Today, Ship Finance has diversified into container ships, offshore drilling rigs (including deepwater rigs), and even dry bulk. Frontline still charters many of Ship Finance’s owned ships, including all of its Very Large Crude Carriers, but the company also has a number of rigs chartered to Deep Sea Supply and Seadrill Ltd (NYSE:SDRL) , which are both controlled to some extent by John Fredriksen. Ship Finance is thus one of several arms of Fredriksen’s shipping empire, and it is tightly bound to his success in the industry. That’s a great thing if you believe in Fredriksen’s capabilities as a shipping magnate, but it also poses a real risk should any of his other properties take a turn for the worse.
Ship Finance may be reducing its debt-to-equity ratio, but it still remains high relative to some other peers. While Frontline’s debt-to-equity level is abnormally high for an industry that often maintains high debt levels, Ship Finance still boasts a higher level of debt to equity than SeaDrill, and its debt-to-equity is twice as high as DryShips Inc. (NASDAQ:DRYS)‘ , and over five times as high as Diana Shipping Inc. (NYSE:DSX) . The higher demand for crude oil shipping, and the cost of building out a more diversified fleet, can justify Ship Finance’s higher debt levels. However, investors should be wary of a debt spike similar to what Fredriksen has undertaken at Frontline. Just last week, Ship Finance priced another $250 million in debt while also offering some new shares on the market. The new debt goes toward retiring old debt (which is helpful when the old notes bear higher interest rates), but keep your eye out for any efforts to jack up debt levels in the near future.
The article Is Ship Finance International Destined for Greatness? originally appeared on Fool.com and is written by Alex Planes.
Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter, @TMFBiggles, for more news and insights.The Motley Fool recommends and owns shares of Seadrill.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.