixed charges (1)

     —  (2)      3.20x       1.80x       1.90x       —  (2) 

 

 

(1) 

For purposes of calculating the ratios of consolidated earnings to fixed charges:

 

   

“earnings” consist of net income before income or loss from associate as prepared under IFRS, plus fixed charges and the amortization of capitalized interest, net of capitalized interest; and

 

   

“fixed charges” represent interest expensed and capitalized, amortization of deferred financing fees (whether expensed or capitalized) and the Company’s estimate of the interest component of rent.

The ratios of earnings to fixed charges are ratios that we are required to present in this prospectus and have been calculated in accordance with Commission rules and regulations. These ratios have no application to any of our credit facilities or unsecured borrowings and we believe they are not ratios generally used by investors to evaluate our overall operating performance.

 

(2) 

Our earnings were insufficient to cover fixed charges and accordingly, the ratio was less than 1:1. We would have needed to generate additional earnings of $30.0 million and $29.7 million to achieve coverage of 1:1 in the years ended December 31, 2016 and 2012, respectively.

 

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CAPITALIZATION

The following table sets forth our capitalization at December 31, 2016, on:

 

   

an actual basis;

 

   

an as adjusted basis to give effect to the following:

 

   

payments totaling $55.0 million related to installment payments under our Newbuilding Program, which included $51.4 million for the final installment payments on STI Selatar and STI Rambla, LR2 product tankers that were delivered to us in February and March 2017, respectively;

 

   

drawdowns of $137.5 million from our secured credit facilities consisting of (i) $58.4 million from our Credit Suisse Credit Facility to partially finance the purchases of STI Selatar and STI Rambla, which were delivered in February and March 2017, respectively, (ii) $27.6 million from our BNP Paribas Credit Facility to refinance the existing indebtedness on STI Sapphire and STI Emerald, (iii) $31.1 million to refinance the existing indebtedness on STI Duchessa and STI Onyx and (iv) $20.4 million from our 2017 Credit Facility to partially finance the purchase of STI Galata; and

 

   

repayments of $96.0 million on our secured credit facilities consisting of $50.0 million on our 2011 Credit Facility as part of the refinancing of the existing indebtedness on STI Sapphire, STI Emerald, STI Duchessa and STI Onyx, and scheduled principal repayments of $46.0 million.

 

   

an as further adjusted basis to give effect to this offering.

There have been no other significant adjustments to our capitalization since December 31, 2016, as so adjusted.

This table is derived from, and should be read together with, our consolidated financial statements and related notes thereto, and other financial information contained in our Annual Report on Form 20-F for the fiscal year ended December 31, 2016, which is incorporated by reference in this prospectus supplement.

 

 

 

     AS OF DECEMBER 31, 2016  

IN THOUSANDS OF U.S. DOLLARS

   ACTUAL     AS ADJUSTED     AS FURTHER ADJUSTED  

Cash

   $ 99,887     $ 65,908  (2)    $ 113,908  

Current debt:

      

Current portion of long term debt (1)

     353,012       267,766       267,766  

Non-current debt:

      

Long term debt (1)

     1,529,669       1,656,350       1,704,350  
  

 

 

   

 

 

   

 

 

 

Total debt

   $ 1,882,681     $ 1,924,116     $ 1,972,116  
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity:

      

Share capital

     2,247       2,247       2,247  

Additional paid in capital

     1,756,769       1,756,769       1,756,769  

Treasury shares

     (443,816     (443,816     (443,816

Retained earnings / (accumulated deficit)

                  
  

 

 

   

 

 

   

 

 

 

Total shareholders’ equity

   $ 1,315,200     $ 1,315,200     $ 1,315,200  
  

 

 

   

 

 

   

 

 

 

Total capitalization

   $ 3,197,881     $ 3,239,316     $ 3,287,316  
  

 

 

   

 

 

   

 

 

 

 

 

(1)

The current portion at December 31, 2016 was net of unamortized deferred financing fees of $4.3 million and the non-current portion was net of unamortized deferred financing fees of $33.1 million. Debt, as adjusted, does not reflect deferred financing fee activity from January 1, 2017 through March 24, 2017. This activity is estimated to be $0.3 million and includes estimated additions of $2.8 million as a result of the aforementioned drawdowns on new credit facilities entered into during 2017 offset by estimated write-offs of $0.1 million as a result of the refinancing of the amounts borrowed under the 2011 Credit Facility and estimated amortization of $3.0 million. Debt, as further adjusted, does not include estimated deferred financing fee amortization of $0.2 million for the period March 25, 2017 through March 31, 2017.

(2) 

Cash, as adjusted, does not include the impact of cash flows from operations from January 1, 2017 through March 24, 2017.

 

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THE INTERNATIONAL OIL TANKER SHIPPING INDUSTRY

All the information and data presented in this section, including the analysis of the oil tanker shipping industry, has been provided by Drewry Shipping Consultants Ltd., or Drewry. The statistical and graphical information contained herein is drawn from Drewry’s database and other sources. According to Drewry: (i) certain information in Drewry’s database is derived from estimates or subjective judgments; (ii) the information in the databases of other maritime data collection agencies may differ from the information in Drewry’s database; and (iii) while Drewry has taken reasonable care in the compilation of the statistical and graphical information and believes it to be accurate and correct, data compilation is subject to limited audit and validation procedures.

Oil Tanker Demand

In broad terms, demand for oil products traded by sea is principally affected by global and regional economic conditions, as well as other factors such as changes in the location of productive capacity, and variations in regional prices. Demand for shipping capacity is a product of the physical quantity of the cargo (measured, depending on the cargo in terms of tons or cubic metrics) together with the distance the cargo is carried. Demand cycles move broadly in line with developments in global economy, with demand for products slowing significantly in the period immediately after the onset of the global economic downturn in late 2008, before recovering gradually from 2011 onwards with the general improvement in the macro-economic environment.

In 2016, 3.2 billion tons of crude oil, products and vegetable oils/chemicals were moved by sea. Of this, crude shipments constituted 2.0 billion tons of cargo, products 1.0 billion tons, with the balance made up of other bulk liquids, including vegetable oils, chemicals and associated products.

