Gulf Navigation hits troubled waters as second vessel is seized

Gulf Navigation faces further woes as its second oil tanker is seized in the Bahamas.

The Gulf Eyadah, which was named Front Shanghai before it was sold to Gulf Navigation in 2011, was “arrested” in the Bahamas. Frontline Ltd via Bloomberg News

Gulf Navigation's attempts to stay afloat have taken a turn for the worse, with the seizure of the second of the company's two supertankers. The Dubai-based shipping company announced yesterday that its second very large crude carrier (VLCC), the Gulf Eyadeh, had been "arrested" in the Bahamas, under orders from DNB and DVB, the two lenders to the ship's owner.

The arrest of the vessel came in the early hours of Thursday morning UAE time, said Sandeep Kadwe, Gulf Navigation’s managing director. The company is seeking legal assistance in the court of the Bahamas to challenge the vessel’s arrest, he said.

The seizure of the vessel comes less than four weeks after the arrest of the company’s other oil tanker, the Gulf Sheba. The arrest notice was served by DNB, an agent of the lenders for Gulf Sheba, for default in repayment of interest and principal towards the end of July. The creditor group attempted to force the sale of the vessel, but this move was blocked by the Dutch courts.

Gulf Navigation is in discussions with more than one potential buyer from outside the GCC region for the sale of the two vessels, said Mr Kadwe, noting that discussions had begun before the vessels were seized.

He hit out at the decision by lenders to arrest the two oil tankers, saying that the revenue they might have generated could have been used to pay down the company’s debts and to lower its liabilities.

“European lenders don’t appreciate the process here in the UAE, namely that we need to get approval from SCA to hold an EGM to approve any sale of assets,” said Mr Kadwe.

The company hopes to get the approval within the next few days, and hopes to hold the meeting within 28 days, he said.

But the arrest of the second vessel indicates that Gulf Navigation’s creditors have lost patience with the company’s attempts to negotiate a sale of the two tankers, prompting them to attempt to seize the vessels and force a sale via the courts.

Gulf Navigation said last month that it was looking to temporarily exit the oil tanker business in the face of tumbling earnings in the global VLCC market, to focus on its chemical transport business.

Gulf Navigation’s VLCCs have operated at a loss as part of an international pool of tankers, he said. Daily earnings for VLCCs have plunged 92 per cent so this year to US$1,515 on August 30, according to Clarkson, the world’s largest shipbroker. Rates have averaged $7,397 since the start of this year, in comparison with $229,484 in December 2007.

However the company will struggle to remain profitable even if it manages to sell its VLCCs at a competitive price, warned a UAE-based fund manager.

“Even its other business have been very volatile. Without an extra injection of capital it will be very hard for them to run a profitable business,” he said.

Mr Kadwe said that Gulf Navigation is in discussions with one of its larger shareholders, described as “a representative of the UAE government”, to potentially inject new capital into the company, declining to give further details.

The company also approached SCA last month to increase the percentage of shares in the company that can be owned by non-GCC shareholders, currently capped at 20 per cent. Mr Kadwe said that the move is not being taken with a specific shareholder or potential investor in mind.

DNB confirmed yesterday that a vessel had been arrested owing to a covenant breach, declining to give further details. DVB did not respond to a request for comment.

Gulf Navigation’s shares closed down 2.08 per cent yesterday at 47.5 fils.