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Frontline Ltd – ‘6-K’ for 9/30/19

On:  Wednesday, 12/11/19, at 4:58pm ET   ·   For:  9/30/19   ·   Accession #:  913290-19-12   ·   File #:  1-16601

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12/11/19  Frontline Ltd                     6-K         9/30/19    1:754K

Current Report by a Foreign Issuer   —   Form 6-K   —   Rule 13a-16 / 15d-16
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO
RULE 13A-16 OR 15D-16 UNDER THE SECURITIES
EXCHANGE ACT OF 1934

For the nine months ended September 30, 2019

Commission File Number:  001-16601

FRONTLINE LTD.
(Translation of registrant's name into English)

Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton, HM 08, Bermuda
(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F [ X ]     Form 40-F [   ]

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ________.

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ________.

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant's "home country"), or under the rules of the home country exchange on which the registrant's securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant's security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.




INFORMATION CONTAINED IN THIS FORM 6-K REPORT
 
Attached hereto as Exhibit 1 to this Report on Form 6-K are the unaudited condensed consolidated interim financial statements and related Management’s Discussion and Analysis of Financial Condition and Results of Operations of Frontline Ltd. (the “Company”) for the nine months ended September 30, 2019.

This Report on Form 6-K is hereby incorporated by reference into the Company's Registration Statements on Form F-3, filed with the Commission on April 10, 2017 (File No. 333-217238) and on July 5, 2019 (File No. 333-232567).






SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


 
 
FRONTLINE LTD.
(registrant)
 
 
 
 
By:
 
 
 
 
 
 
Title: Principal Financial Officer
 
 
 
 
 
 




EXHIBIT 1
 
FRONTLINE LTD.
 
As used herein, "we," "us," "our", "Frontline" and "the Company" all refer to Frontline Ltd.. This management's discussion and analysis of financial condition and results of operations should be read together with the discussion included in the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2018.
 
Management's Discussion and Analysis of Financial Condition and Results of Operations for the Nine Months Ended September 30, 2019
 

General

As of September 30, 2019, the Company’s fleet consisted of 71 vessels, with an aggregate capacity of approximately 13.5 million DWT:

(i)
48 vessels owned by the Company (14 VLCCs, 16 Suezmax tankers, 18 LR2/Aframax tankers);
(ii)
three VLCCs that are under finance leases;
(iii)
10 Suezmax tankers to be acquired under the Sale and Purchase Agreement ("the SPA") with Trafigura Maritime Logistics ("TML"), a wholly owned subsidiary of Trafigura Group Pte Ltd ("Trafigura"), of which five are currently recorded under finance leases and five will be recorded on closing of the Acquisition (as defined below);
(iv)
one VLCC that is recorded as an investment in finance lease;
(v)
two VLCCs chartered in from an unrelated third party; and
(vi)
seven vessels that are under the Company’s commercial management (three VLCCs, two Suezmax tankers, and two Aframax oil tankers)

In the nine month period ending September 30, 2019, the Company took delivery of the VLCC newbuildings, Front Defender and Front Discovery.

As of September 30, 2019, the Company had entered into fixed rate time charter-out contracts for one LR2 tanker and three Suezmax tankers with expiry in Q1 2020 at average rates of $19,500 per day, $23,750 per day and $17,000 each per day plus profit split, respectively. Frontline has also agreed to charter five of the 10 Suezmax tankers to be acquired under the SPA back to a subsidiary of Trafigura on three year time charters at a daily base rate of $28,400 with a 50% profit share above the base rate. The time charter receipts, net of charter hire payments, for the five vessels chartered back to Trafigura have been recorded as a reduction in the acquisition costs of the 10 vessels acquired under the SPA. Until closing of the transaction these receipts, net of payments, will not be reflected in our earnings. See note 19 to our condensed consolidated financial statements.
 
In May 2019, the Company entered into an agreement to purchase an Exhaust Gas Cleaning System ("EGCS") equipped Suezmax tanker resale under construction at Hyundai Samho Heavy Industries ("HSHI"), due for delivery in April 2020, at a cost of $65.4 million.
 
In June 2019, the Company entered into an agreement to purchase an EGCS equipped VLCC resale under construction at HSHI, expected to be delivered in May 2020, at a cost of $92.5 million.

In June 2019, the Company ordered two LR2 newbuildings from Shanghai Waigaoqiao Shipbuilding Co. Ltd. ("SWS"), China, expected to be delivered in January and March 2021 at a cost of $46.7 million each.

In August 2019, the Company entered into the SPA with Trafigura to acquire 10 Suezmax tankers built in 2019 through the acquisition of a special purpose vehicle, which will hold the vessels (the “Acquisition”).

1



The Acquisition consideration per the SPA consists of (i) 16,035,856 ordinary shares of Frontline at an agreed price of $8.00 per share that were issued upon signing; and (ii) a cash amount ranging from $538.2 million to $544.9 million, payable upon the closing of the Acquisition. Closing of the Acquisition is targeted as soon as practically possible with December 15, 2019 being the earliest and March 15, 2020 being the latest expected date. Frontline has agreed to time charter all the 10 vessels from Trafigura until closing of the Acquisition at a daily rate of approximately $23,000. In addition, Frontline has agreed to charter-out five of the vessels to Trafigura for a period of three years at a daily base rate of $28,400 plus 50% profit share. As part of the Acquisition, Frontline had options to acquire an additional four Suezmax tankers built in 2019 through the acquisition of a second special purpose vehicle. Frontline elected not to exercise the options in September 2019. See note 19 to our condensed consolidated financial statements for a detailed description of the accounting for this transaction.

In October 2019, the Company exercised the options for two additional LR2 newbuildings from SWS, expected to be delivered in October 2021 and January 2022, respectively, at a cost of $46.7 million each.


Fleet changes
(number of vessels)
Nine months ended September 30, 2019

Nine months ended September 30, 2018


VLCCs
 
 
 
At start of period
17

20

20

Other acquisitions/newbuilding deliveries
2

2

2

Disposal/lease termination

(4
)
(6
)
Chartered-in/redelivered

1

1

At end of period
19

19

17

Suezmax tankers
 
 
 
At start of period
16

16

16

Chartered-in/redelivered
5



At the start and end of period
21

16

16

LR2/Aframax tankers
 
 
 
At start of period
18

17

17

Other acquisitions/newbuilding deliveries

1

1

At end of period
18

18

18

Total
 
 
 
At start of period
51

53

53

Other acquisitions/newbuilding deliveries
2

3

3

Disposal/lease termination

(4
)
(6
)
Chartered-in/redelivered
5

1

1

At end of period
58

53

51


(1) The table above excludes vessels commercially managed on behalf of third parties and related parties and also the vessel recorded as an investment in finance lease.
(2) Five Suezmax tankers chartered-in from Trafigura have been recorded as vessels under finance leases and included in the above table. Five additional vessels will be accounted for only upon closing of the Acquisition, due to the presence of a charter-out to Trafigura, and are therefore excluded from the above table until closing of the Acquisition.

Results of Operations


2


Amounts included in the following discussion are derived from our unaudited condensed consolidated financial statements for the nine months ended September 30, 2019 and September 30, 2018.

Total operating revenues, voyage expenses and commissions
(in thousands of $)
2019

2018

Time charter revenues
28,976

20,568

Voyage charter revenues
564,673

485,847

Finance lease interest income
681

1,009

Other income
24,993

17,792

Total operating revenues
619,323

525,216

 
 
 
Voyage expenses and commissions
281,656

283,063


Time charter revenues increased by $8.4 million in the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018 primarily due to the delivery of two newbuildings in 2019 and an increase in the number of vessels trading under time charters. This was partially offset by redelivery of vessels from time charters back on to voyage charters.

Voyage charter revenues increased by $78.8 million in the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018 primarily due to the delivery of five newbuildings and the delivery of seven chartered-in vessels since January 1, 2018 onto voyage charters, the net reduction in vessels trading under time charters and the increase in the market freight rates. These factors were partially offset by the redelivery of six vessels chartered-in under long-term leases from SFL Corporation Ltd ("SFL"), formerly Ship Finance International Ltd, and one vessel chartered-in under an operating lease.

The finance lease interest income in the nine months ended September 30, 2019 relates to the investment in a finance lease for one VLCC, which has decreased due to the ongoing amortization of the lease receivable.

Other income primarily comprises the income earned from the commercial management of related party and third party vessels and newbuilding supervision fees derived from related parties. The increase in the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018 was due to an increase in newbuilding supervision fees earned.

Voyage expenses and commissions decreased by $1.4 million in the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018 primarily due to the redelivery of six vessels chartered-in under long-term leases from SFL and one vessel chartered-in under an operating lease. These factors were partially offset by the delivery of five newbuildings and the delivery of seven chartered-in vessels since January 1, 2018, the net reduction in vessels trading under time charters and an increase in bunker cost.


Other operating gains
(in thousands of $)
2019

2018

Gain on termination of vessel leases

1,382

Gain on insurance settlement
2,660


Gain (loss) on pool arrangements
1,519

(143
)
Other gains
631


Other operating gains
4,810

1,239


In February 2018, the Company agreed with SFL to terminate the long-term charter for the 1998-built VLCC Front Circassia upon the sale and delivery of the vessel by SFL to an unrelated third party. The charter with SFL terminated

3


in February and the charter counter party Frontline Shipping Limited (“FSL”); a non-recourse subsidiary of the Company; has agreed to pay compensation of $8.9 million for the termination of the charter to SFL, which has been recorded as an interest-bearing note payable by FSL. The Company recorded a loss on termination, including this termination payment, of $5.8 million in the first quarter of 2018.

In July 2018, the Company agreed with SFL to terminate the long-term charter for the VLCC Front Page, Front Stratus and Front Serenade upon the sale and delivery of the vessels by SFL to an unrelated third party. The charters with SFL terminated in July, August and September, 2018, respectively, and the Company has agreed to pay a compensation of approximately $10.1 million for the termination of the three charters to SFL, which has been recorded as interest bearing notes payable by the Company. The Company recorded a gain on termination, including the termination payment, of $7.2 million in the third quarter of 2018. In July 2018, the Company entered into an agreement with the unrelated third party to provide the commercial management of these three vessels.

In the nine months ended September 30, 2019, the Company recorded a gain on pool arrangements of $1.5 million and a $2.7 million insurance recovery in relation to loss of hire insurance for Front Altair. A further $0.6 million was recognized in relation to the settlement of miscellaneous claims.


Contingent rental income
(in thousands of $)
2019

2018

Contingent rental income
(3,810
)
(18,026
)

Contingent rental income in the nine months ended September 30, 2019 relates to the three charter party contracts with SFL and is due to the fact that the actual profit share payable in the nine months ended September 30, 2019 of $1.5 million (2018: nil) was $3.8 million (2018: $18.0 million) less than the amount accrued in the lease obligation payable when the leases were recorded at fair value at the time of the merger with Frontline 2012 Ltd. ("Frontline 2012") in 2015. The decrease in contingent rental income is due to the reduction in the number of vessels leased from SFL along with an increase in market rates which has increased the amount payable to SFL in the nine months ended September 30, 2019.


Ship operating expenses
(in thousands of $)
2019

2018

Ship operating expenses
114,658

98,160


Ship operating expenses are the direct costs associated with running a vessel and include crew costs, vessel supplies, repairs and maintenance, dry docking expenses, lubricating oils and insurance.

Ship operating expenses increased in the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018 primarily due to the drydocking expense on nine vessels, an increase in costs due to the delivery of five newbuildings since January 1, 2018 and the recording of $5.0 million of the non-lease component of charter hire recorded within Ship operating expenses, as noted below. These factors were partially offset by a reduction in Ship operating expenses as a result of the redelivery of six vessels chartered-in under long-term leases from SFL.