 

 

 

WORLD SEABORNE TANKER TRADE

     CRUDE OIL    PRODUCTS    VEG OILS/
CHEMICALS
   TOTAL

YEAR

   MILL T    % Y-O-Y    MILL T    % Y-O-Y    MILL T    % Y-O-Y    MILL T    % Y-O-Y

2001

   1,751    3.2%    518    3.0%    121    3.5%    2,390    3.2%

2002

   1,756    0.3%    519    0.3%    129    6.6%    2,404    0.6%

2003

   1,860    5.9%    550    6.0%    136    4.9%    2,545    5.9%

2004

   1,963    5.6%    599    8.8%    146    7.2%    2,707    6.4%

2005

   1,994    1.6%    646    8.0%    161    10.3%    2,801    3.5%

2006

   1,996    0.1%    677    4.7%    171    6.3%    2,844    1.5%

2007

   2,008    0.6%    723    6.8%    175    2.8%    2,907    2.2%

2008

   2,014    0.3%    765    5.8%    178    1.5%    2,956    1.7%

2009

   1,928    (4.2)%    777    1.6%    184    3.2%    2,888    (2.3)%

2010

   1,997    3.6%    810    4.2%    196    6.4%    3,002    3.9%

2011

   1,941    (2.8)%    860    6.3%    205    4.9%    3,007    0.1%

2012

   1,988    2.4%    859    (0.2)%    210    2.5%    3,057    1.7%

2013

   1,918    (3.5)%    904    5.3%    217    3.3%    3,040    (0.6)%

2014

   1,895    (1.2)%    912    0.8%    221    1.6%    3,027    (0.4)%

2015

   1,957    3.3%    953    4.5%    231    4.8%    3,142    3.8%

2016*

   2,016    3.0%    987    3.6%    229    (0.8)%    3,233    2.9%

CAGR (2011-2016)

   0.8%       2.8%       2.3%       1.5%   

CAGR (2006-2016)

   0.1%       3.8%       3.0%       1.3%   

 

 

* Provisional assessment

Source: Drewry

The volume of oil moved by sea was affected by the economic recession in 2008 and 2009, but since then renewed growth in the world economy and in oil demand has had a positive impact on seaborne trade. Oil demand has benefited from economic growth in Asia, especially in China, where oil consumption increased by a compound

 

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average growth rate (CAGR) of 5.4% to 11.9 million barrels per day (mbpd) between 2006 and 2016. Low per capita oil consumption in developing countries such as China and India compared to the developed world provides scope for higher oil consumption in these economies. Conversely, oil consumption in developed OECD economies has been in decline for much of the last decade, although provisional data for the United States (U.S.) and some European countries indicates that this trend was reversed in 2015 and 2016. This was almost certainly due to the positive impact of lower oil prices on demand for products such as gasoline.

World Oil Consumption: 1991-2016

(Million bpd)

 

 

LOGO

 

* Provisional estimate

Source: Drewry

Provisional estimates suggest that world oil demand in 2016 was 96.5 million bpd, an increase of 1.5% from 2015, and between 2006 and 2016, world oil demand grew by a CAGR of 1.3%.

 

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Oil Product Exports & Imports

Product trades have increased in the last decade as a result of developments in the U.S. energy economy. In the U.S., as a result of the development of shale oil deposits, domestic crude oil production increased by a CAGR of 10.2% between 2008 and 2015 to reach just in excess of 9.0 million bpd, however provisional estimates suggest a marginal decline to 8.9 million bpd in 2016. Horizontal drilling and hydraulic fracturing have triggered a shale oil revolution and rising crude oil production has also ensured the availability of cheaper feedstocks to local refineries. As a result, the U.S. has become a major net exporter of products (see chart below).

Oil Product Exports—Major Growth Regions

(Million Bpd)

 

 

LOGO

Source: Drewry

In a short span of time, the U.S. has become the largest exporter of refined products in the world, with supplies from U.S. Gulf Coast terminals heading to most parts of the globe. By way of illustration, U.S. product exports to South America were close to 8.8 million tons in 2006, but had increased to 63.2 million tons by 2016, owing to strong import demand and the growth in U.S. products availability. Most of these exports were carried by MR product tankers, which constitute approximately 58% of global product tanker fleet capacity and have been the mainstay of seaborne trade in refined petroleum products. However, lower crude oil prices in 2015 and 2016 have adversely impacted U.S. shale oil producers and accordingly crude production in the region has been declining since May 2015. In November 2016 U.S. crude oil production was 8.9 million bpd, compared with 9.3 million bpd in November 2015. Declining crude oil production in addition to the lifting of the ban on crude oil exports in December 2015 has limited the availability of feedstocks to domestic refineries and in turn may limit the export of refined products from the U.S.

The shift in the location of global oil production is also being accompanied by a shift in the location of global refinery capacity and throughput. In short, capacity and throughput are moving from the developed to the developing world. Between 2006 and 2016 total OECD refining throughput declined by 4.3%, largely as a result of cutbacks in OECD Europe and OECD Asia Oceania. On the other hand, throughput in the OECD Americas in the same period was up by 1.9% to 18.9 million bpd. In 2016, refining throughput of OECD countries stood at 37.6 million bpd and accounted for 47.5% of global refinery throughput.

Asia (excluding China) and the Middle East added over 0.9 million bpd of export-oriented refinery capacity in 2015 whereas 0.4 million bpd new capacity came online in the U.S. during the year. For 2016, approximately 0.4 million bpd of new refining capacity was scheduled to be added in the U.S. and another 0.3 million bpd in Middle East. As a result of these developments countries such as India, Saudi Arabia and the U.S. have become major exporters of refined products.

 

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Export-oriented refineries in India and the Middle East, coupled with the closure of refining capacity in the developed world, have prompted longer-haul shipments to meet product demand.

Oil Product Imports—Major Growth Regions

(Million bpd)

 

 

LOGO

Source: Drewry

Current Tanker Fleet

Crude oil is transported in uncoated vessels, which range upwards in size from 55,000 dwt. Products are carried predominately in coated ships and include commodities such as fuel oil and vacuum gas oil (often referred to as “dirty products”), gas oil, gasoline, jet fuel, kerosene and naphtha (often referred to as “clean products”). In addition, some product tankers are also able to carry bulk liquid chemicals and edible oils and fats if they have the appropriate International Maritime Organization (IMO) certification. These vessels are classified as product/chemical tankers and as such they represent a swing element in supply, having the ability to move between trades depending on market conditions. Clean petroleum products are therefore carried by non-IMO product tankers and IMO certified product/chemical tankers. IMO tankers will also carry, depending on their tank coatings, a range of other products including organic and inorganic bulk liquid chemicals, vegetable oils and animal fats and special products such as molasses.

