Table of Contents

Filed Pursuant to Rule 424(b)(5)

Registration No. 333-230469

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of Securities to be Registered (1)   Proposed Maximum
Aggregate Offering
Price (2)
  Amount of
Registration Fee (3)

7.00% Fixed Rate Senior Unsecured Notes due 2025

  $28,750,000   $3,731.75

 

 

(1)

The securities registered herein are offered pursuant to an automatic shelf registration statement on Form F-3 (Registration No. 333-230469) filed by Scorpio Tankers Inc., effective March 22, 2019.

 

(2)

Includes an additional $3,750,000 of 7.00% Fixed Rate Senior Unsecured Notes due 2025 that the underwriters have an option to purchase.

 

(3)

Calculated in accordance with Rule 457(r) and made in accordance with Rule 456(b) under the Securities Act of 1933, as amended.


Table of Contents

PROSPECTUS SUPPLEMENT

(To Prospectus dated March 22, 2019)

 

 

LOGO

7.00% Fixed Rate Senior Unsecured Notes due 2025

 

 

We are offering $25,000,000 aggregate principal amount of our 7.00% Fixed Rate Senior Unsecured Notes due 2025 (the “Notes”). We have granted the underwriters the option, exercisable during the 30-day period beginning on the date of this prospectus supplement, to purchase up to an additional $3,750,000 aggregate principal amount of the Notes. The Notes will bear interest from May 29, 2020 at a rate of 7.00% per year. The Notes will mature on June 30, 2025. Interest on the Notes will be payable quarterly in arrears on the 30th day of March, June, September and December of each year, commencing on June 30, 2020. We may redeem the Notes for cash, in whole or in part, at any time at our option (i) on or after June 30, 2022 and prior to June 30, 2023, at a redemption price equal to 102% of the principal amount to be redeemed, (ii) on or after June 30, 2023 and prior to June 30, 2024, at a redemption price equal to 101% of the principal amount to be redeemed, and (iii) on or after June 30, 2024 and prior to maturity, at a redemption price equal to 100% of the principal amount to be redeemed, in each case, plus accrued and unpaid interest to, but excluding, the date of redemption, as described in “Description of Notes—Optional Redemption.” In addition, we may redeem the Notes, in whole, but not in part, at any time at our option prior to June 30, 2022, at a redemption price equal to 104% of the principal amount to be redeemed plus accrued and unpaid interest to, but excluding, the date of redemption, upon the occurrence of certain change of control events, as described under “Description of Notes—Optional Redemption Upon Change of Control.”

The Notes will be senior unsecured obligations and will rank equally with all of our existing and future senior unsecured and unsubordinated debt. The Notes will be effectively subordinated to our existing and future secured debt, to the extent of the value of the assets securing such debt, and will be structurally subordinated to all existing and future debt and other liabilities of our subsidiaries. The Notes will be issued in minimum denominations of $25.00 and integral multiples of $25.00 in excess thereof.

We have applied to list the Notes for trading on the New York Stock Exchange (the “NYSE”) under the symbol “SBBA.” If approved for listing, trading on the NYSE is expected to commence within 30 days after the Notes are first issued.

 

 

An investment in the Notes involves risk. Before you make an investment in the Notes, you should carefully consider the section entitled “Risk Factors” beginning on page S-17 of this prospectus supplement, and other risk factors contained in the documents incorporated by reference into this prospectus supplement and the accompanying base prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus supplement or the accompanying base prospectus. Any representation to the contrary is a criminal offense.

 

     Per Note      Total (2)  

Public offering price

   $ 25.00      $ 25,000,000.00  

Underwriting discount (1)

   $ 0.7875      $ 787,500.00  

Proceeds, before expenses, to us

   $ 24.2125      $ 24,212,500.00  

 

(1)

See “Underwriting” for a description of all underwriting compensation payable in connection with this offering.

(2)

Assumes that the Underwriters do not exercise their option to purchase additional Notes.

The underwriters expect to deliver the Notes in registered book-entry form only through the facilities of The Depository Trust Company, including Clearstream Banking, société anonyme, Luxembourg and Euroclear Bank N.A./S.A., on or about May 29, 2020.

 

 

Joint Bookrunning Managers

 

B. Riley FBR

 

Janney Montgomery Scott

  

Ladenburg Thalmann

 

William Blair

Co-Managers

 

Boenning & Scattergood

   Incapital    National Securities Corp.    Wedbush Securities

The date of this prospectus supplement is May 26, 2020.

 


Table of Contents

TABLE OF CONTENTS

PROSPECTUS SUPPLEMENT

 

ABOUT THIS PROSPECTUS

     S-i  

ENFORCEMENT OF CIVIL LIABILITIES

     S-ii  

PROSPECTUS SUMMARY

     S-1  

THE OFFERING

     S-8  

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     S-14  

RISK FACTORS

     S-17  

USE OF PROCEEDS

     S-23  

CAPITALIZATION

     S-24  

THE INTERNATIONAL OIL TANKER SHIPPING INDUSTRY

     S-26  

BUSINESS

     S-38  

MANAGEMENT

     S-45  

DESCRIPTION OF NOTES

     S-49  

DESCRIPTION OF OTHER INDEBTEDNESS

     S-73  

MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

     S-77  

MARSHALL ISLANDS TAX CONSIDERATIONS

     S-81  

UNDERWRITING

     S-82  

EXPENSES

     S-86  

LEGAL MATTERS

     S-87  

EXPERTS

     S-87  

WHERE YOU CAN FIND ADDITIONAL INFORMATION

     S-88  

BASE PROSPECTUS

 

     Page  

ABOUT THIS PROSPECTUS

     1  

PROSPECTUS SUMMARY

     2  

RISK FACTORS

     3  

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS

     4  

USE OF PROCEEDS

     7  

CAPITALIZATION

     8  

PLAN OF DISTRIBUTION

     9  

DESCRIPTION OF CAPITAL STOCK

     11  

DESCRIPTION OF DEBT SECURITIES

     12  

DESCRIPTION OF WARRANTS

     17  

DESCRIPTION OF PURCHASE CONTRACTS

     18  

DESCRIPTION OF RIGHTS

     19  

DESCRIPTION OF UNITS

     20  

TAX CONSIDERATIONS

     21  

SERVICE OF PROCESS AND ENFORCEMENT OF CIVIL LIABILITIES

     22  

EXPENSES

     23  

LEGAL MATTERS

     24  

EXPERTS

     24  

WHERE YOU CAN FIND ADDITIONAL INFORMATION

     25  


Table of Contents

ABOUT THIS PROSPECTUS

This prospectus supplement and the accompanying base prospectus are part of a registration statement that we filed with the Securities and Exchange Commission (the “Commission”) using a shelf registration process. This document is in two parts. The first part is this prospectus supplement, which describes the specific terms of this offering and also adds to and updates information contained in the accompanying base prospectus and the documents incorporated by reference into this prospectus supplement and the base prospectus. The second part, the accompanying base prospectus, gives more general information about securities we may offer from time to time, some of which does not apply to this offering. Generally, when we refer only to the prospectus, we are referring to both parts combined; when we refer to the accompanying base prospectus, we are referring to the base prospectus; and when we refer to the prospectus supplement, we are referring to the prospectus supplement.

If the description of this offering varies between this prospectus supplement and the accompanying base prospectus, you should rely on the information in this prospectus supplement. This prospectus supplement, the accompanying base prospectus and the documents incorporated into each by reference include important information about us, the Notes being offered and other information you should know before investing. You should read this prospectus supplement and the accompanying base prospectus together with additional information described under the heading, “Where You Can Find Additional Information” before investing in the Notes.

We have authorized only the information contained or incorporated by reference in this prospectus supplement, the accompanying base prospectus and any free writing prospectus prepared by or on behalf of us or to which we have referred you. Neither we nor the underwriters have authorized anyone to provide you with information that is different. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any information that others may give you. We are offering to sell, and seeking offers to buy, the Notes only in jurisdictions where offers and sales are permitted. The information contained or incorporated by reference in this document is accurate only as of the date such information was issued, regardless of the time of delivery of this prospectus supplement or any sale of the Notes.

We prepare our financial statements, including all of the financial statements incorporated by reference in this prospectus supplement, in U.S. dollars and in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). We have a fiscal year end of December 31.

Unless the context otherwise requires, when used in this prospectus supplement, the terms “Scorpio Tankers,” the “Company,” “we,” “our” and “us” refer to Scorpio Tankers Inc. and its subsidiaries. “Scorpio Tankers Inc.” refers only to Scorpio Tankers Inc. and not its subsidiaries. “Scorpio” refers to the Scorpio group of companies. Additionally, as used herein, “SLR2P” refers to the Scorpio LR2 Pool, “SLR1P” refers to the Scorpio LR1 Pool, “SMRP” refers to the Scorpio MR Pool, and “SHTP” refers to the Scorpio Handymax Tanker Pool, which are spot market-oriented tanker pools in which certain of our vessels operate. We refer to collectively to these pools as the Scorpio Pools, which are managed by companies that are members of the Scorpio group of companies. The financial information included or incorporated by reference in this prospectus represents our financial information and the operations of our subsidiaries. Unless otherwise indicated, all references to currency amounts in this prospectus are in U.S. dollars. Unless otherwise indicated, all information in this prospectus supplement assumes that the underwriters’ option to purchase additional Notes is not exercised.

 

S-i


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ENFORCEMENT OF CIVIL LIABILITIES

We are a Marshall Islands company, and our principal executive office is located outside of the United States in Monaco, although we also have an office in New York. Some of our directors, officers and the experts named in this prospectus supplement reside outside the United States. In addition, a substantial portion of our assets and the assets of certain of our directors, officers and experts are located outside of the United States. As a result, you may have difficulty serving legal process within the United States upon us or any of these persons. You may also have difficulty enforcing, both in and outside the United States, judgments you may obtain in United States courts against us or these persons.

 

 

S-ii


Table of Contents

PROSPECTUS SUMMARY

This section summarizes some of the key information that is contained or incorporated by reference in this prospectus. It may not contain all of the information that may be important to you. As an investor or prospective investor, you should review carefully the entire prospectus, any free writing prospectus that may be provided to you in connection with the offering of the Notes and the information incorporated by reference in this prospectus, including the sections entitled “Risk Factors” on page S-17 of this prospectus supplement; on page 2 of the accompanying base prospectus, and in our Annual Report on Form 20-F for the fiscal year ended December 31, 2019, filed with the Commission on March 31, 2020, which is incorporated by reference into this prospectus.

Our Company

We provide seaborne transportation of refined petroleum products worldwide. As of May 22, 2020, we operate a fleet consisting of 137 wholly-owned, finance leased or bareboat chartered-in tankers (42 LR2, 12 LR1, 62 MR and 21 Handymax) with a weighted average age of approximately 4.6 years, and have a leasehold interest of an MR under construction, which we refer to collectively as our Operating Fleet.

Our Operating Fleet

The following table sets forth certain information regarding our Operating Fleet as of May 22, 2020:

 

    

Vessel Name

   Year
Built
   DWT      Ice
class
   Employment    Vessel type   

Scrubber

   Owned, finance leased or bareboat chartered-in vessels   
1    STI Brixton    2014      38,734      1A    SHTP (1)    Handymax    N/A
2    STI Comandante    2014      38,734      1A    SHTP (1)    Handymax    N/A
3    STI Pimlico    2014      38,734      1A    SHTP (1)    Handymax    N/A
4    STI Hackney    2014      38,734      1A    SHTP (1)    Handymax    N/A
5    STI Acton    2014      38,734      1A    SHTP (1)    Handymax    N/A
6    STI Fulham    2014      38,734      1A    SHTP (1)    Handymax    N/A
7    STI Camden    2014      38,734      1A    SHTP (1)    Handymax    N/A
8    STI Battersea    2014      38,734      1A    SHTP (1)    Handymax    N/A
9    STI Wembley    2014      38,734      1A    SHTP (1)    Handymax    N/A
10    STI Finchley    2014      38,734      1A    SHTP (1)    Handymax    N/A
11    STI Clapham    2014      38,734      1A    SHTP (1)    Handymax    N/A
12    STI Poplar    2014      38,734      1A    SHTP (1)    Handymax    N/A
13    STI Hammersmith    2015      38,734      1A    SHTP (1)    Handymax    N/A
14    STI Rotherhithe    2015      38,734      1A    SHTP (1)    Handymax    N/A
15    STI Amber    2012      49,990      —      SMRP (2)    MR    Not Yet Installed
16    STI Topaz    2012      49,990      —      SMRP (2)    MR    Not Yet Installed
17    STI Ruby    2012      49,990      —      SMRP (2)    MR    Not Yet Installed
18    STI Garnet    2012      49,990      —      SMRP (2)    MR    Not Yet Installed
19    STI Onyx    2012      49,990      —      SMRP (2)    MR    Not Yet Installed
20    STI Fontvieille    2013      49,990      —      SMRP (2)    MR    Not Yet Installed
21    STI Ville    2013      49,990      —      SMRP (2)    MR    Not Yet Installed
22    STI Duchessa    2014      49,990      —      SMRP (2)    MR    Not Yet Installed
23    STI Opera    2014      49,990      —      SMRP (2)    MR    Not Yet Installed
24    STI Texas City    2014      49,990      —      SMRP (2)    MR    Yes
25    STI Meraux    2014      49,990      —      SMRP (2)    MR    Yes
26    STI San Antonio    2014      49,990      —      SMRP (2)    MR    Yes
27    STI Venere    2014      49,990      —      SMRP (2)    MR    Yes
28    STI Virtus    2014      49,990      —      SMRP (2)    MR    Yes
29    STI Aqua    2014      49,990      —      SMRP (2)    MR    Yes


 

S-1


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Vessel Name

   Year
Built
   DWT      Ice
class
   Employment    Vessel type   

Scrubber

30    STI Dama    2014      49,990      —      SMRP (2)    MR    Yes
31    STI Benicia    2014      49,990      —      SMRP (2)    MR    Yes
32    STI Regina    2014      49,990      —      SMRP (2)    MR    Yes
33    STI St Charles    2014      49,990      —      SMRP (2)    MR    Yes
34    STI Mayfair    2014      49,990      —      SMRP (2)    MR    Yes
35    STI Yorkville    2014      49,990      —      SMRP (2)    MR    Yes
36    STI Milwaukee    2014      49,990      —      SMRP (2)    MR    Yes
37    STI Battery    2014      49,990      —      SMRP (2)    MR    Yes
38    STI Soho    2014      49,990      —      SMRP (2)    MR    Yes
39    STI Memphis    2014      49,990      —      SMRP (2)    MR    Yes
40    STI Tribeca    2015      49,990      —      SMRP (2)    MR    Yes
41    STI Gramercy    2015      49,990      —      SMRP (2)    MR    Yes
42    STI Bronx    2015      49,990      —      SMRP (2)    MR    Yes
43    STI Pontiac    2015      49,990      —      SMRP (2)    MR    Yes
44    STI Manhattan    2015      49,990      —      SMRP (2)    MR    Yes
45    STI Queens    2015      49,990      —      SMRP (2)    MR    Yes
46    STI Osceola    2015      49,990      —      SMRP (2)    MR    Yes
47    STI Notting Hill    2015      49,687      1B    SMRP (2)    MR    Not Yet Installed
48    STI Seneca    2015      49,990      —      SMRP (2)    MR    Yes
49    STI Westminster    2015      49,687      1B    SMRP (2)    MR    Not Yet Installed
50    STI Brooklyn    2015      49,990      —      SMRP (2)    MR    Not Yet Installed
51    STI Black Hawk    2015      49,990      —      SMRP (2)    MR    Not Yet Installed
52    STI Galata    2017      49,990      —      SMRP (2)    MR    Yes
53    STI Bosphorus    2017      49,990      —      SMRP (2)    MR    Not Yet Installed
54    STI Leblon    2017      49,990      —      SMRP (2)    MR    Not Yet Installed
55    STI La Boca    2017      49,990      —      SMRP (2)    MR    Yes
56    STI San Telmo    2017      49,990      1B    SMRP (2)    MR    Not Yet Installed
57    STI Donald C Trauscht    2017      49,990      1B    SMRP (2)    MR    Not Yet Installed
58    STI Esles II    2018      49,990      1B    SMRP (2)    MR    Not Yet Installed
59    STI Jardins    2018      49,990      1B    SMRP (2)    MR    Not Yet Installed
60    STI Magic    2019      50,000      —      SMRP (2)    MR    Yes
61    STI Majestic    2019      50,000      —      SMRP (2)    MR    Yes
62    STI Mystery    2019      50,000      —      SMRP (2)    MR    Yes
63    STI Marvel    2019      50,000      —      SMRP (2)    MR    Yes
64    STI Magnetic    2019      50,000      —      SMRP (2)    MR    Yes
65    STI Millennia    2019      50,000      —      SMRP (2)    MR    Yes
66    STI Master    2019      50,000      —      SMRP (2)    MR    Yes
67    STI Mythic    2019      50,000      —      SMRP (2)    MR    Yes
68    STI Marshall    2019      50,000      —      SMRP (2)    MR    Yes
69    STI Modest    2019      50,000      —      SMRP (2)    MR    Yes
70    STI Maverick    2019      50,000      —      SMRP (2)    MR    Yes
71    STI Miracle    2020      50,000      —      SMRP (2)    MR    Yes
72    STI Maestro    2020      50,000      —      SMRP (2)    MR    Yes
73    STI Mighty    2020      50,000      —      SMRP (2)    MR    Yes
74    STI Excel    2015      74,000      —      SLR1P (3)    LR1    Not Yet Installed
75    STI Excelsior    2016      74,000      —      SLR1P (3)    LR1    Not Yet Installed
76    STI Expedite    2016      74,000      —      SLR1P (3)    LR1    Not Yet Installed
77    STI Exceed    2016      74,000      —      SLR1P (3)    LR1    Not Yet Installed
78    STI Executive    2016      74,000      —      SLR1P (3)    LR1    Yes
79    STI Excellence    2016      74,000      —      SLR1P (3)    LR1    Yes


 

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Vessel Name

   Year
Built
   DWT      Ice
class
   Employment    Vessel type   

Scrubber

80    STI Experience    2016      74,000      —      SLR1P (3)    LR1    Not Yet Installed
81    STI Express    2016      74,000      —      SLR1P (3)    LR1    Yes
82    STI Precision    2016      74,000      —      SLR1P (3)    LR1    Not Yet Installed
83    STI Prestige    2016      74,000      —      SLR1P (3)    LR1    Yes
84    STI Pride    2016      74,000      —      SLR1P (3)    LR1    Yes
85    STI Providence    2016      74,000      —      SLR1P (3)    LR1    Yes
86    STI Elysees    2014      109,999      —      SLR2P (4)    LR2    Yes
87    STI Madison    2014      109,999      —      SLR2P (4)    LR2    Yes
88    STI Park    2014      109,999      —      SLR2P (4)    LR2    Yes
89    STI Orchard    2014      109,999      —      SLR2P (4)    LR2    Yes
90    STI Sloane    2014      109,999      —      SLR2P (4)    LR2    Yes
91    STI Broadway    2014      109,999      —      SLR2P (4)    LR2    Yes
92    STI Condotti    2014      109,999      —      SLR2P (4)    LR2    Yes
93    STI Rose    2015      109,999      —      SLR2P (4)    LR2    Yes
94    STI Veneto    2015      109,999      —      SLR2P (4)    LR2    Yes
95    STI Alexis    2015      109,999      —      SLR2P (4)    LR2    Yes
96    STI Winnie    2015      109,999      —      SLR2P (4)    LR2    Not Yet Installed
97    STI Oxford    2015      109,999      —      SLR2P (4)    LR2    Yes
98    STI Lauren    2015      109,999      —      SLR2P (4)    LR2    Not Yet Installed
99    STI Connaught    2015      109,999      —      SLR2P (4)    LR2    Not Yet Installed
100    STI Spiga    2015      109,999      —      SLR2P (4)    LR2    Not Yet Installed
101    STI Savile Row    2015      109,999      —      SLR2P (4)    LR2    Yes
102    STI Kingsway    2015      109,999      —      SLR2P (4)    LR2    Not Yet Installed
103    STI Carnaby    2015      109,999      —      SLR2P (4)    LR2    Not Yet Installed
104    STI Solidarity    2015      109,999      —      SLR2P (4)    LR2    Not Yet Installed
105    STI Lombard    2015      109,999      —      SLR2P (4)    LR2    Yes
106    STI Grace    2016      109,999      —      SLR2P (4)    LR2    Not Yet Installed
107    STI Jermyn    2016      109,999      —      SLR2P (4)    LR2    Not Yet Installed
108    STI Sanctity    2016      109,999      —      SLR2P (4)    LR2    Yes
109    STI Solace    2016      109,999      —      SLR2P (4)    LR2    Yes
110    STI Stability    2016      109,999      —      SLR2P (4)    LR2    Not Yet Installed
111    STI Steadfast    2016      109,999      —      SLR2P (4)    LR2    Yes
112    STI Supreme    2016      109,999      —      SLR2P (4)    LR2    Not Yet Installed
113    STI Symphony    2016      109,999      —      SLR2P (4)    LR2    Yes
114    STI Gallantry    2016      113,000      —      SLR2P (4)    LR2    Yes
115    STI Goal    2016      113,000      —      SLR2P (4)    LR2    Yes
116    STI Nautilus    2016      113,000      —      SLR2P (4)    LR2    Yes
117    STI Guard    2016      113,000      —      SLR2P (4)    LR2    Yes
118    STI Guide    2016      113,000      —      SLR2P (4)    LR2    Yes
119    STI Selatar    2017      109,999      —      SLR2P (4)    LR2    Not Yet Installed
120    STI Rambla    2017      109,999      —      SLR2P (4)    LR2    Not Yet Installed
121    STI Gauntlet    2017      113,000      —      SLR2P (4)    LR2    Yes
122    STI Gladiator    2017      113,000      —      SLR2P (4)    LR2    Yes
123    STI Gratitude    2017      113,000      —      SLR2P (4)    LR2    Yes
124    STI Lobelia    2019      110,000      —      SLR2P (4)    LR2    Yes
125    STI Lotus    2019      110,000      —      SLR2P (4)    LR2    Yes
126    STI Lily    2019      110,000      —      SLR2P (4)    LR2    Yes
127    STI Lavender    2019      110,000      —      SLR2P (4)    LR2    Yes
128    Silent    2007      37,847      1A    SHTP (1)    Handymax    N/A (5)
129    Single    2007      37,847      1A    SHTP (1)    Handymax    N/A (5)


 

S-3


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Vessel Name

   Year
Built
  DWT      Ice
class
   Employment    Vessel type   

Scrubber

130    Star I    2007     37,847      1A    SHTP (1)    Handymax    N/A (5)
131    Sky    2007     37,847      1A    SHTP (1)    Handymax    N/A (6)
132    Steel    2008     37,847      1A    SHTP (1)    Handymax    N/A (6)
133    Stone I    2008     37,847      1A    SHTP (1)    Handymax    N/A (6)
134    Style    2008     37,847      1A    SHTP (1)    Handymax    N/A (6)
135    STI Beryl    2013     49,990      —      SMRP (2)    MR    Not Yet Installed (7)
136    STI Le Rocher    2013     49,990      —      SMRP (2)    MR    Not Yet Installed (7)
137    STI Larvotto    2013     49,990      —      SMRP (2)    MR    Not Yet Installed (7)
       

 

 

             
  

Total owned, finance leased and bareboat charter-in fleet DWT

       9,438,089              
       

 

 

             
  

Leasehold newbuilding currently under construction

                
  

Hull S471—TBN STI Maximus

   HVS (8)     50,000      MR         
       

 

 

             
  

Total newbuilding product tankers DWT

       50,000              
       

 

 

             
   Total Fleet DWT        9,488,089              
       

 

 

             

 

(1)

This vessel operates in the SHTP. SHTP is operated by Scorpio Commercial Management S.A.M. (“SCM”). SHTP and SCM are related parties to the Company.

