The Wall Street Journal: Russian Tanker Giant Sovcomflot in Deals to Sell Ships Amid Western Sanctions

The company, among the world’s largest tanker operators, sold five tankers to Dubai-based Koban Shipping and four natural-gas carriers to Singapore-based Eastern Pacific Shipping, the people said. Eastern Pacific paid $700 million to a bank that had taken ownership of the vessels.

 

It is also negotiating with entities including China Merchants Group Ltd. to sell other ships, they said.

 

The deals are coming ahead of a Sunday deadline for companies in the European Union to terminate their dealings with Russia to comply with sanctions brought after the invasion of Ukraine. Lloyd’s List earlier reported Sovcomflot was looking to sell as much as one-third of its fleet.

 

Sovcomflot owns and operates 122 ships, including crude-oil tankers, natural-gas carriers and icebreakers. The St. Petersburg-based company said in a written statement that it is selling “aging facilities as well as vessels, the usage of which seemed to be impossible due to restrictions imposed against the Russian commercial fleet.”

 

The ultimate owner of some vessels might not be known for some time. Some of the transactions are likely to take place through a web of shell companies, the people familiar with the matter said. Buying directly from a sanctioned entity carries risks of penalty.

 

Shipping brokers said some of the vessels that have been sold have changed their names and are being registered under different flags in order to be insured.

 

Sovcomflot was one of 13 major Russian enterprises and entities that were first sanctioned by the U.S. on Feb. 24. Since then, the company has been barred from U.S. waters and its Russian partners and financiers have been blacklisted. It isn’t known how much Sovcomflot owes to Western banks, but its total debt obligations were roughly $2.4 billion as of Dec. 31, according to the company.

 

Sovcomflot said its profit last year fell to $35.8 million from $267.1 million the previous year, with revenue declining about 7% to $1.54 billion. It has a long history of moving crude and natural gas for oil companies such as Shell PLC and TotalEnergies SE.

 

The company has more than 30 ships on order, with the majority being carriers that would move liquefied natural gas from projects in the Arctic. The deals involve payments of about $2 billion by Sovcomflot and $3 billion in leasing contracts over the next three years, according to a presentation by the company last November.

 

“They have a short window to sell,” said Lars Barstad, chief executive of Frontline Management AS, referring to Sovcomflot. “Their LNG carriers will be highly sought after. There is a long line of orders, it takes three and a half years to build one and it costs $230 million.”

 

The fate of the ship orders and the contracts with oil companies isn’t immediately clear, according to shipyard executives and oil brokers. Sovcomflot said in April that despite the sanctions, it will meet its payment obligations on two Eurobond issues valued at nearly $930 million with maturities in 2023 and 2028.

 

Sovcomflot is also relocating the management of its ships to Dubai, with a majority of its vessels being registered there last month, according to the shipping-industry database Equasis. Russian shipping and sanctions experts say the relocation enables the company to continue accessing services it needs to keep its vessels sailing.