 

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As of March 1, 2017, the total oil tanker fleet (crude, products and product/chemical tankers) consisted of 4,754 ships with a combined capacity of 525.9 million dwt.

 

 

 

THE OIL TANKER FLEET—MARCH 1, 2017

 

VESSEL TYPE

   DEADWEIGHT
TONS (DWT)
     NUMBER OF
VESSELS
     % OF
FLEET
     CAPACITY
(M DWT)
     % OF
FLEET
 

Crude Tankers (1)

              

VLCC/ULCC

     200,000+        712        35.1        218.9        58.1  

Suezmax

     120-199,999        517        25.5        80.3        21.3  

Aframax

     80-119,999        649        32.0        70.0        18.6  

Panamax

     55-79,999        87        4.3        6.0        1.6  

Handymax

     40-54,999        17        0.8        0.8        0.2  

Handy

     25-39,999        12        0.6        0.4        0.1  

Handy

     10-24,999        36        1.8        0.6        0.2  
     

 

 

    

 

 

    

 

 

    

 

 

 

Total Fleet

        2,030        100.0        377.0        100.0  
     

 

 

    

 

 

    

 

 

    

 

 

 

Product Tankers

              

Long Range 3 (LR3)

     120-199,999        16        1.2        2.5        2.9  

Long Range 2 (LR2)

     80-119,999        319        23.8        34.5        40.0  

Long Range 1 (LR1)

     55-79,999        318        23.8        23.3        27  

Medium Range 2 (MR2)

     40-54,999        429        32.1        20.1        23.3  

Medium Range 1 (MR1)

     25-39,999        114        8.5        3.9        4.5  

Handy

     10-24,999        142        10.6        2.0        2.3  
     

 

 

    

 

 

    

 

 

    

 

 

 

Total Fleet

        1,338        100.0        86.3        100.0  
     

 

 

    

 

 

    

 

 

    

 

 

 

Product/Chemical Tankers (2)

              

Long Range 3 (LR3)

     120-199,999                              

Long Range 2 (LR2)

     80-119,999        3        0.2                

Long Range 1 (LR1)

     55-79,999        25        1.8        1.8        2.9  

Medium Range 2 (MR2)

     40-54,999        1,004        72.4        48.5        77.4  

Medium Range 1 (MR1)

     25-39,999        315        22.7        11.7        18.7  

Handy

     10-24,999        39        2.8        0.6        1.0  
     

 

 

    

 

 

    

 

 

    

 

 

 

Total Fleet

        1,386        100.0        62.6        100.0  
     

 

 

    

 

 

    

 

 

    

 

 

 

Product & Product/Chemical Fleet

              

Long Range 3 (LR3)

     120-199,999        16        0.6        2.5        1.7  

Long Range 2 (LR2)

     80-119,999        322        11.8        34.5        23.2  

Long Range 1 (LR1)

     55-79,999        343        12.6        25.1        16.9  

Medium Range 2 (MR2)

     40-54,999        1,433        52.6        68.6        46.1  

Medium Range 1 (MR1)

     25-39,999        429        15.7        15.6        10.5  

Handy

     10-24,999        181        6.6        2.6        1.7  
     

 

 

    

 

 

    

 

 

    

 

 

 

Total Fleet

        2,724        100.0        148.9        100.0  
     

 

 

    

 

 

    

 

 

    

 

 

 

Crude, Product and Product/Chemical Tanker Fleet

              

VLCC/ULCC

     200,000+        712        15.0        218.9        41.6  

Suezmax/LR3

     120-199,999        533        11.2        82.8        15.7  

Aframax/LR2

     80-119,999        971        20.4        104.5        19.9  

Panamax/LR1

     55-79,999        430        9.0        31.1        5.9  

Handy/Medium Range

     40-54,999        1450        30.5        69.4        13.2  

Handy/Medium Range

     25-39,999        441        9.3        16.0        3.0  

Handy/Handymax

     10-54,999        217        4.6        3.2        0.6  
     

 

 

    

 

 

    

 

 

    

 

 

 

Total Fleet

        4,754        100.0        525.9        100.0  
     

 

 

    

 

 

    

 

 

    

 

 

 

 

 

(1) 

Included shuttle tankers and tankers on storage duties

 

(2) 

Includes product and product/chemical tankers, excludes chemical tankers

Source: Drewry

 

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The world product tanker fleet as of March 1, 2017 consisted of 2,724 ships with a combined capacity of 148.9 million dwt. The breakdown of the fleet by type (product and product/chemical) and by size together with the orderbook for newbuilding tankers as of March 1, 2017, is illustrated in the table below.

 

 

 

          THE WORLD TANKER FLEET(1) & ORDERBOOK—MARCH 1, 2017                    

VESSEL TYPE

 

 

    EXISTING
FLEET
    ORDERBOOK     ORDERBOOK
% FLEET
    2017     2018     2019     2020+  
     (DWT)     NO     M
DWT
    NO     M
DWT
    NO     DWT     NO     M
DWT
    NO     M
DWT
    NO     M
DWT
    NO     M
DWT
 

Crude Tankers (1)

                             

VLCC/ULCC

    200,000+       712       218.9       86.0       26.6       12.1       12.2       36.0       11.0       47.0       14.6       3.0       1.0              

Suezmax

    120-199,999       517       80.3       79.0       12.4       15.3       15.4       60.0       9.4       19.0       3.0                          

Aframax

    80-119,999       649       70.0       89.0       10.1       13.7       14.4       38.0       4.3       38.0       4.3       9.0       1.0       4.0       0.5  

Panamax

    55-79,999       87       6.0       6.0       0.4       6.9       6.7       6.0       0.4                                      

Handymax

    40-54,999       17       0.8       2.0       0.1       11.8       12.5       2.0       0.1                                      

Handy

    25-39,999       12       0.4                                                                          

Handy

    10-24,999       36       0.6       4.0       0.1       11.1       16.7       4.0       0.1                                      
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Fleet

      2,030       377.0       266.0       49.7       13.1       13.2       146.0       25.3       104.0       21.9       12.0       2.0       4.0       0.5  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Product Tankers

                             