(2)

This vessel operates in or is expected to operate in the SMRP. SMRP is operated by SCM. SMRP and SCM are related parties to the Company.

(3)

This vessel operates in the SLR1P. SLR1P is operated by SCM. SLR1P and SCM are related parties to the Company.

(4)

This vessel operates in or is expected to operate in the SLR2P. SLR2P is a Scorpio Pool and is operated by SCM. SLR2P and SCM are related parties to the Company.

(5)

In March 2020, we extended the bareboat charter-in agreement on a previously bareboat chartered-in vessel to May 2020 (with an option to extend through the end of June 2020) from March 2020 at a bareboat rate of $6,300 per day.

(6)

In March 2019, we entered into a new bareboat charter-in agreement on a previously bareboat chartered-in vessel. The term of the agreement is for two years at a bareboat rate of $6,300 per day. The agreement is expected to expire on March 31, 2021.

(7)

In April 2017, we sold and leased back this vessel, on a bareboat basis, for a period of up to eight years for $8,800 per day. The sales price was $29.0 million per vessel, and we have the option to purchase this vessel beginning at the end of the fifth year of the agreement through the end of the eighth year of the agreement, at market based prices. Additionally, a deposit of $4.35 million per vessel was retained by the buyer and will either be applied to the purchase price of the vessel if a purchase option is exercised or refunded to us at the expiration of the agreement.

(8)

The leasehold interests in this vessel was acquired from Trafigura Maritime Logistics Pte. Ltd., or Trafigura, in September 2019 as part of our acquisition of the leasehold interests in 19 vessels from Trafigura. This vessel is currently under construction at Hyundai-Vietnam Shipbuilding Co., Ltd. with expected delivery in the third quarter of 2020.



 

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Our Chartering Strategy

Generally, we operate our vessels in commercial pools operated by related entities, on time charters or in the spot market. The overall mix of how our vessels are employed varies from time to time based on many factors including our view of future market conditions.

Commercial Pools

To increase vessel utilization and thereby revenues, we participate in commercial pools with other shipowners of similar modern, well-maintained vessels. By operating a large number of vessels as an integrated transportation system, commercial pools offer customers greater flexibility and a higher level of service while achieving scheduling efficiencies. Pools employ experienced commercial managers and operators who have close working relationships with customers and brokers, while technical management is performed by each shipowner. Pools negotiate charters with customers primarily in the spot market, but may also arrange time charter agreements. The size and scope of these pools enable them to enhance utilization rates for pool vessels by securing backhaul voyages and contracts of affreightment, or COAs, thus generating higher effective TCE revenues than otherwise might be obtainable in the spot market.

Time Charters

Time charters give us a fixed and stable cash flow for a known period of time. Time charters also mitigate in part the seasonality of the spot market business, which is generally weaker in the second and third quarters of the year. In the future, we may opportunistically look to enter our vessels into time charter contracts. We may also enter into time charter contracts with profit sharing agreements, which enable us to benefit if the spot market increases.

Spot Market

A spot market voyage charter is generally a contract to carry a specific cargo from a load port to a discharge port for an agreed freight per ton of cargo or a specified total amount. Under spot market voyage charters, we pay voyage expenses such as port, canal and bunker costs. Spot charter rates are volatile and fluctuate on a seasonal and year-to-year basis. Fluctuations derive from imbalances in the availability of cargoes for shipment and the number of vessels available at any given time to transport these cargoes. Vessels operating in the spot market generate revenue that is less predictable but may enable us to capture increased profit margins during periods of improvements in tanker rates. We also consider short-term time charters (with initial terms of less than one year) as spot market voyages.

Management of Our Fleet

Commercial and Technical Management

Our vessels are commercially managed by SCM and technically managed by SSM pursuant to the Revised Master Agreement (as defined in “Business—Management of our Fleet—Revised Master Agreement”), which may be terminated by either party upon 24 months’ notice, unless terminated earlier in accordance with the provisions of the Revised Master Agreement. In the event of the sale of one or more vessels, a notice period of three months and a payment equal to three months of management fees will apply, provided that the termination does not amount to a change in control, including a sale of all or substantially all of our vessels, in which case a payment equal to 24 months of management fees will apply. SCM and SSM are related parties of ours. We expect that additional vessels that we may acquire in the future will also be managed under the Revised Master Agreement or on substantially similar terms.

SCM’s services include securing employment, in the spot market and on time charters, for our vessels. SCM also manages the Scorpio Pools. When our vessels are operating in one of the Scorpio Pools, SCM, as the pool manager, charges fees of $300 per vessel per day with respect to our LR1 vessels, $250 per vessel per day with



 

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respect to our LR2 vessels, and $325 per vessel per day with respect to each of our Handymax and MR vessels, plus 1.50% commission on gross revenues per charter fixture. These are the same fees that SCM charges other vessel owners in these pools, including third-party owned vessels. For commercial management of our vessels that are not operating in any of the Scorpio Pools, we pay SCM a fee of $250 per vessel per day for each LR1 and LR2 vessel and $300 per vessel per day for each Handymax and MR vessel, plus 1.25% commission on gross revenues per charter fixture. In September 2018, we entered into an agreement with SCM whereby SCM reimbursed a portion of the commissions that SCM charges our vessels to effectively reduce such commissions to 0.85% of gross revenue per charter fixture, effective from September 1, 2018 and ending on June 1, 2019.

SSM’s services include day-to-day vessel operations, performing general maintenance, monitoring regulatory and classification society compliance, customer vetting procedures, supervising the maintenance and general efficiency of vessels, arranging the hiring of qualified officers and crew, arranging and supervising drydocking and repairs, purchasing supplies, spare parts and new equipment for vessels, appointing supervisors and technical consultants and providing technical support. We pay SSM an annual fee of $175,000 plus additional amounts for certain itemized services per vessel to provide technical management services for each of our owned vessels.

Amended Administrative Services Agreement

We have an Amended Administrative Services Agreement with Scorpio Services Holding Limited, which we refer to herein as SSH, or our Administrator, for the provision of administrative staff and office space, and administrative services, including accounting, legal compliance, financial and information technology services. SSH is a related party to us. We reimburse our Administrator for the reasonable direct or indirect expenses it incurs in providing us with the administrative services described above. The services provided to us by our Administrator may be sub-contracted to other entities within Scorpio.

Further, pursuant to our Amended Administrative Services Agreement, our Administrator, on behalf of itself and other members of Scorpio, has agreed that it will not directly own product or crude tankers ranging in size from 35,000 dwt to 200,000 dwt.

Our Amended Administrative Services Agreement may be terminated by us upon two years’ notice.

Our Relationship with Scorpio and its Affiliates

We believe that one of our principal strengths is our relationship with Scorpio. Our vessel operations are managed under the supervision of our Board, by our management team and by certain members of Scorpio, including SCM and SSM. Our relationship with Scorpio provides us with access to Scorpio’s customer and supplier relationships and their technical, commercial and managerial expertise, which we believe allows us to compete more effectively and operate our vessels on a cost-efficient basis. We can provide no assurance, however, that we will realize any benefits from our relationship with Scorpio.

Scorpio is owned and controlled by the Lolli-Ghetti family, of which Messrs. Emanuele Lauro, our founder, Chairman and Chief Executive Officer, and Filippo Lauro, our Vice President, are members. In addition, all of our executive officers serve in similar management positions in certain other companies within Scorpio and Mr. Emanuele Lauro, Mr. Robert Bugbee, our President, and other members of our senior management have minority equity interests in SSH, a member of Scorpio and our Administrator.

These responsibilities and relationships could create conflicts of interest between us, on the one hand, and SCM, SSM, SSH, or other entities within Scorpio, on the other hand. These conflicts may arise in connection with the chartering, purchase, sale and operation of the vessels in our fleet versus the vessels managed by other members of Scorpio. For example, SCM and SSM, our commercial manager and technical manager, respectively, may give preferential treatment to vessels that are time chartered-in by related parties because Messrs. Lauro and members of their family may receive greater economic benefits. As a result of these conflicts, such Scorpio



 

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companies, who have limited contractual duties, may favor their own or other owner’s interests over our interests. These conflicts may have unfavorable results for us and our shareholders.

Recent and Other Developments

Declaration of dividend

In May 2020, our Board of Directors declared a quarterly cash dividend of $0.10 per common share, payable on or about June 15, 2020 to all shareholders of record as of June 1, 2020 (the record date).

Exhaust Gas Cleaning Systems (“scrubbers”)

In April 2020, we reached an agreement with one of our counterparties, whom we previously entered into a commitment to purchase and install scrubbers on certain of our vessels, to postpone the purchase and installation of scrubbers on 19 of our vessels. The installation of these scrubbers for these vessels is now expected to begin no earlier than 2021.

Indebtedness

For information regarding recent updates on our indebtedness, please see “Description of Other Indebtedness—Recent Developments Regarding Our Indebtedness.”

Novel Coronavirus (COVID-19)

Since the beginning of the calendar year 2020, the outbreak of COVID-19 that originated in China and has spread to most developed nations of the world has resulted in the implementation of numerous actions taken by governments and governmental agencies in an attempt to mitigate the spread of the virus. These measures have resulted in a significant reduction in global economic activity and extreme volatility in the global financial markets. The reduction of economic activity has significantly reduced the global demand for oil and refined petroleum products. Lack of corresponding production and refinery cuts resulted in a supply glut of oil and refined petroleum products, which was exacerbated by extreme oil price volatility from the Russia-Saudi Arabia oil price war. The oversupply of petroleum products and contango in oil prices has led to record floating storage and arbitrage opportunities of both crude and refined petroleum products. These market conditions, which began in March 2020, have had a disruptive impact on the supply and demand balance of product tankers, resulting in significant and prolonged spikes in spot TCE rates as vessel availability tightened. As of the date of this prospectus, oil price volatility has shown incipient signs of normalizing and spot TCE rates have abated to a certain degree, albeit still at strong levels. However, the continued impact of these production increases is uncertain. We expect that the impact of the COVID-19 virus and the uncertainty in the supply of oil will continue to cause volatility in the commodity markets. The scale and duration of the impact of these factors remain unknowable but could have a material impact on our earnings, cash flow and financial condition for the remainder of 2020. An estimate of the impact on the Company’s results of operations and financial condition cannot be made at this time. Please see “Risk Factors—Risks Related to the Company—The outbreak of COVID-19 and the governmental responses thereto may adversely affect our business.”

Corporate Information

We were incorporated in the Republic of the Marshall Islands pursuant to the Marshall Islands Business Corporation Act (the “BCA”), on July 1, 2009. We currently maintain our principal executive offices at 9, Boulevard Charles III, Monaco 98000 and our telephone number at that location is +377-9798-5716. We also maintain an office in the United States at 150 East 58th Street, New York, New York 10155 and the telephone number at that location is 212-542-1616. Our website address is www.scorpiotankers.com. References to our website are not intended to be active links and the information on our website is not incorporated by reference into this prospectus supplement or the accompanying base prospectus, and you must not consider the information to be a part of this prospectus supplement or the accompanying base prospectus.



 

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THE OFFERING

The summary below describes the principal terms of the Notes. Certain of the terms and conditions described below are subject to important limitations and exceptions. See “Description of Notes” for a more detailed description of the terms and conditions of the Notes.

 

Issuer

Scorpio Tankers Inc.

 

Securities Offered

$25.0 million aggregate principal amount of 7.00% Fixed Rate Senior Unsecured Notes due 2025 (or $28.75 million aggregate principal amount of 7.00% Fixed Rate Senior Unsecured Notes due 2025 if the underwriters exercise their option to purchase additional Notes in full).

 

Issue Date

May 29, 2020.

 

Offering Price

100% of the principal amount.

 

Maturity Date

The Notes will mature on June 30, 2025, unless redeemed prior to maturity.

 

Interest

The Notes will bear interest from the date of original issue until maturity at a rate of 7.00% per year, payable quarterly in arrears on the 30th day of each March, June, September and December commencing on June 30, 2020.

 

Use of Proceeds

We intend to use the net proceeds of the sale of the Notes, which are expected to total approximately $23.8 million after deducting underwriting discounts and commissions and estimated offering expenses (but excluding a structuring fee as described in “Underwriting”) (or approximately $27.4 million if the underwriters exercise their option to purchase additional Notes in full) for general corporate purposes and working capital. Please see “Use of Proceeds.”

 

Ranking

The Notes will be our senior unsecured obligations and will rank senior to any of our future subordinated debt and rank equally in right of payment with all of our existing and future senior unsecured debt. The Notes will effectively rank junior to our existing and future secured debt, to the extent of the value of the assets securing such debt, as well as to existing and future debt of our subsidiaries. As of May 22, 2020, we had approximately $3.1 billion of outstanding indebtedness (of which approximately $2.9 billion was secured or part of vessel leasing arrangements).

 

Guarantors

The Notes will not be guaranteed by any of our subsidiaries or affiliates.

 

Optional Redemption

We may redeem the Notes for cash, in whole or in part, at any time at our option (i) on or after June 30, 2022 and prior to June 30, 2023, at a redemption price equal to 102% of the principal amount to be redeemed, (ii) on or after June 30, 2023 and prior to June 30, 2024, at a redemption price equal to 101% of the principal amount to be



 

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redeemed, and (iii) on or after June 30, 2024 and prior to maturity, at a redemption price equal to 100% of the principal amount to be redeemed, in each case, plus accrued and unpaid interest to, but excluding, the date of redemption, as described under “Description of Notes—Optional Redemption.”

 

  In addition, we may redeem the Notes, in whole, but not in part, at any time at our option prior to June 30, 2022, at a redemption price equal to 104% of the principal amount to be redeemed plus accrued and unpaid interest to, but excluding, the date of redemption, upon the occurrence of certain change of control events, as described under “Description of Notes—Optional Redemption Upon Change of Control.”

 

Certain Covenants

The indenture governing the Notes will contain certain covenants, including, but not limited to, restrictions on our ability to merge or consolidate with or into any other entity.

 

  In addition, the indenture governing the Notes will contain certain restrictive covenants, including limitations on:

 

   

the amount of debt we may incur;

 

   

maintaining a certain minimum net worth;

 

   

restricted payments;

 

   

our line of business; and

 

   

certain asset sales.

 

  These covenants are subject to important qualifications and exceptions, as described under “Description of Notes.”

 

Additional Notes

We may “reopen” the Notes at any time without the consent of the holders of the Notes and issue additional notes with the same terms as the Notes (except the issue price, issue date and initial interest payment date and/or amount), which will thereafter constitute a single series with the Notes, provided that if the additional notes are not fungible with the Notes for U.S. federal income tax purposes, such additional notes will have a separate CUSIP number.

 

Defeasance

The Notes are subject to legal and covenant defeasance by us.

 

Sinking Fund

The Notes will not be entitled to the benefit of any sinking fund.

 

Events of Default

Events of default generally will include (i) failure to pay principal or interest on the Notes, (ii) failure to observe or perform any other covenant or warranty in the Notes or in the indenture that governs the notes, and (iii) certain events of bankruptcy, insolvency or reorganization.

 

Ratings

The Notes will not be rated by any nationally recognized statistical rating organization.


 

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Listing

We have applied to list the Notes for trading on the NYSE under the symbol “SBBA.” If the application is approved, trading of the Notes on NYSE is expected to begin within 30 days after the original issue date of the Notes. The underwriters have advised us that they intend to make a market in the Notes prior to commencement of any trading on the NYSE. However, the underwriters will have no obligation to do so, and no assurance can be given that a market for the Notes will develop prior to commencement of trading on the NYSE or, if developed, will be maintained.

 

Form and Denomination

The Notes will be issued in book-entry form in minimum denominations of $25.00 and integral multiples in excess thereof. The Notes will be represented by a permanent global certificate deposited with the trustee as custodian for The Depository Trust Company (“DTC”) and registered in the name of a nominee of DTC. Beneficial interests in any of the Notes will be shown on, and transfers will be effected only through, records maintained by DTC and its direct and indirect participants and any such interest may not be exchanged for certificated securities, except in limited circumstances.

 

Settlement

Delivery of the Notes offered hereby will be made against payment therefor on or about May 29, 2020.

 

Trustee

Deutsche Bank Trust Company Americas

 

Governing Law

The indenture and the Notes will be governed by and construed in accordance with the laws of the State of New York.

 

Risk Factors

An investment in the Notes involves risks. You should consider carefully the factors set forth in the section entitled “Risk Factors” beginning on page S-17 of this prospectus supplement and on page 2 of the accompanying base prospectus to determine whether an investment in the Notes is appropriate for you.

 



 

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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA

The following tables set forth our summary consolidated financial and other operating data as of and for the years ended December 31, 2019, 2018 and 2017, as of and for the three months ended March 31, 2020 and for the three months ended March 31, 2019. The summary data for the years ended December 31, 2019, 2018 and 2017 is derived from our audited consolidated financial statements, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Our consolidated statements of income or loss for the years ended December 31, 2019, 2018 and 2017 and our consolidated balance sheets as of December 31, 2019 and 2018, together with the notes thereto, are included in our Annual Report on Form 20-F for the year ended December 31, 2019, filed with the Commission on March 31, 2020, and incorporated by reference herein. The summary data as of and for the three months ended March 31, 2020 and for the three months ended March 31, 2019, is derived from our unaudited condensed consolidated financial statements. Our unaudited condensed consolidated financial statements as of and for the three months ended March 31, 2020 and for the three months ended March 31, 2019, together with the notes thereto, are included on Form 6-K, filed with the Commission on May 26, 2020, and incorporated by reference herein.

 

    For the three months ended March 31,     For the year ended December 31,  

In thousands of U.S. dollars

except per share and share data

            2020                         2019               2019     2018     2017  

Revenue

         

Vessel revenue

  $ 254,167     $ 195,830     $ 704,325     $ 585,047     $ 512,732  

Operating expenses

         

Vessel operating costs

    (81,463     (69,376     (294,531     (280,460     (231,227

Voyage expenses

    (4,220     (295     (6,160     (5,146     (7,733

Charterhire

    —         (4,399     (4,399     (59,632     (75,750

Depreciation—owned or sale and leaseback

    (46,841     (43,814     (180,052     (176,723     (141,418

Depreciation—right of use assets under IFRS 16

    (13,197     (2,135     (26,916     —         —    

General and administrative expenses

    (17,261     (15,712     (62,295     (52,272     (47,511

Loss on sales of vessels

    —         —         —         —         (23,345

Merger transaction related costs

    —         —         —         (272     (36,114

Bargain purchase gain

    —         —         —         —         5,417  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    (162,982     (135,731     (574,353     (574,505     (557,681
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income / (loss)

    91,185       60,099       129,972       10,542       (44,949
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other (expense) and income, net

         

Financial expenses

    (44,765     (48,756     (186,235     (186,628     (116,240

Realized loss on derivative financial instruments

            (116

Loss on exchange of convertible notes

    —         —         —         (17,838     —    

Financial income

    565       3,119       8,182       4,458       1,538  

Other expenses, net

    (358     14       (409     (605     1,527  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense, net

    (44,558     (45,623     (178,462     (200,613     (113,291
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income / (loss)

  $ 46,627     $ 14,476     $ (48,490   $ (190,071   $ (158,240
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 


 

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    For the three months ended March 31,     For the year ended December 31,  

In thousands of U.S. dollars

except per share and share data

            2020                         2019               2019     2018     2017  

Earnings / (loss) per share

         

Basic

  $ 0.85     $ 0.30     $ (0.97   $ (5.46   $ (7.35

Diluted

  $ 0.82     $ 0.30     $ (0.97   $ (5.46   $ (7.35

Basic weighted average shares outstanding

    54,667,211       48,070,530       49,857,998       34,824,311       21,533,340  

Diluted weighted average shares outstanding (1)

    61,692,830       48,556,887       49,857,998       34,824,311       21,533,340  

 

(1)

The computation of diluted earnings per share includes the effect of potentially dilutive unvested shares of restricted stock and the Convertible Notes due 2022 for the three months ended March 31, 2020. The effect of potentially dilutive securities relating to the Company’s Convertible Notes due 2022 was excluded from the computation of diluted earnings per share for the three months ended March 31, 2019 because their effect would have been anti-dilutive under the if-converted method. The effect of potentially dilutive shares of restricted stock and the Convertible Notes due 2022 were excluded from the calculation of diluted earnings per share for the years ended December 31, 2019, 2018, and 2017 because their effect would have been anti-dilutive.

 

     As of  
In thousands of U.S. dollars    March 31, 2020      December 31, 2019      December 31, 2018      December 31, 2017  

Balance sheet data

           

Cash and cash equivalents

   $ 119,825      $ 202,303      $ 593,652      $ 186,462  

Vessels and drydock

     4,051,604        4,008,158        3,997,789        4,090,094  

Right of use assets accounted for under IFRS 16—Leases

     804,726        697,903        —          —    

Total assets

     5,267,142        5,164,010        4,784,164        4,498,376  

Current and non-current secured and unsecured debt

     1,232,803        1,234,750        1,489,934        2,050,054  

Current and non-current obligations under sale and leaseback arrangements

     1,287,624        1,317,723        1,420,381        717,139  

Current and non-current obligations under leases accounted for under IFRS 16—Leases

     653,948        569,974        —          —    

Shareholders’ equity

     2,025,593        1,976,989        1,839,012        1,685,301  

 

     For the three months ended March 31,     For the year ended December 31,  
In thousands of U.S. dollars              2020                         2019               2019     2018     2017  

Cash flow data

          

Operating activities

   $ 44,102     $ 74,567     $ 209,512     $ 57,790     $ 41,801  

Investing activities

     (63,486     (18,240     (206,973     (52,737     (159,923

Financing activates

     (63,094     (131,097     (393,888     402,137       204,697  


 

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The following table sets forth our other operating data. This data should be read in conjunction with our consolidated financial statements and related notes included on Form 20-F for the year ended December 31, 2019 filed with the Commission on March 31, 2020, and incorporated by reference herein and our unaudited condensed consolidated financial statements as of and for the three months ended March 31, 2020 and for the three months ended March 31, 2019, together with the notes thereto, included on Form 6-K, filed with the Commission on May 26, 2020, and incorporated by reference herein.

