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World_Bunkering_Autumn_2018_INDEPENDENTS

Headwinds still strong

The ghost of OW Bunker still haunts the sector as another major company hits choppy seas

The collapse of OW Bunker may now be four years astern but when, in early June, the big New York-listed independent Aegean Marine Petroleum (AMP) made the shock announcement that it was taking a US$200m hit over questionable transactions the prospect of a similar disaster seemed all too real.

With many physical suppliers badly hit by the OW Bunker failure the collapse of another big independent was the last thing the bunker industry needed. However in AMP’s case a lifeline has been thrown though the company is not out of the legal woods yet.

 

AMP’s shares dived nearly 75% when it told the US Department of Justice and Securities and the Exchange Commission that it had written off US$200m on transactions that may have been “without economic substance”. The company, founded by Greek tycoon Dimitris Melissanidis had appointed three US activist hedge fund managers, owning about 15% of AMP, to its board after they agreed to drop shareholder lawsuits against the company.

 

The Financial Times reported that AMP’s audit committee had discovered about US$200m in questionable transactions related to four counterparties, dating back to at least 2015. AMP’s market capitalisation fell immediately to less than US$30m from US$115m before the announcement.


A statement said: “Based on the preliminary findings of the review, the Audit Committee believes that approximately $200 million of accounts receivable owed to the Company at December 31, 2017 will need to be written off.”

 

It added: “The transactions that gave rise to the accounts receivable may have been, in full or in part, without economic substance and improperly accounted for in contravention of the company’s normal policies and procedures.” AMP said that a “number of individuals” it believed to have been involved in the questionable transactions had been “terminated or placed on administrative leave pending
the outcome of the investigation”.

While the spectre of another hugely damaging collapse hung over the sector moves were ongoing to save the company. In early July AMP announced that it had entered into an MOU with one of the world’s largest independent commodities and energy players, Mercuria Energy Group, to support AMP’s US and global revolving credit facilities and “to explore a global strategic partnership”.

 

“We look forward to further developing our relationship with Aegean and providing the flexibility to execute a strategy that enhances the Company’s operations and positions the Company for long-term success,” AMP Chairman and independent director of the Board, Donald Moore, said, “As part of the announced strategic review, the new leadership at Aegean has, in short order, brought forward an opportunity to completely redefine and optimise the Company’s capital structure, enhance near term liquidity and position the Company for a dynamic partnership with one of the world’s largest privately held integrated energy and commodity groups. We are extremely pleased to enter into this Agreement with Mercuria and look forward to working with them on a broader relationship, for the benefit of our respective stakeholders.”

 

He added: “Importantly, the Agreement provides for immediate credit support from Mercuria for the benefit of Aegean’s banks, customers, suppliers, and logistics providers, putting the strength of one of the world’s largest independent energy and commodity companies behind Aegean. We look forward to further developing our relationship with Aegean and providing the flexibility to execute a strategy that enhances the Company’s operations and positions the Company for long-term success,” said Magid Shenouda, Mercuria’s Global Head of Trading.

 

Mercuria committed to provide a US$1 billion trade finance facility also provide increased liquidity to Aegean of not less than US$30m, adding flexibility
to Aegean’s operations.

As part of the deal Mercuria acquired new shares that made it a 30% shareholder, with a representative of Mercuria to join the Company’s Board of Directors.

 

The deal also envisages a potential broader strategic partnership between the AMP and Mercuria, including operational services, trading and hedging arrangements, and other support provided by Mercuria to Aegean.

 

While the Mercuria deal appears to have been the necessary lifeline for Aegean, it is facing legal action brought by several parties. Specialist US action and shareholders’ rights law firm WeissLaw is one of the legal firms involved. It announced that “a class action lawsuit has been filed on behalf of all persons or entities who purchased shares of Aegean Marine Petroleum Networks securities between April 28, 2016 and June 4, 2018, both dates inclusive”.


The complaint alleges that ANW failed to maintain effective internal controls over the Company’s operations and financial reporting, resulting in the issuance of materially false and misleading financial statements.

 

Prior to the June statement AMP had been expanding and started physical supply operations on the Germany’s Kiel Canal in January. The operation, at the Baltic Sea entrance to the canal, is managed by Aegean’s German subsidiary, OBAST Bunkering & Trading (Rostock) in partnership with local tank farm operator Unabhängige Tanklogistik.

 

Meanwhile times have been happier for the giant World Fuel Services Corporation (WFS) which produced healthy overall second quarter results, with adjusted EBITDA of $84.2 million, up 8% year-on-year. While its aviation fuel business was doing particularly well, however, its very large global marine network faced headwinds. The company’s marine segment, which supplies about 31 million tonnes of marine fuel a year, generated a gross profit of US$30.2 million, a decrease of 8% year-on-year, primarily due, WFS said, to “exiting low return activities”.

Michael Kasbar, chairman and chief executive officer of World Fuel Services Corporation, commented: “Our focus on operating efficiencies, portfolio refinement and organic growth initiatives should position the company for improved operating performance in 2018 and 2019.”

 

Meanwhile, in what it describes as a “bid to meet customer needs beyond 2020”, WFS has upgraded its facilities at Falmouth, UK, and introduced a new supply vessel.

 

WFS currently stores and supplies marine diesel and fuel oil from the Falmouth terminal, which forms the deepest harbour in Western Europe and provides an advantageous position at the start of the European ECA zone, offering ECA-compliant fuel.

 

The investment includes an upgrade of the terminal facilities and an extension of existing bunkering options with the introduction of the 2008-built, 1,942 dwt bunker tanker Lizrix, which provides the ability of segregating up to five grades and has a pumping rate of 3-400 cbm/hr.

 

WFS may be looking ahead but many in the bunker sector and wider shipping industry still have to deal with continued fall-out from OW Bunker’s collapse. In May this year a Danish District Court sentenced the former CEO of OW Bunker’s Singapore subsidiary, Lars Møller, to18 months in prison for his role in the bunker company’s collapse. There was bad news too for physical suppliers who had hoped to claim against the ships they supplied on OW Bunker’s instructions. A series of appeals in US courts have gone against them, as you can see from our Legal section on 48.

Falmouth, one of World Fuel Services’ physical supply locations

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