Long Range 3 (LR3)

    120-199,999       16       2.5       4.0       0.6       25.0       24.0       2.0       0.3       2.0       0.3                          

Long Range 2 (LR2)

    80-119,999       319       34.5       46.0       5.2       14.4       15.1       29.0       3.2       11.0       1.3       6.0       0.7              

Long Range 1 (LR1)

    55-79,999       318       23.3       42.0       3.1       13.2       13.3       25.0       1.8       14.0       1.0       1.0       0.1       2.0       0.2  

Medium Range 2 (MR2)

    40-54,999       429       20.1       38.0       1.9       8.9       9.5       4.0       0.2       9.0       0.4       18.0       0.9       7.0       0.4  

Medium Range 1 (MR1)

    25-39,999       114       3.9                                                                          

Handy

    10-24,999       142       2.0       8.0       0.2       5.6       10.0       5.0       0.1       3.0       0.1                          
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Fleet

      1,338       86.3       138.0       11.0       10.3       12.7       65.0       5.6       39.0       3.1       25.0       1.7       9.0       0.6  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Product/Chemical Tankers (2)

 

                           

Long Range 3 (LR3)

    120-199,999                                                                                      

Long Range 2 (LR2)

    80-119,999       3                                                                                

Long Range 1 (LR1)

    55-79,999       25       1.8                                                                          

Medium Range 2 (MR2)

    40-54,999       1,004       48.5       81.0       4.0       8.1       8.2       56.0       2.8       19.0       0.9       6.0       0.3              

Medium Range 1 (MR1)

    25-39,999       315       11.7       13.0       0.5       4.1       4.3       12.0       0.4       1.0       0.1                          

Handy

    10-24,999       39       0.6                                                                          
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Fleet

      1,386       62.6       94.0       4.5       6.8       7.2       68.0       3.2       20.0       1.0       6.0       0.3              
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Product & Product/Chemical Fleet

 

                           

Long Range 3 (LR3)

    120-199,999       16       2.5       4.0       0.6       25.0       24.0       2.0       0.3       2.0       0.3                          

Long Range 2 (LR2)

    80-119,999       322       34.5       46.0       5.2       14.3       15.1       29.0       3.2       11.0       1.3       6.0       0.7              

Long Range 1 (LR1)

    55-79,999       343       25.1       42.0       3.1       12.2       12.4       25.0       1.8       14.0       1.0       1.0       0.1       2.0       0.2  

Medium Range 2 (MR2)

    40-54,999       1,433       68.6       119.0       5.9       8.3       8.6       60.0       3.0       28.0       1.3       24.0       1.2       7.0       0.4  

Medium Range 1 (MR1)

    25-39,999       429       15.6       13.0       0.5       3.0       3.2       12.0       0.4       1.0       0.1                          

Handy

    10-24,999       181       2.6       8.0       0.2       4.4       7.7       5.0       0.1       3.0       0.1                          
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Fleet

      2,724       148.9       232.0       15.5       8.5       10.4       133.0       8.8       59.0       4.1       31.0       2.0       9.0       0.6  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Crude, Product and Product/Chemical Tanker Fleet

 

                       

VLCC/ULCC

    200,000+       712       218.9       86.0       26.6       12.1       12.2       36.0       11.0       47.0       14.6       3.0       1.0              

Suezmax/LR3

    120-199,999       533       82.8       83.0       13.0       15.6       15.7       62.0       9.7       21.0       3.3                          

Aframax/LR2

    80-119,999       971       104.5       135.0       15.3       13.9       14.6       67.0       7.5       49.0       5.6       15.0       1.7       4.0       0.5  

Panamax/LR1

    55-79,999       430       31.1       48.0       3.5       11.2       11.2       31.0       2.2       14.0       1.0       1.0       0.1       2.0       0.2  

Handy/Medium Range

    40-54,999       1,450       69.4       121.0       6.0       8.3       8.6       62.0       3.1       28.0       1.3       24.0       1.2       7.0       0.4  

Handy/Medium Range

    25-39,999       441       16.0       13.0       0.5       2.9       3.1       12.0       0.4       1.0       0.1                          

Handy/Handymax

    10-54,999       217       3.2       12.0       0.3       5.5       9.4       9.0       0.2       3.0       0.1                          
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Fleet

      4,754       525.9       498.0       65.2       10.5       12.4       279.0       34.1       163.0       26.0       43.0       4.0       13.0       1.1  

 

 

(1) 

Included shuttle tankers and tankers on storage duties

 

(2) 

Product and product/chemical tankers only, excludes pure chemical tankers

Source: Drewry

 

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As of March 1, 2017, the orderbook for product and product/chemical tankers for vessels above 10,000 dwt comprised 232 ships with a combined capacity of 15.5 million dwt, equivalent to 10.4% of the existing fleet. Based on the total orderbook and scheduled deliveries, approximately 8.8 million dwt is expected to be delivered in 2017, followed by 4.1 million dwt in 2018 and the remaining 2.6 million dwt will be delivered in 2019 and beyond. In recent years, however, the orderbook has been affected by the non-delivery of vessels (sometimes referred to as ‘‘slippage’’). Some of this slippage resulted from delays, either through mutual agreement or through shipyard problems, while some was due to vessel cancellations. Slippage is likely to remain an issue going forward and, as such, it will have a moderating effect over product tanker fleet growth in 2017 and 2018.

The Oil Tanker Freight Market

Tanker charter hire rates and vessel values for all tankers are influenced by the supply and demand for tanker capacity. Also, in general terms, time charter rates are less volatile than spot rates, because they reflect the fact that the vessel is fixed for a longer period of time. In the spot market, rates will reflect the immediate underlying conditions in vessel supply and demand and are thus prone to more volatility. The trend in spot rates since 2001 for the main vessel classes is shown in the table below.