 

     For the three months ended March 31,      For the year ended December 31,  
               2020                          2019                    2019              2018              2017      

Average Daily Results

              

Time charter equivalent per day (1)

   $ 22,644      $ 18,570      $ 16,682      $ 12,782      $ 13,146  

Vessel operating costs per day (2)

   $ 6,592      $ 6,478      $ 6,563      $ 6,463      $ 6,559  

LR2

              

TCE per revenue day (1)

   $ 25,914      $ 22,953      $ 20,254      $ 13,968      $ 14,849  

Vessel operating costs per day (2)

   $ 6,742      $ 6,810      $ 6,829      $ 6,631      $ 6,705  

Average number of vessels

     42.0        38.0        39.1        39.5        28.7  

LR1

              

TCE per revenue day (1)

   $ 20,296      $ 17,929      $ 15,846      $ 10,775      $ 11,409  

Vessel operating costs per day (2)

   $ 6,678      $ 6,597      $ 6,658      $ 6,608      $ 7,073  

Average number of vessels

     12.0        12.0        12.0        12.0        5.2  

MR

              

TCE per revenue day (1)

   $ 20,866      $ 15,715      $ 15,095      $ 12,589      $ 12,975  

Vessel operating costs per day (2)

   $ 6,422      $ 6,324      $ 6,312      $ 6,366      $ 6,337  

Average number of vessels

     60.8        48.3        51.0        52.2        50.4  

Handymax

              

TCE per revenue day (1)

   $ 22,564      $ 17,729      $ 14,575      $ 12,196      $ 11,706  

Vessel operating costs per day (2)

   $ 6,734      $ 6,160      $ 6,621      $ 6,295      $ 6,716  

Average number of vessels

     21.0        21.0        21.0        21.5        22.1  

Fleet data

              

Average number of vessels

     135.8        119.3        123.0        125.2        106.5  

 

(1)

Freight rates are commonly measured in the shipping industry in terms of time charter equivalent, or TCE (a non-IFRS measure), per revenue day. Vessels in pools and on time charter do not incur significant voyage expenses; therefore, the revenue for pool vessels and time charter vessels is approximately the same as their TCE revenue.

(2)

Vessel operating costs per day represent vessel operating costs divided by the number of days the vessel is owned during the period.

(3)

Historical average number of vessels consists of the average number of vessels that were in our possession during a period (whether owned or leased).



 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

We desire to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are including this cautionary statement in connection therewith. This prospectus 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. The Private Securities Litigation Reform Act of 1995 provides safe harbor protections for forward-looking statements in order to encourage companies to provide prospective information about their business. Forward-looking statements 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. This prospectus includes assumptions, expectations, projections, intentions and beliefs about future events. These statements are intended as “forward-looking statements.” We caution that assumptions, expectations, projections, intentions and beliefs about future events may and often do vary from actual results and the differences can be material. When used in this prospectus, the words “believe,” “expect,” “anticipate,” “estimate,” “intend,” “seek,” “plan,” “potential,” “continue,” “contemplate,” “possible,” “target,” “project,” “likely,” “may,” “might,” “would,” “could” and similar expressions, terms, or phrases may identify forward-looking statements.

All statements in this prospectus that are not statements of historical fact are forward-looking statements. Forward-looking statements include, but are not limited to, such matters as:

 

   

our future operating or financial results;

 

   

the strength of world economies and currencies;

 

   

fluctuations in interest rates and foreign exchange rates;

 

   

general market conditions, including the market for our vessels, fluctuations in spot and charter rates and vessel values;

 

   

the length and severity of the recent novel coronavirus (COVID-19) outbreak, including its impact on the demand for seaborne transportation of petroleum products;

 

   

availability of financing and refinancing;

 

   

our business strategy and other plans and objectives for growth and future operations;

 

   

our ability to successfully employ our vessels;

 

   

planned capital expenditures and availability of capital resources to fund capital expenditures;

 

   

planned, pending or recent acquisitions, business strategy and expected capital spending or operating expenses, including drydocking, surveys, upgrades and insurance costs;

 

   

our ability to realize the expected benefits from acquisitions;

 

   

potential liability from pending or future litigation;

 

   

general domestic and international political conditions;

 

   

potential disruption of shipping routes due to accidents or political events;

 

   

vessel breakdowns and instances of off-hire;

 

   

competition within our industry;

 

   

the supply of and demand for vessels comparable to ours;

 

   

corruption, piracy, militant activities, political instability, terrorism, and ethnic unrest in locations where we may operate;

 

   

delays and cost overruns in construction projects;

 

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our level of indebtedness;

 

   

our ability to obtain financing and to comply with the restrictive and other covenants in our financing arrangements;

 

   

our need for cash to meet our debt service obligations;

 

   

our levels of operating and maintenance costs, including bunker prices, drydocking and insurance costs;

 

   

our ability to successfully identify, consummate, integrate, and realize the expected benefits from acquisitions;

 

   

reputational risks;

 

   

availability of skilled workers and the related labor costs and related costs;

 

   

the recent implementation of the MARPOL convention, Annex VI Prevention of Air Pollution from Ships which reduced the maximum amount of sulfur that ships can emit into the air and our ability to successfully complete the installation of exhaust gas cleaning systems, or scrubbers, on all of our vessels;

 

   

the recent implementation of the International Convention for the Control and Management of Ships’ Ballast Water and Sediments (BWM) in September 2019;

 

   

compliance with governmental, tax, environmental and safety regulation;

 

   

any non-compliance with the U.S. Foreign Corrupt Practices Act of 1977 or other applicable regulations relating to bribery;

 

   

general economic conditions and conditions in the oil and natural gas industry;

 

   

effects of new products and new technology in our industry;

 

   

the failure of counterparties 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 applicable to us;

 

   

the volatility of the price of our common shares and our other securities;

 

   

other factors that may affect our future results; and

 

   

these factors and other risk factors described in this prospectus supplement and other reports that we furnish or file with the Commission.

We have based these statements on assumptions, many of which are based, in turn, upon further assumptions, and analyses formed by applying, without limitation, our experience and perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate in the circumstances. These assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond our control. All future written and verbal forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in or referred to in this section. We undertake no obligation, and specifically decline any obligation, except as required by law, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this prospectus supplement might not occur.

 

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These factors and the other risk factors described in or incorporated by reference into this prospectus supplement are not necessarily all of the important factors that could cause actual results or developments to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could harm our results. Consequently, there can be no assurance that actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, us. Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements which speak only as of their dates.

 

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RISK FACTORS

Before making an investment in the Notes, you should carefully consider the risk factors described below, together with all of the other information included in this prospectus supplement, the accompanying base prospectus and the documents incorporated into each by reference, including those in “Item 3. Key Information—D. Risk Factors” in our Annual Report on Form 20-F for the fiscal year ended December 31, 2019, filed with the Commission on March 31, 2020, as updated by annual, quarterly and other reports and documents we file with the Commission after the date of this prospectus supplement and that are incorporated by reference herein. Please see the section of this prospectus supplement entitled “Where You Can Find Additional Information—Information Incorporated by Reference.” The occurrence of one or more of those risk factors or the risk factors described below could adversely impact our business, financial condition or results of operations.

Risks Related to the Company

The outbreak of COVID-19 and the governmental responses thereto may adversely affect our business.

The recent outbreak of the novel coronavirus (COVID-19), a virus causing potentially deadly respiratory tract infections first identified in China, has already caused severe global disruptions and may negatively affect economic conditions regionally as well as globally and otherwise impact our operations and the operations of our customers and suppliers. Governments in affected countries are imposing travel bans, quarantines and other emergency public health measures. In response to the virus, many countries have implemented lockdown measures, and other countries and local governments may enact similar policies. Companies are also taking precautions, such as requiring employees to work remotely, imposing travel restrictions and temporarily closing businesses. These restrictions, and future prevention and mitigation measures, are likely to have an adverse impact on global economic conditions, which could materially and adversely affect our future operations.

Uncertainties regarding the economic impact of the COVID-19 outbreak are likely to result in sustained market turmoil, which could also negatively impact our business, financial condition and cash flows. As a result of these measures, our vessels may not be able to call on ports, or may be restricted from disembarking from ports, located in regions affected by the outbreak. In addition, we may experience severe operational disruptions and delays, unavailability of normal port infrastructure and services including limited access to equipment, critical goods and personnel, disruptions to crew change, quarantine of ships and/or crew, counterparty solidity, closure of ports and custom offices, as well as disruptions in the supply chain and industrial production, which may lead to reduced cargo demand, amongst other potential consequences attendant to COVID-19.

Towards the end of the first quarter of 2020, travel restrictions and other preventive measures to control the spread of COVID-19 resulted in a precipitous decline in oil demand. Lack of corresponding production and refinery cuts resulted in a supply glut of oil and refined petroleum products, which was exacerbated by extreme oil price volatility from the Russia-Saudi Arabia oil price war. The oversupply of petroleum products and contango in oil prices has led to record floating storage and arbitrage opportunities of both crude and refined petroleum products. These market conditions, which began in March 2020, have had a disruptive impact on the supply and demand balance of product tankers, resulting in significant and prolonged spikes in spot TCE rates as vessel availability tightened. As of the date of this prospectus, oil price volatility has shown incipient signs of normalizing and spot TCE rates have abated to a certain degree, albeit still at strong levels.

The extent of the COVID-19 outbreak’s effect on our operational and financial performance will depend on future developments, including the duration, spread and intensity of the outbreak, all of which are uncertain and difficult to predict considering the rapidly evolving landscape. As a result, although to our knowledge our operations have not been materially affected by the COVID-19 outbreak to date, the ultimate severity of the COVID-19 outbreak is uncertain at this time and therefore we cannot predict the impact it may have on our future operations, which impact could be material and adverse, particularly if the pandemic continues to further evolve and recirculate.

 

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Risks Related to the Notes

Your investment in the Notes is subject to our credit risk.

The Notes are unsubordinated unsecured general obligations of ours and are not, either directly or indirectly, an obligation of any third party. The Notes will rank equally with all of our other unsecured and unsubordinated debt obligations, except as such obligations may be preferred by operation of law. Any payment to be made on the Notes, including the return of the principal amount at maturity or any redemption date, as applicable, depends on our ability to satisfy our obligations as they come due. As a result, our actual and perceived creditworthiness may affect the market value of the Notes and, in the event we were to default on our obligations, you may not receive the amounts owed to you under the terms of the Notes.

We are highly leveraged and our debt levels may limit our flexibility in obtaining additional financing and in pursuing other business opportunities.

We are highly leveraged. As of May 22, 2020, we had approximately $3.1 billion of outstanding indebtedness. Subject to the restrictions contained in our existing and future debt instruments, we may incur additional indebtedness in connection with financing acquisitions, strategic transactions or other purposes, which indebtedness may rank senior to the Notes. So long as our net borrowings do not equal or exceed 70% of our total assets, the indenture under which the Notes will be issued will permit us to incur additional indebtedness without limitation. Our indebtedness increases the risk that we may be unable to generate enough cash to pay amounts due in respect of our indebtedness, including the Notes.

Our level of debt could have important consequences to us, including the following:

 

   

our ability to obtain additional financing, if necessary, for working capital, capital expenditures, acquisitions or other purposes may be impaired or such financing may not be available on favorable terms;

 

   

we may need to use a substantial portion of our cash from operations to make charter hire payments or principal and interest payments relating to our debt obligations, reducing the funds that would otherwise be available for operations and future business opportunities;

 

   

our debt level could make us more vulnerable than our competitors with less debt to competitive pressures or a downturn in our business or the economy generally; and

 

   

our debt level may limit our flexibility in responding to changing business and economic conditions.

Our ability to service our debt and charter hire obligations will depend upon, among other things, our financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, some of which are beyond our control.

Our subsidiaries conduct the substantial majority of our operations and own our operating assets, and your right to receive payments on the Notes is structurally subordinated to the rights of the lenders of our subsidiaries.

Our subsidiaries conduct the substantial majority of our operations and own our operating assets. As a result, our ability to make required payments on the Notes depends in part on the operations of our subsidiaries and our subsidiaries’ ability to distribute funds to us. To the extent our subsidiaries are unable to distribute, or are restricted from distributing, funds to us, we may be unable to fulfill our obligations under the Notes. Our subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay amounts due on the Notes or to make funds available for that purpose. The Notes will not be guaranteed by any of our subsidiaries or any other person.

The rights of holders of the Notes will be structurally subordinated to the rights of our subsidiaries’ lenders. A default by a subsidiary under its debt obligations would result in a block on distributions from the affected

 

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subsidiary to us. The Notes will be effectively junior to all existing and future liabilities of our subsidiaries. In the event of a bankruptcy, liquidation or reorganization of any of our subsidiaries, creditors of our subsidiaries will generally be entitled to payment of their claims from the assets of those subsidiaries before any assets are made available for distribution to us. As of May 22, 2020, we had approximately $3.1 billion of outstanding indebtedness (of which approximately $2.9 billion was secured or part of vessel leasing arrangements).

The Notes will be unsecured obligations and will be effectively subordinated to our secured debt.

The Notes are unsecured and therefore will be effectively subordinated to any secured debt we maintain or may incur to the extent of the value of the assets securing the debt. In the event of a bankruptcy or similar proceeding involving us, the assets that serve as collateral will be available to satisfy the obligations under any secured debt before any payments are made on the Notes. As of May 22, 2020, we had approximately $3.1 billion of outstanding indebtedness (of which approximately $2.9 billion was secured or part of vessel leasing arrangements). Please read “Description of Other Indebtedness.” We will continue to have the ability to incur additional secured debt, subject to limitations in the agreements governing our current and future credit facilities and in the indenture relating to the Notes.

Redemption may adversely affect your return on the Notes.

Beginning June 30, 2022, we have the right to redeem some or all of the Notes prior to maturity, as described under “Description of Notes—Optional Redemption.” Prior to June 30, 2022, we have the right, but not the obligation, to redeem the Notes in whole, but not in part, at any time at our option, at a redemption price equal to 104% of the aggregate principal amount to be redeemed, upon the occurrence of certain change of control events, as described under “Description of Notes—Optional Redemption Upon Change of Control.” We may redeem the Notes at times when prevailing interest rates may be relatively low. Accordingly, you may not be able to reinvest the amount received upon a redemption in a comparable security at an effective interest rate as high as that of the Notes.

The Notes do not have an established trading market, which may negatively affect their market value and your ability to transfer or sell your Notes.

The Notes are a new issuance of securities with no established trading market. We have applied to list the Notes on the NYSE, but there can be no assurance that the NYSE will accept the Notes for listing. Even if the Notes are approved for listing by the NYSE, an active trading market on the NYSE for the Notes may not develop or, even if it develops, may not last, in which case the trading price of the Notes could be adversely affected and your ability to transfer your Notes will be limited. If an active trading market does develop on the NYSE, the Notes may trade at prices lower than the offering price. The trading price of the Notes will depend on many factors, including:

 

   

prevailing interest rates;

 

   

the market for similar securities;

 

   

general economic and financial market conditions;

 

   

our, or our subsidiaries’, issuances of debt or preferred equity securities; and

 

   

our financial condition, results of operations and prospects.

We have been advised by the underwriters that they intend to make a market in the Notes pending any listing of the Notes on the NYSE, but they are not obligated to do so and may discontinue market-making at any time without notice.

 

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The Notes have not been rated, and ratings of any of our other securities may affect the trading price of the Notes.

We have not sought to obtain a rating for the Notes, and the Notes may never be rated. It is possible, however, that one or more credit rating agencies might independently determine to assign a rating to the Notes or that we may elect to obtain a rating of the Notes in the future. In addition, we may elect to issue other securities for which we may seek to obtain a rating. If any ratings are assigned to the Notes in the future or if we issue other securities with a rating, such ratings, if they are lower than market expectations or are subsequently lowered or withdrawn, or if ratings for such other securities would imply a lower relative value for the Notes, could adversely affect the market for, or the market value of, the Notes. Ratings only reflect the views of the issuing rating agency or agencies and such ratings could at any time be revised downward or withdrawn entirely at the discretion of the issuing rating agency. A rating is not a recommendation to purchase, sell or hold any particular security, including the Notes. Ratings do not reflect market prices or suitability of a security for a particular investor and any future rating of the Notes may not reflect all risks related to us and our business, or the structure or market value of the Notes.

Because the Notes will be issued in book-entry form, holders must rely on DTC’s procedures to receive communications relating to the Notes and exercise their rights and remedies.

We will issue the Notes in the form of a global note registered in the name of Cede & Co., as nominee of DTC. Beneficial interests in the global note will be shown on, and transfers of the global note will be effected only through, the records maintained by DTC. Except in limited circumstances, we will not issue certificated notes. See “Description of Notes—Book-Entry System; Delivery and Form.” Accordingly, if you own a beneficial interest in a global note, then you will not be considered an owner or holder of the Notes. Instead, DTC or its nominee will be the sole holder of the global note. Unlike persons who have certificated notes registered in their names, owners of beneficial interests in the global note will not have the direct right to act on our solicitations for consents or requests for waivers or other actions from holders. Instead, those beneficial owners will be permitted to act only to the extent that they have received appropriate proxies to do so from DTC or, if applicable, a DTC participant. The applicable procedures for the granting of these proxies may not be sufficient to enable owners of beneficial interests in a global note to vote on any requested actions on a timely basis. In addition, notices and other communications relating to the Notes will be sent to DTC. We expect DTC to forward any such communications to DTC participants, which in turn would forward such communications to indirect DTC participants, but we can make no assurances that you will timely receive any such communications.

Risks Related to Other Indebtedness

Servicing our current or future indebtedness limits funds available for other purposes and if we cannot service our debt, we may lose our vessels.

Borrowing under our debt facilities requires us to dedicate a part of our cash flow from operations to paying interest on our indebtedness. These payments limit funds available for working capital, capital expenditures and other purposes, including further equity or debt financing in the future. Amounts borrowed under our secured debt facilities bear interest at variable rates. Increases in prevailing rates could increase the amounts that we would have to pay to our lenders, even though the outstanding principal amount remains the same, and our net income and cash flows would decrease. We expect our earnings and cash flow to vary from year to year due to the cyclical nature of the tanker industry. If we do not generate or reserve enough cash flow from operations to satisfy our debt obligations, we may have to undertake alternative financing plans, such as seeking to raise additional capital, refinancing or restructuring our debt, selling tankers, or reducing or delaying capital investments. However, these alternative financing plans, if necessary, may not be sufficient to allow us to meet our debt obligations.

If we are unable to meet our debt obligations or if some other default occurs under our debt facilities, our lenders could elect to declare that debt, together with accrued interest and fees, to be immediately due and

 

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payable and proceed against the collateral vessels securing that debt even though the majority of the proceeds used to purchase the collateral vessels did not come from our debt facilities.

Our debt agreements contain restrictive and financial covenants which may limit our ability to conduct certain activities, and further, we may be unable to comply with such covenants, which could result in a default under the terms of such agreements.

Our debt facilities impose operating and financial restrictions on us. These restrictions may limit our ability, or the ability of our subsidiaries party thereto to, among other things:

 

   

pay dividends and make capital expenditures if we do not repay amounts drawn under our debt facilities or if there is another default under our debt facilities;

 

   

incur additional indebtedness, including the issuance of guarantees;

 

   

create liens on our assets;

 

   

change the flag, class or management of our vessels or terminate or materially amend the management agreement relating to each vessel;

 

   

sell our vessels;

 

   

merge or consolidate with, or transfer all or substantially all our assets to, another person; or

 

   

enter into a new line of business.

Therefore, we will need to seek permission from our lenders in order to engage in some corporate actions. Our lenders’ interests may be different from ours and we may not be able to obtain our lenders’ permission when needed. This may limit our ability to finance our future operations or capital requirements, make acquisitions or pursue business opportunities.

In addition, the terms and conditions of certain of our borrowings require us to maintain specified financial ratios and satisfy financial covenants, including ratios and covenants based on the market value of the vessels in our fleet. Should our charter rates or vessel values materially decline in the future, we may seek to obtain waivers or amendments from our lenders with respect to such financial ratios and covenants, or we may be required to take action to reduce our debt or to act in a manner contrary to our business objectives to meet any such financial ratios and satisfy any such financial covenants. Events beyond our control, including changes in the economic and business conditions in the shipping markets in which we operate, may affect our ability to comply with these covenants. We cannot assure you that we will meet these ratios or satisfy these covenants or that our lenders will waive any failure to do so or amend these requirements. A breach of any of the covenants in, or our inability to maintain the required financial ratios under, our credit facilities would prevent us from borrowing additional money under our credit facilities and could result in a default under our credit facilities. If a default occurs under our credit facilities, the lenders could elect to declare the outstanding debt, together with accrued interest and other fees, to be immediately due and payable and foreclose on the collateral securing that debt, which could constitute all or substantially all of our assets. Moreover, in connection with any waivers or amendments to our credit facilities that we may obtain, our lenders may impose additional operating and financial restrictions on us or modify the terms of our existing credit facilities. These restrictions may further restrict our ability to, among other things, pay dividends, repurchase our common shares, make capital expenditures, or incur additional indebtedness.

Furthermore, our debt agreements contain cross-default provisions that may be triggered if we default under the terms of any one of our financing agreements. In the event of default by us under one of our debt agreements, the lenders under our other debt agreements could determine that we are in default under such other financing agreements. Such cross defaults could result in the acceleration of the maturity of such debt under these agreements and the lenders thereunder may foreclose upon any collateral securing that debt, including our

 

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vessels, even if we were to subsequently cure such default. In the event of such acceleration or foreclosure, we might not have sufficient funds or other assets to satisfy all of our obligations, which would have a material adverse effect on our business, results of operations and financial condition.

The international nature of our operations may make the outcome of any bankruptcy proceedings difficult to predict.

We are incorporated under the laws of the Republic of the Marshall Islands and we conduct operations in countries around the world. Consequently, in the event of any bankruptcy, insolvency, liquidation, dissolution, reorganization or similar proceeding involving us or any of our subsidiaries, bankruptcy laws other than those of the United States could apply. If we become a debtor under U.S. bankruptcy law, bankruptcy courts in the United States may seek to assert jurisdiction over all of our assets, wherever located, including property situated in other countries. There can be no assurance, however, that we would become a debtor in the United States, or that a U.S. bankruptcy court would be entitled to, or accept, jurisdiction over such a bankruptcy case, or that courts in other countries that have jurisdiction over us and our operations would recognize a U.S. bankruptcy court’s jurisdiction if any other bankruptcy court would determine it had jurisdiction.

