PROSPECTUS GOLDEN OCEAN GROUP LIMITED (a limited liability company incorporated under the laws of Bermuda) ______Listing of 17,800,000 Consideration Shares, issued in connection with the Acquisition ______The information contained in this prospectus (the “Prospectus”) relates to (i) the listing on Oslo Børs, a stock exchange operated by Oslo Børs ASA (the “Oslo Stock Exchange”) by Golden Ocean Group Limited (the “Company” or “Golden Ocean”), a limited liability company incorporated under the laws of Bermuda (together with its consolidated subsidiaries, the “Group”), of 14,500,000 new Shares in the Company, each with a par value of USD 0.05 (the “Quintana Shares”), issued in connection with the Company’s acquisition of Quintana Shipping Ltd’s (“Quintana”) fleet of 14 dry bulk vessels (the “Quintana Acquisition”) and (ii) the listing of 3,300,000 new Shares in the Company, each with a par value of USD 0.05 (the “Hemen Shares”, and together with the Quintana Shares, the “Consideration Shares”), issued in connection with the Company’s acquisition of two ice class Panamax vessels from subsidiaries of Seatankers Co. Ltd. (“Seatankers”), an affiliate of Hemen (as defined below) (the “Hemen Acquisition”, and together with the Quintana Acquisition, the “Acquisition”). The Consideration Shares will be issued in steps at the time that the Company takes ownership of each vessel. ______Trading in the Consideration Shares is expected to commence during the second quarter of 2017 under the trading symbol “GOGL”. Some delay might be expected due to uncertainties in the delivery schedules for the various vessels. ______For definitions of certain other terms used throughout this Prospectus, see Section 20 “Definitions”. Investing in the Shares involves a high degree of risk; see Section 2 “Risk Factors” beginning on page 11.
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The date of this Prospectus is March 27, 2017.
IMPORTANT INFORMATION
This Prospectus has been prepared in order to provide information about the Company and its business in relation to the listing of the Consideration Shares and comply with the Norwegian Securities Trading Act of 29 June 2007 no. 75 (the “Norwegian Securities Trading Act”) and related secondary legislation, including the Commission Regulation (EC) no. 809/2004 implementing Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 regarding information contained in prospectuses (the “Prospectus Directive”) as well as the format, incorporation by reference and publication of such prospectuses and dissemination of advertisements (hereafter “EC Regulation 809/2004”). This Prospectus has been prepared solely in the English language. The Financial Supervisory Authority of Norway (Nw. Finanstilsynet) (the “Norwegian FSA”) has reviewed and approved this Prospectus in accordance with Sections 7-7 and 7-8 of the Norwegian Securities Trading Act. The Norwegian FSA has not verified or approved the accuracy or completeness of the information included in this Prospectus. The approval by the Norwegian FSA only relates to the information included in accordance with pre-defined disclosure requirements. The Norwegian FSA has not made any form of verified or approval relating to corporate matters described in or referred to in this Prospectus. The Prospectus was approved by the Norwegian FSA on March 27, 2017. ______
The information contained herein is current as of the date hereof and subject to change, completion and amendment without notice. In accordance with Section 7-15 of the Norwegian Securities Trading Act, significant new factors, material mistakes or inaccuracies relating to the information included in this Prospectus, which are capable of affecting the assessment of the Consideration Shares between the time when this Prospectus is approved and the date of listing of the Consideration Shares on the Oslo Stock Exchange, will be included in a supplement to this Prospectus. Neither the publication nor distribution of this Prospectus shall under any circumstances create any implication that there has been no change in the Company's affairs or that the information herein is correct as of any date subsequent to the date of this Prospectus. ______
No person is authorized to give information or to make any representation in connection with the Acquisition other than as contained in this Prospectus. If any such information is given or made, it must not be relied upon as having been authorized by the Company or by any of its affiliates or advisors. ______
The distribution of this Prospectus in certain jurisdictions may be restricted by law. This Prospectus does not constitute an offer of, or an invitation to purchase, any of the Shares or any other securities in any jurisdiction. ______
The Shares (including the Consideration Shares) are subject to restrictions on transferability and resale and may not be transferred or resold except as permitted under applicable securities laws and regulations. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction. Investors should be aware that they may be required to bear the financial risks of this investment for an indefinite period of time. ______
The Consideration Shares have not been registered under the U.S. Securities Act of 1933 (the “Securities Act”) or the securities laws of any state of the United States. The Shares are being offered and sold pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended. The sale of the Shares in the United States or to U.S. persons is subject to certain transfer restrictions. ______
This Prospectus shall be governed by and construed in accordance with Norwegian law. The courts of Norway, with Oslo as legal venue, shall have exclusive jurisdiction to settle any dispute which may arise out of or in connection with this Prospectus.