Charter hire expenses
(in thousands of $)
2019

2018

Charter hire expenses
6,307

16,135



4


In the nine month period ended September 30, 2019, the Company chartered-in two VLCCs under operating leases. Under ASC 842 from January 1, 2019 the Company is required to separate the lease and non-lease components of operating lease expenses. In the nine months ended September 30, 2019, the Company recognized $5.0 million of Charter hire expenses within Ship Operating Expenses in relation to the non-lease component of Charter hire expenses relating to the two VLCCs. The Company recognized $6.3 million as Charter hire expenses in relation to the lease component of the charters for the two VLCCs. In the period ended September 30, 2018, the Company chartered-in three VLCCs, however the lease and non-lease component of the charter were both recorded within Charter hire expenses under ASC 840.


Administrative expenses
(in thousands of $)
2019

2018

Administrative expenses
31,896

27,989


Administrative expenses increased in the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018 primarily due to an increase in expenses in relation to the management of third party and related party vessels and newbuilding projects and costs in relation to the Company's corporate activities.


Depreciation
(in thousands of $)
2019

2018

Depreciation
85,548

94,270


Depreciation decreased in the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018 primarily due to the termination of the long-term charters on six vessels chartered-in from SFL since January 1, 2018. These factors were partially offset by an increase in depreciation due to the delivery of five newbuildings since January 1, 2018 and the delivery of five vessels chartered-in under finance lease in the third quarter of 2019.


Interest income
(in thousands of $)
2019

2018

Interest income
1,016

556


Interest income in the nine months ended September 30, 2019 and the nine months ended September 30, 2018 relates solely to interest received on bank deposits.


Interest expense
(in thousands of $)
2019

2018

Interest expense
(69,767
)
(70,314
)

Interest expense decreased in the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018 primarily due to the decrease in finance lease interest expense as a result of the termination of the long-term charters of six vessels leased from SFL and the scheduled repayment of outstanding debt, offset by the increase in loan interest expense due to the draw down of loans in relation to the delivery of five newbuildings since January 1, 2018 and the movement in interest rates.

Share of results of associated company

5



(in thousands of $)
2019

2018

Share of results of associated company
2,810




The Company has a 28.9% ownership interest in Feen Marine Scrubbers Inc. ("FMSI"), a leading manufacturer of EGCS. The investment is accounted for under the equity method. A share of results of $2.8 million was recognized in the nine months ended September 30, 2019.


Gain on sale of securities
(in thousands of $)
2019

2018

Gain on sale of securities

1,026


In the nine months ended September 30, 2018, the Company sold its remaining 4.7 million shares of DHT Holdings Inc. ("DHT"), for proceeds of $17.8 million, recognizing a gain on sale of $1.0 million in the income statement.


Unrealized gain on marketable securities
(in thousands of $)
2019

2018

Unrealized gain on marketable securities

979

1,911


The Company recognized an unrealized gain of $1.0 million and $1.9 million due to the movement in the fair value of marketable securities for the nine months ended September 30, 2019 and the nine months ended September 30, 2018, respectively.


Gain (loss) on derivatives
(in thousands of $)
2019

2018

Gain (loss) on derivatives
(12,297
)
8,925


The loss on derivatives in the nine months ended September 30, 2019 and the gain in the nine months ended September 30, 2018 primarily relate to interest rate swap agreements as a result of movements in interest rates.

Other non-operating gain
(in thousands of $)
2019

2018

Other non-operating gain
114

94


Other non-operating gains were primarily comprised of dividends received on marketable securities, offset by bank charges.

Net (income) loss attributable to non-controlling interest
(in thousands of $)
2019

2018

Net (income) loss attributable to non-controlling interest
3

(372
)


6


Net loss attributable to non-controlling interest in the nine months ended September 30, 2019 and net income in the nine months ended September 30, 2018 is primarily attributable to the non-controlling interests in the results of Seateam Management Pte. Ltd ("Seateam").

7


Critical Accounting Policies and Estimates

Impairment Assessment of Goodwill

We allocate the cost of acquired companies to identifiable tangible and intangible assets and liabilities acquired, with the remaining amount being classified as goodwill. Our future operating performance may be affected by potential impairment charges related to goodwill. Goodwill is not amortized, but rather reviewed for impairment annually, or more frequently if impairment indicators arise. The Company may assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount, including goodwill. The Company may elect to bypass the qualitative assessment in any period and proceed directly to performing the first step of the goodwill impairment test. In evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company assesses relevant events and circumstances. Examples of such events and circumstances include: (i) macroeconomic conditions; (ii) industry and market conditions; (iii) changes in cost factors that may impact earnings and cash flows; (iv) overall financial performance; (v) other entity specific events such as changes in management, strategy, customers or key personnel (vi) other events and (vii) if applicable, changes in the Company's share price, both in absolute terms and relative to peers.

Impairment of goodwill in excess of amounts allocable to identifiable assets and liabilities is determined using a two-step approach, initially based on a comparison of the fair value of the reporting unit to the book value of its net assets; if the fair value of the reporting unit is lower than the book value of its net assets, then the second step compares the implied fair value of the Company's goodwill with its carrying value to measure the amount of the impairment. The Company has one reporting unit for the purpose of assessing potential goodwill impairment and has selected September 30 as its annual goodwill impairment testing date. The process of evaluating the potential impairment of goodwill and intangible assets is highly subjective and requires significant judgment at many points during the analysis.

Our test for potential goodwill impairment is a two-step approach. We estimate the fair value of the Company based on its market capitalization plus a control premium and compare this to the carrying value of its net assets. Control premium assumptions require judgment and actual results may differ from assumed or estimated amounts. If the carrying value of the Company's net assets exceeds its estimated fair value, the second step of the goodwill impairment analysis requires us to measure the amount of the impairment loss. An impairment loss is calculated by comparing the implied fair value of the goodwill to its carrying amount. The implied fair value of goodwill is calculated in the same manner as the goodwill recognized in a business combination. That is, the Company determines the fair value of assets and liabilities of the reporting unit (including any unrecognized intangible assets excluding goodwill) as if the reporting unit had been acquired in a business combination. The excess of the fair value of a reporting unit over the amounts determined for its assets and liabilities is the implied fair value of goodwill.

The Company's market capitalization at September 30, 2019 was $1,752.8 million (based on a share price of $9.10) compared to its carrying value of approximately $1,379.9 million. As the market capitalization of the Company was above the carrying value, even without considering any control premium, the Company concluded that it was not required to complete the second step of the goodwill impairment analysis and there was no requirement for an impairment.

If our stock price declines, or if our control premium declines, without a corresponding decline in the fair value of underlying assets and liabilities the implied value of goodwill might decrease which could result in impairments of some or all of the $112.5 million of goodwill. Control premium assumptions require judgment and actual results may differ from assumed or estimated amounts. The Company believes that a control premium may be attributable, in part or in whole, to the expected synergies from combining the operations of the Company and an acquirer, particularly in respect of the benefits of operating an enlarged oil tanker fleet and assembled workforce as well as being able to take advantage of an expected reduction in costs from an expansion in scale. Events or circumstances may occur that could negatively impact our stock price, including changes in our anticipated revenues and profits and our ability to execute on our strategies. An impairment could have a material negative effect on our consolidated balance sheet and results of operations.



8


Liquidity and Capital Resources

We operate in a capital intensive industry and have historically financed our purchase of tankers and other capital expenditures through a combination of cash generated from operations, equity capital and borrowings from commercial banks. Our ability to generate adequate cash flows on a short and medium term basis depends substantially on the trading performance of our vessels in the market.  Historically, market rates for charters of our vessels have been volatile. Periodic adjustments to the supply of and demand for oil and product tankers causes the industry to be cyclical in nature. We expect continued volatility in market rates for our vessels in the foreseeable future with a consequent effect on our short and medium term liquidity.
Our funding and treasury activities are conducted within corporate policies to increase investment returns while maintaining appropriate liquidity for our requirements. Cash and cash equivalents are held primarily in U.S. Dollars with some balances held in British Pounds, Euros, Norwegian Kroner and Singapore Dollars.
Our short-term liquidity requirements relate to payment of operating costs (including drydocking), funding working capital requirements, repayment of debt financing, payment of newbuilding installments, payment of upgrading costs in relation to EGCS and Ballast Water Treatment Systems ("BWTS"), lease payments for our chartered-in fleet, contingent rental expense and maintaining cash reserves against fluctuations in operating cash flows. Sources of short-term liquidity include cash balances, short-term investments and receipts from our customers. Revenues from time charters are generally received monthly or fortnightly in advance while revenues from voyage charters are received upon completion of the voyage.
As of September 30, 2019, and December 31, 2018, we had cash and cash equivalents of $103.8 million, and $66.5 million, respectively. As of September 30, 2019, and December 31, 2018, we had restricted cash balances of $5.0 million, and $1.4 million, respectively. Restricted cash does not include cash balances of $39.8 million (December 2018: $37.9 million), which represents 50% (December 2018: 50%) of the cash required to be maintained by the financial covenants in our loan agreements. The Company is permitted to satisfy up to 50% of the cash requirement by maintaining a committed undrawn credit facility with a remaining availability of greater than 12 months. Furthermore, FSL, the chartering counterparty with SFL with respect to the remaining three VLCCs leased from them, has agreed to certain dividend restrictions as a result of the amendment of the terms of the long-term charter agreements in May 2015. In order to make or pay any dividend or other distribution to the Company, FSL shall demonstrate a cash buffer of $2.0 million per vessel both prior to and following such payment, and following payment of the next monthly hire due plus any profit share accrued under the agreement as well as settling the promissory note related to the termination of the lease on Front Circassia, including accrued interest. As at September 30, 2019, the cash held by FSL of $8.4 million (December 31, 2018: $3.5 million), may solely be used for vessel operations, payment of hire to SFL or other amounts incurred under the charters and Charter Ancillary Agreement, including the settlement of interest and principal due on any promissory notes and any other amounts incurred in the ordinary course of business. These amounts are included in "Cash and cash equivalents".
Our medium and long-term liquidity requirements include funding the equity portion of investments in new or replacement vessels and repayment of bank loans. Additional sources of funding for our medium and long-term liquidity requirements include new loans, refinancing of existing arrangements, equity issues, public and private debt offerings, vessel sales, sale and leaseback arrangements and other asset sales.
As of September 30, 2019, total installments of $29.2 million had been paid and remaining newbuilding commitments amounted to $222.0 million, of which we expect $6.3 million to be paid in 2019, $150.4 million to be paid in 2020 and $65.3 million to be paid in 2021.

As of September 30, 2019, the Company has committed to the installation of EGCS on 14 vessels owned by the Company, with a financial commitment of $9.6 million, excluding installation costs. The Company has also agreed with SFL to share the cost of installation of EGCS equally on two VLCCs chartered from SFL. The Company's remaining commitment on these vessels is nil, excluding installation costs. These remaining commitments are due in 2019.

As of September 30, 2019, the Company has committed to the installation of BWTS on seven vessels, with a remaining commitment of $3.6 million excluding installation costs, which is due in 2019.

9



In the nine months ended September 30, 2019, the Company repaid $66.0 million from its senior unsecured revolving credit facility of up to $275.0 million with an affiliate of Hemen Holding Ltd (the “Credit Facility”). The amount can be redrawn at any time should the Company require. In October 2019, the Company extended the terms of the Credit Facility by six months to May 2021.
In the nine months ended September 30, 2019, the Company drew down $55.3 million under its $110.5 million term loan facility with Credit Suisse in connection with one VLCC delivered in the period.
In the nine months ended September 30, 2019, the Company signed an amendment on similar terms to its $110.5 million term loan facility with ING for a separate tranche of $4.1 million to finance the EGCS to be installed on the VLCC Front Discovery. The additional tranche was drawn down along with the delivery tranche of $55.3 million.

In the nine months ended September 30, 2019, the Company signed amendments to two senior secured term loan facilities with Credit Suisse financing four VLCCs to increase the committed amount under each facility by up to $15.0 million, or $30.0 million in total, on the same terms as the existing facilities. The additional $30.0 million was drawn down in June 2019.

In May 2019, the Company entered into an agreement to purchase an EGCS equipped Suezmax tanker resale under construction at HSHI, due for delivery in April 2020, at a cost of $65.4 million.

In June 2019, the Company entered into an agreement to purchase an EGCS equipped VLCC resale under construction at HSHI, expected to be delivered in May 2020, at a cost of $92.5 million.