 

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USE OF PROCEEDS

We intend to use the net proceeds of the sale of the Notes, which are expected to total approximately $23.8 million after deducting underwriting discounts and commissions and estimated offering expenses (but excluding a structuring fee as described in “Underwriting”) (or approximately $27.4 million if the underwriters exercise their option to purchase additional Notes in full), for general corporate purposes and working capital.

 

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CAPITALIZATION

The following table sets forth our capitalization at March 31, 2020, on:

 

   

an actual basis;

 

   

an as adjusted basis to give effect to the following:

 

   

scheduled principal payments in the amount of $4.4 million under our secured credit facilities, $13.6 million under our sale and leaseback arrangements and $14.0 million under our lease arrangements which are being accounted for under IFRS 16—Leases;

 

   

the repayment of $53.8 million upon the maturity of our 6.75% Unsecured Senior Notes due 2020;

 

   

drawdowns of an aggregate of $4.6 million on our Hamburg Credit Facility and NIBC Credit Facility to partially finance the purchase and installation of scrubbers on three vessels; and

 

   

an as further adjusted basis to give effect to this offering and the application of the net proceeds therefrom.

There have been no other significant adjustments to our capitalization since March 31, 2020, as so adjusted.

The actual figures in this table are derived from, and should be read together with, our Report on Form 6-K, furnished to the Commission on May 6, 2020, which contains our unaudited financial results for the three months ended March 31, 2020, and our Report on Form 6-K, furnished to the Commission on May 26, 2020, which contains our unaudited condensed consolidated financial statements and the notes thereto for the three months ended March 31, 2020, each of which is incorporated by reference herein.

 

     As of March 31, 2020  
In thousands of U.S. dollars    Actual      As adjusted      As further
adjusted
 

Cash and cash equivalents (1)

   $ 119,825      $ 38,625      $ 62,138  

Current debt:

        

Current portion of long-term debt (2)

     263,889        206,746        206,746  

Lease liability—sale and leasebacks (3)

     122,599        109,002        109,002  

Lease liability—IFRS 16

     69,711        55,708        55,708  

Non-current debt:

        

Long term debt (2)

     968,914        972,458        995,971  

Lease liability—sale and leasebacks (3)

     1,165,025        1,165,025        1,165,025  

Lease liability—IFRS 16

     584,237        584,237        584,237  
  

 

 

    

 

 

    

 

 

 

Total debt

   $ 3,174,375      $ 3,093,176      $ 3,116,689  
  

 

 

    

 

 

    

 

 

 

Shareholders’ equity:

        

Share capital

     650        650        650  

Additional paid-in capital

     2,844,419        2,844,419        2,844,419  

Treasury shares

     (467,057      (467,057      (467,057

Accumulated deficit

     (352,419      (352,419      (352,419
  

 

 

    

 

 

    

 

 

 

Total shareholders’ equity

   $ 2,025,593      $ 2,025,593      $ 2,025,593  
  

 

 

    

 

 

    

 

 

 

Total capitalization

   $ 5,199,968      $ 5,118,769      $ 5,142,282  
  

 

 

    

 

 

    

 

 

 

 

(1)

Cash, as adjusted, does not include the impact of cash flows from operations from April 1, 2020 through the date of this prospectus. Among other activity, the table does not include approximately $67 million of pool distributions relating to March 2020 which were received during the first week of April 2020.

 

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(2)

The current portion of long-term debt at March 31, 2020 is net of unamortized deferred financing fees of $1.4 million and the non-current portion of long-term debt is net of unamortized deferred financing fees of $8.3 million.

(3)

The current portion at March 31, 2020 was net of unamortized deferred financing fees of $0.7 million and the non-current portion was net of unamortized deferred financing fees of $6.7 million. Debt and Finance lease liabilities, as adjusted, does not reflect deferred financing fee activity from April 1, 2020 through May 26, 2020. This activity is estimated to be $1.0 million.

 

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THE INTERNATIONAL OIL TANKER SHIPPING INDUSTRY

All the information and data presented in this section, including the analysis of the oil tanker shipping industry, has been provided by Drewry Shipping Consultants Ltd. (“Drewry”). The statistical and graphical information contained herein is drawn from Drewry’s database and other sources. According to Drewry: (i) certain information in Drewry’s database is derived from estimates or subjective judgments; (ii) the information in the databases of other maritime data collection agencies may differ from the information in Drewry’s database; and (iii) while Drewry has taken reasonable care in the compilation of the statistical and graphical information and believes it to be accurate and correct, data compilation is subject to limited audit and validation procedures.

Oil Tanker Demand

In broad terms, demand for oil products traded by sea is primarily affected by global and regional economic conditions, as well as other factors such as changes in the location of productive capacity, and variations in regional prices. Demand for shipping capacity is a product of the physical quantity of the cargo (measured, depending on the cargo in terms of tons or cubic metrics), together with the distance the cargo is carried. Demand cycles move broadly in line with developments in the global economy, with growth rate of demand for products slowing significantly and becoming negative in some years in the period immediately after the onset of the global economic downturn in late 2008, before recovering gradually from 2011 with general improvement in the global macro-economic environment. Low crude prices between 2015 and 2017 induced greater consumption, which led to increased seaborne trade of crude oil as well as refined products. Growth in seaborne trade slowed in 2018 because of inventory drawdown in crude as well as refined products. In 2019, decline in seaborne trade was on account of lower refinery runs and weaker economic growth. Refineries underwent maintenance in 1H19 to prepare for LSFO and MGO demand related with IMO 2020 regulations on the control of Sulphur emission, while refinery runs were lower in 2H19 due to weaker economic growth.

The outbreak of coronavirus (COVID-19) at the beginning of 2020, which has since spread globally, is impacting the global economic growth and consequently demand for refined products trade. Strict lockdown imposed in many economic hubs and major cities of the world are severely affecting the seaborne trade of refined products and especially transportation fuels (diesel, gasoline and jet fuel). The impact of the weak domestic demand for refined products is reflected in refinery runs as many refinery and petrochemical plant owners around the globe have either drastically reduced their refinery throughput or have been forced to shut down their refineries. The contagion has not only hampered economic activity in major metropolitan cities of the world, but has also squeezed local demand for transportation fuels following travel restrictions and domestic flight cancellations.

In 2019, 3,404 million tons of crude oil, products and vegetable oils/chemicals were moved by sea. Of this, crude shipments constituted 2,071 million tons of cargo, products 1,034 million tons, with the balance made up of other bulk liquids, including vegetable oils, chemicals and associated products.

 

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World Seaborne Tanker Trade

 

    Crude Oil     Refined Products     Veg Oils/Chemicals    

Total

 

Year

  Million tons     % Y-o-Y     Million tons     % Y-o-Y     Million tons     % Y-o-Y     Million tons     % Y-o-Y  

2002

    1,756       0.3     519       0.3     122       7.0     2,396       0.6

2003

    1,860       5.9     550       6.0     129       5.9     2,538       5.9

2004

    1,963       5.6     599       8.8     141       9.5     2,703       6.5

2005

    1,994       1.6     646       8.0     156       10.5     2,797       3.5

2006

    1,996       0.1     677       4.7     166       6.5     2,839       1.5

2007

    2,008       0.6     723       6.8     176       5.9     2,907       2.4

2008

    2,014       0.3     765       5.8     179       1.8     2,957       1.7

2009

    1,928       (4.2 )%      777       1.6     202       12.9     2,907       (1.7 )% 

2010

    1,997       3.6     810       4.3     217       7.4     3,024       4.0

2011

    1,941       (2.8 )%      860       6.3     228       5.1     3,029       0.2

2012

    1,988       2.4     859       (0.2 )%      240       5.3     3,087       1.9

2013

    1,920       (3.4 )%      904       5.3     252       5.1     3,077       (0.3 )% 

2014

    1,904       (0.9 )%      914       1.1     252       (0.1 )%      3,070       (0.2 )% 

2015

    1,974       3.7     963       5.3     266       5.4     3,202       4.3

2016

    2,060       4.4     999       3.8     267       0.6     3,327       3.9

2017

    2,121       2.9     1,043       4.3     283       5.8     3,447       3.6

2018

    2,116       (0.2 )%      1,055       1.1     293       3.4     3,463       0.5

2019*

    2,071       (2.1 )%      1,034       (1.9 )%      299       2.2     3,404       (1.7 )% 

CAGR (2014-2019)

    1.7       2.5       3.5       2.1  

CAGR (2009-2019)

    0.7       2.9       4.0       1.6  

 

*

Provisional estimate

Source: GTIS, Drewry

The volume of oil moved by sea was affected by the economic recession in 2008 and 2009, but since then, renewed growth in the world economy and in oil demand has had a positive impact on seaborne trade. Oil demand has benefitted from economic growth in Asia, especially in China, where oil consumption increased by a compound average growth rate (CAGR) of 5.6% between 2009 and 2019 to touch 13.6 million barrels per day (mbpd). Low per capita oil consumption in developing countries, such as China and India, compared with the developed world provides scope for higher oil consumption in these economies. Conversely, oil consumption in developed OECD economies has been in decline for much of the last decade. However, in 2015, this trend was reversed for the United States (U.S.) and some European countries. This was primarily due to the positive impact of lower oil prices on demand for products such as gasoline. Oil demand in OECD economies increased at a CAGR of 0.8% from 45.8 mbpd in 2014 to 47.8 mbpd in 2019. Provisional data suggests oil demand of OECD America increased 1.5 mbpd during 2014-19 to reach 25.7 mbpd due to improved demand in the US, Canada and Mexico. Oil demand of OECD Europe remained flat at 14.2 mbpd, whereas demand in OECD Oceania dropped 0.5% to touch 7.9 mbpd during the year. Accordingly, oil consumption for OECD countries in 2019 was estimated at 47.8 mbpd. COVID-19 has adversely impacted global oil demand in the first half of 2020 following reduced economic activity.

 

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World Oil Consumption: 1992-2019*

(Million bpd)

 

 

LOGO

* Provisional estimate

Source: IEA, Drewry

Provisional estimates suggest that world oil demand in 2019 was 100.0 mbpd, an increase of 0.7% from 2018, and between 2009 and 2019, world oil demand grew at a CAGR of 1.6%. Global crude oil demand declined 4.9% yoy to 93.5 mbpd in the first quarter of 2020. In April, global crude demand declined by 25.2 mbpd as the impact of COVID-19 on global oil consumption became more pronounced.

Oil Product Exports & Imports

Products trades have received a boost in the last decade as a result of developments in E&P activity in the U.S. As a result of the development of shale oil deposits, domestic crude oil production increased at a CAGR of 9.5% between 2008 and 2015 to 9.4 mbpd. Horizontal drilling and hydraulic fracturing have triggered a shale oil revolution and rising crude oil production has also ensured the availability of cheaper feedstocks to local refineries. As a result, the U.S. has become a major net exporter of products.

Oil Product Exports—Major Growth Regions

(Million bpd)

 

LOGO

Source: JODI, Drewry

In a short span of time, the U.S. has become the largest exporter of refined products in the world, with supplies from U.S. Gulf Coast terminals heading to most parts of the globe. By way of illustration, U.S. product exports to Latin America have grown 2.6x between 2009 and 2019 to 1.5 mbpd. Most of these exports were carried by MR product tankers, which constitute about 55% of global product tanker fleet capacity and have been the mainstay of seaborne trade in refined petroleum products. However, lower crude oil prices in 2015 and 2016 adversely impacted U.S. shale oil producers, and accordingly, crude production in the region was on the decline from May 2015 to September 2016. Nevertheless, the production cut by OPEC members from January 2017 came as a relief for domestic producers and U.S. crude production continued to increase; the U.S. became the largest crude producer in the world in September 2018. U.S. crude production increased at a CAGR of 6.6% during 2015-19 to 12.2 mbpd. U.S. crude oil production started declining in April 2020 following the sharp decline in crude oil prices amid weak global oil demand. U.S crude oil production declined 7.8% to 11.9 mbpd for the week ending May 1, 2020 compared with the week ending December 27, 2019.

 

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The shift in the location of global oil production is also being accompanied by a shift in the location of global refinery capacity and throughput. In short, capacity and throughput are moving from the developed to the developing world. Between 2009 and 2019, total OECD refining throughput registered a marginal increase of 0.5% CAGR to 38.2 mbpd, largely as a result of cutbacks in OECD Europe. On the other hand, throughput in the OECD Americas in the same period grew at a CAGR of 0.9% to reach 19.2 mbpd. In 2019, refining throughput of OECD countries accounted for 46.4% of global refinery throughput.

Asia (excluding China) and the Middle East added over 0.55 mbpd of refinery capacity in 2018, a substantial part of which is destined for international markets, whereas there was no material change in refining capacity in OECD America and OECD Europe. Nearly 0.55 mbpd of new refining capacity in the Middle East and another 0.45 mbpd in Asia (excluding China) became available in 2019, taking the combined new refining capacity in the Middle East and Asia (excluding China) to 1.0 mbpd. China’s refining capacity increased by 1.1 mbpd in 2019. As a result of these developments, countries such as India, China and Saudi Arabia have consolidated their positions as major exporters of products. Export-oriented refineries in India and the Middle East, coupled with the closure of refining capacity in the developed world, have promoted long-haul shipments to cater to products demand.

Export-oriented refineries in India and the Middle East, coupled with the closure of refining capacity in the developed world, have promoted long-haul shipments to meet product demand.

Oil Product Imports—Major Growth Regions

(Million bpd)

 

 

LOGO

Source: JODI, Drewry

Current Tanker Fleet

Crude oil is transported in uncoated vessels, which range upwards in size from 55,000 dwt. Products are carried predominantly in coated ships and include commodities such as gas oil, gasoline, jet fuel, kerosene and naphtha (often referred to as ‘clean products’), and fuel oil and vacuum gas oil (often referred to as ‘dirty products’). In addition, some product tankers are also able to carry bulk liquid chemicals and edible oils and fats if they have the appropriate International Maritime Organization (IMO) certification. These vessels are classified as product/chemical tankers, and as such, they represent a swing element in supply, having the ability to move between trades depending on market conditions. Clean petroleum products are therefore carried by non-IMO product tankers and IMO certified product/chemical tankers. IMO tankers will also carry, depending on their tank coatings, a range of other products including organic and inorganic bulk liquid chemicals, vegetable oils and animal fats and special products such as molasses.

 

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The global tanker fleet expanded 5.6% yoy (based on capacity) in the last one year mainly supported by high deliveries and muted demolitions. As of May 1, 2020, the total oil tanker fleet (crude, products and product/chemical tankers) consisted of 5,225 ships with a combined capacity of 590.5 million dwt.

 

The Oil Tanker Fleet —May 1, 2020

 

Vessel Type

   Deadweight
(Dwt)
     Number of
Vessels
     % of
Fleet
     Capacity
(m Dwt )
     % of
Fleet
 

Crude Tankers (1)

              

VLCC/ULCC

     200,000+        817        36.8        252.0        59.7  

Suezmax

     120-199,999        576        25.9        89.8        21.3  

Aframax

     80-119,999        669        30.1        73.0        17.3  

Panamax

     55-79,999        79        3.6        5.5        1.3  

Handymax

     40-54,999        17        0.8        0.7        0.2  

Handy

     25-39,999        9        0.4        0.3        0.1  

Handy

     10-24,999        56        2.5        0.9        0.2  
     

 

 

    

 

 

    

 

 

    

 

 

 

Total Fleet

        2,223        100.0        422.2        100.0  
     

 

 

    

 

 

    

 

 

    

 

 

 

Product Tankers

              

Long Range 3 (LR3)

     120-199,999        20        1.4        3.2        3.3  

Long Range 2 (LR2)

     80,000-119,999        378        26.1        41.5        43.0  

Long Range 1 (LR1)

     55-79,999        346        23.9        25.4        26.4  

Medium Range 2 (MR2)

     40-54,999        432        29.9        20.3        21.1  

Medium Range 1 (MR1)

     25-39,999        113        7.8        3.8        4.0  

Handy

     10-24,999        158        10.9        2.3        2.4  
     

 

 

    

 

 

    

 

 

    

 

 

 

Total Fleet

        1,447        100.0        96.5        100.0  
     

 

 

    

 

 

    

 

 

    

 

 

 

Product/Chemical Tankers (2)

 

     

Long Range 3 (LR3)

     120-199,999        0        0.0        0.0        0.0  

Long Range 2 (LR2)

     80,000-119,999        3        0.2        0.3        0.4  

Long Range 1 (LR1)

     55-79,999        32        2.1        2.4        3.3  

Medium Range 2 (MR2)

     40-54,999        1,190        76.5        57.6        80.3  

Medium Range 1 (MR1)

     25-39,999        293        18.8        10.9        15.2  

Handy

     10-24,999        37        2.4        0.6        0.8  
     

 

 

    

 

 

    

 

 

    

 

 

 

Total Fleet

        1,555        100.0        71.8        100.0  
     

 

 

    

 

 

    

 

 

    

 

 

 

Product & Product/Chemical Fleet

 

     

Long Range 3 (LR3)

     120-199,999        20        0.7        3.2        1.9  

Long Range 2 (LR2)

     80,000-119,999        381        12.7        41.8        24.8  

Long Range 1 (LR1)

     55-79,999        378        12.6        27.8        16.5  

Medium Range 2 (MR2)

     40-54,999        1,622        54.0        77.9        46.3  

Medium Range 1 (MR1)

     25-39,999        406        13.5        14.8        8.8  

Handy

     10-24,999        195        6.5        2.9        1.7  
     

 

 

    

 

 

    

 

 

    

 

 

 

Total Fleet

        3,002        100.0        168.3        100.0  
     

 

 

    

 

 

    

 

 

    

 

 

 

Crude, Product and Product/Chemical Tanker Fleet

 

        

VLCC/ULCC

     200,000+        817        15.6        252.0        42.7  

Suezmax/LR3

     120-199,999        596        11.4        93.0        15.7  

Aframax/LR2

     80-119,999        1,050        20.1        114.8        19.4  

Panamax/LR1

     55-79,999        457        8.7        33.3        5.6  

Handy/Medium Range

     40-54,999        1,639        31.4        78.7        13.3  

Handy/Medium Range

     25-39,999        415        7.9        15.1        2.6  

Handy/Handymax

     10-54,999        251        4.8        3.8        0.6  
     

 

 

    

 

 

    

 

 

    

 

 

 

Total Fleet

        5,225        100.0        590.5        100.0  
     

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Included shuttle tankers and tankers on storage duties

(2)

Excludes pure chemical tankers

Source: Drewry

 

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The world product tanker fleet as on May 1, 2020, consisted of 3,002 vessels with a combined capacity of 168.3 million dwt. The breakdown of the fleet by type (crude, product and product/chemical) and by size, together with the orderbook for newbuilding tankers as on May 1, 2020, is illustrated in the table below.

 

The World Tanker Orderbook—May 1, 2020  
Vessel Type   Deadweight     Orderbook     Orderbook
% Fleet
    2020     2021     2022     2023  
    (Dwt)     No     m
Dwt
    No     Dwt     No     m
Dwt
    No     m
Dwt
    No     m
Dwt
    No     m
Dwt
 

Crude Tankers (1)

                         

VLCC/ULCC

    200,000+       61       18.7       7.5       7.4       26       8.0       28       8.6       7       2.1       0       0.0  

Suezmax

    120-199,999       66       10.2       11.5       11.4       25       3.8       24       3.8       17       2.6       0       0.0  

Aframax

    80-119,999       49       5.5       7.3       7.6       8       0.9       32       3.6       9       1.0       0       0.0  

Panamax

    55-79,999       8       0.6       10.1       10.1       6       0.4       1       0.1       1       0.1       0       0.0  

Handymax

    40-54,999       0       0.0       0.0       0.0       0       0.0       0       0.0       0       0.0       0       0.0  

Handy

    25-39,999       0       0.0       0.0       0.0       0       0.0       0       0.0       0       0.0       0       0.0  

Handy

    10-24,999       0       0.0       0.0       0.0       0       0.0       0       0.0       0       0.0       0       0.0  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Fleet

      184       35.0       8.3       8.3       65       13.1       85       16.1       34       5.8       0       0.0  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Product Tankers

                         

Long Range 3 (LR3)

    120-199,999       12       1.4       60.0       45.6       0       0.0       0       0.0       6       0.7       6       0.7  

Long Range 2 (LR2)

    80,000-119,999       36       4.0       9.5       9.5       10       1.1       20       2.2       6       0.7       0       0.0  

Long Range 1 (LR1)

    55-79,999       2       0.2       0.6       0.6       2       0.2       0       0.0       0       0.0       0       0.0  

Medium Range 2 (MR2)

    40-54,999       28       1.4       6.5       6.9       7       0.3       10       0.5       9       0.5       2       0.1  

Medium Range 1 (MR1)

    25-39,999       0       0.0       0.0       0.0       0       0.0       0       0.0       0       0.0       0       0.0  

Handy

    10-24,999       3       0.1       1.9       2.8       1       0.0       2       0.0       0       0.0       0       0.0  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Fleet

      81       7.0       5.6       7.3       20       1.6       32       2.8       21       1.9       8       0.8  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Product/Chemical Tankers (2)

                         

Long Range 3 (LR3)

    120-199,999       0       0.0       0.0       0.0       0       0.0       0       0.0       0       0.0       0       0.0  

Long Range 2 (LR2)

    80,000-119,999       0       0.0       0.0       0.0       0       0.0       0       0.0       0       0.0       0       0.0  

Long Range 1 (LR1)

    55-79,999       1       0.1       3.1       3.3       1       0.1       0       0.0       0       0.0       0       0.0  

Medium Range 2 (MR2)

    40-54,999       91       4.5       7.6       7.9       41       2.0       45       2.2       5       0.2       0       0.0  

Medium Range 1 (MR1)

    25-39,999       26       0.8       8.9       7.4       11       0.3       10       0.3       5       0.2       0       0.0  

Handy

    10-24,999       1       0.0       2.7       4.3       1       0.0       0       0.0       0       0.0       0       0.0  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Fleet

      119       5.4       7.7       7.6       54       2.5       55       2.6       10       0.4       0       0.0  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Product & Product/Chemical Fleet

 

                     

Long Range 3 (LR3)

    120-199,999       12       1.4       60.0       45.6       0       0.0       0       0.0       6       0.7       6       0.7  

Long Range 2 (LR2)

    80,000-119,999       36       4.0       9.4       9.5       10       1.1       20       2.2       6       0.7       0       0.0  

Long Range 1 (LR1)

    55-79,999       3       0.2       0.8       0.8       3       0.2       0       0.0       0       0.0       0       0.0  

Medium Range 2 (MR2)

    40-54,999       119       5.9       7.3       7.6       48       2.4       55       2.8       14       0.7       2       0.1  

Medium Range 1 (MR1)

    25-39,999       26       0.8       6.4       5.5       11       0.3       10       0.3       5       0.2       0       0.0  

Handy

    10-24,999       4       0.1       2.1       3.1       2       0.0       2       0.0       0       0.0       0       0.0  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Fleet

      200       12.5       6.7       7.4       74       4.0       87       5.3       31       2.3       8       0.8  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Crude, Product and Product/Chemical Tanker Fleet

 

                     

VLCC/ULCC

    200,000+       61       18.7       7.5       7.4       26       8.0       28       8.6       7       2.1       0       0.0  

Suezmax/LR3

    120-199,999       78       11.6       13.1       12.5       25       3.8       24       3.8       23       3.3       6       0.7  

Aframax/LR2

    80-119,999       85       9.5       8.1       8.3       18       1.9       52       5.9       15       1.7       0       0.0  

Panamax/LR1

    55-79,999       11       0.8       2.4       2.4       9       0.6       1       0.1       1       0.1       0       0.0  

Handy/Medium Range

    40-54,999       119       5.9       7.3       7.6       48       2.4       55       2.8       14       0.7       2       0.1  

Handy/Medium Range

    25-39,999       26       0.8       6.3       5.4       11       0.3       10       0.3       5       0.2       0       0.0  

Handy/Handymax

    10-54,999       4       0.1       1.6       2.4       2       0.0       2       0.0       0       0.0       0       0.0  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Fleet

      384       47.4       7.3       8.0       139       17.2       172       21.4       65       8.0       8       0.8  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Included shuttle tankers and tankers on storage duties

(2)

Excludes pure chemical tankers

Source: Drewry

 

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As of May 1, 2020, the orderbook for product and product/chemical tankers for vessels above 10,000 dwt comprised 200 vessels with a combined capacity of 12.5 million dwt, equivalent to 7.4% of the existing fleet in capacity terms. Based on the total orderbook and scheduled deliveries, nearly 4.0 million dwt is expected to be delivered in the remaining months of 2020, followed by 5.3 million dwt in 2021 and the remaining 3.1 million dwt in 2022 and succeeding years. In recent years, however, the orderbook has been affected by the non-delivery of vessels (sometimes referred to as ‘slippage’). Some of this slippage resulted from delays, either through mutual agreement or through shipyard problems, while some were due to vessel cancellations. Slippage is likely to remain an issue going forward, and as such, it will have a moderating effect on growth in the product tanker fleet over the next three years. In 2020, disruption in yard operations in Asian countries due to the outbreak of COVID-19 might lead to increased slippage.

