A new offshore supply vessel company with a fleet of 154 vessels will be formed in Norway following a combination of three companies, Farstad Shipping, Solstad Offshore and Deep Sea Supply.
According to Farstad’s Oslo Stock Exchange filing on Monday, its stakeholders have agreed a plan for its financial restructuring, which will be followed by work to combine Solstad Offshore, Farstad Shipping and Deep Sea Supply, creating a new “world class OSV company.”
The parties to the financial restructuring of Farstad are Farstad Shipping, Aker Capital, a subsidiary Aker ASA, Hemen Holding (a company indirectly controlled by trusts established by John Fredriksen), as well as Farstad Shipping’s senior lenders, substantial parts of its bondholders, and F-Shiplease (a subsidiary of Ocean Yield). The proposed combination was agreed together with Soff Invest AS and Ivan II AS and Tyrholm & Farstad.
Farstad explained that, as repeatedly expressed by a range of industry experts, the fragmented Norwegian OSV industry requires consolidation. By agreeing to complete the Farstad restructuring and to work for the proposed combination, senior lenders, bondholders and long-standing family owners supported by industrial investors are making a collective effort to secure a successful refinancing of Farstad Shipping and to create a new and robust OSV company operating out of Norway in the high-end segments of the global OSV industry.
“The proposed combination is a necessary structural measure in today’s OSV market,” CEO of Deep Sea Supply says.
Farstad Shipping CEO, Karl Johan Bakken, said: “With this solution, we provide Farstad, Solstad and Deep Sea Supply with an industrial platform to sustain the current downturn in the OSV market and be well positioned to exploit a market recovery.”
Farstad stated that a successful completion of the combination will create the largest company in the high-end global offshore supply vessel industry with a fleet of 154 vessels. When including all vessel classes and lower spec vessels, the company ranks fourth globally. The company will operate a fleet of 33 CSV, 66 PSV and 55 AHTS vessels deployed globally in all deep water hubs.
Lars Peder Solstad, CEO of Solstad Offshore, comments: “For over a year we have advocated strongly for consolidation in the OSV industry. One step was taken through the merger of REM Offshore ASA into Solstad Offshore in 2016. With a successful completion of the combination we would take further steps to build the world’s leading OSV company.”
Following a successful completion of the proposed combination, it is proposed that Solstad Offshore will be the parent company in the consolidated group, and will have support of two of the strongest participants in the shipping and offshore sector through Hemen and Aker.
“The proposed combination is a necessary structural measure in today’s OSV market, which will enable the combined company to achieve significant synergies through more efficient operations and a lower cost base,” Jon Are Gummedal, CEO of Deep Sea Supply comments.
“We are excited by this opportunity to work closely with the Fredriksen group and other stakeholders to realize our ambition to establish an efficient global leader in the OSV segment. The proposed combination of Solstad’s, Farstad’s and Deep Sea Supply’s operational experience, high quality fleet and global network together with the Fredriksen group’s and Aker’s industrial expertise, M&A capabilities and financial strength will provide a powerful platform through Solstad Offshore,” says Øyvind Eriksen, President and CEO of Aker.
The new consolidated group, “Solstad Farstad”, will build on the complementary strengths of the three companies, combining the existing Solstad Offshore’s CSV capabilities with Farstad Shipping’s AHTS experience, international presence and position in Brazil and Australia, together with Deep Sea Supply’s PSV operating model. The combination will enable realization of substantial cost and revenue synergies in the range of NOK 400 -650 mln annually.
Lars Peder Solstad will be proposed as the Chief Executive Officer of the combined company, which will be headquartered out of Skudeneshavn, Norway. The focus of the initial discussions between the parties has been to create a company with a strong industrial position. The process to define the operating model and organizational structure of the combined company will be based on the competitive strengths of Farstad Shipping, Deep Sea Supply and Solstad Offshore. The companies will until further continue to operate as-is in their current organizational structure.
As part of the restructuring, Farstad Shipping’s creditors will convert existing and future debt claims to equity, the existing financing agreements of Farstad Shipping will be amended, Farstad Shipping will issue NOK 650 mln of new equity fully underwritten by Aker and Hemen, and Aker and Hemen have agreed to participate in the take-out financing of the newbuild “FAR Superior”. The newbuild is expected be delivered from Vard Singapore’s Vietnamese shipyard in February 2017.
The Farstad restructuring is expected to be completed during the first half of 2017. It is dependent on final loan documentation, approval by the bondholders in Farstad Shipping’s two outstanding bond loans FAR03 and FAR04, and the approval of the credit committees of the senior lenders but it is not dependent on the combination being completed.
New company structure
Deep Sea Supply and Farstad Shipping will merge into and be established as individual subsidiaries under Solstad Offshore, with shareholders of Deep Sea Supply and Farstad Shipping receiving shares in Solstad Offshore as consideration. Under the mergers, Farstad will merge with a newly incorporated subsidiary of Solstad Offshore and Farstad’s former shareholders will receive shares in Solstad Offshore as merger consideration.
Contemporaneously with the Solstad Offshore / Farstad merger, Deep Sea Supply will combine with Solstad Offshore in a merger or merger-like transaction whereby all of Deep Sea Supply’s assets, rights and obligations will ultimately be transferred to a subsidiary of Solstad Offshore against consideration in the form of Solstad Offshore shares.
The existing financing agreements of Solstad Offshore and Deep Sea Supply will be sought amended and harmonized with the Farstad amended financing terms.
In connection with the combination, Solstad Offshore will complete a NOK 200 mln private placement directed towards Hemen at a subscription price of NOK 12.50 per share. The proceeds from the private placement will passed on by Solstad Offshore to the part of the new group comprising the former Deep Sea Supply operations.
Aker will convert its NOK 250 mln convertible loan to Solstad Offshore in exchange for shares, such convertible loan having originally been granted to Solstad Offshore in 2016 together with a NOK 250mln equity investment by Aker in Solstad Offshore.
Solstad Offshore’s dual share class structure will be collapsed, and all Class A and Class B shares will be converted to common shares on a 1:1 basis.
Solstad Offshore will assume Farstad Shipping’s obligations under any convertible bond issued as part of the Equity Issue (with logical amendments to the convertible bond issue).
The senior lenders in Farstad Shipping have undertaken to vote in favour of and otherwise support the combination, including by voting in favour of any changes to the board of directors of Farstad Shipping as Aker and Hemen may jointly propose.
Further, the senior lenders have undertaken a lockup obligation preventing them from selling their shares in Farstad Shipping until such time as the combination is finally approved or until September 30, 2017, unless otherwise agreed with Aker and Hemen.