Pareto predicts TIL spending

Teekay spin-off Tankers Investment Ltd could spend up to $200m on fleet expansion over the next few months as it looks to deploy its huge financial resources, Pareto predicts.

Oslo-listed TIL has $250m in equity at its finger-tips after collecting $425m from its initial private placement and subsequent initial public offering in Oslo.

TIL has four suezmaxes and five aframaxes to its name today and is expected to show some patience given asset values are declining in line with crude tanker spot rates, say analysts Eirik Haavaldsen and Jonas Advocaat Kraft.

“Management is relatively confident that they will be able to spend ‘most’ of the available equity before the end of the summer,” they wrote in a report today.

“As we expect crude tanker rates to remain at the current low levels until the fall, we see limited reason for asset values to increase materially before this.

“As such, we believe TIL could spend ~$200m of equity at the current quoted levels, which after all are marginally higher than where we have seen the latest transactions. Assuming ~50% leverage, this would mean that TIL doubles its asset exposure from the current over-equitized level.”

Pareto’s comments came as it initiated coverage of TIL with a buy rating today.

The Norwegian finance house, which was a joint book runner of TIL’s IPO, believes it will record its debut profit of $23m in 2015. This figure is chartered to reach $44m in 2016.

“Following years of famine, the crude tanker market rebounded swiftly last year, reaching a level few had expected. And rates stayed there into early 2014,” the Pareto analysts said.

“Year to date, VLCC spot rates have averaged nearly $30,000/day, and while we do not expect this to be the full year average, it clearly shows that a recovery is already in motion.

“We expect demand growth to outpace supply growth through 2016, and though the market will be volatile, we argue that rates, newbuild prices and second hand asset values are set for an increase.”