Two other important factors are likely to affect product tanker supply in the future. The first is the requirement to retrofit Ballast Water Management Systems (BWTS) to existing vessels. In February 2004, the IMO adopted the International Convention for the Control and Management of Ships’ Ballast Water and Sediments. The IMO Ballast Water Management (BWM) Convention contains an environmentally protective numeric standard for the treatment of a ship’s ballast water before it is discharged. This standard, detailed in Regulation ‘D-2’ of the BWM Convention, sets out the numbers of organisms allowed in specific volumes of treated discharge water. The IMO ‘D-2’ standard is also the standard that has been adopted by the U.S. Coast Guard’s ballast water regulations and the U.S. EPA’s Vessel General Permit. The BWM Convention also contains an implementation schedule for the installation of IMO member state type approved treatment systems in existing ships and in new vessels, requirements for the development of vessel ballast water management plans, requirements for the safe removal of sediments from ballast tanks, and guidelines for the testing and type approval of ballast water treatment technologies. In July 2017, the IMO extended the regulatory requirement of compliance to the BWM Convention from September 8, 2017 to September 8, 2019. Vessels trading internationally will have to comply with the BWM Convention upon their next special survey after that date. As an example for an LR2 tanker, the estimated retrofit cost could be in the range of US$1.3 to US$1.8 million per vessel, including labour. Expenditure of this kind has become another factor impacting the decision to scrap older vessels after BWM Convention came into force in 2019.

The second factor that is likely to impact future vessel supply is the drive to control sulphur emission from ships. Heavy fuel oil (HFO) has been the main fuel of the shipping industry for many years. It is relatively inexpensive and widely available, but it is ‘dirty’ from an environmental point of view. The sulfur content of HFO consumed by ships has been about 3.5% until the end of 2019. It is the reason that maritime shipping accounts for 8% of global emissions of sulfur dioxide (SO2), an important source for acid rain, as well as respiratory diseases. In some port cities, such as Hong Kong, shipping is the largest single source of SO2 emissions, as well as emissions of particulate matter (PM), which are directly tied to the sulfur content of the fuel. One estimate suggests that PM emissions from maritime shipping led to 87,000 premature deaths worldwide in 2012.

The IMO, the governing body of international shipping, has made a decisive effort to diversify the industry away from HFO into cleaner fuels with less harmful effects on the environment and human health. Effective in 2015, ships operating within the Emission Control Areas (ECAs) covering the Economic Exclusive Zone of North America, the Baltic Sea, the North Sea, and the English Channel are required to use marine gas oil with allowable sulfur content up to 0.1%.

In order to reduce the emission of air pollutants from ships in key areas of China, the Ministry of Transport issued stricter emission control area regulations in their territorial waters. Beginning on 1 January 2020, ships entering inland waterways, including the Yangtze River and Xijiang River have to adhere to a strict requirement of 0.1% sulphur content. From 1 January 2022, ships will be required to comply with the 0.1% sulphur content requirement when entering the Hainan coastal ECA. In the meantime, China is considering adopting more stringent emission control requirements, such as to implement the 0.1% sulphur content limit requirement in all coastal waters beginning 1 January 2025.

 

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The IMO implemented the emission control regulation globally with effect from January 1, 2020. It stipulates that ships sailing outside ECAs will switch to an alternative fuel with permitted sulphur content up to 0.5% or will retrofit scrubbers in order to reduce emissions. This has created demand for Very Low Sulphur Fuel Oil (VLSFO) with 0.5% sulphur content. The price of low sulphur fuel oil is considerably higher compared to HFO with 3.5% sulphur content. Some owners of large vessels have also opted for scrubber retrofitting on existing ships. As such the emission regulation may be another factor hastening the eventual demolition of older ships. Within the context of the wider market, increased vessel scrapping is a positive development as it helps to counterbalance new ship deliveries and moderates fleet growth.

The price of compliant fuel was initially higher because of limited availability. In January, the price differential between HSFO (3.5%) and VLSFO (0.5%) ranged between US$145 per ton and US$320 per ton depending on the bunkering location. However, the price difference between HSFO and LSFO narrowed between US$41 per ton and US$68 per ton in April 2020 with improvement in LSFO supply and weakening demand. Bunker fuel prices for both HSFO and LSFO have declined amid the COVID-19 crisis on account of weak crude oil prices and lackluster demand. The improvement in LSFO supply coupled with weak demand has made the switch to IMO-compliant fuel smooth without any major disruption. A dramatic change in the bunker price outlook has hampered the prospects of scrubber fitment as the premium of LSFO prices over HSFO prices has declined drastically.

As of May 1, 2020, 26.0% of the existing tanker fleet based on capacity (includes crude, product and product/chemical Tanker Fleet) are either already fitted with scrubbers or are awaiting scrubber retrofit. VLCC/ULCC constitutes the largest proportion with 33.3%, followed by Suezmax/LR3 (23.2%) and Aframax/LR2 (18.5%). Altogether, 153.5 mdwt (918 vessels) of tanker capacity have either scrubber installed on them or will have scrubber retrofitted in coming years. Vessels moving out of trade to retrofit scrubbers impede supply growth and support freight rates.

In addition to recently implemented ballast water and emission control regulation, the IMO has been devising strategies to reduce greenhouse gases and carbon emissions from ships. According to the latest announcement, the IMO plans to initiate measures to reduce CO2 emissions by at least 40% by 2030 and 70% by 2050 from the levels in 2008. It also plans to introduce measures to reduce GHG emissions by 50% by 2050 from 2008 levels. These are likely to be achieved by setting energy efficiency requirements and encouraging ship owners to use alternative fuels such as biofuels, and electro-/synthetic fuels such as hydrogen or ammonia. It may include limiting speed of the ships. Currently there is an uncertainty with regard to exact measures the IMO will undertake to achieve these targets. This uncertainty is deterring ship owners from ordering newbuild vessels as these vessels may have high environmental compliance cost in future.

The Oil Tanker Freight Market

Tanker charter hire rates and vessel values for all tankers are influenced by the supply-demand dynamics of the tanker market. Also, in general terms, time charter rates are less volatile than spot rates as they reflect the fact that the vessel is fixed for a longer period of time. In the spot market, rates will reflect the immediate underlying conditions in vessel supply and demand, and are thus prone to more volatility. The trend in spot rates since 2002 for the main vessel classes is shown in the table below.

 

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Crude Tanker—Spot (TCE) Rates: 2002-2020*

(US$/Day)

 

Year

   Caribs
USAC
40-70,000 DWT
     NW Europe NW
Europe
70-100,000 DWT
     West Africa
Caribs/USES
150-160,000 DWT
     AG
Japan
280-300,000 DWT
 

2002

     16,567        22,800        19,325        21,667  

2003

     28,833        41,883        37,367        49,342  

2004

     42,158        55,408        64,792        95,258  

2005

     34,933        57,517        40,883        59,125  

2006

     28,792        47,067        40,142        51,142  

2007

     30,100        41,975        35,392        45,475  

2008

     36,992        56,408        52,650        89,300  

2009

     13,450        19,883        20,242        29,483  

2010

     17,950        27,825        19,658        40,408  

2011

     8,817        10,500        12,758        8,700  

2012

     12,408        9,100        14,275        12,275  

2013

     13,475        11,427        13,308        12,325  

2014

     21,383        23,360        23,567        24,625  

2015

     23,725        37,509        38,350        67,928  

2016

     13,133        24,333        21,592        42,183  

2017

     8,942        7,643        11,255        22,617  

2018

     7,696        8,646        10,656        20,730  

2019

     17,892        23,041        23,025        42,275  

Jan-20

     62,400        42,792        35,900        63,500  

Feb-20

     30,900        25,193        24,800        16,500  

Mar-20

     36,000        42,911        59,600        219,900  

Apr-20

     38,900        69,081        76,300        293,100  

 

*

Up to April 2020

Source: Drewry, Note – These rates do not account for vessel triangulation

Product Tanker—Spot (TCE) Rates: 2011-2020*

(US$/Day)

 

Year

   Baltic
UK Continent
25-39,999 DWT
     UKC
USAC
40-54,999 DWT
     Arabian Gulf
Japan
55-79,999 DWT
     Arabian Gulf
Japan
80-119,000 DWT
 

2011

     NA        9,720        3,723        7,528  

2012

     NA        8,064        6,379        8,106  

2013

     NA        9,474        7,576        8,505  

2014

     NA        9,435        10,523        14,163  

2015

     NA        18,769        23,685        28,783  

2016

     NA        8,508        12,290        15,006  

2017

     8,966        7,442        7,225        7,936  

2018

     8,367        6,196        8,002        9,411  

2019

     11,777        8,337        14,923        17,974  

Jan-20

     18,432        15,980        12,260        15,806  

Feb-20

     21,395        16,141        9,854        11,604  

Mar-20

     22,813        23,343        28,628        40,391  

Apr-20

     36,409        38,367        70,352        102,203  

 

*

Up to April 2020, NA implies not available

Source: Baltic, Drewry, Note – These rates do not account for vessel triangulation

 

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After a period of favorable market conditions between 2004 and 2008, demand for products fell as the world economy went into recession in the latter half of 2008 and there was a negative impact on product tanker demand. With supply at the same time increasing at a fast pace, falling utilization levels pushed tanker freight rates downwards in 2009. A modest recovery took place in the early part of 2010, but this was short-lived and rates started to fall once more in mid-2012 before rebounding in 2014.

Freight rates in the tanker sector started to improve in the second half of 2014 as result of low growth in vessel supply and rising vessel demand. In the products sector, a number of factors combined to push up rates, including:

 

   

Increased trade due to higher stocking activity and improved demand for oil products

 

   

Longer voyage distances because of refining capacity additions in Asia

 

   

Product tankers also carrying crude encouraged by firm freight rates for dirty tankers

 

   

Lower bunker prices contributing to higher net earnings

Freight rates remained firm throughout 2015 and in the first half of 2016, leading to greater revenue and improved profitability for ship-owners. However, in the second half of 2016, tanker freight rates declined sharply as a result of the increased tanker supply outweighing the demand for tankers. A spate of newbuilding deliveries in 2017 aggravated the situation further for ship-owners and the average one-year spot charter rate declined further. The situation worsened further and TCE rates were below breakeven rates on key routes for the first nine months of 2018. However, towards end-2018, the vessel earnings began to improve as supply growth was moderating in the wake of record high demolitions and reduced new vessel ordering. Increase in product tanker freight rates in 2019 was driven by slow fleet growth and a spike in diesel trade before IMO 2020 regulations came into effect on 1 January 2020. Product tanker freight rates surged to multi-year highs on trickle-down effect from crude tanker market in October 2019 as well as US sanctions on Cosco Shipping Tanker (Dalian) Co, geopolitical tensions and tight supply resulted.

With COVID-19 spreading globally, the weak demand for refinery products has led to an increase in both onshore and offshore stocking activity, with IEA expecting refined products storage to be around 6 mbpd. Increasing use of product tankers as storage facilities coupled with global port congestions have resulted in a surge in product tanker rates in March and April 2020. As of April 2020, we expect 6 mdwt of non-IMO coated tankers comprising nearly 6.2% of the product tanker fleet is being used for offshore storage.

Oil Tanker Newbuilding Prices

Newbuilding prices increased significantly between 2003 and 2007 primarily as a result of increased tanker demand and limited shipbuilding capacity. Thereafter, prices weakened in the face of a poor freight market and lower levels of new ordering. In late 2013, prices started to recover and they continued to edge up slowly during 2014 before falling marginally in late 2015. Moreover, newbuilding prices fell further in 2016 because of excess capacity available at shipyards, accompanied with low steel prices. New orders declined on account of diminishing earnings potential of oil tankers, and mandatory compliance to Tier III emission for ships ordered on or after January 1, 2016, as well as owners’ limited access to cost-effective capital.

Newbuild prices remained stable throughout 2017. However, asset values of newbuilds increased in the range of 3-13% in 2019 primarily on the back of optimism about a recovery in the tanker market. In 2019, newbuilding prices benefited from the increase charter rates across vessel classes.

 

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Oil Tankers: Newbuilding Prices: 2002-2020†

(In millions of U.S. Dollars)

 

Year End

   37,000*
DWT
     50,000*
DWT
     75,000*
DWT
     110,000*
DWT
     75,000#
DWT
     110,000#
DWT
     160,000#
DWT
     300,000#
DWT
 

2002

     24.5        26.5        33.0        38.0        31.0        36.0        44.0        66.0  

2003

     28.5        30.5        36.5        42.0        34.5        40.0        52.0        73.0  

2004

     34.0        39.0        43.0        59.0        41.0        57.0        68.0        105.0  

2005

     37.5        42.0        45.0        61.0        43.0        59.0        71.0        120.0  

2006

     40.5        47.5        52.0        67.0        50.0        65.0        78.0        128.0  

2007

     46.0        54.0        66.0        80.0        64.0        78.0        90.0        146.0  

2008

     40.0        46.5        59.0        73.5        57.0        71.5        87.0        142.0  

2009

     31.0        36.0        44.5        54.0        42.5        52.0        62.0        101.0  

2010

     33.0        36.0        48.0        59.0        44.6        57.0        67.0        105.0  

2011

     31.5        36.0        46.0        54.8        44.6        52.8        61.7        99.0  

2012

     30.0        33.0        44.0        50.0        42.4        48.0        56.5        92.0  

2013

     31.0        35.0        45.0        53.5        42.1        51.5        59.0        93.5  

2014

     33.0        37.0        47.5        56.0        44.9        54.0        65.0        97.0  

2015

     32.0        35.5        47.0        53.5        45.0        51.5        63.0        94.0  

2016

     30.0        32.0        41.0        47.0        39.0        45.0        54.0        83.0  

2017

     31.0        33.0        41.0        46.0        38.2        44.0        55.0        81.0  

2018

     31.4        35.3        41.4        48.8        40.8        46.8        58.7        88.0  

2019

     32.0        36.0        45.0        51.0        43.0        49.0        61.0        92.7  

Jan-20

     32.0        36.0        45.0        51.0        43.0        49.0        61.0        92.0  

Feb-20

     32.0        36.0        45.0        51.0        43.0        49.0        61.0        92.0  

Mar-20

     32.0        36.0        45.0        51.0        43.0        49.0        61.0        92.0  

Apr-20

     32.0        36.0        45.0        51.0        43.0        49.0        61.0        92.0  

Long-term average

     32.7        36.7        45.3        54.4        43.2        52.4        63.2        98.9  

Note: * Coated tankers, # Uncoated tankers

Up to April 2020

Source: Drewry

Second-hand Prices

Second-hand values primarily, albeit with a lag, reflect prevailing and expected charter rates. During extended periods of high charter rates, vessel values tend to appreciate and vice versa. However, vessel values are also influenced by other factors, including the age and shipyard of the vessel. Prices for young vessels, those about up to five-years old, are also influenced by newbuilding prices, while prices for old vessels, near the end of their useful economic life, those around at or in excess of 25 years, are influenced by the value of scrap steel.

The table below illustrates the movements of prices for second-hand oil tankers from 2002 to 2019. In late 2013, prices for all modern tankers increased as a result of improvement in freight rates and positive market sentiment, and further gains were recorded in 2014 and 2015. However, in 2016, second-hand prices saw a double-digit decline on account of weakening freight rates. For illustration, the second-hand price of a five-year old LR vessel of 95,000 dwt capacity fell 35% from US$46 million in 2015 to US$30 million in 2016. However, the market saw increased demand for modern second-hand vessels in the last two years, in anticipation of a recovery in the freight market and buyers trying to take advantage of historically low asset prices. As such, second-hand modern product tanker prices increased in the range of 3 to 10% in 2018. For example, the second-hand price of a five-year old LR2 inched up US$2.0 million between January 2018 and December 2018. Second-hand prices of crude and product tankers increased steeply in 2019 in tandem with a surge in charter rates. With the surge in product tanker and crude tanker freight rates due to higher demand for floating storage driven by the

 

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pandemic, second-hand prices of product and crude tankers increased between 5.4% and 14.7% in April 2020 compared to the average second-hand prices in full-year 2019.

Oil Tanker Second-hand Prices for 5 year old vessels: 2002-2020†

(In millions of U.S. Dollars)

 

Year End

   37,000*
DWT
     45,000*
DWT
     75,000*
DWT
     95,000*
DWT
     75,000#
DWT
     95,000#
DWT
     150,000#
DWT
     300,000#
DWT
 

2002

     15.5        21.5        23.0        31.5        21.0        29.5        39.0        55.0  

2003

     24.5        29.5        26.0        39.0        24.0        37.0        47.0        70.0  

2004

     36.0        42.0        40.0        59.0        38.0        57.0        73.0        112.0  

2005

     40.0        45.5        48.5        60.0        46.5        58.0        75.0        110.0  

2006

     40.0        47.5        50.0        65.0        48.0        63.0        77.0        115.0  

2007

     40.0        52.0        61.0        70.5        59.0        68.5        87.0        130.0  

2008

     36.0        42.0        48.0        57.0        46.0        55.0        77.0        110.0  

2009

     21.0        24.0        34.5        40.0        32.5        38.0        53.0        77.5  

2010

     21.5        24.0        37.0        44.0        35.0        42.0        58.0        85.5  

2011

     24.0        27.0        34.0        35.5        32.0        33.5        45.5        58.0  

2012

     21.0        24.0        27.0        29.5        25.0        27.5        40.0        57.0  

2013

     25.0        29.0        33.0        35.0        31.0        33.0        42.0        60.0  

2014

     23.0        24.0        35.5        44.0        33.5        42.0        57.0        76.0  

2015

     26.0        27.0        38.0        48.0        36.0        46.0        60.0        80.0  

2016

     20.0        22.0        30.0        32.0        28.0        30.0        42.0        60.0  

2017

     21.0        24.0        29.0        32.0        27.0        30.0        40.0        62.0  

2018

     23.0        27.0        31.0        34.0        29.0        32.0        44.0        64.0  

2019

     24.7        28.8        33.2        39.5        31.2        37.5        49.7        70.8  

Jan-20

     25.0        30.0        34.0        43.0        32.0        41.0        53.0        75.0  

Feb-20

     25.0        30.0        34.0        43.0        32.0        41.0        53.0        74.0  

Mar-20

     26.0        31.0        34.0        44.0        32.0        42.0        53.0        76.0  

Apr-20

     26.0        31.0        35.0        44.0        33.0        43.0        53.0        77.0  

Long-term average

     26.3        30.8        36.1        43.8        34.1        41.8        55.1        79.8  

Note: * Coated tankers, # Uncoated tankers

Up to April 2020

Source: Drewry

 

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BUSINESS

We provide seaborne transportation of refined petroleum products worldwide. As of May 22, 2020, our fleet consisted of 137 wholly owned, finance leased or bareboat chartered-in tankers (42 LR2, 12 LR1, 62 MR and 21 Handymax) with a weighted average age of approximately 4.6 years, and a leasehold interest of an MR under construction, which we refer to collectively as our Operating Fleet.

History and Development of the Company

Scorpio Tankers Inc. was incorporated in the Republic of the Marshall Islands pursuant to the BCA on July 1, 2009. We began our operations in October 2009 with three vessels and in April 2010, we completed our initial public offering and our common stock commenced trading on the New York Stock Exchange, or NYSE, under the symbol “STNG.”

Our principal executive offices are located at 9, Boulevard Charles III, Monaco 98000 and our telephone number at that address is +377-9798-5716. The Commission maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Commission. The address of the Commission’s website is http://www.sec.gov. The address of the Company’s website is https://www.scorpiotankers.com. None of the information contained on these websites is incorporated into or forms a part of this prospectus.