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CONTENTS Clause Page
1. SUMMARY ...... 5 2. RISK FACTORS ...... 11 2.1 Risks Relating to the Group and the Industry in which the Group Operates ...... 11 2.2 Risks Relating to the Business of the Group ...... 17 2.3 Risks Relating to the Acquisition ...... 27 2.4 Risks Related to the Shares ...... 28 3. RESPONSIBILITY STATEMENT ...... 30 4. GENERAL INFORMATION ...... 31 4.1 Cautionary Note Regarding Forward-Looking Statements ...... 31 4.2 Presentation of Industry Data and Other Information ...... 31 5. BUSINESS OVERVIEW ...... 34 5.1 Operations and Principal Activities ...... 34 5.2 History and Operational Development ...... 36 5.3 Fleet ...... 38 5.4 Material Contracts ...... 40 5.5 Dependency on Contracts, Patents, Licences etc...... 40 5.6 Legal and Arbitration Proceedings ...... 40 5.7 Research and Development ...... 41 6. THE PRIVATE PLACEMENT ...... 42 6.1 The Private Placement ...... 42 6.2 Reasons for the Private Placement ...... 42 6.3 Use of Proceeds and Expenses ...... 42 6.4 Dilution ...... 42 6.5 Participation of Members of the Management and the Board of Directors in the Private Placement43 6.6 Interests of Natural and Legal Persons Involved in the Private Placement ...... 43 7. THE ACQUISITION ...... 44 7.1 Description of the Acquisition ...... 44 7.2 Quintana Fleet ...... 44 7.3 Hemen Fleet...... 44 7.4 Completion of the Acquisition ...... 45 7.5 Listing of the Consideration Shares ...... 45 8. INDUSTRY OVERVIEW ...... 46 8.1 Overview ...... 46 8.2 Major Bulk Commodities ...... 46 8.3 Fleet ...... 50 8.4 Charter Contracts...... 53 8.5 Freight Rates ...... 54 8.6 Asset Values ...... 55 8.7 Market Developments ...... 56 8.8 IMO Regulations ...... 57 8.9 BWM Convention ...... 57 8.10 Global Sulphur Cap ...... 57 9. CAPITALIZATION AND INDEBTEDNESS ...... 59 9.1 Capitalization ...... 59 9.2 Net Financial Indebtedness ...... 60 10. SELECTED FINANCIAL INFORMATION AND OTHER INFORMATION ...... 62 10.1 Summary of Accounting Policies ...... 62 10.2 Selected Income Statement Information ...... 62 10.3 Selected Balance Sheet Information ...... 63 10.4 Selected Changes in Equity Information ...... 65 10.5 Selected Cash Flow Information ...... 66 10.6 Historical Audited Financial Information ...... 67 10.7 Selected Segment Information ...... 68 10.8 Other Selected Financial and Operating Information ...... 68 10.9 Reconciliation of Certain Non-U.S. GAAP Measures ...... 68
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11. OPERATING AND FINANCIAL REVIEW ...... 70 11.1 Introduction ...... 70 11.2 Principal Factors Affecting the Group’s Financial Condition and Results of Operations ...... 70 11.3 Recent Developments ...... 71 11.4 Results of Operations of the Company...... 71 11.5 Liquidity and Capital Resources ...... 78 11.6 Borrowing Activities ...... 79 11.7 Cash Flows ...... 82 11.8 Balance Sheet Data ...... 84 11.9 Funding and Treasury Policies ...... 84 11.10 Working Capital Statement ...... 84 11.11 Investing Activities ...... 85 11.12 Significant Recent Trends ...... 85 11.13 Off-Balance Sheet Arrangements ...... 86 12. RELATED PARTY TRANSACTIONS ...... 87 12.1 Introduction ...... 87 12.2 Transactions Carried out with Related Parties in the Years Ended December 31, 2016, 2015, 2014 and 2013 ...... 89 12.3 Transactions Carried out with Related Parties in the Period Following December 31, 2016 ...... 90 13. THE BOARD OF DIRECTORS AND MANAGEMENT ...... 91 13.1 Overview ...... 91 13.2 Board of Directors and Management ...... 91 13.3 Disclosure of Conflicts of Interests ...... 92 13.4 Disclosure About Convictions in Relation to Fraudulent Offences ...... 92 13.5 Disclosure About Directorships and Other Positions ...... 93 13.6 Remuneration and Benefits ...... 94 13.7 Nomination Committee ...... 95 13.8 Audit Committee ...... 95 13.9 Corporate Governance ...... 95 13.10 Employees ...... 96 14. DIVIDEND AND DIVIDEND POLICY ...... 97 14.1 Dividend Policy ...... 97 14.2 Share Price and Dividend History ...... 97 14.3 Legal Constraints on the Distribution of Dividends ...... 97 15. CORPORATE INFORMATION; SHARES AND SHARE CAPITAL ...... 99 15.1 Incorporation; Registration Number; Registered Office and Other Company Information ...... 99 15.2 Legal Structure ...... 99 15.3 Information on Holdings ...... 100 15.4 Share Capital and Share Capital History ...... 102 15.5 Authorization to Increase the Share Capital ...... 103 15.6 Other Financial Instruments ...... 103 15.7 Disclosure on Notifiable Holdings ...... 103 15.8 The Bye-Laws and Certain Aspects of Bermuda Company Law ...... 103 16. SECURITIES TRADING IN NORWAY ...... 