Oil Tanker—Spot (TCE) Rates: 2001-2017

(US$/Day)

 

 

 

YEAR

   CARIBS
USAC
40-70,000
DWT
     NW EUROPE
NW EUROPE
70-100,000
DWT
     WEST AFRICA
CARIBS/USES
150-160,000
DWT
     AG
JAPAN
280-300,000
DWT
 
           
           

2001

     26,300        35,308        31,992        36,891  

2002

     16,567        22,800        19,325        21,667  

2003

     28,833        41,883        37,367        49,342  

2004

     42,158        55,408        64,792        95,258  

2005

     34,933        57,517        40,883        59,125  

2006

     28,792        47,067        40,142        51,142  

2007

     30,100        41,975        35,392        45,475  

2008

     36,992        56,408        52,650        89,300  

2009

     13,450        19,883        20,242        29,483  

2010

     17,950        27,825        19,658        40,408  

2011

     5,558        12,183        12,508        10,100  

2012

     9,042        10,617        13,825        12,775  

2013

     10,417        12,908        12,900        12,325  

2014

     18,217        33,075        21,200        24,892  

2015

     28,533        44,567        40,942        68,600  

2016

     16,633        32,875        23,433        41,792  

Feb-17

     14,500        38,200        11,300        28,500  

 

 

Source: Drewry

After a period of favorable market conditions between 2004 and 2008, demand for products fell as the world economy went into recession in the latter half of 2008 and there was a negative impact on product tanker demand. With supply at the same time increasing at a fast pace, falling utilization levels pushed tanker freight rates downwards in 2009. A modest recovery took place in the early part of 2010, but this was short-lived and rates started to fall once more in mid-2012 before rebounding in 2014.

Freight rates in the tanker sector started to improve in the second half of 2014 as result of low growth in vessel supply and rising vessel demand. In the products sector a number of factors combined to push up rates, including:

 

   

Increased trade due to higher stocking activity and improved demand for oil products

 

   

Longer voyage distances because of refining capacity additions in Asia

 

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Product tankers also carrying crude encouraged by firm freight rates for dirty tankers

 

   

Lower bunker prices contributing to higher net earnings

Freight rates remained firm throughout 2015 and first half of 2016 and this led to greater revenue and improved profitability for ship-owners. However, in the second half of 2016 tanker freight rates declined sharply as a result of the increase tanker supply outweighing the demand for tankers.

Oil Tanker Newbuilding Prices

Newbuilding prices increased significantly between 2003 and 2007 primarily as a result of increased tanker demand. Thereafter prices weakened in the face of a poor freight market and lower levels of new ordering. In late 2013, prices started to recover and they continued to edge up slowly during 2014 before falling marginally in late 2015. Moreover, newbuilding prices fell further in 2016 because of excess capacity available at shipyards accompanied with low steel prices. New orders declined on account of diminishing earnings potential of oil tankers, and mandatory compliance to Tier III emission for ships ordered on or after January 1, 2016.

For most oil tanker sizes, newbuilding prices are well below the peaks reported at the height of the market boom in 2007-08 and also below long-term averages.

Oil Tankers: Newbuilding Prices: 2001-2017

(In millions of U.S. Dollars)

 

 

 

YEAR END

   30,000
DWT
     50,000
DWT
     75,000
DWT
     110,000
DWT
     160,000
DWT
     300,000
DWT
 

2001

     25.0        27.0        33.5        38.0        47.0        72.0  

2002

     24.5        26.5        31.0        36.0        44.0        66.0  

2003

     28.5        30.5        34.5        40.0        52.0        73.0  

2004

     34.0        39.0        41.0        57.0        68.0        105.0  

2005

     37.5        42.0        43.0        59.0        71.0        120.0  

2006

     40.5        47.5        50.0        65.0        78.0        128.0  

2007

     46.0        54.0        64.0        78.0        90.0        146.0  

2008

     40.0        46.5        57.0        71.5        87.0        142.0  

2009

     31.0        36.0        42.5        52.0        62.0        101.0  

2010

     33.0        36.0        46.0        57.0        67.0        105.0  

2011

     31.5        36.0        44.0        52.8        61.7        99.0  

2012

     30.0        33.0        42.0        48.0        56.5        92.0  

2013

     31.0        35.0        43.0        51.5        59.0        93.5  

2014

     33.0        37.0        45.5        54.0        65.0        97.0  

2015

     32.0        35.5        45.0        51.5        63.0        94.0  

2016

     24.0        32.0        39.0        45.0        54.0        83.0  

Feb-17

     21.0        32.0        39.0        43.0        55.0        81.0  
                 

Long-term average

     32.6        37.1        43.8        53.5        64.1        101.0  

 

 

Source: Drewry

Secondhand Prices

Secondhand values primarily, albeit with a lag, reflect prevailing and expected charter rates. During extended periods of high charter rates vessel values tend to appreciate and vice versa. However vessel values are also influenced by other factors, including the age of the vessel. Prices for young vessels, those approximately up to five years old, are also influenced by newbuilding prices while prices for old vessels, near the end of their useful economic life, those approximately at or in excess of 25 years, are influenced by the value of scrap steel.

 

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The table below illustrates the movements of prices for secondhand oil tankers from 2001 to January 2017. In late 2013, prices for all modern tankers increased as a result of improvement in freight rates and positive market sentiment and further gains were recorded in 2014 and 2015. However in 2016, second hand prices saw a double-digit decline on weakening freight rates. For example, the secondhand price of a five year old LR vessel of 95,000 dwt capacity fell by 35% from $46 million in 2015 to $30 million in 2016. As of February 2017 secondhand prices for oil tankers were also still well below their long-term averages for every vessel class.

Oil Tanker Secondhand Prices: 2001-2017

(In millions of U.S. Dollars)

 

 

 

YEAR END

   30,000
DWT
     45,000
DWT
     75,000
DWT
     95,000
DWT
     150,000
DWT
     300,000
DWT
 

AGE

   5 YRS      5 YRS      5 YRS      5 YRS      5 YRS      5 YRS  

2001

     25.0        25.0        25.5        34.5        41.5        63.0  

2002

     21.5        21.5        21.0        29.5        39.0        55.0  

2003

     29.5        29.5        24.0        37.0        47.0        70.0  

2004

     42.0        42.0        38.0        57.0        73.0        112.0  

2005

     40.0        45.5        46.5        58.0        75.0        110.0  

2006

     42.0        47.5        48.0        63.0        77.0        115.0  

2007

     40.5        52.0        59.0        68.5        87.0        130.0  

2008

     36.5        42.0        46.0        55.0        77.0        110.0  

2009

     20.5        24.0        32.5        38.0        53.0        77.5  

2010

     21.5        24.0        35.0        42.0        58.0        85.5  

2011

     22.5        27.0        32.0        33.5        45.5        58.0  

2012

     20.0        24.0        25.0        27.5        40.0        57.0  

2013

     25.0        29.0        31.0        33.0        42.0        60.0  

2014

     20.0        24.0        33.5        42.0        57.0        76.0  

2015

     23.0        27.0        36.0        46.0        60.0        80.0  

2016

     15.0        22.0        28.0        30.0        42.0        60.0  

Feb-21

     15.0        22.0        28.0        29.0        40.0        60.0  
                 

Long-term average

     27.8        31.6        35.1        43.4        57.1        82.4  

 