Our Fleet

The following table sets forth certain information regarding our Operating Fleet as of May 22, 2020:

 

    

Vessel Name

   Year
Built
   DWT      Ice
class
  

Employment

   Vessel type   

Scrubber

   Owned, finance leased or bareboat chartered-in vessels   
1    STI Brixton    2014      38,734      1A    SHTP (1)    Handymax    N/A
2    STI Comandante    2014      38,734      1A    SHTP (1)    Handymax    N/A
3    STI Pimlico    2014      38,734      1A    SHTP (1)    Handymax    N/A
4    STI Hackney    2014      38,734      1A    SHTP (1)    Handymax    N/A
5    STI Acton    2014      38,734      1A    SHTP (1)    Handymax    N/A
6    STI Fulham    2014      38,734      1A    SHTP (1)    Handymax    N/A
7    STI Camden    2014      38,734      1A    SHTP (1)    Handymax    N/A
8    STI Battersea    2014      38,734      1A    SHTP (1)    Handymax    N/A
9    STI Wembley    2014      38,734      1A    SHTP (1)    Handymax    N/A
10    STI Finchley    2014      38,734      1A    SHTP (1)    Handymax    N/A
11    STI Clapham    2014      38,734      1A    SHTP (1)    Handymax    N/A
12    STI Poplar    2014      38,734      1A    SHTP (1)    Handymax    N/A
13    STI Hammersmith    2015      38,734      1A    SHTP (1)    Handymax    N/A
14    STI Rotherhithe    2015      38,734      1A    SHTP (1)    Handymax    N/A
15    STI Amber    2012      49,990      —      SMRP (2)    MR    Not Yet Installed
16    STI Topaz    2012      49,990      —      SMRP (2)    MR    Not Yet Installed
17    STI Ruby    2012      49,990      —      SMRP (2)    MR    Not Yet Installed
18    STI Garnet    2012      49,990      —      SMRP (2)    MR    Not Yet Installed
19    STI Onyx    2012      49,990      —      SMRP (2)    MR    Not Yet Installed
20    STI Fontvieille    2013      49,990      —      SMRP (2)    MR    Not Yet Installed
21    STI Ville    2013      49,990      —      SMRP (2)    MR    Not Yet Installed
22    STI Duchessa    2014      49,990      —      SMRP (2)    MR    Not Yet Installed
23    STI Opera    2014      49,990      —      SMRP (2)    MR    Not Yet Installed
24    STI Texas City    2014      49,990      —      SMRP (2)    MR    Yes
25    STI Meraux    2014      49,990      —      SMRP (2)    MR    Yes
26    STI San Antonio    2014      49,990      —      SMRP (2)    MR    Yes

 

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Vessel Name

   Year
Built
   DWT      Ice
class
  

Employment

   Vessel type   

Scrubber

27    STI Venere    2014      49,990      —      SMRP (2)    MR    Yes
28    STI Virtus    2014      49,990      —      SMRP (2)    MR    Yes
29    STI Aqua    2014      49,990      —      SMRP (2)    MR    Yes
30    STI Dama    2014      49,990      —      SMRP (2)    MR    Yes
31    STI Benicia    2014      49,990      —      SMRP (2)    MR    Yes
32    STI Regina    2014      49,990      —      SMRP (2)    MR    Yes
33    STI St Charles    2014      49,990      —      SMRP (2)    MR    Yes
34    STI Mayfair    2014      49,990      —      SMRP (2)    MR    Yes
35    STI Yorkville    2014      49,990      —      SMRP (2)    MR    Yes
36    STI Milwaukee    2014      49,990      —      SMRP (2)    MR    Yes
37    STI Battery    2014      49,990      —      SMRP (2)    MR    Yes
38    STI Soho    2014      49,990      —      SMRP (2)    MR    Yes
39    STI Memphis    2014      49,990      —      SMRP (2)    MR    Yes
40    STI Tribeca    2015      49,990      —      SMRP (2)    MR    Yes
41    STI Gramercy    2015      49,990      —      SMRP (2)    MR    Yes
42    STI Bronx    2015      49,990      —      SMRP (2)    MR    Yes
43    STI Pontiac    2015      49,990      —      SMRP (2)    MR    Yes
44    STI Manhattan    2015      49,990      —      SMRP (2)    MR    Yes
45    STI Queens    2015      49,990      —      SMRP (2)    MR    Yes
46    STI Osceola    2015      49,990      —      SMRP (2)    MR    Yes
47    STI Notting Hill    2015      49,687      1B    SMRP (2)    MR    Not Yet Installed
48    STI Seneca    2015      49,990      —      SMRP (2)    MR    Yes
49    STI Westminster    2015      49,687      1B    SMRP (2)    MR    Not Yet Installed
50    STI Brooklyn    2015      49,990      —      SMRP (2)    MR    Not Yet Installed
51    STI Black Hawk    2015      49,990      —      SMRP (2)    MR    Not Yet Installed
52    STI Galata    2017      49,990      —      SMRP (2)    MR    Yes
53    STI Bosphorus    2017      49,990      —      SMRP (2)    MR    Not Yet Installed
54    STI Leblon    2017      49,990      —      SMRP (2)    MR    Not Yet Installed
55    STI La Boca    2017      49,990      —      SMRP (2)    MR    Yes
56    STI San Telmo    2017      49,990      1B    SMRP (2)    MR    Not Yet Installed
57    STI Donald C Trauscht    2017      49,990      1B    SMRP (2)    MR    Not Yet Installed
58    STI Esles II    2018      49,990      1B    SMRP (2)    MR    Not Yet Installed
59    STI Jardins    2018      49,990      1B    SMRP (2)    MR    Not Yet Installed
60    STI Magic    2019      50,000      —      SMRP (2)    MR    Yes
61    STI Majestic    2019      50,000      —      SMRP (2)    MR    Yes
62    STI Mystery    2019      50,000      —      SMRP (2)    MR    Yes
63    STI Marvel    2019      50,000      —      SMRP (2)    MR    Yes
64    STI Magnetic    2019      50,000      —      SMRP (2)    MR    Yes
65    STI Millennia    2019      50,000      —      SMRP (2)    MR    Yes
66    STI Master    2019      50,000      —      SMRP (2)    MR    Yes
67    STI Mythic    2019      50,000      —      SMRP (2)    MR    Yes
68    STI Marshall    2019      50,000      —      SMRP (2)    MR    Yes
69    STI Modest    2019      50,000      —      SMRP (2)    MR    Yes
70    STI Maverick    2019      50,000      —      SMRP (2)    MR    Yes
71    STI Miracle    2020      50,000      —      SMRP (2)    MR    Yes
72    STI Maestro    2020      50,000      —      SMRP (2)    MR    Yes
73    STI Mighty    2020      50,000      —      SMRP (2)    MR    Yes
74    STI Excel    2015      74,000      —      SLR1P (3)    LR1    Not Yet Installed
75    STI Excelsior    2016      74,000      —      SLR1P (3)    LR1    Not Yet Installed
76    STI Expedite    2016      74,000      —      SLR1P (3)    LR1    Not Yet Installed

 

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Vessel Name

   Year
Built
   DWT      Ice
class
  

Employment

   Vessel type   

Scrubber

77    STI Exceed    2016      74,000      —      SLR1P (3)    LR1    Not Yet Installed
78    STI Executive    2016      74,000      —      SLR1P (3)    LR1    Yes
79    STI Excellence    2016      74,000      —      SLR1P (3)    LR1    Yes
80    STI Experience    2016      74,000      —      SLR1P (3)    LR1    Not Yet Installed
81    STI Express    2016      74,000      —      SLR1P (3)    LR1    Yes
82    STI Precision    2016      74,000      —      SLR1P (3)    LR1    Not Yet Installed
83    STI Prestige    2016      74,000      —      SLR1P (3)    LR1    Yes
84    STI Pride    2016      74,000      —      SLR1P (3)    LR1    Yes
85    STI Providence    2016      74,000      —      SLR1P (3)    LR1    Yes
86    STI Elysees    2014      109,999      —      SLR2P (4)    LR2    Yes
87    STI Madison    2014      109,999      —      SLR2P (4)    LR2    Yes
88    STI Park    2014      109,999      —      SLR2P (4)    LR2    Yes
89    STI Orchard    2014      109,999      —      SLR2P (4)    LR2    Yes
90    STI Sloane    2014      109,999      —      SLR2P (4)    LR2    Yes
91    STI Broadway    2014      109,999      —      SLR2P (4)    LR2    Yes
92    STI Condotti    2014      109,999      —      SLR2P (4)    LR2    Yes
93    STI Rose    2015      109,999      —      SLR2P (4)    LR2    Yes
94    STI Veneto    2015      109,999      —      SLR2P (4)    LR2    Yes
95    STI Alexis    2015      109,999      —      SLR2P (4)    LR2    Yes
96    STI Winnie    2015      109,999      —      SLR2P (4)    LR2    Not Yet Installed
97    STI Oxford    2015      109,999      —      SLR2P (4)    LR2    Yes
98    STI Lauren    2015      109,999      —      SLR2P (4)    LR2    Not Yet Installed
99    STI Connaught    2015      109,999      —      SLR2P (4)    LR2    Not Yet Installed
100    STI Spiga    2015      109,999      —      SLR2P (4)    LR2    Not Yet Installed
101    STI Savile Row    2015      109,999      —      SLR2P (4)    LR2    Yes
102    STI Kingsway    2015      109,999      —      SLR2P (4)    LR2    Not Yet Installed
103    STI Carnaby    2015      109,999      —      SLR2P (4)    LR2    Not Yet Installed
104    STI Solidarity    2015      109,999      —      SLR2P (4)    LR2    Not Yet Installed
105    STI Lombard    2015      109,999      —      SLR2P (4)    LR2    Yes
106    STI Grace    2016      109,999      —      SLR2P (4)    LR2    Not Yet Installed
107    STI Jermyn    2016      109,999      —      SLR2P (4)    LR2    Not Yet Installed
108    STI Sanctity    2016      109,999      —      SLR2P (4)    LR2    Yes
109    STI Solace    2016      109,999      —      SLR2P (4)    LR2    Yes
110    STI Stability    2016      109,999      —      SLR2P (4)    LR2    Not Yet Installed
111    STI Steadfast    2016      109,999      —      SLR2P (4)    LR2    Yes
112    STI Supreme    2016      109,999      —      SLR2P (4)    LR2    Not Yet Installed
113    STI Symphony    2016      109,999      —      SLR2P (4)    LR2    Yes
114    STI Gallantry    2016      113,000      —      SLR2P (4)    LR2    Yes
115    STI Goal    2016      113,000      —      SLR2P (4)    LR2    Yes
116    STI Nautilus    2016      113,000      —      SLR2P (4)    LR2    Yes
117    STI Guard    2016      113,000      —      SLR2P (4)    LR2    Yes
118    STI Guide    2016      113,000      —      SLR2P (4)    LR2    Yes
119    STI Selatar    2017      109,999      —      SLR2P (4)    LR2    Not Yet Installed
120    STI Rambla    2017      109,999      —      SLR2P (4)    LR2    Not Yet Installed
121    STI Gauntlet    2017      113,000      —      SLR2P (4)    LR2    Yes
122    STI Gladiator    2017      113,000      —      SLR2P (4)    LR2    Yes
123    STI Gratitude    2017      113,000      —      SLR2P (4)    LR2    Yes
124    STI Lobelia    2019      110,000      —      SLR2P (4)    LR2    Yes
125    STI Lotus    2019      110,000      —      SLR2P (4)    LR2    Yes
126    STI Lily    2019      110,000      —      SLR2P (4)    LR2    Yes

 

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Vessel Name

   Year
Built
  DWT      Ice
class
  

Employment

   Vessel type   

Scrubber

127    STI Lavender    2019     110,000      —      SLR2P (4)    LR2    Yes
128    Silent    2007     37,847      1A    SHTP (1)    Handymax    N/A (5)
129    Single    2007     37,847      1A    SHTP (1)    Handymax    N/A (5)
130    Star I    2007     37,847      1A    SHTP (1)    Handymax    N/A (5)
131    Sky    2007     37,847      1A    SHTP (1)    Handymax    N/A (6)
132    Steel    2008     37,847      1A    SHTP (1)    Handymax    N/A (6)
133    Stone I    2008     37,847      1A    SHTP (1)    Handymax    N/A (6)
134    Style    2008     37,847      1A    SHTP (1)    Handymax    N/A (6)
135    STI Beryl    2013     49,990      —      SMRP (2)    MR    Not Yet Installed (7)
136    STI Le Rocher    2013     49,990      —      SMRP (2)    MR    Not Yet Installed (7)
137    STI Larvotto    2013     49,990      —      SMRP (2)    MR    Not Yet Installed (7)
       

 

 

             
  

Total owned, finance leased and bareboat charter-in fleet DWT

       9,438,089              
       

 

 

             
  

Leasehold newbuilding currently under construction

                
  

Hull S471—TBN STI Maximus

   HVS (8)     50,000      MR         
       

 

 

             
  

Total newbuilding product tankers DWT

       50,000              
       

 

 

             
   Total Fleet DWT        9,488,089              
       

 

 

             

 

(1)

This vessel operates in the SHTP. SHTP is operated by SCM. SHTP and SCM are related parties to the Company.

(2)

This vessel operates in or is expected to operate in the SMRP. SMRP is operated by SCM. SMRP and SCM are related parties to the Company.

(3)

This vessel operates in the SLR1P. SLR1P is operated by SCM. SLR1P and SCM are related parties to the Company.

(4)

This vessel operates in or is expected to operate in the SLR2P. SLR2P is a Scorpio Pool and is operated by SCM. SLR2P and SCM are related parties to the Company.

(5)

In March 2020, we extended the bareboat charter-in agreement on a previously bareboat chartered-in vessel to May 2020 (with an option to extend through the end of June 2020) from March 2020 at a bareboat rate of $6,300 per day.

(6)

In March 2019, we entered into a new bareboat charter-in agreement on a previously bareboat chartered-in vessel. The term of the agreement is for two years at a bareboat rate of $6,300 per day. The agreement is expected to expire on March 31, 2021.

(7)

In April 2017, we sold and leased back this vessel, on a bareboat basis, for a period of up to eight years for $8,800 per day. The sales price was $29.0 million per vessel, and we have the option to purchase this vessel beginning at the end of the fifth year of the agreement through the end of the eighth year of the agreement, at market-based prices. Additionally, a deposit of $4.35 million per vessel was retained by the buyer and will either be applied to the purchase price of the vessel if a purchase option is exercised or refunded to us at the expiration of the agreement.

(8)

The leasehold interests in this vessel was acquired from Trafigura Maritime Logistics Pte. Ltd., or Trafigura, in September 2019 as part of our acquisition of the leasehold interests in 19 vessels from Trafigura. This vessel is currently under construction at Hyundai-Vietnam Shipbuilding Co., Ltd. with expected delivery in the third quarter of 2020.

 

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Chartering Strategy

Generally, we operate our vessels in commercial pools operated by related entities, on time charters or in the spot market. The overall mix of how our vessels are employed varies from time to time based on many factors including our view of the future market conditions.

Commercial Pools

To increase vessel utilization and thereby revenues, we participate in commercial pools with other shipowners of similar modern, well-maintained vessels. By operating a large number of vessels as an integrated transportation system, commercial pools offer customers greater flexibility and a higher level of service while achieving scheduling efficiencies. Pools employ experienced commercial managers and operators who have close working relationships with customers and brokers, while technical management is performed by each shipowner. Pools negotiate charters with customers primarily in the spot market, but may also arrange time charter agreements. The size and scope of these pools enable them to enhance utilization rates for pool vessels by securing backhaul voyages and contracts of affreightment, or COAs, thus generating higher effective TCE revenues than otherwise might be obtainable in the spot market.

Time Charters

Time charters give us a fixed and stable cash flow for a known period of time. Time charters also mitigate in part the seasonality of the spot market business, which is generally weaker in the second and third quarters of the year. In the future, we may opportunistically look to enter our vessels into time charter contracts. We may also enter into time charter contracts with profit sharing agreements, which enable us to benefit if the spot market increases.

Spot Market

A spot market voyage charter is generally a contract to carry a specific cargo from a load port to a discharge port for an agreed freight per ton of cargo or a specified total amount. Under spot market voyage charters, we pay voyage expenses such as port, canal and bunker costs. Spot charter rates are volatile and fluctuate on a seasonal and year-to-year basis. Fluctuations derive from imbalances in the availability of cargoes for shipment and the number of vessels available at any given time to transport these cargoes. Vessels operating in the spot market generate revenue that is less predictable but may enable us to capture increased profit margins during periods of improvements in tanker rates. We also consider short-term time charters (with initial terms of less than one year) as spot market voyages.

Management of our Fleet

Revised Master Agreement

On September 29, 2016, we agreed to amend our master agreement, or the Master Agreement, with SCM and SSM under a deed of amendment, or the Deed of Amendment. SCM and SSM are related parties to us. Pursuant to the terms of the Deed of Amendment, on November 15, 2016, we entered into definitive documentation to memorialize the agreed amendments to the Master Agreement, or the Amended and Restated Master Agreement.

On February 22, 2018, we entered into definitive documentation to memorialize the agreed amendments to the Amended and Restated Master Agreement under a deed of amendment, or the Amendment Agreement. The Amended and Restated Master Agreement as amended by the Amendment Agreement, or the Revised Master Agreement, is effective as from January 1, 2018.

Pursuant to the Revised Master Agreement, the fixed annual technical management fee was reduced from $250,000 per vessel to $175,000 per vessel, and certain services previously provided as part of the fixed fee are

 

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now itemized. The aggregate cost, including the costs that are now itemized, for the services provided under the technical management agreement, did not and are not expected to materially differ from the annual technical management fee charged prior to the amendment.

Commercial and Technical Management

Our vessels are commercially managed by SCM and technically managed by SSM pursuant to the Revised Master Agreement, which may be terminated by either party upon 24 months’ notice, unless terminated earlier in accordance with the provisions of the Revised Master Agreement. In the event of the sale of one or more vessels, a notice period of three months and a payment equal to three months of management fees will apply, provided that the termination does not amount to a change in control, including a sale of all or substantially all of our vessels, in which case a payment equal to 24 months of management fees will apply. SCM and SSM are related parties of ours. We expect that additional vessels that we may acquire in the future will also be managed under the Revised Master Agreement or on substantially similar terms.

SCM’s services include securing employment, in the spot market and on time charters, for our vessels. SCM also manages the Scorpio Pools. When our vessels are operating in one of the Scorpio Pools, SCM, the pool manager, charges fees of $300 per vessel per day with respect to our LR1 vessels, $250 per vessel per day with respect to our LR2 vessels, and $325 per vessel per day with respect to each of our Handymax and MR vessels, plus 1.50% commission on gross revenues per charter fixture. These are the same fees that SCM charges other vessel owners in these pools, including third-party owned vessels. For commercial management of our vessels that are not operating in any of the Scorpio Pools, we pay SCM a fee of $250 per vessel per day for each LR1 and LR2 vessel and $300 per vessel per day for each Handymax and MR vessel, plus 1.25% commission on gross revenues per charter fixture. In September 2018, we entered into an agreement with SCM whereby SCM reimbursed a portion of the commissions that SCM charges our vessels to effectively reduce such commissions to 0.85% of gross revenue per charter fixture, effective from September 1, 2018 and ending on June 1, 2019.

SSM’s services include day-to-day vessel operations, performing general maintenance, monitoring regulatory and classification society compliance, customer vetting procedures, supervising the maintenance and general efficiency of vessels, arranging the hiring of qualified officers and crew, arranging and supervising drydocking and repairs, purchasing supplies, spare parts and new equipment for vessels, appointing supervisors and technical consultants and providing technical support. We pay SSM an annual fee of $175,000 plus additional amounts for certain itemized services per vessel to provide technical management services for each of our owned vessels.

Amended Administrative Services Agreement

We have an Amended Administrative Services Agreement with SSH for the provision of administrative staff and office space, and administrative services, including accounting, legal compliance, financial and information technology services. SSH is a related party to us. We reimburse our Administrator for the reasonable direct or indirect expenses it incurs in providing us with the administrative services described above. The services provided to us by our Administrator may be sub-contracted to other entities within Scorpio.

Further, pursuant to our Amended Administrative Services Agreement, our Administrator, on behalf of itself and other members of Scorpio, has agreed that it will not directly own product or crude tankers ranging in size from 35,000 dwt to 200,000 dwt.

Our Amended Administrative Services Agreement may be terminated by us upon two years’ notice.

Competition

The operation of tanker vessels and transportation of crude and petroleum products is extremely competitive, in an industry that is capital intensive and highly fragmented. Demand for transportation of oil and

 

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oil products has declined, and could continue to decline, which could lead to increased competition. Competition arises primarily from other tanker owners, including major oil companies as well as independent tanker companies, some of whom have substantially greater resources than we do. Competition for the transportation of oil and oil products can be intense and depends on price, location, size, age, condition and the acceptability of the tanker and its operators to the charterers. We will have to compete with other tanker owners, including major oil companies as well as independent tanker companies.

Our market share may decrease in the future. We may not be able to compete profitably as we expand our business into new geographic regions or provide new services. New markets may require different skills, knowledge or strategies than we use in our current markets, and the competitors in those new markets may have greater financial strength and capital resources than us.

 

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MANAGEMENT

Set forth below are the names, ages and positions of our directors and executive officers as of May 22, 2020. Our Board of Directors is elected annually, and each director elected holds office for a three-year term or until his or her successor shall have been duly elected and qualified, except in the event of his or her death, resignation, removal or the earlier termination of his or her term of office. The terms of our Class I directors expire at the 2020 annual meeting of shareholders, the terms of our Class II directors expire at the 2021 annual meeting of shareholders, and the terms of our Class III directors expire at the 2022 annual meeting of shareholders. Officers are elected from time to time by vote of our Board of Directors and hold office until a successor is elected. The business address for each director and executive officer is the address of our principal executive office which is Scorpio Tankers Inc., 9, Boulevard Charles III, Monaco 98000.

Certain of our officers participate in business activities not associated with us. As a result, they may devote less time to us than if they were not engaged in other business activities and may owe fiduciary duties to both our shareholders as well as shareholders of other companies to which they may be affiliated, including other Scorpio companies. This may create conflicts of interest in matters involving or affecting us and our customers and it is not certain that any of these conflicts of interest would be resolved in our favor. While there are no formal requirements or guidelines for the allocation of our officers’ time between our business and the business of members of Scorpio, their performance of their duties is subject to the ongoing oversight of our Board of Directors.

 

Name

  

Age

  

Position

Emanuele A. Lauro

   41    Chairman, Class I Director, and Chief Executive Officer

Robert Bugbee

   59    President and Class II Director

Cameron Mackey

   51    Chief Operating Officer and Class III Director

Brian Lee

   53    Chief Financial Officer

Filippo Lauro

   44    Vice President

Fan Yang

   32    Secretary

Alexandre Albertini

   43    Class III Director

Ademaro Lanzara

   77    Class I Director

Marianne Økland

   58    Class III Director

Jose Tarruella

   49    Class II Director

Reidar Brekke

   58    Class II Director

Merrick Rayner

   65    Class I Director

Biographical information concerning the directors and executive officers listed above is set forth below.