108 16.1 Trading and Settlement ...... 108 16.2 Information, Control and Surveillance ...... 108 16.3 Registration of the Shares with the VPS ...... 108 16.4 Disclosure Obligations ...... 109 16.5 Insider Trading ...... 109 16.6 Tender Offer Rules ...... 109 16.7 Compulsory Acquisition ...... 110 16.8 Foreign Exchange Controls ...... 111 17. TAXATION ...... 112 17.1 Norwegian Shareholders ...... 112 17.2 Non-Norwegian Shareholders ...... 113 17.3 Bermuda Withholding Tax ...... 114 18. INCORPORATION BY REFERENCE; DOCUMENTS ON DISPLAY ...... 115 18.1 Cross Reference Table ...... 115 18.2 Documents on Display ...... 115 19. ADDITIONAL INFORMATION ...... 117 19.1 Independent Auditors ...... 117 19.2 Legal Advisors ...... 117
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20. DEFINITIONS...... 118
APPENDIX A—VALUATION REPORTS ...... A1
APPENDIX B—MEMORANDUM OF ASSOCIATION ...... B1
APPENDIX C—BYE-LAWS ...... C1
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1. SUMMARY Summaries are made up of disclosure requirements known as “Elements”. These Elements are numbered in Sections A – E (A.1 – E.7) below. This summary contains all the Elements required to be included in a summary for this type of securities and the Company. Because some Elements are not required to be addressed, there may be gaps in the numbering sequence of the Elements. Even though an Element may be required to be inserted in the summary because of the type of securities and Company, it is possible that no relevant information can be given regarding the relevant Element. In this case a short description of the Element is included in the summary with the mention of "not applicable".
Section A—Introduction and Warnings A.1 Warning ...... This summary should be read as an introduction to the Prospectus. Any decision to invest in the securities should be based on consideration of the Prospectus as a whole by the investor. Where a claim relating to the information contained in the Prospectus is brought before a court, the plaintiff investor might, under the national legislation of the Member States, have to bear the costs of translating the Prospectus before the legal proceedings are initiated. Civil liability attaches only to those persons who have tabled the summary including any translation thereof, but only if the summary is misleading, inaccurate or inconsistent when read together with the other parts of the Prospectus or it does not provide, when read together with the other parts of the Prospectus, key information in order to aid investors when considering whether to invest in such securities.
A.2 Warning ...... Not applicable. No consent is granted by the Company for the use of the Prospectus for subsequent resale or final placement of the shares.
Section B—Company B.1 Legal and Commercial Name ...... Golden Ocean Group Limited.
B.2 Domicile and Legal Form, Legislation and Country of Incorporation ...... The Company was incorporated in Bermuda as an exempted company under the Bermuda Companies Act of 1981 on September 18, 1996, and is domiciled in Hamilton, Bermuda.
B.3 Current Operations, Principal Activities and Markets ...... The Company is an international shipping company that owns and operates a fleet of dry bulk carrier vessels, focusing on the Capesize, Panamax and Supramax markets. As of the date of this Prospectus, the Group has a fleet of 67 vessels, including 10 vessels chartered-in long term on bareboat charter or time charter and one owned in a joint venture, with an aggregate capacity of 9.1 million dwt. The fleet of the Group consists of 61 operating vessels and six vessels currently under construction at shipyards.
The Group’s vessels transport a broad range of major and minor bulk commodities, including ores, coal, grains and fertilizers, along worldwide shipping routes. The Company’s executive management team comprises Birgitte Ringstad Vartdal, CEO of Golden Ocean Management AS, Per Heiberg, CFO of Golden Ocean Management AS and Thomas Semino, CCO of Golden Ocean Management Asia Pte. Ltd.
The Company’s business strategy is to operate a diversified fleet of dry bulk carriers with flexibility to adjust its exposure to the dry bulk market depending on existing factors such as charter rates, newbuilding costs, vessel resale and scrap values and vessel operating expenses resulting from, among other things, changes in the supply of and demand for dry bulk capacity. The Company may adjust its exposure through time charters, bareboat charters, sale and leasebacks, sales and purchases of vessels, newbuilding contracts and acquisitions. The Company’s long term goal is to renew and grow its fleet through selective acquisitions.
