Bermuda-based Frontline, which owns and operates a large fleet of oil tankers, has signed contracts for five new ships.

Two `Suezmaxes', the largest ship that can pass through the Suez Canal, have been ordered from Sasebo Shipyard in Japan and three VLCCs, Very Large Crude Carriers, are on order from Hitachi in Korea.

The total cost for the five ships will be approximately US$330 million and Frontline has negotiated a competitive payment plan that delays paying out installments until closer to delivery time, rather than the usual earlier payments.

Frontline said it is unlikely any new equity or additional cash will be needed to fund the new ships as initial payments are likely to be more than covered through the company's free cash flow in this year's first quarter.

Appraisal of the contracts by three shipbrokers indicates that the three VLCCs already have an instant excess value of $15-$20 million and the contract price of the two Suezmaxes is approximately $6 million lower than prices recently paid on resale of similar tonnage ships.

The board of Frontline considers this instant excess value on the contracts compensates for the fact that equity required could have been used to buy back shares at a discount.

The three VLCCs are being bought under a contract entered into by Seatankers Management. Seatankers is a company affiliated to John Fredrikson, the chairman of Frontline and shareholder in other shipping-related businesses.

Seatankers has a historic relationship with Hitachi. The contracts have been transferred to Frontline at a contract price of $72.5 million per vessel plus approximately $1.2 million for technical extras.

The VLCCs will be delivered in April, August and October of 2002 and the Suezmaxes in August and October this year. Frontline has currently no plans to increase the size of its new building commitment.

A spokesperson for the company said, "Ordering these five ships confirms Frontline's strategy to keep one of the youngest fleets in the industry. In the negotiation process Frontline has considered alternative opportunities to take over existing new building projects or to buy recently delivered ships.

"It has been the board's preference not to add additional capacity to the market. However the five contracts stand out as favourable to any alternative project based on an evaluation of price and delivery window.'' In its third quarter interim report, dated November 6, 2000, Frontline reported net income of $97 million and earnings before interest, tax, depreciation and amortisation of $141.3 million for the quarter.

In its annual report it states, "The fundamentals in the tanker market are very positive for the coming two to three years. The shipyards' newbuilding orderbooks are fixed until early 2003. Further, given continuous healthy growth in the world economy, demand for crude oil will continue to increase.

"The fact that the spare capacity amongst oil-producing countries is located almost exclusively around the Arabian Gulf is also advantageous since this implies demand for long distance transportation.''