Gulf Navigation to exit oil tanker business

Gulf Navigation effectively exits oil tanker market with the sale of its two VLCCs.

The very large crude carrier (VLCC) Gulf Sheba sits at Rotterdam port. The vessel was arrested in the Dutch port while unloading its crude cargo. Courtesy Rob Hendriks

Gulf Navigation has announced a short-term exit from the oil tankering business, as it seeks to sell both of its very large crude carriers (VLCCs) to focus on the more lucrative chemical transportation market.

However, the company has indicated that it will continue to serve the oil transportation sector via its technical ship management business, and may seek to re-enter the tanker market in the future if rates improve.

In a statement made to the Dubai Financial Market yesterday, the company said its board of directors had "agreed to recommend the sale of the VLCCs" at an EGM of its shareholders.

The company said last week that it was in discussions with more than one buyer for the sale of Gulf Sheba, one of its two VLCCs, after the vessel was "arrested" in Rotterdam under the orders of creditors.

But Sandeep Kadwe, Gulf Navigation’s managing director, yesterday confirmed that the company was in the midst of discussions to sell both Gulf Sheba and its other VLCC, the Gulf Eyadeh, as part of a move away from the oil tankering business, at least in the short term.

“As of now the VLCC segment worldwide is going through a difficult time, and we don’t expect it to turn around in the near term,” he said. “So to prevent further cash loss from this part of our business we are selling our VLCCs.”

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 far 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.

Negotiations for the sale of the two VLCCs, which involve multiple potential buyers, began months before the arrest of the Gulf Sheba was ordered last week by creditors, said Mr Kadwe, describing the decision to seek the arrest as “very unfortunate”.

The arrest notice was served by the Norwegian bank DnB, an agent of the lenders for Gulf Sheba Corporation, a Gulf Navigation subsidiary, for default in repayment of interest and principal toward the end of July.

Negotiations with creditors were under way for the release of the tanker, said Mr Kadwe, giving no further details regarding the timing of their release.

The sale of the two tankers will leave Gulf Navigation with a fleet of eight chemical tankers and four crew boats.

However Mr Kadwe insisted that the sale of the vessels did not mean that Gulf Navigation was closing its doors on its oil business.

“In a couple of years if the global tanker rates pick up again we can see ourselves re-entering the market,” he said, also highlighting that the company would continue to work in oil and gas with its technical ship management arm.

Gulf Navigation has submitted a request to the Securities and Commodities Authority to hold an EGM following its board meeting last Friday, the company’s announcement said. The meeting will be held within 21 days of the SCA granting its approval for the move, Mr Kadwe said.

An SCA spokesman said yesterday that the request had not been received, but that such requests could typically be processed within days.

The company will also use the EGM to seek shareholder approval for increased investment in the company by non-GCC shareholders. The company’s foreign ownership is currently restricted to 20 per cent of its total share capital.

Mr Kadwe said that Gulf Navigation has held discussions with its largest UAE-based shareholders about further investing in the company, as well as with outside investors.

Gulf Navigation is 48 per cent owned by UAE nationals, 36 per cent by non-UAE nationals within the GCC, and 16 per cent by foreign investors, according to the company’s website.

The company’s shares fell by 4 per cent in morning trade, ending the day up 3.4 per cent at 30.8 fils a share on 82 million shares traded.