Emanuele A. Lauro, Chairman and Chief Executive Officer

Emanuele A. Lauro, the Company’s founder, has served as Chairman and Chief Executive Officer since the closing of our initial public offering in April 2010. Mr. Emanuele Lauro also co-founded and serves as Chairman and Chief Executive Officer of Scorpio Bulkers Inc. (NYSE: SALT), which was formed in 2013 and of Hermitage Offshore Services Ltd. (NYSE: PSV) since December 2018. He also served as director of the Standard Club from May 2013 to January 2019. Mr. Emanuele Lauro joined Scorpio in 2003 and has continued to serve there in a senior management position since 2004. Under his leadership, Scorpio has grown from an owner of three vessels in 2003 to become a leading operator and manager of more than 250 vessels in 2019. Over the course of the last several years, Mr. Emanuele Lauro has founded and developed all of the Scorpio Pools in addition to several other ventures such as Scorpio Logistics, which owns and operates specialized assets engaged in the transshipment of dry cargo commodities and invests in coastal transportation and port infrastructure developments in Asia and Africa since 2007. He has a degree in international business from the European Business School, London. Mr. Emanuele Lauro is the brother of our Vice President, Mr. Filippo Lauro.

 

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Robert Bugbee, President and Director

Robert Bugbee has served as a Director and President since the closing of our initial public offering in April 2010. He has more than 35 years of experience in the shipping industry. Mr. Bugbee also co-founded and serves as President and Director of Scorpio Bulkers Inc. since July and April 2013, respectively, and of Hermitage Offshore Services Ltd. since December 2018. He joined Scorpio in March 2009 and has continued to serve there in a senior management position. Prior to joining Scorpio, Mr. Bugbee was a partner at Ospraie Management LLP between 2007 and 2008, a company which advises and invests in commodities and basic industries. From 1995 to 2007, he was employed at OMI Corporation, or OMI, a NYSE-listed tanker company which was sold in 2007. While at OMI, Mr. Bugbee served as President from January 2002 until the sale of the company, and before that served as Executive Vice President since January 2001, Chief Operating Officer since March 2000, and Senior Vice President from August 1995 to June 1998. Mr. Bugbee joined OMI in February 1995. Prior to this, he was employed by Gotaas-Larsen Shipping Corporation since 1984. During this time, Mr. Bugbee took a two year sabbatical beginning 1987 for the M.I.B. Program at the Norwegian School for Economics and Business Administration in Bergen. He has a B.A. (Honors) from London University.

Cameron Mackey, Chief Operating Officer and Director

Cameron Mackey has served as the Company’s Chief Operating Officer since the closing of our initial public offering in April 2010 and as a Director since May 2013. Mr. Mackey also serves as Chief Operating Officer of Scorpio Bulkers Inc. since July 2013 and of Hermitage Offshore Services Ltd. since December 2018 where he also served as a director since July 2019. He joined Scorpio in March 2009, where he continues to serve in a senior management position. Prior to joining Scorpio, Mr. Mackey was an equity and commodity analyst at Ospraie Management LLC from 2007 to 2008. Prior to that, he was Senior Vice President of OMI Marine Services LLC from 2004 to 2007, where he was also in Business Development from 2002 to 2004. Mr. Mackey has been employed in the shipping industry since 1994 and, earlier in his career, was employed in unlicensed and licensed positions in the merchant navy, primarily on tankers in the international fleet of Mobil Oil Corporation, where he held the qualification of Master Mariner. He has an M.B.A. from the Sloan School of Management at the Massachusetts Institute of Technology, a B.S. from the Massachusetts Maritime Academy and a B.A. from Princeton University.

Brian Lee, Chief Financial Officer

Brian Lee has served as Chief Financial Officer since the closing of our initial public offering in April 2010. He joined Scorpio in April 2009, where he continues to serve in a senior management position. He has been employed in the shipping industry since 1998. Prior to joining Scorpio, he was the Controller of OMI from 2001 until the sale of the company in 2007. Mr. Lee has an M.B.A. from the University of Connecticut and has a B.S. in Business Administration from the University at Buffalo, State University of New York.

Filippo Lauro, Vice President

Mr. Filippo Lauro has served as an executive officer of the Company with the title of Vice President since May 2015. He also serves as Vice President of Scorpio Bulkers Inc. since June 2016 and of Hermitage Offshore Services Ltd. since December 2018. Mr. Filippo Lauro joined Scorpio in 2010 and has continued to serve there in a senior management position. Prior to joining Scorpio, he was the founder of and held senior executive roles in several private companies, primarily active in real estate, golf courses and resorts development. Mr. Filippo Lauro is the brother of our Chairman and Chief Executive Officer, Mr. Emanuele Lauro.

Fan Yang, Secretary

Ms. Fan Yang joined Scorpio in February 2018 and also serves as secretary of Scorpio Bulkers Inc. and Hermitage Offshore Services Ltd. She is admitted as a solicitor of the Supreme Court of England and Wales.

 

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Prior to joining Scorpio, Ms. Yang was in private practice in London at Travers Smith LLP and Freshfields Bruckhaus Deringer LLP, and led a law reform project at the Law Commission, an independent body that makes recommendations for the reform of the law of England and Wales to Parliament. She has a BA in Law from the University of Cambridge.

Ademaro Lanzara, Director

Ademaro Lanzara has served on our Board of Directors since the closing of our initial public offering in April 2010 and is our lead independent director. Mr. Lanzara has served as Chairman of Alkemia Capital Partners Sgr SpA, Padova since June 2018. Mr. Lanzara previously served as the Chairman of NEM Sgr SpA, Vicenza from November 2013 to June 2018, as the Chairman of BPV Finance (International) Plc Dublin from 2008 to May 2018, as the deputy Chairman and Chairman of the Audit and Compliance Committee of Cattolica Life DAC, Dublin from 2011 to July 2017 and as Chairman of BPVI Fondi Sgr SpA, Milano from April 2012 to November 2013. From 1963 to 2006, Mr. Lanzara held a number of positions with BNL spa Rome, a leading Italian banking group, including Deputy Group CEO, acting as the Chairman of the Credit Committee and Chairman of the Finance Committee. He also served as Chairman and/or director of a number of BNL controlled banks or financial companies in Europe, the United States and South America. He formerly served as a director of each of Istituto dell’Enciclopedia Italiana fondata da Giovanni Treccani Spa, Rome, Italy, the Institute of International Finance Inc. in Washington DC, Compagnie Financiere Edmond de Rothschild Banque, in Paris, France, ABI-Italian Banking Association in Rome, Italy, FITD-Interbank deposit Protection Fund, in Rome, Italy, ICC International Chamber of Commerce Italian section, Rome, Italy and Co-Chairman Round Table of Bankers and Small and Medium Enterprises, European Commission, in Brussels, Belgium. Mr. Lanzara has an economics degree (graduated magna cum laude) from the University of Naples, a law degree from the University of Naples and completed the Program for Management Development (PMD) at Harvard Business School.

Alexandre Albertini, Director

Alexandre Albertini has served on our Board of Directors since the closing of our initial public offering in April 2010. Mr. Albertini has more than 20 years of experience in the shipping industry. He has been employed by Marfin Management SAM, a drybulk ship management company, since 1997 and has served as its CEO since October 2010. Marfin operates 11 vessels, providing services such as technical and crew management as well as insurance, legal, financial, and information technology. In 2017, Mr. Albertini founded Factor8 Shipping SARL, a drybulk commercial management company managing on average 15 vessels. He also serves as President of Ant. Topic srl, a vessel and crewing agent based in Trieste, Italy. Mr. Albertini serves on the board of a private company in addition to various trade associations; BIMCO, Monaco Chamber of Shipping and since January 2016 has been a Director of The Steamship Mutual Underwriting Association (Bermuda) Limited.

Marianne Økland, Director

Marianne Økland has served on the Company’s Board of Directors since April 2013. She is also a non-executive director and Chair of the Audit Committee at Hermitage Offshore Services Ltd. Between 2010 and 2019, she held various non-executive director positions at IDFC Limited, IDFC Alternatives (India), Islandsbanki (Iceland), the National Bank of Greece and NLB (Slovenia). She was also a member of the Audit Committee of the National Bank of Greece, and the Chair of the Audit Committee of each of IDFC Limited and NLB (Solvenia). In addition, Ms. Økland served as Managing Director of Avista Partners, a London based consultancy company that provides advisory services and raises capital, from 2009 to 2018. Between 1993 and 2008, she held various investment banking positions at JP Morgan Chase & Co. and UBS where she focused on debt capital raising and structuring. Ms. Økland has led many transactions for large Nordic banks and insurance companies, and worked on some of the most significant mergers and acquisitions in these sectors. Between 1988 and 1993, she headed European operations of Marsoft, a Boston, Oslo and London based consulting firm that advises banks and large shipping, oil and raw material companies on shipping strategies and investments. Ms. Økland holds a M.Sc. degree in Finance and Economics from the Norwegian School of Economics and Business Administration where she also worked as a researcher and taught mathematics and statistics.

 

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Jose Tarruella, Director

Jose Tarruella has served on our Board of Directors since May 2013. He is the founder and Chairman of Taorfi Gestion s.l., a company specializing in advertising and public relations, since February 2018. Mr. Tarruella is also the founder and Chairman of Camino de Esles s.l., a high-end restaurant chain with franchises throughout Madrid, Spain, since 2007. Prior to forming Taorfi Gestion and Camino de Esles, Mr. Tarruella was a Director in Group Tragaluz, which owns and operates restaurants throughout Spain. Mr. Tarruella also acted as a consultant for the Spanish interests of Rank Group plc (LSE: RNK.L) a leading European gaming-based entertainment business. He has been involved in corporate relations for Esade Business School in Madrid. He earned an International MBA from Esade Business School in Barcelona and an MA from the University of Navarre in Spain.

Reidar C. Brekke, Director

Reidar C. Brekke has served on the Company’s Board of Directors since December 2016. Mr. Brekke has over 20 years’ experience in the international energy, container logistics and transportation sector. He also serves as a member of the Board of Directors of Diana Containerships Inc. (NASDAQ: DCIX), a position he has held since June 2010, and as partner of Brightstar Capital Partners, a middle market private equity firm. From December 2012 to August 2018, Mr. Brekke served as a board member and President of Intermodal Holdings LP, a New York based portfolio company that invests in and operates marine containers. From 2008 to 2012, Mr. Brekke served as President of Energy Capital Solution Inc., a company that provides strategic and financial advisory services to international shipping, logistics and energy related companies. From 2003 to 2008, he served as Manager of Poten Capital Services LLC, a registered broker-dealer specialized in the maritime sector. Prior to 2003, Mr. Brekke served as Chief Financial Officer, then President and Chief Operating Officer, of SynchroNet Marine, a logistics service provider to the global container transportation industry. He also held various senior positions with AMA Capital Partners LLC (formerly American Marine Advisers), a merchant banking firm focused on the maritime and energy industries. Furthermore, Mr. Brekke has been an adjunct professor at Columbia University’s School of International and Public Affairs—Center for Energy, Marine Transportation and Public Policy. Mr. Brekke graduated from the New Mexico Military Institute in 1986 and has an MBA from the University of Nevada, Reno.

Merrick Rayner, Director

Merrick Rayner has served on our Board of Directors since September 2017. Mr. Rayner has over 40 years of experience in the tanker business. From 1974 to 2003, Mr. Rayner was a broker at H. Clarkson & Company Limited shipbrokers, with experience in both the deep-sea tanker chartering business as well as new and second hand vessel sale and purchase. From 1987 to 1989, Mr. Rayner served as Director of Clarkson Sale and Purchase Division. From 1989 until leaving H. Clarkson & Company Limited in 2003, he was a director of the company, and also served as a director of Clarkson Research Studies from 1992 until 2003. In 2003, Mr. Rayner joined E.A. Gibson’s shipbrokers as a broker, where he developed the company’s time charter group. He also served as a director of Gibson’s from 2012 until his retirement in 2016. Mr. Rayner currently resides in the United Kingdom.

 

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DESCRIPTION OF NOTES

The following description is only a summary of certain provisions of the Notes and the Indenture. You should read these documents in their entirety because they, and not this description, define your rights as holders of the Notes. The following summary does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the Trust Indenture Act of 1939, as amended (the “TIA”), and to all of the provisions of the Indenture and those terms made a part of the Indenture by reference to the TIA. Unless the context requires otherwise, all references to “we,” “us,” “our” and the “Company” in this section refer solely to Scorpio Tankers Inc., the issuer of the Notes, and not to any of its subsidiaries.

The following description of the particular terms of the Notes offered hereby supplements the “Description of Debt Securities” set forth in the accompanying base prospectus.

General

The Notes will be issued under an indenture dated as of May 12, 2014 (the “Base Indenture”), between us and Deutsche Bank Trust Company Americas, as trustee (the “Trustee”), as supplemented by a fourth supplemental indenture to be dated as of May 29, 2020, between us and the Trustee (the “Supplemental Indenture”, and, together with the Base Indenture, the “Indenture”).

The Notes will be a separate series of our “debt securities” (as that term is used in the accompanying base prospectus).

Except as set forth under “—Optional Redemption,” the Notes may not be redeemed in whole or in part, at any time.

The Notes will initially be limited to $25.0 million in aggregate principal amount (or $28.75 million if the underwriters exercise their option to purchase additional Notes in full). The Indenture will not limit the amount of debt securities that we may issue under the Indenture and will provide that debt securities may be issued from time to time in one or more series. We may from time to time, without giving notice to or seeking the consent of the holders of the Notes, issue debt securities having the same interest rate, maturity and other terms (except for the issue date, the public offering price and the first interest payment date and/or amount) as, and ranking equally and ratably with, the Notes. Any additional debt securities having such similar terms (“Additional Notes”), together with the Notes, will constitute a single series of debt securities under the Indenture, including for purposes of voting and redemptions, and any Additional Notes issued as part of the same series as the Notes will be fungible with the Notes for United States federal income tax purposes or will have a separate CUSIP number from that for the Notes. No additional debt securities may be issued if an event of default has occurred and is continuing with respect to the Notes. For the avoidance of doubt, so long as no default or event of default hereunder would result therefrom, nothing contained herein shall prohibit the Company from entering into bank debt, including without limitation, bank debt that may be syndicated.

Other than as described under “—Certain Covenants,” the Indenture and the terms of the Notes will not contain any covenants restricting the operation of our business or our ability to incur debt or grant liens on our assets or that are designed to afford holders of the Notes protection in a highly leveraged or other transaction involving us that may adversely affect holders of the Notes.

The Notes will mature on June 30, 2025 and will bear interest at an annual rate of 7.00% per year.

Interest on the Notes will accrue from and including May 29, 2020, or, if interest has already been paid, from and including the last interest payment date in respect of which interest has been paid or duly provided for to, but excluding, the next succeeding interest payment date, the maturity date or the redemption date, as the case may be. We will make interest payments on the Notes quarterly on March 30, June 30, September 30 and December 30 of each year, beginning on June 30, 2020, to holders of record at the close of business on the

 

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March 15, June 15, September 15 or December 15 (whether or not that date is a business day), as the case may be, immediately preceding such interest payment date. Interest on the Notes will be computed on the basis of a 360-day year composed of twelve 30-day months.

If any interest payment date or the maturity date of the Notes falls on a day that is not a business day, the related payment of interest or principal, as the case may be, will be made on the next business day as if it were made on the date such payment was due, and no interest will accrue on the amounts so payable for the period from and after such interest payment date or the maturity date of the Notes, as the case may be, to such next business day.

The Notes will not be entitled to the benefit of any sinking fund.

The Notes will be issued only in fully registered form without coupons and in minimum denominations of $25.00 and integral multiples of $25.00 in excess thereof. The Notes will be represented by one or more global securities registered in the name of Cede & Co., as nominee of The Depository Trust Company (“DTC”). Except as described under “—Book-entry System; Delivery and Form,” the Notes will not be issuable in certificated form.

Ranking

The Notes will be our unsubordinated unsecured obligations and will rank equally in right of payment with all our existing and future unsubordinated unsecured indebtedness. The Notes will rank senior in right of payment to all of our existing and future subordinated indebtedness. The Notes will effectively rank junior to our current and any future secured indebtedness incurred by us, to the extent of the value of the assets securing such indebtedness. See “Risk Factors—The Notes will be unsecured obligations and will be effectively subordinated to our secured debt.”

The Notes will be obligations solely of the Company and will not be guaranteed by any of our subsidiaries. We derive substantially all of our operating income and cash flow from our investments in our subsidiaries. Claims of creditors of our subsidiaries generally will have priority with respect to the assets and earnings of such subsidiaries over the claims of our creditors, including holders of the Notes. As a result, the Notes will be effectively subordinated to creditors, including trade creditors and preferred stockholders, if any, other than us, of our subsidiaries. See “Risk Factors—Our subsidiaries conduct the substantial majority of our operations and own our operating assets, and your right to receive payments on the Notes is structurally subordinated to the rights of the lenders of our subsidiaries.”

As of May 22, 2020, we had approximately $3.1 billion of outstanding indebtedness (of which approximately $2.9 billion was secured or part of vessel leasing arrangements).

Listing

We have applied to list the Notes on the NYSE under the symbol “SBBA.” We expect trading in the Notes to begin within 30 days after the original issue date of the Notes.

Trading Characteristics

The Notes are expected to trade at a price that takes into account the value, if any, of accrued but unpaid interest; thus, purchasers will not pay and sellers will not receive accrued and unpaid interest with respect to the Notes that is not included in the trading price thereof. Any portion of the trading price of a Note received that is attributable to accrued interest will be treated as ordinary interest income for federal income tax purposes and will not be treated as part of the amount realized for purposes of determining gain or loss on the disposition of the Note.

 

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Additional Amounts

All payments made by or on behalf of the Company under or with respect to the Notes will be made free and clear of and without withholding or deduction for, or on account of, any present or future tax, duty, levy, impost, assessment or other governmental charge (including penalties, interest and other liabilities related thereto) (hereinafter “Taxes”) unless the withholding or deduction of such Taxes is then required by law. If any deduction or withholding for, or on account of, any Taxes imposed or levied by or on behalf of the government of the Republic of Marshall Islands or any political subdivision or any authority or agency therein or thereof having power to tax, or any other jurisdiction in which the Company (including any successor entity) is organized or is otherwise resident for tax purposes, or any jurisdiction from or through which payment is made (including, without limitation, the jurisdiction of each paying agent) (each a “Specified Tax Jurisdiction”), will at any time be required to be made from any payments made under or with respect to the Notes, the Company will pay such additional amounts (the “Additional Amounts”) as may be necessary so that the net amount received in respect of such payments by a holder (including Additional Amounts) after such withholding or deduction will not be less than the amount such holder would have received if such Taxes had not been withheld or deducted; provided, however, that the foregoing obligation to pay Additional Amounts does not apply to:

(1) any Taxes that would not have been so imposed but for the holder or beneficial owner of the Notes having any present or former connection with the Specified Tax Jurisdiction (other than the mere acquisition, ownership, holding, enforcement or receipt of payment in respect of the Notes);

(2) any estate, inheritance, gift, sales, excise, transfer, personal property tax or similar tax, assessment or governmental charge;

(3) any Taxes payable other than by deduction or withholding from payments under, or with respect to, the Notes;

(4) any Taxes imposed as a result of the failure of the holder or beneficial owner of the Notes to complete, execute and deliver to the Company any form or document to the extent applicable to such holder or beneficial owner that may be required by law or by reason of administration of such law and which is reasonably requested in writing to be delivered to the Company in order to enable the Company to make payments on the Notes without deduction or withholding for Taxes, or with deduction or withholding of a lesser amount, which form or document will be delivered within 60 days of a written request therefor by the Company;

(5) any Taxes that would not have been so imposed but for the beneficiary of the payment having presented a note for payment (in cases in which presentation is required) more than 30 days after the date on which such payment or such note became due and payable or the date on which payment thereof is duly provided for, whichever is later (except to the extent that the holder would have been entitled to Additional Amounts had the note been presented on the last day of such 30-day period);

(6) any Taxes imposed on or with respect to any payment by the Company to the holder if such holder is a fiduciary or partnership or person other than the sole beneficial owner of such payment, to the extent that a beneficiary or settlor with respect to such fiduciary, a member of such partnership or the beneficial owner of such payment would not have been entitled to Additional Amounts had such beneficiary, settlor, member or beneficial owner been the actual holder of such note;

(7) any Taxes that are required to be deducted or withheld on a payment pursuant to European Council Directive 2003/48/EC or any law implementing, or introduced in order to conform to, such directive; or

(8) any combination of items (1) through (7) above.

If the Company becomes aware that it will be obligated to pay Additional Amounts with respect to any payment under or with respect to the Notes, the Company will deliver to the Trustee and paying agent at least 30 days prior to the date of that payment (unless the obligation to pay Additional Amounts arises after the 30th day prior to that payment date, in which case the Company will notify the Trustee and paying agent promptly

 

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thereafter but in no event later than five calendar days prior to the date of payment) an officers’ certificate stating the fact that Additional Amounts will be payable and the amount so payable. The officers’ certificate must also set forth any other information necessary to enable the paying agent to pay Additional Amounts to holders on the relevant payment date. The Trustee and paying agent will be entitled to rely solely on such officers’ certificate as conclusive proof that such payments are necessary. The Company will provide the Trustee and paying agent with documentation reasonably satisfactory to the Trustee and paying agent evidencing the payment of Additional Amounts.

The Company will make all withholdings and deductions required by law and will remit the full amount deducted or withheld to the relevant governmental authority on a timely basis in accordance with applicable law. As soon as practicable, the Company will provide the Trustee and paying agent with an official receipt or, if official receipts are not obtainable, other documentation reasonably satisfactory to the Trustee and paying agent evidencing the payment of the Taxes so withheld or deducted. Upon written request, copies of those receipts or other documentation, as the case may be, will be made available by the Trustee and paying agent to the holders of the Notes.

Whenever in the Indenture there is referenced, in any context, the payment of amounts based upon the principal amount of the Notes or of principal, interest or any other amount payable under, or with respect to, the Notes, such reference will be deemed to include payment of Additional Amounts as described under this caption to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof.

The Company will indemnify a holder, within 10 business days after written demand therefor, for the full amount of any Taxes paid by such holder to a governmental authority of a Specified Tax Jurisdiction, on or with respect to any payment by on or account of any obligation of the Company to withhold or deduct an amount on account of Taxes for which the Company would have been obligated to pay Additional Amounts hereunder and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant governmental authority. A certificate as to the amount of such payment or liability delivered to the Company by a holder will be conclusive absent manifest error.

The Company will pay any present or future stamp, court or documentary taxes or any other excise or property taxes, charges or similar levies that arise in any Specified Tax Jurisdiction from the execution, delivery, enforcement or registration of the Notes, the Indenture or any other document or instrument in relation thereof, or the receipt of any payments with respect to the Notes, and the Company will indemnify the holders for any such taxes paid by such holders.

The obligations described under this caption will survive any termination, defeasance or discharge of the Indenture and will apply mutatis mutandis to any jurisdiction in which any successor person to the Company is organized or any political subdivision or authority or agency thereof or therein.

Optional Redemption

Except as described below and under “—Optional Redemption Upon Change of Control,” the Notes will not be redeemable by us at our option prior to June 30, 2022.