In June 2019, the Company ordered two LR2 newbuildings from SWS, expected to be delivered in January and March 2021 at a cost of $46.7 million each.

In August 2019, the Company entered into a sale and purchase agreement with Trafigura to acquire 10 Suezmax tankers built in 2019 through the acquisition of a special purpose vehicle, which will hold the vessels (the “Acquisition”).

The Acquisition consideration per the SPA consists of (i) 16,035,856 ordinary shares of Frontline at an agreed price of $8.00 per share that were issued upon signing; and (ii) a cash amount ranging from $538.2 million to $544.9 million, payable upon the closing of the Acquisition. Closing of the Acquisition is targeted as soon as practically possible with December 15, 2019 being the earliest and March 15, 2020 being the latest expected date. Frontline has agreed to time charter all the 10 vessels from Trafigura until closing of the Acquisition at a daily rate of approximately $23,000. In addition, Frontline has agreed to charter-out five of the vessels to Trafigura for a period of three years at a daily base rate of $28,400 plus 50% profit share. As part of the Acquisition, Frontline had options to acquire an additional four Suezmax tankers built in 2019 through the acquisition of a second special purpose vehicle. Frontline elected not to exercise the options in September 2019. See note 19 to our condensed consolidated financial statements for a detailed description of the accounting for this transaction.

In August 2019, an affiliate of Hemen Holding Ltd. provided a guarantee to finance the cash amount of up to $547.0 million, payable at closing of the Acquisition of the 10 Suezmax tankers from Trafigura. The facility matures three years after drawdown, carries a fixed interest rate of 5.5% per annum and has an amortization profile of 17 years. A guarantee fee of 0.625% was payable and an arrangement fee of 0.5% is payable on signing the final loan documentation in the event that the Company draws down on the facility. The commitment expires if financing documentation has not been executed on or before March 15, 2020. The $3.4 million guarantee fee was paid in the third quarter of 2019. Subject to the completion of final documentation of the ICBCL financing arrangement (as described below), the Company will not proceed with this facility.

In October 2019, the Company extended the terms of its senior unsecured revolving credit facility of up to $275.0 million with an affiliate of Hemen Holding Ltd. by six months to May 2021.


10


In November 2019, the Company secured a commitment from ICBC Financial Leasing Co., Ltd (“ICBCL”) for a sale-and-leaseback agreement in an amount of up to $544 million, which is subject to execution of final transaction documents to both parties' satisfaction. The lease financing has a tenor of seven years, carries an interest rate of LIBOR plus a margin of 230 basis points and has an amortization profile of 17.8 years. It will finance the cash amount payable upon closing of the 10 Suezmax tankers to be acquired from Trafigura and includes purchase options for Frontline throughout the period with a purchase obligation at the end.

In November 2019, the Company signed a senior secured term loan facility in an amount of up to $42.9 million with Credit Suisse. The facility matures five years after delivery and carries an interest rate of LIBOR plus a margin of 190 basis points and has an amortization profile of 18 years. The facility will be used to partially finance the Suezmax tanker resale under construction at HSHI.

In July 2018, the Company announced it had entered into an Equity Distribution Agreement dated July 24, 2018, with Morgan Stanley & Co. LLC for the offer and sale of up to $100.0 million of common shares of Frontline through an at-the-market share offering ("ATM"). In the nine months ended September 30, 2019, the Company issued 6,758,984 shares for net proceeds of $57.3 million, of which $51.0 million was received as of September 30, 2019.

Cash Flows
The following summarizes our cash flows from operating, investing and financing activities for the nine months ended September 30, 2019.
Net cash provided by operating activities
Net cash provided by operating activities in the nine months ended September 30, 2019 was $171.3 million compared with $11.5 million in the nine months ended September 30, 2018.
The increase was driven by an increase in voyage and time charter revenues of $87.2 million, along with a decrease in voyage expenses of $1.4 million. The key factors in relation to this were (i) a net increase in the fleet that we own and charter-in primarily as a result of the delivery of five newbuildings and seven chartered-in vessels since January 1, 2018 offset by the redelivery of six vessels chartered in under long-term leases from SFL and one vessel chartered-in under an operating lease and (ii) the increase in market freight rates. In addition, cash provided by operating activities has been positively impacted by the movement in working capital balances which has improved by $55.0 million. The movement in working capital balances are impacted by the timing of voyages and in particular the timing of the billing and receipt of freights, and also by the timing of fueling and consumption of fuel on board our vessels. In particular rates rose at the end of 2018 which has lead to a positive impact on cash flows from operations as the higher freights, which are typically paid on completion of a voyage, have been received in the nine months ended September 30, 2019.
Under ASC 842 from January 1, 2019 the Company is required to present finance lease payments received within operating activities on the statement of cash flows. In the nine months ended September 30, 2019 the Company received finance lease payments of $12.5 million in respect of the investment in finance lease held on the balance sheet.
The net increases in cash provided by operating activities were partially offset by the increase in dry docking expenses as one vessel docked in 2018 as compared with nine vessels in 2019 which resulted in a decrease in cash provided by operating activities of $15.8 million.
Our reliance on the spot market contributes to fluctuations in cash flows from operating activities as a result of its exposure to highly cyclical tanker rates. Any increase or decrease in the average TCE rates earned by our vessels in periods subsequent to September 30, 2019, compared with the actual TCE rates achieved during the nine months ended September 30, 2019, will have a positive or negative comparative impact, respectively, on the amount of cash provided by operating activities. We estimate that average daily total cash cost break even TCE rates for the remainder of 2019 will be approximately $23,400, $21,100 and $16,100 for our owned and leased VLCCs, Suezmax tankers, and LR2/Aframax tankers, respectively. These are the daily rates our vessels must earn to cover budgeted operating costs, dry

11


dock expenses, estimated interest expenses, scheduled loan principal repayments, bareboat hire, time charter hire and corporate overhead costs. These rates do not take into account capital expenditures and contingent rental expense.
Net cash used in investing activities
Net cash used in investing activities of $163.2 million in the nine months ended September 30, 2019 comprised mainly of capitalized additions of $166.2 million, primarily in respect of two VLCCs delivered in the period, additions to four newbuilding contracts and EGCS installations. This was partially offset by $3.0 million repayment of a $6.0 million interest free loan extended by the Company to FMSI.
Net cash provided by financing activities
Net cash provided by financing activities in the nine months ended September 30, 2019 of $32.9 million was primarily a result of drawdown of debt in the amount of $146.0 million and the offering of 6,758,984 new ordinary shares which generated net proceeds of $57.3 million, of which $51.0 million was received in the period. This was partially offset by the debt and finance lease repayments of $154.6 million and $5.5 million, respectively, as well as $3.4 million in debt commitment fees paid to an affiliate of Hemen Holding Ltd.

Debt restrictions
The Company's loan agreements contain loan-to-value clauses, which could require the Company to post additional collateral or prepay a portion of the outstanding borrowings should the value of the vessels securing borrowings under each of such agreements decrease below required levels. In addition, the loan agreements contain certain financial covenants, including the requirement to maintain a certain level of free cash, positive working capital and a value adjusted equity covenant. Restricted cash does not include cash balances of $39.8 million (December 2018: $37.9 million), which represents 50% (December 2018: 50%) of the cash required to be maintained by the financial covenants in our loan agreements. The Company is permitted to satisfy up to 50% of the cash requirement by maintaining a committed undrawn credit facility with a remaining availability of greater than 12 months. These cash amounts are included in "Cash and cash equivalents". Failure to comply with any of the covenants in the loan agreements could result in a default, which would permit the lender to accelerate the maturity of the debt and to foreclose upon any collateral securing the debt. Under those circumstances, the Company might not have sufficient funds or other resources to satisfy its obligations.
We believe that cash on hand and borrowings under our current and committed credit facilities will be sufficient to fund our requirements for, at least, the twelve months from the date of this interim report.

Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk
The Company is exposed to the impact of interest rate changes primarily through its floating-rate borrowings that require the Company to make interest payments based on LIBOR. Significant increases in interest rates could adversely affect operating margins, results of operations and ability to service debt. The Company uses interest rate swaps to reduce its exposure to market risk from changes in interest rates. The principal objective of these contracts is to minimize the risks and costs associated with its floating-rate debt. The Company is exposed to the risk of credit loss in the event of non-performance by the counterparty to the interest rate swap agreements.

As of September 30, 2019, $1,583.7 million of the Company's outstanding debt was at variable interest rates and the outstanding debt, net of the amount subject to interest rate swap agreements, was $1,273.1 million. Based on this, a one percentage point increase in annual LIBOR interest rates would increase its annual interest expense by approximately $12.7 million, excluding the effects of capitalization of interest.

Currency Risk

12


The majority of the Company's transactions, assets and liabilities are denominated in U.S. dollars, its functional currency. Certain of its subsidiaries report in Norwegian Kroner, Singapore Dollars or British Pounds and risks of two kinds arise as a result: a transaction risk, that is, the risk that currency fluctuations will have an effect on the value of cash flows; and a translation risk, which is the impact of currency fluctuations in the translation of foreign operations and foreign assets and liabilities into U.S. dollars in the consolidated financial statements.

Inflation
Inflation has only a moderate effect on the Company's expenses given current economic conditions. In the event that significant global inflationary pressures appear, these pressures would increase operating, voyage, general and administrative, and financing costs.

Interest Rate Swap Agreements
In February 2013, Frontline 2012 entered into six interest rate swaps with Nordea Bank whereby the floating interest rate on an original principal amount of $260 million of the then anticipated debt on 12 MR product tanker newbuildings was switched to fixed rate. These newbuildings were subsequently financed from the $466.5 million term loan facility. In February 2016, the Company entered into an interest rate swap with DNB whereby the floating interest on notional debt of $150.0 million was switched to a fixed rate. The fair value of these swaps at September 30, 2019 was a receivable of $0.2 million (December 2018: receivable of $7.6 million) and a payable of $6.4 million (December 2018: nil). Credit risk exists to the extent that the counterparty is unable to perform under the contracts, but this risk is considered remote as the counterparty is a bank, which participates in the loan facility to which the interest rate swaps are related. The Company recorded a loss on these interest swaps of $12.3 million in the nine months ended September 30, 2019 (nine months ended September 30, 2018: gain of $8.9 million).

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
 
Matters discussed in this report and the documents incorporated by reference may constitute forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides safe harbor protections for forward-looking statements, which 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.

Frontline Ltd. and its subsidiaries, or the Company, desires to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and is including this cautionary statement in connection with this safe harbor legislation. This report and any other written or oral statements made by us or on our behalf may include forward-looking statements, which reflect our current views with respect to future events and financial performance, and are not intended to give any assurance as to future results. When used in this documents, the words "believe," "anticipate," "intend," "estimate," "forecast," "project," "plan," "potential," "will," "may," "should," "expect" and similar expressions, terms or phrases may identify forward-looking statements.

The forward-looking statements in this report are based upon various assumptions, including without limitation, management's examination of historical operating trends, data contained in our records and 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. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

In addition to these important factors and matters discussed elsewhere herein and in the documents incorporated by reference herein, 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, fluctuations in currencies and interest rates, general market conditions, including fluctuations in charter hire rates and vessel values, changes in the supply and demand for vessels comparable to ours, changes in world-wide oil production and consumption and storage, changes in the Company's operating expenses, including bunker prices, drydocking and insurance costs, the market for the Company's vessels, availability of financing and refinancing, our ability to obtain financing and comply with the restrictions and other covenants in our financing arrangements, availability of skilled workers and the related labor

13


costs, compliance with governmental, tax, environmental and safety regulation, 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 industry, effects of new products and new technology in our industry, the failure of counter parties to fully perform their contracts with us, 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 ordinary shares; our incorporation under the laws of Bermuda and the different rights to relief that may be available compared to other countries, including the United States, changes in governmental rules and regulations or actions taken by regulatory authorities, potential liability from pending or future litigation, general domestic and international political conditions, potential disruption of shipping routes due to accidents, political events or acts by terrorists, and other important factors described from time to time in the reports filed by the Company with the Securities and Exchange Commission or Commission.