 

Source: Drewry

 

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Table of Contents

BUSINESS

We provide seaborne transportation of refined petroleum products worldwide. As of March 24, 2017, we operate a fleet consisting of 79 wholly-owned tankers (23 LR2 tankers, 14 Handymax tankers and 42 MR tankers) with a weighted average age of approximately 2.3 years, and 19 time or bareboat chartered-in tankers (nine Handymax tankers, eight MR tankers, one LR1 tanker and one LR2 tanker), which we refer to collectively as our Operating Fleet. In addition, as of the same date, we have contracts for the construction of eight newbuilding MR product tankers, which we refer to as our Newbuilding Program. These vessels are expected to be delivered to us throughout the remainder of 2017 and first quarter of 2018.

The following table sets forth certain information regarding our fleet as of March 24, 2017:

 

 

 

    

VESSEL NAME

   YEAR BUILT      DWT      ICE
    CLASS    
    

EMPLOYMENT

  

VESSEL TYPE

   Owned vessels               
1    STI Brixton      2014        38,734        1A      SHTP (1)    Handymax
2    STI Comandante      2014        38,734        1A      SHTP (1)    Handymax
3    STI Pimlico      2014        38,734        1A      Time Charter (5)    Handymax
4    STI Hackney      2014        38,734        1A      SHTP (1)    Handymax
5    STI Acton      2014        38,734        1A      SHTP (1)    Handymax
6    STI Fulham      2014        38,734        1A      SHTP (1)    Handymax
7    STI Camden      2014        38,734        1A      SHTP (1)    Handymax
8    STI Battersea      2014        38,734        1A      SHTP (1)    Handymax
9    STI Wembley      2014        38,734        1A      SHTP (1)    Handymax
10    STI Finchley      2014        38,734        1A      SHTP (1)    Handymax
11    STI Clapham      2014        38,734        1A      SHTP (1)    Handymax
12    STI Poplar      2014        38,734        1A      Time Charter (5)    Handymax
13    STI Hammersmith      2015        38,734        1A      SHTP (1)    Handymax
14    STI Rotherhithe      2015        38,734        1A      SHTP (1)    Handymax
15    STI Amber      2012        49,990             SMRP (2)    MR
16    STI Topaz      2012        49,990             SMRP (2)    MR
17    STI Ruby      2012        49,990             SMRP (2)    MR
18    STI Garnet      2012        49,990             SMRP (2)    MR
19    STI Onyx      2012        49,990             SMRP (2)    MR
20    STI Sapphire      2013        49,990             SMRP (2)    MR
21    STI Emerald      2013        49,990             SMRP (2)    MR
22    STI Beryl      2013        49,990             SMRP (2)    MR
23    STI Le Rocher      2013        49,990             SMRP (2)    MR
24    STI Larvotto      2013        49,990             SMRP (2)    MR
25    STI Fontvieille      2013        49,990             SMRP (2)    MR
26    STI Ville      2013        49,990             SMRP (2)    MR
27    STI Duchessa      2014        49,990             SMRP (2)    MR
28    STI Opera      2014        49,990             SMRP (2)    MR
29    STI Texas City      2014        49,990             SMRP (2)    MR
30    STI Meraux      2014        49,990             SMRP (2)    MR
31    STI San Antonio      2014        49,990             SMRP (2)    MR
32    STI Venere      2014        49,990             SMRP (2)    MR
33    STI Virtus      2014        49,990             SMRP (2)    MR
34    STI Aqua      2014        49,990             SMRP (2)    MR
35    STI Dama      2014        49,990             SMRP (2)    MR
36    STI Benicia      2014        49,990             SMRP (2)    MR
37    STI Regina      2014        49,990             SMRP (2)    MR
38    STI St. Charles      2014        49,990             SMRP (2)    MR
39    STI Mayfair      2014        49,990             SMRP (2)    MR

 

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VESSEL NAME

   YEAR BUILT      DWT      ICE
    CLASS    
    

EMPLOYMENT

  

VESSEL TYPE

40    STI Yorkville      2014        49,990             SMRP (2)    MR
41    STI Milwaukee      2014        49,990             SMRP (2)    MR
42    STI Battery      2014        49,990             SMRP (2)    MR
43    STI Soho      2014        49,990             SMRP (2)    MR
44    STI Memphis      2014        49,995             SMRP (2)    MR
45    STI Tribeca      2015        49,990             SMRP (2)    MR
46    STI Gramercy      2015        49,990             SMRP (2)    MR
47    STI Bronx      2015        49,990             SMRP (2)    MR
48    STI Pontiac      2015        49,990             SMRP (2)    MR
49    STI Manhattan      2015        49,990             SMRP (2)    MR
50    STI Queens      2015        49,990             SMRP (2)    MR
51    STI Osceola      2015        49,990             SMRP (2)    MR
52    STI Notting Hill      2015        49,687        1B      Time Charter (6)    MR
53    STI Seneca      2015        49,990             SMRP (2)    MR
54    STI Westminster      2015        49,687        1B      Time Charter (6)    MR
55    STI Brooklyn      2015        49,990             SMRP (2)    MR
56    STI Black Hawk      2015        49,990             SMRP (2)    MR
57    STI Elysees      2014        109,999             SLR2P (4)    LR2
58    STI Madison      2014        109,999             SLR2P (4)    LR2
59    STI Park      2014        109,999             SLR2P (4)    LR2
60    STI Orchard      2014        109,999             SLR2P (4)    LR2
61    STI Sloane      2014        109,999             SLR2P (4)    LR2
62    STI Broadway      2014        109,999             SLR2P (4)    LR2
63    STI Condotti      2014        109,999             SLR2P (4)    LR2
64    STI Rose      2015        109,999             Time Charter (7)    LR2
65    STI Veneto      2015        109,999             SLR2P (4)    LR2
66    STI Alexis      2015        109,999             SLR2P (4)    LR2
67    STI Winnie      2015        109,999             SLR2P (4)    LR2
68    STI Oxford      2015        109,999             SLR2P (4)    LR2
69    STI Lauren      2015        109,999             SLR2P (4)    LR2
70    STI Connaught      2015        109,999             SLR2P (4)    LR2
71    STI Spiga      2015        109,999             SLR2P (4)    LR2
72    STI Savile Row      2015        109,999             SLR2P (4)    LR2
73    STI Kingsway      2015        109,999             SLR2P (4)    LR2
74    STI Carnaby      2015        109,999             SLR2P (4)    LR2
75    STI Lombard      2015        109,999             SLR2P (4)    LR2
76    STI Grace      2016        109,999             SLR2P (4)    LR2
77    STI Jermyn      2016        109,999             SLR2P (4)    LR2
78    STI Selatar      2017        109,999             SLR2P (4)    LR2
79    STI Rambla      2017        109,999             SLR2P (4)    LR2
        

