AERM

FRO VLCC SWAP CASE:
Acquisition and Sale of VLCCs Frontline plc (“Frontline”) (NYSE: FRO – OSE: FRO) announces a strategic fleet renewal initiative, involving both the acquisition of new vessels and the sale of older vessels. Sale of eight of its oldest 1st generation ECO VLCCs The Company has entered into an agreement to sell eight of its oldest 1st generation ECO Very Large Crude Carriers (VLCCs), built between 2015 and 2016. These vessels are being sold for a total sales price of $831.5 million, with delivery to the new owner scheduled during the first quarter of 2026.

After repayment of existing debt on the vessels, the transaction is expected to generate net cash proceeds of approximately $486.0 million and the Company expects to record a gain in the first quarter of 2026 in the range of approximately $217.4 million to $226.7 million, depending on the delivery date of each vessel. The sale remains subject to certain closing conditions, in line with industry standards. Acquisition of nine latest generation scrubber-fitted ECO VLCC newbuilding contracts In parallel, the Company has entered into an agreement to acquire nine latest generation scrubber-fitted ECO VLCC newbuilding contracts from an affiliate of Hemen Holding Limited, the Company’s largest shareholder, for an aggregate purchase price of $1,224.0 million. Of these nine vessels, six are currently under construction at the Hengli shipyard and three at the Dalian shipyard in China.

The delivery schedule for the vessels is attractive, with seven vessels due for contract delivery during 2026, commencing in the third quarter, one vessel expected in the first quarter of 2027 and the final vessel anticipated in the second quarter of 2027. The payment schedule for these acquisitions is weighted towards delivery, with the largest portion of the instalments due upon delivery of each vessel.

The Company intends to finance this acquisition with cash and long-term debt financing. The acquisition remains subject to certain closing conditions, in line with industry standards.

Management Commentary Lars H. Barstad, Chief Executive Officer of Frontline Management AS, commented on these transactions: “These two transactions enable Frontline to renew its fleet by replacing 10-year-old first-generation ECO vessels with latest-generation, scrubber-fitted ECO vessels at very firm pricing. This aligns with our strategy of operating one of the most modern, cost- and fuel-efficient fleets in the market. The acquisition also supports our objective of increasing exposure to the VLCC segment without adding to overall vessel supply.
The delivery schedule is particularly attractive, falling within a period that is generally considered closed to newbuild orders. Through this transaction, Frontline is making tangible progress toward improved fuel efficiency and reduced carbon emissions.” Fleet Composition Post-Transaction Upon completion of these transactions, Frontline’s fleet will comprise of 81 vessels, including 42 VLCCs, 21 Suezmax tankers and 18 LR2/Aframax tankers.

Key Transaction Metrics – Summary:

Asset Sale (8 × VLCCs, built 2015–16)
Gross sale price: $831.5m (≈ $104m per vessel)
Net book value (implied): ≈ $609–615m (≈ $76m per vessel)
Accounting gain (Q1 2026): $217–227m (midpoint ≈ $222m)
Debt repaid: ≈ $345.5m
Net cash proceeds: $486.0m

Accounting vs Cash:
Gain recognized: ≈ $220m (P&L, Q1 2026)
Cash inflow to equity: $486m (includes debt repayment; not profit)

NAV & Balance Sheet Impact:
Economic NAV: No change (value crystallisation, not creation)
Reported NAV uplift (IFRS): ≈ +$220m in Q1 2026
NAV/share uplift: ≈ +$0.70/share (assuming ~320m shares)
Net debt reduction: ≈ $345m
Enterprise value: ↓ ~$345m mechanically

Newbuild Acquisition (9 × VLCCs, scrubber-fitted)
Purchase price: $1,224m (≈ $136m per vessel)
Delivery: 7 in 2026 (from Q3), 1 in Q1’27, 1 in Q2’27
Financing assumption: ~60% LTV
Equity required: ≈ $490m (≈ net sale proceeds)

Replacement Cost / Long-Term NAV Angle:
Estimated replacement value: $145–155m per vessel
Embedded uplift: ≈ $10–20m per vessel
Potential future NAV uplift (9 ships): $90–180m (on delivery, unbooked today)

Fleet & Earnings Effects:
VLCC exposure (2026): ~20% reduction during Q2/Q3
EPS/DPS impact (2026): –$0.25 to –$0.50
Fleet age profile: ~20% of VLCC fleet becomes ~10 years younger

Valuation Context (Pareto):
Sale premium to NAV: ≈ +17%
Implied NAV: ≈ $24–26/share (mark-to-market basis)

One-line takeaway:
Frontline plc crystallizes ~$220m of hidden NAV, de-leverages by ~$345m, converts ships into $486m of cash, and upgrades fleet quality—no immediate NAV creation, but materially better balance-sheet quality and long-term NAV durability.