We caution readers of this report not to place undue reliance on these forward-looking statements, which speak only as of their dates. 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. Please see our Risk Factors in Item 3 of the Company's Annual Report on Form 20-F for the year ended December 31, 2018, filed with the Commission on March 28, 2019 for a more complete discussion of these and other risks and uncertainties.



14


FRONTLINE LTD.
INDEX TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 
 
 
Page
 
 
Condensed Consolidated Statements of Operations for the nine months ended September 30, 2019 and September 30, 2018 (unaudited)
Condensed Consolidated Statements of Comprehensive Income for the nine months ended September 30, 2019 and September 30, 2018 (unaudited)
Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018 (unaudited)
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and September 30, 2018 (unaudited)
Condensed Consolidated Statements of Changes in Equity for the nine months ended September 30, 2019 and September 30, 2018 (unaudited)
Notes to the Unaudited Condensed Consolidated Financial Statements



15


Frontline Ltd.
Condensed Consolidated Statements of Operations for the nine months ended September 30, 2019 and September 30, 2018
(in thousands of $, except per share data)
 
 
2019

2018

Operating revenues
 
 
 
Time charter revenues
28,976

20,568

 
Voyage charter revenues
564,673

485,847

 
Finance lease interest income
681

1,009

 
Other income
24,993

17,792

 
Total operating revenues
619,323

525,216

Other operating gains
4,810

1,239

 
Voyages expenses and commissions
281,656

283,063

 
Contingent rental income
(3,810
)
(18,026
)
 
Ship operating expenses
114,658

98,160

 
Charter hire expense
6,307

16,135

 
Administrative expenses
31,896

27,989

 
Depreciation
85,548

94,270

 
Total operating expenses
516,255

501,591

Net operating income
107,878

24,864

Other income (expenses)
 
 
 
Interest income
1,016

556

 
Interest expense
(69,767
)
(70,314
)
 
Share of results of associated company
2,810


 
Gain on sale of securities

1,026

 
Foreign currency exchange gain (loss)
450

(853
)
 
Unrealized gain on marketable securities
979

1,911

 
Gain (loss) on derivatives
(12,297
)
8,925

 
Other non-operating gain
114

94

 
Net other expenses
(76,695
)
(58,655
)
Net income (loss) before income taxes and non-controlling interest
31,183

(33,791
)
 
Income tax expense
(35
)
(97
)
Net income (loss)
31,148

(33,888
)
Net (income) loss attributable to non-controlling interest
3

(372
)
Net income (loss) attributable to the Company
31,151

(34,260
)
 
 
 
Basic earnings (loss) per share attributable to the Company ($)
0.18

(0.20
)
Diluted earnings (loss) per share attributable to the Company ($)
0.18

(0.20
)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


16


Frontline Ltd.
Condensed Consolidated Statements of Comprehensive Income for the nine months ended September 30, 2019 and September 30, 2018
(in thousands of $)

 
 
2019

2018

Comprehensive income
 
 
 
Net income (loss)
31,148

(33,888
)
 
Foreign currency translation income
64

903

 
Other comprehensive income
64

903

 
Comprehensive income (loss)
31,212

(32,985
)
 
 
 
Comprehensive income (loss) attributable to non-controlling interest
(3
)
372

Comprehensive income (loss) attributable to the Company
31,215

(33,357
)
Comprehensive income (loss)
31,212

(32,985
)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


17


Frontline Ltd.
Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018
(in thousands of $)
 
 
2019

2018

ASSETS
 
 
Current assets
 
 
 
Cash and cash equivalents
103,834

66,484

 
Restricted cash
5,039

1,420

 
Marketable securities
1,090

836

 
Marketable securities pledged to creditors
9,117

8,392

 
Trade accounts receivable, net
39,291

53,982

 
Related party receivables
11,478

7,895

 
Other receivables
19,540

17,068

 
Inventories
58,095

68,765

 
Voyages in progress
46,185

59,437

 
Prepaid expenses and accrued income
13,630

7,804

 
Investment in finance lease
3,045

10,803

 
Other current assets
6,620

5,359

Total current assets
316,964

308,245

Long-term assets
 
 
 
Newbuildings
29,658

52,254

 
Vessels and equipment, net
2,595,170

2,476,755

 
Vessels and equipment under finance leases, net
420,681

90,676

 
Right-of-use assets under operating leases
14,655


 
Investment in finance lease
10,822

10,979

 
Investment in associated company
6,056

6,246

 
Goodwill
112,452

112,452

 
Long-term derivative instruments receivable
204

7,641

 
Prepaid consideration
62,633


 
Other long-term assets
19,145

12,593

Total assets
3,588,440

3,077,841

 
 
 
 
LIABILITIES AND EQUITY
 
 
Current liabilities
 
 
 
Short-term debt and current portion of long-term debt
129,236

120,479

 
Current portion of obligations under finance leases
286,885

11,854

 
Current portion of obligations under operating leases
6,997


 
Related party payables
12,232

18,738

 
Trade accounts payable
18,985

22,212

 
Accrued expenses
58,256

37,031

 
Derivative instruments payable
6,411


 
Other current liabilities
6,830

3,904

Total current liabilities
525,832

214,218

Long-term liabilities
 
 
 
Long-term debt
1,594,237

1,610,293

 
Obligations under finance leases
79,390

87,930


18


 
Obligations under operating leases
7,944


 
Other long-term liabilities
1,138

1,183

Total liabilities
2,208,541

1,913,624

Commitments and contingencies


Equity
 
 
 
Share capital (192,616,032 shares. 2018: 169,821,192. Par value $1.00)
192,616

169,821

 
Additional paid in capital
360,371

198,497

 
Contributed surplus
1,090,376

1,090,376

 
Accumulated other comprehensive income
288

224

 
Retained deficit
(263,967
)
(295,118
)
Total equity attributable to the Company
1,379,684

1,163,800

 
Non-controlling interest
215

417

Total equity
1,379,899

1,164,217

Total liabilities and equity
3,588,440

3,077,841


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


19


Frontline Ltd.
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and September 30, 2018
(in thousands of $)

 
 
2019

2018

 
 
 
 
Net cash provided by operating activities
171,291

11,478

 
 
 
 
 
Additions to newbuildings, vessels and equipment
(166,216
)
(204,106
)
 
Finance lease payments received

2,471

 
Investment in associated company

(6,000
)
 
Return of loan to associated company
3,000


 
Proceeds from sale of shares

17,757

Net cash used in investing activities
(163,216
)
(189,878
)
 
 
 
 
 
Proceeds from issuance of debt
146,007

273,872

 
Repayment of long-term debt
(154,642
)
(120,751
)
 
Repayment of finance leases
(5,463
)
(7,953
)
 
Net proceeds from issuance of shares
51,015


 
Purchase of shares from non-controlling interest
(269
)

 
Debt fees paid
(3,754
)

 
Dividends paid

(386
)
Net cash provided by financing activities
32,894

144,782

 
 
 
Net change in cash and cash equivalents and restricted cash
40,969

(33,618
)
Cash and cash equivalents and restricted cash at start of period
67,904

104,886

Cash and cash equivalents and restricted cash at end of period
108,873

71,268


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


20


Frontline Ltd.
Condensed Consolidated Statements of Changes in Equity for the nine months ended September 30, 2019 and September 30, 2018
(in thousands of $, except number of shares)
 
 
2019

2018

Number of shares outstanding
 
 
 
Balance at beginning of the period
169,821,192

169,809,324

 
Shares issued
22,794,840


 
Balance at the end of the period
192,616,032

169,809,324

 
 
 
Share capital
 
 
 
Balance at beginning of the period
169,821

169,809

 
Shares issued
22,795


 
Balance at the end of the period
192,616

169,809

 
 
 
 
Additional paid in capital
 
 
 
Balance at beginning of the period
198,497

197,399

 
Stock compensation expense
438

818

 
Gain attributable to change in non-controlling interest
(70
)

 
Shares issued
161,506


 
Balance at end of the period
360,371

198,217

 
 
 
Contributed surplus
 
 
 
Balance at beginning and end of the period
1,090,376

1,090,376

 
 
 
Accumulated other comprehensive income
 
 
 
Balance at beginning of the period
224

2,227

 
Other comprehensive income
64

903

 
Adjustment on adoption of changes in ASC 825

(2,896
)
 
Balance at end of the period
288

234

 
 
 
Retained deficit
 
 
 
Balance at beginning of the period
(295,118
)
(272,503
)
 
Net income (loss)
31,151

(34,260
)
 
Adjustment on adoption of ASC 606

(16,631
)
 
Adjustment on adoption of changes in ASC 825

2,896

 
Balance at end of the period
(263,967
)
(320,498
)
 
 
 
 
Total equity attributable to the Company
1,379,684

1,138,138

 
 
 
Non-controlling interest
 
 
 
Balance at beginning of the period
417

321

 
Net income (loss) attributable to non-controlling interest
(3
)
372


21


 
Adjustment on repurchase of non-controlling interest
(199
)

 
Dividend paid to non-controlling interest

(386
)
 
Balance at end of the period
215

307

 
 
 
Total equity
1,379,899

1,138,445


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

22


Frontline Ltd.
Notes to the Unaudited Condensed Consolidated Financial Statements

1. INTERIM FINANCIAL DATA

The unaudited condensed interim financial statements of Frontline Ltd. (“Frontline” or the “Company”) have been prepared on the same basis as the Company’s audited financial statements, except as noted below in Note 2, and, in the opinion of management, include all material adjustments, consisting only of normal recurring adjustments considered necessary for a fair statement of the Company's financial statements, in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The unaudited condensed interim financial statements should be read in conjunction with the annual financial statements and notes included in the Annual Report on Form 20-F for the year ended December 31, 2018, filed with the Securities and Exchange Commission on March 28, 2019. The unaudited condensed interim financial statements do not include all the disclosures required by US GAAP. The results of operations for the interim period ended September 30, 2019 are not necessarily indicative of the results for the year ending December 31, 2019. The year-end Condensed Consolidated Balance Sheet was derived from audited financial information, but does not include all disclosures required by US GAAP.

2. ACCOUNTING POLICIES

Basis of accounting
The condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The condensed consolidated financial statements include the assets and liabilities of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated on consolidation.

The condensed consolidated financial statements are prepared in accordance with the accounting policies, which are described in the Company's Annual Report on Form 20-F for the year ended December 31, 2018, which was filed with the Securities and Exchange Commission on March 28, 2019, with the exception of certain changes noted below.

Adoption of ASC 842 Leases
The Company has adopted ASC 842 effective January 1, 2019 using the modified retrospective transition approach, which allows the Company to recognize a cumulative effect adjustment to the opening balance of accumulated deficit in the period of adoption rather than restate our comparative prior year periods. Based on the Company's analysis, the cumulative effect adjustment to the opening balance of accumulated deficit is zero because (i) the Company did not have any unamortized initial direct costs as of January 1, 2019 that needed to be written off; (ii) the Company did not have any lease incentives or accrued rental transactions that needed to be recognized; and (iii) the timing and pattern of revenue recognition under its revenue contracts that have lease and non-lease components is not materially different and even if accounted for separately, the lease component of such contracts would be considered operating leases. The company has elected the package of practical expedients applied to all of its leases (including those for which it is a lessee and lessor) that permit it not to (i) reassess whether any expired or existing contracts are or contain leases; (ii) reassess the lease classification for any expired or existing leases and (iii) reassess initial direct costs for any existing leases. Furthermore, the Company has not elected the practical expedient to use hindsight when determining the lease term.

The Company as lessee currently has three major categories of leases-in - chartered-in vessels, vessels under finance lease and leased office and other space. Upon adoption of ASC 842, the Company has recognized right-of-use assets and corresponding lease liabilities of $18.5 million on the balance sheet in relation to our operating leases. The right-of-use assets have then been amortized during the nine months ended September 30, 2019. The Company does not expect the implementation of this standard to cause a material change in the Company's operating expenses in the fiscal year 2019. The Company has not elected the practical expedient to not separate lease and non-lease components for all of our leases where we are the lessee.