 

 

          
  

Total owned DWT

 

     5,171,232           
        

 

 

          

 

    

VESSEL NAME

  YEAR BUILT     DWT     ICE
CLASS
    EMPLOYMENT   VESSEL
TYPE
  DAILY
BASE
RATE
    EXPIRY (8)  
   Bareboat / time chartered-in vessels              
80    Kraslava     2007       37,258       1B     SHTP (1)   Handymax   $ 17,000       13-May-18   (9) 
81    Krisjanis Valdemars     2007       37,266       1B     SHTP (1)   Handymax   $ 11,250       13-Mar-18  (10) 
82    Silent     2007       37,847       1A     SHTP (1)   Handymax   $ 7,500       31-Mar-19  (11) 
83    Single     2007       37,847       1A     SHTP (1)   Handymax   $ 7,500       31-Mar-19  (11) 
84    Star I     2007       37,847       1A     SHTP (1)   Handymax   $ 7,500       31-Mar-19  (11) 

 

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VESSEL NAME

  YEAR BUILT     DWT     ICE
CLASS
    EMPLOYMENT   VESSEL
TYPE
  DAILY
BASE
RATE
    EXPIRY (8)  
85    Sky     2007       37,847       1A     SHTP (1)   Handymax   $ 6,000       31-Mar-19  (12) 
86    Steel     2008       37,847       1A     SHTP (1)   Handymax   $ 6,000       31-Mar-19  (12) 
87    Stone I     2008       37,847       1A     SHTP (1)   Handymax   $ 6,000       31-Mar-19  (12) 
88    Style     2008       37,847       1A     SHTP (1)   Handymax   $ 6,000       31-Mar-19  (12) 
89    Miss Mariarosaria     2011       47,499           SMRP (2)   MR   $ 16,350       26-May-17  
90    Vukovar     2015       49,990           SMRP (2)   MR   $ 17,034       01-May-18  
91    Targale     2007       49,999           SMRP (2)   MR   $ 16,200       17-May-17  
92    Zefyros     2013       49,999           SMRP (2)   MR   $ 15,800       08-Jul-17  (13) 
93    Gan-Trust     2013       51,561           SMRP (2)   MR   $ 13,050       06-Jan-18  (14) 
94    CPO New Zealand     2011       51,717           SMRP (2)   MR   $ 15,250       12-Sep-18  (15) 
95    CPO Australia     2011       51,763           SMRP (2)   MR   $ 15,250       01-Sep-18  (15) 
96    Ance     2006       52,622           SMRP (2)   MR   $ 13,500       12-Oct-17  (16) 
97    Hellespont Progress     2006       73,728           SPTP (3)   LR1   $ 17,250       13-Apr-17  
98    Densa Alligator     2013       105,708           SLR2P (4)   LR2   $ 14,360       17-Aug-17  (17) 
      

 

 

           
   Total time chartered-in DWT       924,039            
      

 

 

           

NEWBUILDINGS CURRENTLY UNDER CONSTRUCTION

 

    

VESSEL NAME

  

YARD

   DWT     

VESSEL
TYPE

99    Hull 2601—TBN STI Galata    HMD (18)      52,000      MR
100    Hull 2602—TBN STI Bosphorus    HMD (18)      52,000      MR
101    Hull 2603—TBN STI Leblon    HMD (18)      52,000      MR
102    Hull 2604—TBN STI La Boca    HMD (18)      52,000      MR
103    Hull 2605—TBN STI San Telmo    HMD (18)      52,000      MR
104    Hull 2606—TBN STI Donald C Trauscht    HMD (18)      52,000      MR
105    Hull 2607—TBN STI Esles II    HMD (18)      52,000      MR
106    Hull 2608—TBN STI Jardins    HMD (18)      52,000      MR
        

 

 

    
   Total newbuilding product tankers DWT         416,000     
        

 

 

    
   Total Fleet DWT         6,511,271     
        

 

 

    

 

 

(1) 

This vessel operates in or is expected to operate in the Scorpio Handymax Tanker Pool (SHTP). SHTP is operated by Scorpio Commercial Management (SCM). SHTP and SCM are related parties to the Company.

(2)

This vessel operates in or is expected to operate in the Scorpio MR Pool (SMRP). SMRP is operated by SCM. SMRP is a related party to the Company.

(3) 

This vessel operates in or is expected to operate in the Scorpio Panamax Tanker Pool (SPTP). SPTP is operated by SCM. SPTP is a related party to the Company.

(4) 

This vessel operates in or is expected to operate in the Scorpio LR2 Pool (SLR2P). SLR2P is operated by SCM. SLR2P is a related party to the Company

(5) 

This vessel is currently time chartered-out to an unrelated third-party for three years at $18,000 per day. This time charter is scheduled to expire in January 2019.

(6) 

This vessel is currently time chartered-out to an unrelated third-party for three years at $20,500 per day. This time charter is scheduled to expire in December 2018.

(7) 

This vessel is currently time chartered-out to an unrelated third-party for three years at $28,000 per day. This time charter is scheduled to expire in February 2019.

(8) 

Redelivery from the charterer is plus or minus 30 days from the expiry date.

(9) 

In February 2017, we entered into a new charter agreement for one year at $11,250 per day effective May 2017. We have an option to extend the charter for an additional year at $13,250 per day.

