Ship Finance International Shares Sank: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Ship Finance International (NYSE: SFL  ) fell as much as 19% today after fellow oil shipper Frontline (NYSE: FRO  ) said it may run out of cash next year.

So what: The news today isn't specific to Ship Finance International, but Frontline's bomb has hit all oil shippers. Overseas Shipholding Group (NYSE: OSG  ) is down 17% on the day, as investors jump ship from these oil shippers.

Now what: You can't say we didn't see this coming. Earlier this year, a new tanker was taken straight from the shipyard to a war lay-up, meaning there wasn't enough work to make operating the ship profitable.

Fellow fool Chris Barker warned of the glut of ships way back in 2009, and I warned that supertankers were sunk earlier this year. That stance certainly hasn't changed after today's news, and I would stay far away from any ship transporting oil at this point.

Interested in more info on Ship Finance International? Add it to your watchlist by clicking here.

Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

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  • Report this Comment On November 23, 2011, at 2:04 AM, freescot wrote:

    Ship Finance is especially vulnerable to a collapse of Frontline. According to their website, 32 vessels out of their total fleet of 73 are chartered to Frontline. These charters would doubtless be cancelled if Frontline goes bankrupt. It would be extremely difficult to find new charterers.

    Most of their tanker and OBO vessel-owning subsidiaries have entered into fixed rate management agreements with Frontline Management, a wholly owned subsidiary of Frontline. Frontline Management is responsible for all technical management of the vessels, including crewing, maintenance, repair, capital expenditures, drydocking, vessel taxes, maintaining insurance and other vessel operating expenses.

    Ship Finance is controlled by John Fredriksen, who also controls Frontline (through Hemen Holdings). Typically, Frontline calls the shots regarding sales of vessels,etc.

    In earlier years, Ship Finance received significant income from a share in Frontline's profits. No longer!

    All in all, the failure of Frontline would affect Ship Finance drastically in several ways.

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