ASC 842 also allows lessees to elect as an accounting policy not to apply the provisions of ASC 842 to short-term leases (i.e., leases with an original term of 12-months or less). Instead, a lessee may recognize the lease payments in profit or loss on a straight-line basis over the lease term and variable lease payments in the period in which the obligation
for those payments is incurred. The accounting policy election for short-term leases shall be made by class of underlying asset to which the right of use relates. The Company has elected not to apply the provisions of ASC 842 to short-term leases, there were no short-term leases as at September 30, 2019.

For arrangements where we are the lessor, the adoption of the new lease standard has not had a material impact on our financial statements. The new lease standard provides a practical expedient for lessors in which the lessor may elect, by class of underlying asset, to not separate non-lease components from the associated lease component and, instead, to account for these components as a single component if both of the following are met: (1) the timing and pattern of transfer of the non-lease component(s) and associated lease component are the same and (2) the lease component, if accounted for separately, would be classified as an operating lease. When a lessor, we have elected this expedient for our time charter contracts and voyage charter contracts that qualify as leases and thus do not separate the non-lease component, or service element, from the lease. Revenues from contracts where the non-lease component is the predominant component are accounted for under ASC 606.

The implementation has had no impact on the accounting for the Company's finance lease arrangements.

Where the Company is lessee, operating lease expense is recognized on a straight-line basis over the lease term.

In determining the appropriate discount rate to use in calculating the present value of the Company’s contractual lease payments, the Company makes significant judgments and assumptions to estimate the incremental borrowing rate as the rate implicit in the Company’s leases cannot be readily determined. The incremental borrowing rate is defined as the rate of interest that a lessee would have to pay to borrow on a 100% collateralized basis over a term similar to the lease term and amount equal to the lease payments in a similar economic environment.

The Company makes significant judgments and assumptions to separate lease components from non-lease components of our contracts. For purposes of determining the standalone selling price of the vessel lease and non-lease components of the Company’s time charters and voyage charters, the Company uses the residual approach given that vessel rates are highly variable depending on shipping market conditions. The Company believes that the standalone transaction price attributable to the non-lease component is more readily determinable than the price of the lease component and, accordingly, the price of the service components is estimated using cost plus a margin and the residual transaction price is attributed to the lease component.

Where the Company is lessor, lease revenue for fixed lease payments are recognized over the lease term on a straight-line basis and lease revenue for variable lease payments are recognized in the period in which the changes in facts and circumstances on which the variable lease payments are based occur. Initial direct costs are expensed over the lease term on the same basis as lease revenue. See Note 12 for disclosure on the Company's operating lease arrangements.

Adoption of ASU 2018-07 (ASC 718 Compensation - Stock Compensation)
The Company has adopted this Update effective January 1, 2019. The amendments in this Update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. Consistent with the accounting requirement for employee share-based payment awards, nonemployee share-based payment awards within the scope of Topic 718 are measured at grant-date fair value of the equity instruments that an entity is obligated to issue when the good has been delivered or the service has been rendered and any other conditions necessary to earn the right to benefit from the instruments have been satisfied. Equity-classified nonemployee share- based payment awards are measured at the grant date. The definition of the term grant date was also amended to generally state the date at which a grantor and a grantee reach a mutual understanding of the key terms and conditions of a share-

23


based payment award. Consistent with the accounting for employee share-based payment awards, an entity considers the probability of satisfying performance conditions when nonemployee share-based payment awards contain such conditions. An entity should only remeasure liability-classified awards that have not been settled by the date of adoption and equity-classified awards for which a measurement date has not been established through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. Upon transition, the entity is required to measure these nonemployee awards at fair value as of the adoption date. The entity must not remeasure assets that are completed. For example, finished goods inventory or equipment that has begun amortization should not be remeasured upon transition. No such remeasurement is required upon adoption of the Update by the Company. The revised definition of the grant date of share-based awards has been applied in accounting for the share consideration transferred to Trafigura on signing of the SPA. The shares have been accounted for as prepaid consideration at the grant date when a mutual understanding of the key terms and conditions for the issuance is reached on signing of the SPA and furthermore the shares are legally issued to Trafigura. Further details of the accounting for the transaction are disclosed in notes 4 and 19.


3. RECENT ACCOUNTING PRONOUNCEMENTS


In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which revises guidance for the accounting for credit losses on financial instruments within its scope. The new standard introduces an approach, based on expected losses, to estimate credit losses on certain types of financial instruments and modifies the impairment model for available-for-sale debt securities. In April 2019, the FASB issued ASU No. 2019-04, Codification improvements to Financial instruments-Credit Losses, (Topic 326), which includes amendments related to the estimate of equity method losses and expected credit losses of variable-rate financial instruments. The guidance will be effective January 1, 2020, with early adoption permitted. Entities are required to apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is in the process of evaluating the impact of this standard update on its consolidated financial statements and related disclosures.

In January 2017, the FASB issued ASU 2017-04 Intangibles - Goodwill and other (Topic 350), which simplifies the test for goodwill impairment. This Update eliminates Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of the assets acquired and liabilities assumed in a business combination. Instead an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, however the loss recognized should not exceed the total amount of goodwill allocated to the reporting unit. The amendments in this Update are effective for the Company for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is in the process of evaluating the impact of this standard update on its consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-13 Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This update removes, modifies and adds specific disclosure requirements in relation to fair value measurement with the aim of improving the effectiveness of disclosures to the financial statements. The amendments in this Update are effective for the Company for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is in the process of evaluating the impact of this standard update on its consolidated financial statements and related disclosures.

In November 2018, the FASB issued ASU 2018-18 Collaborative Arrangements (Topic 808), to provide clarity on when transactions between entities in a collaborative arrangement should be accounted for under the new revenue standard, ASC 606. In determining whether transactions in collaborative arrangements should be accounted under the revenue standard, the update specifies that entities shall apply unit of account guidance to identify distinct goods or

24


services and whether such goods and services are separately identifiable from other promises in the contract. The accounting update also precludes entities from presenting transactions with a collaborative partner which are not in scope of the new revenue standard together with revenue from contracts with customers. The accounting update is effective January 1, 2020 and early adoption is permitted. We are currently evaluating the impact of the adoption of the accounting standard on our consolidated financial statements.


4. EARNINGS PER SHARE

The components of the numerator and the denominator in the calculation of basic and diluted earnings per share are as follows:
(in thousands of $)
2019

2018

Net Income (loss) attributable to the Company
31,151

(34,260
)

 
2019

2018

Weighted average number of shares (000s)
171,056

169,809

Dilutive effect of share options


Dilutive effect of contingently returnable shares
2,240


Denominator for diluted earnings per share
173,296

169,809


Share options issued by the Company did not have an impact on the calculation of earnings per share as they were non-dilutive. The impact of stock options using the treasury stock method was anti-dilutive in the nine month period ended September 30, 2019 as the exercise price was higher than the average share price during the period and, therefore the options were excluded from the denominator in the calculation.

The 16,035,856 shares issued to Trafigura as consideration as part of the Acquisition were legally issued and outstanding as of the grant date on August 23, 2019 and are included in share capital as of September 30, 2019. Trafigura is the beneficial owner of the shares, is entitled to exercise voting rights, and is also eligible for any dividends if-and-when declared. ASC 260 defines issued shares that are held in escrow and all or part must be returned if specified conditions are not met as "contingently returnable". The shares issued as part of the Acquisition have been treated as contingently returnable shares for the purpose of calculating earnings per share as they are held in escrow until such date after November 30, 2019 that Trafigura wishes to dispose of such shares, in which case they can be removed from escrow and sold, with the proceeds being placed in a cash escrow account until closing of the Acquisition. Should the shares not be disposed of prior to closing of the Acquisition, they will remain in the escrow account until closing. As the shares are treated as contingently returnable they have been excluded from the denominator in the calculation of basic earnings per share and included in the denominator in the calculation of diluted earnings per share.

5. OPERATING REVENUES


25


Our shipping revenues are primarily generated from time charters and voyage charters. In a time charter, the vessel is hired by the charterer for a specified period of time in exchange for consideration which is based on a daily hire rate. Generally, the charterer has the discretion over the ports visited, shipping routes and vessel speed. The contract/charter party generally provides typical warranties regarding the speed and performance of the vessel. The charter party generally has some owner protective restrictions such that the vessel is sent only to safe ports by the charterer and carries only lawful or non-hazardous cargo. In a time charter contract, we are responsible for all the costs incurred for running the vessel such as crew costs, vessel insurance, repairs and maintenance and lubes. The charterer bears the voyage related costs such as bunker expenses, port charges, canal tolls during the hire period. The performance obligations in a time charter contract are satisfied over term of the contract beginning when the vessel is delivered to the charterer until it is redelivered back to us. The charterer generally pays the charter hire in advance of the upcoming contract period. Time charter contracts and bareboat contracts are accounted for under ASC 842 leases and revenues are recorded over the term of the charter as a service is provided. When a time charter contract is linked to an index, we recognize revenue for the applicable period based on the actual index for that period.

In a voyage charter contract, the charterer hires the vessel to transport a specific agreed-upon cargo for a single voyage. The consideration in such a contract is determined on the basis of a freight rate per metric ton of cargo carried or occasionally on a lump sum basis. The charterer is responsible for any short loading of cargo or "dead" freight. The voyage charter party generally has standard payment terms with freight paid on completion of discharge. The voyage charter party generally has a "demurrage" clause. As per this clause, the charterer reimburses us for any potential delays exceeding the allowed laytime as per the charter party clause at the ports visited, which is recorded as voyage revenue, as such, demurrage is considered variable consideration under the contract. Estimates and judgments are required in ascertaining the most likely outcome of a particular voyage and actual outcomes may differ from estimates. Such estimates are reviewed and updated over the term of the voyage charter contract. In a voyage charter contract, the performance obligations begin to be satisfied once the vessel begins loading the cargo.

Certain of our voyage charter contracts contain a lease. Voyage charters contain a lease component if the contract (i) specifies a specific vessel asset; and (ii) has terms that allow the charterer to exercise substantive decision-making rights, which have an economic value to the charterer and therefore allow the charterer to direct how and for what purpose the vessel is used. Voyage charter revenues and expenses are recognized ratably over the estimated length of each voyage, which the Company has assessed commence on loading of the cargo. The new lease standard provides a practical expedient for lessors in which the lessor may elect, by class of underlying asset, to not separate non-lease components from the associated lease component and, instead, to account for these components as a single component if both of the following are met: (1) the timing and pattern of transfer of the non-lease component(s) and associated lease component are the same and (2) the lease component, if accounted for separately, would be classified as an operating lease. When a lessor, we have elected this expedient for our time charter contracts and voyage charter contracts that qualify as leases and thus not separate the non-lease component, or service element, from the lease. Furthermore, the standard requires the Company to account for the combined component in accordance with ASC 606 revenues from contracts with customers if the non-lease components are the predominant components. Under this guidance the Company has assessed that the lease components were the predominant component for all of its time charter contracts. Furthermore, for certain of its voyage charter contracts the lease components were the predominant components.

The lease and non-lease components of our revenues were as follows:

(in thousands of $)
Lease

Non-lease

Total

Time charter revenues
28,976


28,976

Voyage charter revenues
109,472

455,201

564,673

Finance lease interest income
681


681

Other income

24,993

24,993

Total
139,129

480,194

619,323


Certain voyage expenses are capitalized between the previous discharge port, or contract date if later, and the next load port and amortized between load port and discharge port. $5.6 million of contract assets were capitalized in the period



ended September 30, 2019 as "Other current assets", of which $2.8 million was amortized up to September 30, 2019, leaving a remaining balance of $2.8 million as of September 30, 2019. $5.4 million of contract assets were amortized in the nine months ended September 30, 2019 in relation to voyages in progress at the end of December 31, 2018. No impairment losses were recognized in the period.