(10) 

In February 2017, we entered into a new charter agreement for one year at $11,250 per day effective March 2017. We have an option to extend the charter for an additional year at $13,250 per day.

(11) 

In December 2016, we entered into an agreement to bareboat-in this vessel, which was previously time chartered-in by the Company for $15,600 per day. The time charter-in contract was cancelled in January 2017 and replaced by the new bareboat contract at a rate of $7,500 per day. The agreement includes a purchase option which can be exercised through December 31, 2018. If the purchase option is not exercised, the bareboat-in agreement will expire on March 31, 2019.

 

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(12) 

In December 2016, we entered into an agreement to bareboat-in this vessel at a rate of $6,000 per day. The agreement includes a purchase option which can be exercised through December 31, 2018. If the purchase option is not exercised, the bareboat-in agreement will expire on March 31, 2019.

(13) 

We have an option to extend the charter for an additional year at $17,000 per day.

(14) 

In November 2016, we entered into a new charter agreement for one year at $13,050 per day effective January 2017. We have an option to extend the charter for an additional year at $15,000 per day.

(15) 

We have an option to extend the charter for an additional year at $16,000 per day.

(16) 

We have an option to extend the charter for an additional year at $15,000 per day.

(17) 

In February 2017, we entered into a new charter agreement for six months at $14,360 per day. We have an option to extend the charter for an additional six months at $15,385 per day.

(18) 

These newbuilding vessels are being constructed at HMD (Hyundai Mipo Dockyard Co. Ltd. of South Korea). Seven vessels are expected to be delivered throughout the remainder of 2017 and one vessel is expected to be delivered in the first quarter of 2018.

Chartering Strategy

Generally, we operate our vessels in commercial pools, on time charters or in the spot market.

Commercial Pools

To increase vessel utilization and thereby revenues, we participate in commercial pools with other shipowners of similar modern, well-maintained vessels. As of March 24, 2017, 93 of the vessels in our Operating Fleet operate in, or are expected to operate in, one of the Scorpio Group Pools. By operating a large number of vessels as an integrated transportation system, commercial pools offer customers greater flexibility and a higher level of service while achieving scheduling efficiencies. Pools employ experienced commercial managers and operators who have close working relationships with customers and brokers, while technical management is performed by each shipowner. Pools negotiate charters with customers primarily in the spot market, but may also arrange time charter agreements. The size and scope of these pools enable them to enhance utilization rates for pool vessels by securing backhaul voyages and contracts of affreightment, or COAs, thus generating higher effective time charter equivalent, or TCE, revenues than otherwise might be obtainable in the spot market.

Time Charters

Time charters give us a fixed and stable cash flow for a known period of time. Time charters also mitigate in part the seasonality of the spot market business, which is generally weaker in the second and third quarters of the year. In the future, we may opportunistically look to enter our vessels into time charter contracts. We may also enter into time charter contracts with profit sharing agreements, which enable us to benefit if the spot market increases. As of March 24, 2017, five of the vessels in our Operating Fleet are employed under long-term time charters (with initial terms of one year or greater).

Spot Market

A spot market voyage charter is generally a contract to carry a specific cargo from a load port to a discharge port for an agreed freight per ton of cargo or a specified total amount. Under spot market voyage charters, we pay voyage expenses such as port, canal and bunker costs. Spot charter rates are volatile and fluctuate on a seasonal and year-to-year basis. Fluctuations derive from imbalances in the availability of cargoes for shipment and the number of vessels available at any given time to transport these cargoes. Vessels operating in the spot market generate revenue that is less predictable, but may enable us to capture increased profit margins during periods of improvements in tanker rates. As of March 24, 2017, three of the bareboat chartered-in vessels in our Operating Fleet were operating directly in the spot market. These vessels are temporarily operating in the spot market prior to their expected entrance into the Scorpio Handymax Tanker Pool.

Management of Our Fleet

Please see “Certain Relationships and Related Party Transactions—Management of Our Fleet.”

Our Relationship with Scorpio Group and its Affiliates

We believe that one of our principal strengths is our relationship with the Scorpio Group of companies (described below). Our vessel operations are managed under the supervision of our board of directors, by our management team and by members of the Scorpio Group of companies. Our relationship with the Scorpio Group of companies provides access to Scorpio Group’s customer and supplier relationships and their technical, commercial and managerial expertise, which we believe allows us to compete more effectively and operate our vessels on a cost efficient basis.

 

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The Scorpio Group includes Scorpio Ship Management S.A.M, or SSM, which provides vessel technical management services for our vessels, and Scorpio Commercial Management, or SCM, which provides vessel commercial management services for our vessels.

We can provide no assurance, however, that we will realize any benefits from our relationship with the Scorpio Group. Emanuele Lauro, our founder, Chairman and Chief Executive Officer, and Filippo Lauro, our Vice President, are members of the Lolli-Ghetti family, which owns and controls our administrator and commercial and technical managers. These responsibilities and relationships could create conflicts of interest between us, on the one hand, and our administrator and/or commercial and technical managers, on the other hand. These conflicts may arise in connection with the chartering, purchase, sale and operations of the vessels in our fleet versus vessels managed by other companies affiliated with our commercial or technical managers. Our commercial and technical managers may give preferential treatment to vessels that are time chartered-in by related parties because our founder, Chairman and Chief Executive Officer and members of his family may receive greater economic benefits. In addition, all of our executive officers serve in similar management positions in certain other companies within the Scorpio Group. These relationships may create conflicts of interest in matters involving or affecting us and our customers, including in the chartering, purchase, sale and operation of the vessels in our fleet versus vessels managed by other members of the Scorpio Group. Conflicts of interest may arise between us, on the one hand, and our commercial and technical managers, on the other hand. As a result of these conflicts, our commercial and technical managers, who have limited contractual duties, may favor their own or other owner’s interests over our interests. These conflicts may have unfavorable results for us.

Competition

We operate in markets that are highly competitive and based primarily on supply and demand. We compete for charters on the basis of price, vessel location, size, age and condition of the vessel, as well as on our reputation and that of our commercial manager. We compete primarily with other independent tanker vessel-owners and with major oil companies that own and operate their own vessels. Our competitors may have more resources than us and may operate vessels that are newer, and therefore more attractive to charterers, than our vessels. Ownership of tanker vessels is highly fragmented and is divided among publicly listed companies, state-controlled owners and private shipowners.

Properties

We have no properties other than our ves