Oil tanker giant Frontline warned Friday it may miss its bond repayments if the market fails to recover.
Shares plunged over 11% on Friday afternoon after the company said there is a risk it will not have sufficient cash to repay its existing $225bn convertible bond loan due in April 2015.
The firm needs to raise additional equity or sell assets to make the payments but is faced with an overcapacity of oil tankers in the sector.
Start your trial of MoneyWeek today
Get unparalleled financial insight, analysis and expert opinion you can profit from.
Start your trial
Sign up for MoneyWeek’s free twice-daily newsletter.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
The announcement came alongside Frontline's results for the last three months of 2012.
Latest Videos FromMoneyWeek
Fourth-quarter losses narrowed as revenue improved, but the company's free cash position fell 14% to $137.6m from a year earlier.
Net losses came to $16.9m compared with $343.7m a year earlier. During the period the company incurred a vessel impairment loss of $18.9m as well as a loss on sale of assets and amortisation of deferred gains.
Total operating revenue rose 8.5% to $197.4m.
Frontline expects further reduction of its cash position after it pays $52.2m in March related to the amended charter parties with Ship Finance International.
Last year the company agreed to terminate the long-term charter parties with Ship Finance for the ore-bulk-oil carriers Front Climber and Front Driver, respectively.
The group plans to cut back on its fleet further in order to reduce its financial exposure.
Its fleet of very large crude carriers (VLCC) need $24,200 to break even this year, the company said.
However, it has a challenging market to contend with as supertankers shipping 2.0m barrel cargoes of crude are earning $7,518 a day, close to the lowest level on record, according to data from shipbroker Clarkson.
Crude tankers are experiencing one of the "worst winters ever" with a limited number of fixtures, a very high availability of vessels and VLCC rates close to zero, Frontline said.
RD