As at September 30, 2019 and December 31, 2018, the Company reported the following contract assets in relation to its contracts with customers, including those contracts containing lease components where the non-lease component was the predominant component and the revenues where therefore accounted for under ASC 606:

(in thousands of $)
2019

2018

Voyages in progress
33,653

59,437

Trade accounts receivable
26,717

52,278

Related party receivables
8,309

3,084

Other current assets
2,798

5,359

Total
71,477

120,158


The adoption of ASC 842 had no impact on shipping revenues for the nine months ended September 30, 2019 as the timing and pattern of revenue recognition under our revenue contracts that have lease and non-lease components is not materially different even when accounted for separately under ASC 842 and ASC 606, respectively.

6. OTHER OPERATING GAINS

(in thousands of $)
2019

2018

Gain on termination of vessel leases

1,382

Gain on insurance settlement
2,660


Gain (loss) on pool arrangements
1,519

(143
)
Other gains
631


Other operating gains
4,810

1,239



7. RESTRICTED CASH

Restricted cash consists of cash, which may only be used for certain purposes and is held under a contractual arrangement.

Restricted cash does not include cash balances of $39.8 million (December 2018: $37.9 million), which represents 50% (December 2018: 50%) of the cash required to be maintained by the financial covenants in our loan agreements. The Company is permitted to satisfy up to 50% of the cash requirement by maintaining a committed undrawn credit facility with a remaining availability of greater than 12 months. Furthermore, FSL and the chartering counterparty with SFL with respect to the remaining three VLCCs leased from them, has agreed to certain dividend restrictions as a result of the amendment of the terms of the long-term charter agreements in May 2015. In order to make or pay any dividend or other distribution to the Company, FSL shall demonstrate a cash buffer of $2.0 million per vessel both prior to and following such payment, and following payment of the next monthly hire due plus any profit share accrued under the agreement as well as settling the promissory note related to the termination of the lease on Front Circassia, including accrued interest. As at September 30, 2019, the cash held by FSL of $8.4 million (December 31, 2018: $3.5 million) may solely be used for vessel operations, payment of hire to SFL or other amounts incurred under the charters and Charter Ancillary Agreement, including the settlement of interest and principal due on any promissory notes and any other amounts incurred in the ordinary course of business. These cash amounts are included in "Cash and cash equivalents".





8. MARKETABLE SECURITIES

A summary of the movements in our marketable securities for the nine months ended September 30, 2019 and the year ended December 31, 2018 is presented in the table below:
(in thousands of $)
2019

2018

Balance at start of period
836

19,231

Shares disposed of

(16,749
)
Unrealized gain (loss) on marketable securities

979

(3,526
)
Repurchase of securities pledged to creditors
8,392

10,272

Marketable securities pledged to creditors
(9,117
)
(8,392
)
Balance at end of period
1,090

836


Avance Gas
In the nine months ended September 30, 2019, the Company recognized an unrealized gain of $1.2 million in relation to the 0.4 million shares held in Avance Gas Holdings Ltd ("Avance Gas").

As of September 30, 2019 and December 31, 2018 the 442,384 shares in Avance Gas were held as collateral against secured borrowings.
SFL

In the nine months ended September 30, 2019, the Company recognized an unrealized gain of $0.3 million in relation to the 0.1 million shares held in SFL.

Golden Ocean

In December 2018, the Company sold 1,260,358 shares in Golden Ocean Group Ltd. ("Golden Ocean") for proceeds of $7.7 million. At the same time the Company entered into a forward contract to repurchase 1.3 million shares in Golden Ocean in March 2019 for $7.7 million.

In March 2019, the Company repurchased these shares and subsequently sold them for proceeds of $6.6 million. At the same time the Company entered into a forward contract to repurchase 1.3 million shares in Golden Ocean in June 2019 for $6.6 million and as such made a net cash settlement of $1.0 million after adjustment for foreign exchange differences, this has been treated as a settlement of debt.

In June 2019, the Company repurchased these shares and subsequently sold them for proceeds of $6.7 million. At the same time the Company entered into a forward contract to repurchase 1.3 million shares in Golden Ocean in September 2019 for $6.7 million and as such received a net cash settlement of $0.1 million after adjustment for foreign exchange differences, this has been treated as a drawdown of debt.

In September 2019, the Company repurchased these shares and subsequently sold them for proceeds of $7.6 million. At the same time the Company entered into a forward contract to repurchase 1.3 million shares in Golden Ocean in December 2019 for $7.6 million and as such received a net cash settlement of $1.2 million after adjustment for foreign exchange differences, this has been treated as a drawdown of debt. The transaction has been accounted for as a secured borrowing, with the shares retained in marketable securities and a liability recorded within short-term debt for $7.6 million. These transactions have been reported on a net basis in the Consolidated Statement of Cash Flows.

As of September 30, 2019 the Company reports a total of 1,270,657 shares in Golden Ocean, of which 1,260,358 as marketable securities pledged to creditors.


28


In the nine months ended September 30, 2019 the Company recognized an unrealized loss of $0.4 million in relation to the 1.3 million shares held in Golden Ocean.

9. NEWBUILDINGS

Movements in the nine months ended September 30, 2019 may be summarized as follows;
(in thousands of $)
 
52,254

Additions, net
142,837

Interest capitalized
688

Transfer to Vessels and Equipment, net
(166,121
)
29,658


In the nine months ended September 30, 2019, the Company took delivery of two VLCC newbuildings, Front Defender and Front Discovery.

As of September 30, 2019, the Company’s newbuilding program comprised one Suezmax tanker and one VLCC, which are expected to be delivered in April and May 2020, respectively, and two LR2 tankers, which are expected to be delivered in January and March 2021.

10. VESSELS AND EQUIPMENT, NET

Movements in the nine months ended September 30, 2019 may be summarized as follows;
(in thousands of $)
Cost

Accumulated Depreciation

Net Carrying Value

2,808,356

(331,601
)
2,476,755

Depreciation

(75,734
)
 
Additions to vessels and equipment
28,028


 
Transfers from Newbuildings
166,121


 
3,002,505

(407,335
)
2,595,170

In the nine months ended September 30, 2019, the Company took delivery of two VLCC newbuildings, Front Defender and Front Discovery. The Company also completed the installation of EGCSs on six vessels during the period.

11. VESSELS AND EQUIPMENT UNDER FINANCE LEASE, NET

As of September 30, 2019, the Company leased in three vessels on long-term time charter from SFL (December 2018: three vessels) and five vessels from Trafigura (see Note 19), all of which are classified as finance leases.
(in thousands of $)
Cost

Accumulated Depreciation

Net Carrying Value

140,501

(49,825
)
90,676

Additions
339,819



Depreciation

(9,814
)

480,320

(59,639
)
420,681


The outstanding obligations under finance leases as of September 30, 2019 are payable as follows: 

29


(in thousands of $)
 
 
Year 1
 
298,548

Year 2
 
17,557

Year 3
 
16,419

Year 4
 
17,557

Year 5
 
17,226

Thereafter
 
29,565

Minimum lease payments
 
396,872

Less: imputed interest
 
(30,597
)
Present value of obligations under finance leases
 
366,275


The outstanding obligations under finance leases as of December 31, 2018 are payable as follows: 
(in thousands of $)
 
 
2019
 
18,795

2020
 
17,606

2021
 
17,557

2022
 
16,419

2023
 
17,557

Thereafter
 
42,387

Minimum lease payments
 
130,321

Less: imputed interest
 
(30,537
)
Present value of obligations under finance leases
 
99,784


The Company recognized the following income/(expenses) in relation to the amortization of finance lease assets and obligations in the nine months ended September 30, 2019 and September 30, 2018:

(in thousands of $)


Depreciation of vessels under finance leases
(9,814
)
(22,195
)
Interest expense on obligations under finance leases
(6,073
)
(13,971
)
Contingent rental income
3,810

18,026

Total finance lease expense, net
(12,077
)
(18,140
)

The remaining periods on these leases at September 30, 2019 range from 0 to 8 years (December 31, 2018: 6 to 8 years). The weighted average discount rate in relation to the vessels leased from SFL is 7.5%. The weighted average discount rate in relation to the vessels leased from Trafigura is 4.36%.

12. OPERATING LEASES


30


Two further vessels are leased in on time charter from a third party and have been classified as operating leases. These leases are at fixed rates for an initial two year period, with an option to extend for an additional year. The minimum lease payments do not include the optional year as the company has assessed that it was not reasonably certain of extending the lease at the date the contracts were entered into. The Company has allocated the consideration due under the leases between the lease and non-lease components based upon the estimated stand alone price of the services provided by the owner of the vessels, which include the provision of crewing, vessel insurance, repairs and maintenance and lubes. The Company has recorded the non-lease component of $5.0 million within Ship operating expenses and has recognized the lease component of $6.3 million within Charter hire expense within the Consolidated Statement of Operations. Furthermore, the Company is committed to make rental payments under operating leases for office premises. Certain of these leases include variable lease elements linked to inflation indexes. Such variable payments have been estimated on the date of adoption based on the index at that time and included in the minimum lease payments. A lease expense of $1.9 million is recorded in Administrative expenses in the Consolidated Statement of Operations.

Rental expense
The future minimum rental payments under the Company's non-cancellable operating leases as at September 30, 2019 are as follows:
(in thousands of $)
 
 
Year 1
 
7,656

Year 2
 
2,144

Year 3
 
1,655

Year 4
 
1,573

Year 5
 
1,512

Thereafter
 
1,527

Total minimum lease payments
 
16,067

Less: Imputed interest
 
(1,126
)
Present value of operating lease liabilities
 
14,941


The future minimum rental payments under the Company's non-cancellable operating leases as at December 31, 2018 are as follows:
(in thousands of $)
 
 
2019
 
17,348

2020
 
6,682

2021
 
550

2022
 
181

2023
 
41

Thereafter
 

 
 
24,802


Total expense for operating leases was $8.3 million for the nine months ended September 30, 2019 (2018: $9.3 million). Total cash paid in respect of operating leases was $8.0 million in the nine months ended September 30, 2019 (2018: $9.3 million). The weighted average discount in relation to the operating leases was 3.9% for the nine months ended September 30, 2019 and the weighted average lease term was 4 years for the nine months ended September 30, 2019.


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Rental income
One LR2 tanker and one Suezmax tanker were on fixed rate time charters at September 30, 2019 (2018: one vessel). One LR2 tanker was on a variable rate time charter at September 30, 2019 (2018: two vessels). Two Suezmax tankers were on fixed rate time charters with profit sharing clauses. There are no further option periods in relation to these leases. In addition, Frontline has agreed to charter-out five vessels to Trafigura under the SPA, for a period of three years at a daily base rate of $28,400 plus 50% profit share. For accounting purposes the leases do not commence until closing of the transaction (see note 19), with the latest closing being March 15, 2020. The minimum lease rental income for these five vessels has been included from March 15, 2020 until the end of the leases. The minimum future revenues to be received under our fixed rate contracts as of September 30, 2019 are as follows: 
(in thousands of $)
 
 
Year 1
 
34,965

Year 2
 
51,830

Year 3
 
42,032

Year 4
 

Year 5
 

Thereafter
 

Total minimum lease payments
 
128,827


Our variable rate contract is not based on an index but is based on the actual earnings of the vessel earned by our customer. As such the future earnings from this contract have been excluded from the minimum future revenues above. Profit share to be earned under our chartering arrangements are also excluded.

Our revenues from these leases have been included within time charter revenues in the Condensed Consolidated Statement of Operations, which solely relates to leasing revenues.

There are no options to extend our operating leases where we are the lessor.

The cost and accumulated depreciation of vessels leased to third parties as of September 30, 2019 were $288.7 million and $49.9 million, respectively, and as of December 31, 2018 were $158.8 million and $12.3 million, respectively.

Contingent rental income
In July 2018, the Company entered into an agreement to charter-out one Suezmax tanker on a variable rate time charter. The Company recognized charter income of $5.2 million in the nine month period ended September 30, 2019 in relation to this charter. The vessel was subsequently chartered on a fixed rate charter with profit sharing clause, no profit share was recognized in the period.

In September 2018, the Company entered into an agreement to charter-out one LR2 tanker on a variable rate time charter. The rate of hire is based on the actual earnings of the vessel, with no ceiling and no floor. The Company recognized charter income of $3.4 million including profit share in the nine months ended September 30, 2019 in relation to this charter.