 

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The Notes will be redeemable at our option, in whole or in part, at any time on or after June 30, 2022, upon providing not less than 30 nor more than 60 days prior notice, at the following redemption prices (expressed as a percentage of the principal amount to be redeemed), plus accrued and unpaid interest, if any, to but excluding, the date fixed for redemption (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date) if redeemed during the twelve-month period beginning on June 30 of the years indicated below:

 

Year

   Redemption
Price
 

2022

     102.0

2023

     101.0

2024 and thereafter

     100.0

Additionally, we or our affiliates may purchase Notes from investors who are willing to sell from time to time, either in the open market at prevailing prices or in private transactions at negotiated prices. Notes that we or they purchase may, at our discretion, be held, resold or canceled.

Optional Redemption Upon Change of Control

Prior to June 30, 2022, the Company may redeem the Notes, at its option, in whole but not in part, at any time within 90 days of the occurrence of the Change of Control, upon providing not less than 30 nor more than 60 days’ notice, at 104% of the principal amount to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the date fixed for redemption (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date).

A “Change of Control” will be deemed to have occurred at the time after the Notes are originally issued if:

 

  (1)

any “Person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), other than one or more Permitted Holders, is or becomes the “Beneficial Owner” (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that for purposes of this clause (1) such Person shall be deemed to have “Beneficial Ownership” of all shares that any such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 50.0% of the total voting power of the Voting Stock of the Company;

 

  (2)

the merger or consolidation of the Company with or into another Person or the merger of another Person with or into the Company, or the sale of all or substantially all the assets of the Company (determined on a consolidated basis) to another Person other than (i) a transaction in which the survivor or transferee is a Person that is controlled by the Permitted Holder or (ii) a transaction following which, in the case of a merger or consolidation transaction, holders of securities that represented 100.0% of the Voting Stock of the Company immediately prior to such transaction (or other securities into which such securities are converted as part of such merger or consolidation transaction) own directly or indirectly at least a majority of the voting power of the Voting Stock of the surviving Person in such merger or consolidation transaction immediately after such transaction and in substantially the same proportion as before the transaction;

 

  (3)

“Continuing Directors” (as defined below) cease to constitute at least a majority of the Company’s board of directors; or

 

  (4)

if after the Notes are initially listed on the NYSE or another national securities exchange, the Notes fail, or at any point cease, to be listed on the NYSE or such other national securities exchange. For the avoidance of doubt, it shall not be a Change of Control if after the Notes are initially listed on the NYSE or another national securities exchange, such Notes are subsequently listed on a different national securities exchange and the prior listing is terminated.

 

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Continuing Director” means a director who either was a member of our board of directors on the issue date of the Notes or who becomes a member of our board of directors subsequent to that date and whose election, appointment or nomination for election by our stockholders is duly approved by a majority of the continuing directors on our board of directors at the time of such approval by such election or appointment.

Permitted Holder” means (a) Emanuele Lauro, (b) Scorpio Services Holding Limited, (c) any immediate family member of Emanuele Lauro, or (d) one or more affiliates of any person listed in (a), (b) or (c). “Immediate family members” shall refer to a person’s spouse, parent, children and siblings.

Voting Stock” of any specified Person as of any date means the Capital Stock of such Person that is at the time entitled to vote generally in the election of the Board of Directors of such Person.

Selection for Redemption

If fewer than all of the Notes are to be redeemed at any time, the registrar will select the Notes, or portions thereof, to be redeemed, in compliance with the requirements of DTC, or if DTC prescribes no method of selection, on a pro rata basis, by lot or by any other method the registrar deems fair and reasonable; provided, however, that Notes, and portions thereof, selected for redemption shall only be in amounts of $25.00 or whole multiples of $25.00.

Notice of Redemption

Notices of redemption shall be sent at least 30 but not more than 60 days before the applicable redemption date to each holder of Notes to be redeemed at its registered address. We will, at least five calendar days prior to the publication or sending of any notice of redemption of any Notes as described under this caption, furnish to the Trustee and the registrar written notice of redemption.

A notice of redemption will identify the Notes to be redeemed and will state the provision of the Indenture pursuant to which the Notes are being redeemed; the redemption date; the redemption price, including the portion thereof constituting accrued and unpaid interest, if any; the amount of Additional Amounts, if any, payable on the date fixed for redemption; the name and address of the paying agent; that Notes called for redemption must be surrendered to the paying agent to collect the redemption price; that unless we default in making the redemption payment on the Notes called for redemption, interest on such Notes will cease to accrue on and after the redemption date; and that the Notes called for redemption will become due on the date fixed for redemption.

If money sufficient to pay the redemption price of all of the Notes, or portions thereof, to be redeemed on the applicable redemption date is irrevocably deposited with the Trustee or paying agent on or before the applicable redemption date, then on and after such redemption date, interest will cease to accrue on such Notes, or such portion thereof, called for redemption and such Notes will be deemed to be no longer outstanding.

Certain Covenants

The Indenture includes the following restrictive covenants. Certain defined terms relevant to the covenants are set forth under “—Certain Definitions and Interpretations” below.

(1) Limitation on Borrowings. The Company shall not permit Net Borrowings to equal or exceed 70.0% of Total Assets.

(2) Limitation on Minimum Net Worth. The Company shall ensure that Net Worth always exceeds six hundred fifty million dollars (US$650,000,000).

(3) Restricted Payments. If (i) an event of default or an event or circumstance which, with the giving of any notice or the lapse of time, would constitute an event of default has occurred and is continuing, (ii) an

 

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event of default or an event or circumstance which, with the giving of any notice or the lapse of time, would constitute an event of default would result therefrom, (iii) the Company is not in compliance with the covenant described under “—Limitation on Borrowings” or “—Limitation on Minimum Net Worth” in Certain Covenants hereof, or (iv) any payment of dividends or any form of distribution or return of capital would result in the Company not being in compliance with the covenant described under “—Limitation on Borrowings” or “—Limitation on Minimum Net Worth” in Certain Covenants hereof, then none of the Company or any subsidiary will declare or pay any dividends or return any capital to its equity holders (other than the Company or a wholly-owned subsidiary of the Company) or authorize or make any other distribution, payment or delivery of property or cash to its equity holders (other than the Company or a wholly-owned subsidiary of the Company), or redeem, retire, purchase or otherwise acquire, directly or indirectly, for value, any interest of any class or series of its equity interests (or acquire any rights, options or warrants relating thereto but not including convertible debt) now or hereafter outstanding and held by persons other than the Company or any wholly-owned subsidiary, or repay any subordinated loans to equity holders (other than the Company or a wholly-owned subsidiary of the Company) or set aside any funds for any of the foregoing purposes (“Restricted Payments”).

(4) Line of Business. The Company will not, nor will the Company permit any of its subsidiaries (other than an Immaterial Subsidiary) to, engage primarily in any business other than a Permitted Business.

(5) Limitation on Asset Sales. The Company shall not, and shall not permit any of its subsidiaries to, in the ordinary course of business or otherwise, sell, lease, convey, transfer or otherwise dispose of any of the Company’s, or of any such subsidiary’s, assets (including capital stock and warrants, options or other rights to acquire capital stock) (an “Asset Sale”), other than pursuant to a Permitted Asset Sale or a Limited Permitted Asset Sale, unless (A) the Company receives, or the relevant subsidiary of the Company receives, consideration at the time of such Asset Sale at least equal to the fair market value (including as to the value of all non-cash consideration), as determined in good faith by the board of directors of the Company, of the assets subject to such Asset Sale, and (B) within 365 days after the receipt of any Net Proceeds from an Asset Sale, the Company or the relevant subsidiary of the Company, as the case may be, shall apply all such Net Proceeds to:

(a) repay or prepay indebtedness under any Credit Facility secured by a lien on assets of the Company or any of its subsidiaries;

(b) acquire all or substantially all of the assets of, or any Capital Stock of, a person primarily engaged in a Permitted Business; provided, that in the case of the acquisition of Capital Stock of any Person, such Person is or becomes a subsidiary of the Company and will be subject to all restrictions described in this “Description of Notes” as applying to subsidiaries of the Company existing on the date the Notes are issued;

(c) make a capital expenditure;

(d) acquire other assets that are not classified as current assets under IFRS and that are used or useful in a Permitted Business (including, without limitation, Vessels and Related Assets);

(e) repay unsecured senior indebtedness of the Company or any subsidiary (including any redemption, repurchase, retirement or other acquisition of the Notes); and

(f) any combination of the transactions permitted by the foregoing clauses (a) through (e),

provided, that any sale, assignment, conveyance, transfer or lease of all or substantially all of the Company’s properties and assets to any person or persons (whether in a single transaction or a series of related transactions) will be governed by the provisions described under the captions “—Optional Redemption Upon Change of Control” and “—Consolidation, Merger and Sale of Assets,” and not by the provisions of this “—Limitation on Asset Sales.”

A (1) binding contract to apply the Net Proceeds in accordance with clauses (b) through (d) above shall toll the 365-day period in respect of such Net Proceeds or (2) determination by the Company to apply all or a portion

 

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of such Net Proceeds toward the exercise of an outstanding purchase option contract shall toll the 365-day period in respect of such Net Proceeds or portion thereof, in each case, for a period not to exceed 365 days or, in the case of a binding contract to acquire one or more Vessels, until the end of the construction or delivery period specified in such binding contract, as the same may be extended, from the expiration of the aforementioned 365-day period, provided that such binding contract and such determination by the Company, in each case, shall be treated as a permitted application of Net Proceeds from the date of such binding contract or determination until and only until the earlier of (x) the date on which such acquisition or expenditure is consummated and (y) (i) in the case of a construction contract or any exercised purchase option contract, the date of expiration or termination of such construction contract or exercised purchase option contract and (ii) in all other cases, the 365th day following the expiration of the aforementioned 365-day period.

Pending the final application of any Net Proceeds, the Company or any of its subsidiaries may apply Net Proceeds to the repayment or reduction of outstanding indebtedness or otherwise invest the Net Proceeds in any manner that is not prohibited by the Indenture.

If a Limited Permitted Asset Sale occurs at any time, the Company must, within 30 days of such Limited Permitted Asset Sale, make an offer to purchase Notes having a principal amount equal to the Excess Proceeds of such Limited Permitted Asset Sale. The price that the Company will be required to pay (the “Limited Permitted Asset Sale Purchase Price”) is equal to 101.0% of the principal amount of the Notes to be purchased, plus accrued and unpaid interest to, but excluding, the Limited Permitted Asset Sale Purchase Date, subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date. If the offer to purchase is for less than all of the outstanding Notes and Notes in an aggregate principal amount in excess of the purchase amount are tendered and not withdrawn pursuant to the offer, the Company will purchase Notes having an aggregate principal amount equal to the purchase amount on a pro rata basis, with adjustments so that only Notes in multiples of $25.00 principal amount will be purchased. The “Limited Permitted Asset Sale Purchase Date” will be a date specified by us that is not less than 20 nor more than 35 calendar days following the date of our Limited Permitted Asset Sale notice as described below. Any Notes purchased by us will be paid for in cash. See “—Offer to Purchase.”

(6) Compliance Certificate. The Company shall deliver to the Trustee, within 120 days after the end of each fiscal year, an officers’ certificate signed by two of the Company’s officers, one of which shall be the principal executive, principal financial or principal accounting officer of the Company, stating that a review of the activities of the Company and its subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under the Indenture, and further stating, as to such officers signing such certificate, that to the best of his or her knowledge the Company is not in default in the performance or observance of any of the terms, provisions and conditions of the Indenture (or, if a default or event of default shall have occurred, describing all such defaults or events of default of which he or she may have knowledge and what action the Company is taking or proposes to take with respect thereto).

In addition, the Company shall deliver to the Trustee, within 30 days after the occurrence thereof, written notice in the form of an officers’ certificate signed by two of the Company’s officers, one of which shall be the principal executive, principal financial or principal accounting officer of the Company, of the occurrence of any event of default described under “—Events of Default” and any event of which such officers become aware that with the giving of notice or the lapse of time or both would become such an event of default, its status and what action the Company is taking or proposes to take with respect thereto.

Certain Definitions and Interpretations

For purposes of the foregoing provisions, the following definitions shall apply:

Cash and Cash Equivalents” means, as of a given date, the Company’s cash and cash equivalents as determined in accordance with IFRS.

 

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Credit Facility” means, with respect to Scorpio Tankers Inc. or any of its subsidiaries, any debt or commercial paper facilities with banks or other lenders providing for revolving credit, term loans or letters of credit or any agreement treated as a finance or capital lease if and to the extent any of the preceding items would appear as a liability upon a balance sheet of the specified person prepared in accordance with IFRS.

IFRS” means the International Financial Reporting Standards as issued by the International Accounting Standards Board.

Immaterial Subsidiary” means any subsidiary whose net book value of its assets or revenues is not in excess of 10.0% of the net book value of the consolidated Total Assets or consolidated vessel revenue of the Company as set out in the annual audited consolidated financial statements of the Company for the immediately preceding fiscal year, provided that, at no time shall (a) the total assets of all Immaterial Subsidiaries exceed 10.0% of the consolidated Total Assets of the Company or (b) the total vessel revenues calculated with respect to all Immaterial Subsidiaries (calculated on a stand-alone basis), in the aggregate, exceed 10.0% of the consolidated vessel revenue of the Company, in each case as set out in the annual audited consolidated financial statements of the Company for the immediately preceding fiscal year.

“Limited Permitted Asset Sale” means any sale, transfer, lease or other disposition of any of the Company’s or its subsidiaries’ assets (in the ordinary course of business or otherwise) during a single fiscal year, in a single transaction or series of transactions, (i) the Net Proceeds of which have not been applied pursuant to clauses (1) through (6) in accordance with the requirements set forth in “—Limitation on Asset Sales” and (ii) that results in Net Proceeds in excess of the amount provided for in clause (1) of the definition of Permitted Asset Sale, provided that the Net Proceeds of such Limited Permitted Asset Sale represent consideration at the time of such sale, transfer, lease or other disposition at least equal to the fair market value (including as to the value of all non-cash consideration), as determined in good faith by the board of directors of the Company, of the assets subject to such sale, transfer, lease or other disposition. Any Net Proceeds that are not applied or invested as provided in (i) above and are in excess of the amount provided for in clause (1) of the definition of Permitted Asset Sale will constitute “Excess Proceeds.” For the avoidance of doubt, a Limited Permitted Asset Sale may occur only once. Following the first occurrence of a Limited Permitted Asset Sale, no further Limited Permitted Asset Sale shall be permitted;

Net Borrowings” means, in respect of Scorpio Tankers Inc. on a consolidated basis, as of a given date the aggregate of the following, without duplication:

 

  (1)

Total Borrowings; less

 

  (2)

Cash and Cash Equivalents.

Net Proceeds” means the aggregate cash proceeds received by the Company or any of its subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale, but excluding any other consideration received in the form of assumption by the purchaser of indebtedness or other obligations relating to the property or assets that are the subject of such Asset Sale or received in any other non-cash form and not disposed of for cash), net of fees, commissions, expenses and other direct costs relating to such Asset Sale, including, without limitation, (a) fees and expenses related to such Asset Sale (including legal, accounting and investment banking fees, title and recording tax fees and sales and brokerage commissions, and any relocation expenses and severance or shutdown costs incurred as a result of such Asset Sale), (b) all federal, state, provincial, foreign and local taxes paid or payable as a result of the Asset Sale, (c) any escrow or reserve for adjustment in respect of the sale price of such assets established in accordance with IFRS and any reserve in accordance with IFRS against any liabilities associated with such Asset Sale and retained by the seller after such Asset Sale, including liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale, except to the extent that such proceeds are released from any such escrow or to the extent such reserve is reduced or eliminated, and (d) any indebtedness required by its terms to be repaid, repurchased, redeemed or otherwise retired upon the applicable Asset Sale.

 

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Net Worth” means, as of a given date, the result of, without duplication:

 

  (1)

Total Assets, less

 

  (2)

Total Borrowings (without giving effect to any fair value adjustments pursuant to IFRS 13 Fair Value Measurement).

Permitted Asset Sale” means:

(1) any sale, transfer, lease or other disposition of any of the Company’s or its subsidiaries’ assets (in the ordinary course of business or otherwise) in any transaction or series of transactions, such that (A) the aggregate market value of all assets so sold, transferred, leased or otherwise disposed of during any fiscal year may be up to (and including) 15.0% of the aggregate market value of all of the Company’s and the Company’s subsidiaries’ assets (on a consolidated basis) on the last day of the immediately preceding fiscal year and (B) the Company receives, or the relevant subsidiary of the Company receives, consideration at the time of such sale, transfer, lease or other disposition at least equal to the fair market value (including as to the value of all non-cash consideration), as determined in good faith by the board of directors of the Company, of the assets subject to such sale, transfer, lease or other disposition;

(2) (a) the actual or constructive total loss of a Vessel or the agreed or compromised total loss of a Vessel, (b) the destruction of a Vessel, (c) damage to a Vessel to an extent as shall make repair thereof uneconomical or shall render such Vessel permanently unfit for normal use (other than obsolescence) or (d) the condemnation, confiscation, requisition for title, seizure, forfeiture or other taking of title to or use of a Vessel that shall not be revoked within 30 days, in each case as determined in good faith by the board of directors of the Company, provided that the aggregate market value of all assets included as a Permitted Asset Sale pursuant to this clause (2) during any fiscal year may not exceed 10.0% of the aggregate market value of all of the Company’s and the Company’s subsidiaries’ assets (on a consolidated basis) on the last day of the immediately preceding fiscal year; and

(3) any sale of a Vessel entered into in connection with a sale and lease back transaction where concurrently with the sale of the Vessel the Company or one or more of its subsidiaries enter into a finance lease pursuant to which the Company or a subsidiary has the right or the obligation to purchase the Vessel at the termination of the lease.

Permitted Business” means any business conducted by the Company or any of its subsidiaries as described in the Company’s annual report on Form 20-F for the year ended December 31, 2019 and any businesses that, in the good faith judgment of the board of directors of the Company, are reasonably related, ancillary, supplemental or complementary thereto, or reasonable extensions thereof, including without limitation, the direct or indirect ownership, management, operation and chartering of Vessels and any business incidental thereto.

Related Assets” means (a) any insurance policies and contracts from time to time in force with respect to a Vessel, (b) the capital stock of any subsidiary of the Company owning one or more Vessels and related assets, (c) any requisition compensation payable in respect of any compulsory acquisition of a Vessel, (d) any earnings derived from the use or operation of a Vessel and/or any earnings account with respect to such earnings, (e) any charters, operating leases, contracts of affreightment, Vessel purchase options and related agreements entered and any security or guarantee in respect of the charterer’s or lessee’s obligations under such charter, lease, Vessel purchase option or agreement, (f) any cash collateral account established with respect to a Vessel pursuant to the financing arrangement with respect thereto, (g) any building, conversion or repair contracts relating to a Vessel and any security or guarantee in respect of the builder’s obligations under such contract and (h) any security interest in, or agreement or assignment relating to, any of the foregoing or any mortgage in respect of a Vessel and any asset reasonably related, ancillary or complementary thereto.

Total Assets” means, in respect of Scorpio Tankers Inc. on a consolidated basis, as of a given date, all of the assets of Scorpio Tankers Inc. of the types presented on its consolidated balance sheet.

 

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Total Borrowings” means, in respect of Scorpio Tankers Inc. on a consolidated basis, as of a given date, the aggregate of the following, without duplication:

 

  (1)

the outstanding principal amount of any moneys borrowed; plus

 

  (2)

the outstanding principal amount of any acceptance under any acceptance credit; plus

 

  (3)

the outstanding principal amount of any bond, note, debenture or other similar instrument; plus

 

  (4)

the book values of indebtedness under a lease, charter, hire purchase agreement or other similar arrangement which obligation is required to be classified and accounted for as a capital lease obligation under IFRS, and, for purposes of the indenture, the amount of such obligation at any date will be the capitalized amount thereof at such date, determined in accordance with IFRS; plus

 

  (5)

the outstanding principal amount of all moneys owing in connection with the sale or discounting of receivables (otherwise than on a non-recourse basis or which otherwise meet any requirements for de-recognition under IFRS); plus

 

  (6)

the outstanding principal amount of any indebtedness arising from any deferred payment agreements arranged primarily as a method of raising finance or financing the acquisition of an asset (except trade payables); plus

 

  (7)

any fixed or minimum premium payable on the repayment or redemption of any instrument referred to in clause (3) above; plus

 

  (8)

the outstanding principal amount of any indebtedness of any person of a type referred to in the above clauses of this definition which is the subject of a guarantee given by Scorpio Tankers Inc. to the extent that such guaranteed indebtedness is determined and given a value in respect of Scorpio Tankers Inc. on a consolidated basis in accordance with IFRS.

Notwithstanding the foregoing, “Total Borrowings” shall not include any indebtedness or obligations arising from derivative transactions entered into solely for purposes of protecting against interest rate or currency fluctuations.

For purposes of the foregoing provisions and definitions, any accounting term, phrase, calculation, determination or treatment used, required or referred to in this Certain Covenants section is to be construed in accordance with IFRS in effect as of December 31, 2019.

Vessels” means one or more shipping vessels primarily designed and utilized for the transport of cargo, including, without limitation, bulk carriers, freighters, general cargo carriers, containerships and tankers, but excluding passenger vessels, or which are otherwise engaged, used or useful in any business activities of the Company, in each case together with all related spares, equipment and any additions or improvements.

Offer to Purchase

On or before the 30th day after the occurrence of a Limited Permitted Asset Sale, we will provide to all holders of the Notes and the Trustee and paying agent a notice of the occurrence of the Limited Permitted Asset Sale and of the resulting purchase right. Such notice shall state, among other things:

 

   

the events causing a Limited Permitted Asset Sale;

 

   

the date of the Limited Permitted Asset Sale;

 

   

the last date on which a holder may exercise the repurchase right;

 

   

the Limited Permitted Asset Sale Purchase Price;

 

   

the Limited Permitted Asset Sale Purchase Date;

 

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the name and address of the paying agent; and

 

   

the procedures that holders must follow to require us to purchase their Notes.

Simultaneously with providing such notice, we will publish a notice containing this information in a newspaper of general circulation in The City of New York or publish the information on our website or through such other public medium as we may use at that time to achieve a broad dissemination of such notice.

To exercise the Limited Permitted Asset Sale purchase right, a holder of Notes must deliver, on or before the third business day (or as otherwise provided in the notice provided for above) immediately preceding the Limited Permitted Asset Sale Purchase Date, the Notes to be purchased, duly endorsed for transfer, together with a written purchase notice and the form entitled “Form of Purchase Notice” on the reverse side of the Notes duly completed, to the paying agent. Such purchase notice must:

 

   

if certificated, state the certificate numbers of the Notes to be delivered for purchase;

 

   

if not certificated, comply with requisite DTC procedures;

 

   

state the portion of the principal amount of Notes to be purchased, which must be $25 or a multiple thereof; and