In January 2019, the Company entered into an agreement to charter-out one Suezmax tanker on a fixed rate time charter, including profit share. Profit share income of $1.4 million was recognized in the nine months ended September 30, 2019.


13. INVESTMENT IN ASSOCIATED COMPANY

In June 2018, the Company announced that it had entered into a memorandum of agreement to acquire a 20% ownership interest in FMSI. The Company recorded its initial investment at a cost of $6.0 million. The Company became a shareholder in the third quarter of 2018 when the nominal value of the shares acquired was settled by the Company. A

32


shareholder loan of $6.0 million was advanced in the third quarter of 2018 (the "Shareholder Loan"). The loan bears no interest and has no fixed repayment date. The investment therefore comprises the cash paid for the shares and the value of the Shareholder Loan. The investment is accounted for under the equity method.

In January 2019, the Company announced that its ownership interest in FMSI had increased to 28.9% following the purchase by FMSI of a 30.8% stake in FMSI from Bjørnar Feen, one of FMSI’s founders.

In January 2019, FMSI repaid $3.0 million of the $6.0 million Shareholder Loan. The repayment of the loan was recorded against the investment in associated company.

A share of results of $2.8 million was recognized in the nine months ended September 30, 2019.


14. DEBT

The Company drew down $55.3 million in January 2019 under its $110.5 million term loan facility with Credit Suisse in connection with the delivery of one VLCC.

In April 2019, the Company signed an amendment on similar terms to its $110.5 million term loan facility with ING for a separate tranche of $4.1 million to finance the EGCS to be installed on the VLCC Front Discovery. The additional tranche was subsequently drawn down in April 2019, along with the delivery tranche of $55.3 million.

In June 2019, the Company signed amendments to two senior secured term loan facilities with Credit Suisse financing four VLCCs to increase the committed amount under each facility by up to $15.0 million, or $30.0 million in total, on the same terms as the existing facilities. The additional amount of $30.0 million was subsequently drawn down in June 2019.

The Company repaid $66.0 million in the nine months ended September 30, 2019 under its senior unsecured facility of up to $275.0 million with an affiliate of Hemen Holding Ltd (the "Credit Facility"). As of September 30, 2019, $155.0 million remains available and undrawn.

The promissory note of $20.5 million payable to SFL following the termination of the leases on Front Circassia, Front Page, Front Stratus, Front Serenade and Front Ariake is included within debt. At September 30, 2019, $1.9 million is included within short-term debt with the remaining $18.6 million within long-term debt.

Golden Ocean shares

In December 2018, the Company sold 1,260,358 shares in Golden Ocean for proceeds of $7.7 million. At the same time the Company entered into a forward contract to repurchase 1.3 million shares in Golden Ocean in March 2019 for $7.7 million.

In March 2019, the Company repurchased these shares and subsequently sold them for proceeds of $6.6 million. At the same time the Company entered into a forward contract to repurchase 1.3 million shares in Golden Ocean in June 2019 for $6.6 million and as such made a net cash settlement of $1.0 million after adjustment for foreign exchange differences, this has been treated as a drawdown of debt.

In June 2019, the Company repurchased these shares and subsequently sold them for proceeds of $6.7 million. At the same time the Company entered into a forward contract to repurchase 1.3 million shares in Golden Ocean in September 2019 for $6.7 million and as such received a net cash settlement of $0.1 million after adjustment for foreign exchange differences, this has been treated as a settlement of debt.

In September 2019, the Company repurchased these shares and subsequently sold them for proceeds of $7.6 million. At the same time the Company entered into a forward contract to repurchase 1.3 million shares in Golden Ocean in December 2019 for $7.6 million and as such received a net cash settlement of $1.2 million after adjustment for foreign

33


exchange differences, this has been treated as a drawdown of debt. The transaction has been accounted for as a secured borrowing, with the shares retained in marketable securities and a liability recorded within short-term debt for $7.6 million. These transactions have been reported on a net basis in the Consolidated Statement of Cash Flows.

The Company has recorded debt issuance costs (i.e. deferred charges) of $8.2 million at September 30, 2019 (December 2018: $9.8 million) as a direct deduction from the carrying amount of the related debt.

Assets pledged
(in thousands of $)
2019

2018

Vessels and equipment, net
2,593,324

2,475,649


15. SHARE CAPITAL

The authorized share capital of the Company as at September 30, 2019 is $500,000,000 divided into 500,000,000 shares of $1.00 par value each, of which 192,616,032 shares (December 31, 2018:169,821,192 shares) of $1.00 par value each are in issue and fully paid.

In July 2018, the Company announced it had entered into an Equity Distribution Agreement dated July 24, 2018, with Morgan Stanley & Co. LLC for the offer and sale of up to $100.0 million of common shares of Frontline through an ATM. In the nine months ended September 30, 2019, the Company issued 6,758,984 shares for net proceeds of $57.3 million, of which $51.0 million was received as of September 30, 2019.

In August 2019, the Company issued 16,035,856 shares at a closing share price of $7.92 as a part of the consideration for the Acquisition (see note 4 and 19).


16. FINANCIAL INSTRUMENTS

Interest rate swap agreements
In February 2013, Frontline 2012 entered into six interest rate swaps with Nordea Bank whereby the floating interest rate on an original principal amount of $260.0 million of the then anticipated debt on 12 MR product tanker newbuildings was switched to fixed rate. Six of these newbuildings were subsequently financed from the $466.5 million term loan facility. In February 2016, the Company entered into an interest rate swap with DNB whereby the floating interest on notional debt of $150.0 million was switched to a fixed rate.

At September 30, 2019, the Company recorded an asset of $0.2 million (December 31, 2018: $7.6 million) and a liability of $6.4 million (December 31, 2018: nil) in relation to these agreements. The Company recorded a loss on interest swaps of $12.3 million in the nine months ended September 30, 2019 (nine months ended September 30, 2018: gain of $8.9 million).
 
The interest rate swaps are not designated as hedges and are summarized as at September 30, 2019 as follows:

34


Notional Amount
Inception Date
Maturity Date
Fixed Interest Rate

($000s)
 
 
 
13,271
June 2013
June 2020
1.4025
%
39,647
September 2013
September 2020
1.5035
%
67,468
December 2013
December 2020
1.6015
%
13,033
March 2014
March 2021
1.6998
%
13,376
June 2014
June 2021
1.7995
%
13,719
September 2014
September 2021
1.9070
%
150,000
February 2016
February 2026
2.1970
%
310,514
 
 
 

 
Fair Values
The carrying value and estimated fair value of the Company's financial assets and liabilities as of September 30, 2019 and December 31, 2018 are as follows:
 
 
2019
2018

(in thousands of $)
Carrying
Value

Fair
Value

Carrying
Value

Fair
Value

Assets:
 
 
 
 
Cash and cash equivalents
103,834

103,834

66,484

66,484

Restricted cash
5,039

5,039

1,420

1,420

Liabilities:
 
 
 
 
Floating rate debt
1,575,413

1,575,413

1,525,028

1,525,028

Fixed rate debt
148,060

146,538

215,524

212,696


The estimated fair value of financial assets and liabilities at September 30, 2019 are as follows:

(in thousands of $)
Fair
Value


Level 1


Level 2


Level 3

Assets:
 
 
 
 
Cash and cash equivalents
103,834

103,834



Restricted cash
5,039

5,039



Liabilities:
 
 
 
 
Floating rate debt
1,575,413


1,575,413


Fixed rate debt
146,538


7,537

139,001


The estimated fair value of financial assets and liabilities at December 31, 2018 are as follows:

(in thousands of $)
Fair
Value


Level 1


Level 2


Level 3

Assets:
 
 
 
 
Cash and cash equivalents
66,484

66,484



Restricted cash
1,420

1,420



Liabilities:
 
 
 
 
Floating rate debt
1,525,028


1,525,028


Fixed rate debt
212,696


7,631

205,065



35


The following methods and assumptions were used to estimate the fair value of each class of financial instrument;

Cash and cash equivalents – the carrying values in the balance sheet approximate fair value.

Restricted cash – the carrying values in the balance sheet approximate fair value.

Floating rate debt - the fair value of floating rate debt has been determined using level 2 inputs and is considered to be equal to the carrying value since it bears variable interest rates, which are reset on a quarterly basis. Floating rate debt is presented net of deferred financing charges of $8.2 million as of September 30, 2019 (December 2018: $9.8 million).

Fixed rate debt - short-term debt held with a third party bank has been valued using level two inputs, the remaining fixed rate debt has been determined using level 3 inputs being the discounted expected cash flows of the outstanding debt.

Assets Measured at Fair Value on a Nonrecurring Basis

Nonrecurring fair value measurements include a goodwill impairment assessment completed during the period. The impairment test used Level 1, Level 2 and Level 3 inputs.

Assets Measured at Fair Value on a Recurring Basis
Marketable securities are listed equity securities considered to be available-for-sale securities for which the fair value as at the balance sheet date is their aggregate market value based on quoted market prices (level 1).

The fair value (level 2) of derivative interest rate agreements is the present value of the estimated future cash flows that the Company would receive or pay to terminate the agreements at the balance sheet date, taking into account, as applicable, fixed interest rates on interest rate swaps, current interest rates, forward rate curves, current and future bunker prices and the credit worthiness of both the Company and the derivative counterparty.

Concentrations of risk
There is a concentration of credit risk with respect to cash and cash equivalents to the extent that substantially all of the amounts are carried with Skandinaviska Enskilda Banken AB (publ) ("SEB"), HSBC, Royal Bank of Scotland, DnB Bank ASA, or DNB and Nordea Bank Norge ASA, or Nordea. There is a concentration of credit risk with respect to restricted cash to the extent that substantially all of the amounts are carried with SEB, Nordea and HSBC. However, the Company believes this risk is remote.

17. RELATED PARTY TRANSACTIONS

We transact business with the following related parties, being companies in which Hemen and companies associated with Hemen have a significant interest: SFL Corporation Ltd., Seadrill Limited, Seatankers Management Norge AS and Seatankers Management Co. Ltd (together "Seatankers Management"), Golden Ocean Group Limited, Arcadia Petroleum Limited, Solstad Farstad ASA, Archer Limited, North Atlantic Drilling Ltd, Flex LNG Ltd, Avance Gas Holdings Ltd and Sterna Finance Limited. In June 2018 we entered into a MOA to acquire a 20% ownership interest in FMSI and the transaction completed in the third quarter of 2018, as such FMSI became a related party.

SFL Transactions
As of September 30, 2019, the Company held three vessels under finance leases, which are leased from SFL. The remaining periods on these leases at September 30, 2019 range from approximately six to eight years.

A summary of leasing transactions with SFL in the nine months ended September 30, 2019 and September 30, 2018 are as follows;

36


(in thousands of $)
2019

2018

Charter hire payable (principal and interest)
8,829

22,632

Lease interest expense
5,269

13,971

Contingent rental income
(3,810
)
(18,026
)
Remaining lease obligation
90,867

159,658


The sum of $20.5 million in relation to Promissory notes payable to SFL, following the termination of the leases on Front Circassia, Front Page, Front Stratus, Front Serenade and Front Ariake is included within debt. The Company repaid $1.4 million in the nine months ended September 30, 2019 and was charged $1.2 million (nine months ended September 30, 2018: $0.5 million) in the nine months ended September 30, 2019 for interest expense in relation to these notes.

Contingent rental income in 2019 is due to the fact that the actual profit share expense earned by SFL in the nine months ended September 30, 2019 of $1.5 million (nine months ended September 30, 2018: nil) was $3.8 million (nine months ended September 30, 2018: $18.0 million) less than the amount accrued in the lease obligation payable when the leases were recorded at fair value at the time of the Merger.

In January 2014, Frontline 2012 commenced a pooling arrangement with SFL, between two of its Suezmax tankers Front Odin and Front Njord and two SFL vessels Glorycrown and Everbright. The Company recognized income of $1.0 million in the nine months ended September 30, 2019 in relation to this pooling arrangement (nine months ended September 30, 2018: loss of $0.1 million).

Seatankers Management Transactions
The Company entered into a Services Agreement with Seatankers Management, effective January 1, 2016, and was charged $0.4 million in the nine months ended September 30, 2019 (September 30, 2018: $0.7 million) for the provision of advisory and other support services.

FMSI Transactions
In the nine months ended September 30, 2019 the Company paid or accrued amounts totaling $7.4 million due to FMSI in relation to the installation of EGCS on its owned and leased vessels.

In January 2019, FMSI repaid $3.0 million of a $6.0 million interest free loan extended by the Company to FMSI in 2018.

As of September 30, 2019, the Company has committed to the installation of EGCS with FMSI on 13 vessels owned by the Company, with a financial commitment of $9.6 million, excluding installation costs. The Company has also agreed with SFL to share the cost of installation of EGCS with FMSI equally on two VLCCs chartered from SFL. The Company's remaining commitment on these vessels is Nil.

Transactions with other affiliates of Hemen
The Company repaid $66.0 million in the nine months ended September 30, 2019 from its senior unsecured revolving credit facility of up to $275.0 million with an affiliate of Hemen Holding Ltd. The Company recognized interest expense of $7.0 million in the nine months ended September 30, 2019 (nine months ended September 30, 2018: $6.5 million). The Credit Facility is repayable in May 2021 and $155.0 million remains available and undrawn as at September 30, 2019.

In August 2019, an affiliate of Hemen Holding Ltd. has provided a guarantee to finance the cash amount of up to $547.0 million, payable at closing of the Acquisition. The facility matures three years after drawdown, carries a fixed interest rate of 5.5% per annum and has an amortization profile of 17 years. A guarantee fee of 0.625% was payable in the third quarter and an arrangement fee of 0.5% is payable on signing the final loan documentation in the event that the Company draws down on the facility. The commitment expires if financing documentation has not been executed on or before

37


March 15, 2020. Subject to the completion of final documentation of the ICBCL financing arrangement (see note 20), the Company will not proceed with this facility.

A summary of net amounts earned from related parties in the nine months ended September 30, 2019 and September 30, 2018 are as follows:
(in thousands of $)
2019

2018

Seatankers Management Co. Ltd
13,321

(1,830
)
SFL Corporation Ltd
3,278

1,880

Golden Ocean Group Limited
5,153

5,348

Flex LNG Ltd
866

1,698

Seatankers Management Norge AS

(702
)
Seadrill Limited
335

209

Archer Limited
331

167

Deep Sea Supply Plc
36

(2
)
North Atlantic Drilling Ltd

29

Northern Drilling Ltd
114


Avance Gas Holdings Ltd
325



Amounts earned from related parties comprise office rental income, technical and commercial management fees, newbuilding supervision fees, freights, and corporate and administrative services income. Amounts paid to related parties comprise primarily rental for office space and the provision of other administrative services.

Related party balances
A summary of balances due from related parties at September 30, 2019 and December 31, 2018 is as follows:
(in thousands of $)
2019

2018

SFL Corporation Ltd
1,805

1,653

Seatankers Management Co. Ltd
5,275

2,657

Archer Ltd
195

173

VLCC Chartering Limited
83

81

Golden Ocean Group Limited
2,815

2,370

Seadrill Limited
517

538

Flex LNG
359

210

Deep Sea Supply Plc
65

68

North Atlantic Drilling Limited
25

116

Other related parties
339

29

 
11,478

7,895


A summary of balances due to related parties at September 30, 2019 and December 31, 2018 is as follows:
(in thousands of $)
2019

2018

SFL Corporation Ltd
4,220

8,886

Seatankers Management Co. Ltd
3,274

3,236

Flex LNG
526

1,058

Golden Ocean Group Limited
4,212

5,558

 
12,232

18,738


38



See also Note 11 and Note 14 for details regarding related party transactions and balances.

18. COMMITMENTS AND CONTINGENCIES

The Company insures the legal liability risks for its shipping activities with Assuranceforeningen SKULD and Assuranceforeningen Gard Gjensidig, both mutual protection and indemnity associations. As a member of these mutual associations, the Company is subject to calls payable to the associations based on the Company's claims record in addition to the claims records of all other members of the associations. A contingent liability exists to the extent that the claims records of the members of the associations in the aggregate show significant deterioration, which result in additional calls on the members.

As of September 30, 2019, the Company's newbuilding program was comprised of one VLCC, one Suezmax tanker and two LR2 tankers. As of September 30, 2019, total installments of $29.2 million had been paid and the remaining commitment amounting to $222.0 million of which we expect $6.3 million to be paid in 2019, $150.4 million to be paid in 2020 and $65.3 million to be paid in 2021. As of November 26, 2019, Frontline has committed bank financing in place to finance the Suezmax tanker newbuilding and a loan amount of $42.9 million will be drawn in 2020. The Company is in discussions with banks to finance the VLCC newbuilding and the two LR2 newbuildings and is confident that it will be able to do so on favorable terms.

As of September 30, 2019, the Company has committed to the installation of EGCS on 14 vessels owned by the Company, with a financial commitment of $9.6 million, excluding installation costs. The Company has also agreed with SFL to share the cost of installation of EGCS equally on two VLCCs chartered from them. The Company's commitment on these vessels is nil, excluding installation costs. These remaining commitments are due in 2019.

As of September 30, 2019, the Company has committed to the installation of BWTS on seven vessels, with a remaining commitment of $3.6 million excluding installation costs, which is due in 2019.

As of September 30, 2019, the Company has committed to the purchase of a special purpose company which will hold 10 Suezmax tankers as a result of the Acquisition from Trafigura. The cash amount due to Trafigura on closing of the Acquisition ranges from $538.2 million to $544.9 million (see Note 19 and 20).

The Company is a party, as plaintiff or defendant, to several lawsuits in various jurisdictions for demurrage, damages, off-hire and other claims and commercial disputes arising from the operation of its vessels, in the ordinary course of business or in connection with its acquisition activities. The Company believes that the resolution of such claims will not have a material adverse effect, individually or in aggregate, on the Company's operations or financial condition.

19. TRAFIGURA TRANSACTION

In August 2019, the Company entered into a sale and purchase agreement with Trafigura to acquire 10 Suezmax tankers built in 2019 through the Acquisition of a special purpose vehicle, which will hold the vessels (the "Acquisition").

The Acquisition consideration per the SPA consists of (i) 16,035,856 ordinary shares of Frontline at an agreed price of $8.00 per share issuable upon signing; and (ii) a cash amount ranging from $538.2 million to $544.9 million, payable upon the closing of the Acquisition, which is targeted as soon as practically possible with December 15, 2019 being the earliest and March 15, 2020 being the latest expected date. Frontline has agreed to time charter-in all the 10 vessels from Trafigura until closing of the Acquisition at a daily rate of approximately $23,000. In addition, Frontline has agreed to charter-out five of the vessels to Trafigura for a period of three years at a daily base rate of $28,400 plus 50% profit share. As part of the Acquisition, Frontline had options to acquire an additional four Suezmax tankers built in 2019 through the acquisition of a second special purpose vehicle. Frontline elected not to exercise the options in September 2019.

Upon commencement of the charters for the five vessels which the Company does not charter back to Trafigura, the Company has concluded that the charter-in constitutes a finance lease, due to the obligation to purchase the underlying

39


asset, and has recognized a right-of-use asset and finance lease obligation. The lease obligation for these vessels on signing of the agreement includes the scheduled charter payments and the cash amount to be paid on closing of between $269.2 million and $272.5 million, discounted using the rate implicit in the lease. On issuance of the shares on August 23, 2019, the Company initially recorded a prepaid expense of $63.5 million, based on the grant date fair value of the shares of $7.92 per share, which has subsequently been adjusted to the right-of-use asset on commencement of the leases. The SPA was executed on August 23, 2019 which was treated as the grant date as this is the date on which a mutual understanding of the key terms and conditions of the share issuance was reached. The share consideration held in escrow (see note 4) has not been accounted for as contingent consideration as it is subject only to general representations and warranties, and such representations and warranties were valid at the date of the transfer of the share consideration. Furthermore, legal title to the shares has transferred to Trafigura. The Company has recognized a right-of-use asset of $339.0 million and a finance lease obligation of $275.4 million in respect of these vessels as of September 30, 2019. Depreciation of $0.8 million and finance lease interest expense of $0.8 million has been recognized in the third quarter in relation to these vessels. The weighted average discount rate for these finance leases is 4.36%.

For the five vessels chartered back to Trafigura, the Company has determined that the charter-in of the vessels has not commenced as of September 30, 2019, as control of the right-of-use asset does not transfer to Frontline until closing of the Acquisition as a result of the lease back to Trafigura. The Company has allocated 8,017,928 of the shares issued to the purchase consideration for these vessels, which has been recognized as prepaid acquisition cost. The grant date fair value of these shares was $63.5 million, based on a share price of $7.92, consistent with the treatment of the share consideration for the finance leases described above. In addition, the Company has a commitment to pay a cash amount ranging from $269.0 million to $272.4 million on closing of the Acquisition. The net difference between the cash amounts paid and received on the charter-in and charter-out of these vessels has been treated as a reduction of the transaction price for all of the vessels. $0.9 million of receipts, net of payments on the charter-in and charter-out has been deferred until closing of the Acquisition and is shown net of the prepaid acquisition cost.


20. SUBSEQUENT EVENTS

In October 2019, the Company announced that it has extended the terms of its senior unsecured revolving credit facility of up to $275.0 million with an affiliate of Hemen Holding Ltd. by 6 months to May 2021.

In October 2019, the Company announced that FMSI and Clean Marine AS have entered into a term sheet pursuant to which the entities will effect a business combination to create a leading provider of EGCS. Following the transaction, Frontline will own a 14.45% interest in the combined company.

In October 2019, the Company announced that the Equity Distribution Agreement is now completed and the Company has issued in total 11,049,141 ordinary shares and raised total proceeds of $100 million under the Equity Distribution Agreement.

In October 2019, the Company exercised the options for two additional LR2 newbuildings from SWS, expected to be delivered in October 2021 and January 2022 at a cost of $46.7 million each.

In November 2019, the Company signed a senior secured term loan facility in an amount of up to $42.9 million with Credit Suisse. The facility matures five years after delivery and carries an interest rate of LIBOR plus a margin of 190 basis points and has an amortization profile of 18 years. The facility will be used to partially finance the Suezmax tanker resale under construction at HSHI.

In November 2019, the Company secured a commitment from ICBCL for a sale-and-leaseback agreement in an amount of up to $544.0 million, which is subject to execution of final transaction documents to both parties' satisfaction. The lease financing has a tenor of seven years, carries an interest rate of LIBOR plus a margin of 230 basis points and has an amortization profile of 18 years. It will finance the cash amount payable upon closing of the 10 Suezmax tankers to be acquired from Trafigura and includes purchase options for Frontline throughout the period with a purchase obligation at the end.

40



In August 2019, the Company and Golden Ocean announced that they have entered into a non-binding term sheet to form a joint venture with Trafigura to establish a leading global supplier of marine fuels (the “JV”). A joint venture agreement was signed in November 2019, at which time, Frontline and Golden Ocean acquired 15 percent and 10 percent interests in the JV, respectively and Trafigura contributed its existing physical bunkering activities to the JV. The JV will commence operations on January 1, 2020 and will act as the exclusive purchaser of marine fuels for Trafigura, Frontline and Golden Ocean, as well as for certain entities affiliated with Hemen Holding Ltd, which is Frontline’s and Golden Ocean’s largest shareholder.

In November 2019, the Company declared a cash dividend of $0.10 per share for the third quarter of 2019.
 

41

Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘6-K’ Filing    Date    Other Filings
3/15/20
1/1/20
12/31/196-K
12/15/19
Filed on:12/11/19
11/30/19
11/26/19
For Period end:9/30/196-K
8/23/19
7/5/19F-3ASR
3/28/1920-F
1/1/19
12/31/1820-F
9/30/186-K
7/24/18424B3,  6-K
1/1/18
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1/1/16
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