B.4a Significant Recent Trends ...... The market during the fourth quarter of 2016 was the strongest since the fourth quarter of 2014 across all vessel sizes. With the combined effect of negotiated delays on the Company’s newbuilding program,
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reduction in capital expenditure and revenues that exceed earlier projections the Company expects to prepay part of the deferred debt repayments during the second quarter of 2017 through the cash sweep mechanism included in the financial plan. Golden Ocean continues to operate the majority of its fleet in the spot market in order to maintain the Company’s leverage to an improving rate environment. The Company has also enhanced its commercial capabilities through an expansion of its relationship with the partners of Capesize Chartering, with the establishment of a Newcastlemax pool and participation in a Supramax pool. The Company’s spot market exposure is partially offset by some contract coverage for the winter period for the Company’s ice class Panamax vessels, and recently secured one year time charter contracts for two Capesize vessels.
The volatility experienced in the fourth quarter is a positive indication that the market may be in the beginning of a recovery. However, newbuilding vessels will be added to the fleet in the first half of 2017, and there will be periods of seasonality throughout the year. Although scrapping has picked up, the Company expects to see positive net fleet growth at the start of 2017. The Company is encouraged, however, that the order book in percentage of the fleet is at its lowest in at least fifteen years. Absent a dramatic increase in scrapping, a continued low order book is a condition necessary to further reduce the market imbalance and support a prolonged recovery. Demand growth in 2016 was higher than expected on strong imports to China of both iron ore and coal. While there are signs of decreasing stimuli in China there are positive signs for steel production in the rest of the world, and a more diversified improvement in the global economy should support demand growth in 2017. Based on cautious estimates for demand growth combined with low fleet growth, utilization should continue to improve going forward.
B.5 Description of the Group ...... The Company is a holding company and the operations of the Group are carried out through the operating subsidiaries of the Company.
B.6 Interests in the Company and Voting Rights...... Shareholders owning 5% or more of the Company’s Shares have an interest in the Company's share capital which is notifiable pursuant to the Norwegian Securities Trading Act. Each of the Company’s Shares carries one vote. None of the major shareholders has different voting rights than the other shareholders in the Company.
The Company is not aware of any arrangements the operation of which may at a subsequent date result in a change of control of the Company.
B.7 Selected Historical Key Financial Information ...... The table below sets out a summary of the Group’s unaudited consolidated statement of operations information for the three months ended December 31, 2016 and 2015 and the year ended December 31, 2016 and the Group’s unaudited* consolidated statement of operations information for the years ended December 31, 2015, 2014 and 2013. For the For the For the USD thousands Three Months Ended Year Ended Year Ended December 31 December 31 December 31 (unaudited) (unaudited) (unaudited)* 2016 2015 2016 2015 2014 2013 Total operating revenues ...... 86,222 57,129 257,808 190,238 96,715 37,546 Net operating income/(loss) ...... 1,395 (36,611) (70,258) (234,913) 19,486 6,824 Net (loss)/income from continuing operations ...... 6,476 (69,267) (127,711) (220,839) 16,253 3,530 Net income/(loss) from discontinued operations ...... — — — — (258) (7,433) Net (loss)/income ...... 6,476 (69,268) (127,711) (220,839) 15,995 (3,903)
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For the For the For the USD thousands Three Months Ended Year Ended Year Ended December 31 December 31 December 31 (unaudited) (unaudited) (unaudited)* 2016 2015 2016 2015 2014 2013
Per share information (in USD): (Loss)/earnings per share from continuing operations: basic and diluted ...... 0.06 (2.01) (1.34) (7.30) 1.55 0.70 Loss per share from discontinued operations: basic and diluted ...... — — — — — (1.45) (Loss)/earnings per share: basic and diluted ...... 0.06 (2.01) (1.34) (7.30) 1.50 (0.75) Cash distributions per share declared ...... — — — — 3.15 3.50
The table below sets out a summary of the Group’s unaudited consolidated balance sheet information as of December 31, 2016, and the unaudited* consolidated balance sheet information as of December 31, 2015, 2014 and 2013.
As of As of USD thousands December 31 December 31 (unaudited) (unaudited)* 2016 2015 2014 2013 Total non-current assets ...... 2,061,691 1,969,210 1,194,928 304,453 Total assets ...... 2,361,621 2,172,870 1,259,207 409,194 Total equity ...... 1,238,712 1,158,649 884,273 307,441
* Following the adoption of Accounting Standards Update (ASU) 2015-30 in 2016, the Company has applied this ASU on a retrospective basis to all prior periods presented, and has recorded debt issuance costs (i.e. deferred charges) as a direct deduction from the carrying amount of the related debt rather than as an asset. In addition for all periods presented, the Company has given retroactive effect to the one-for-five reverse stock split effected on August 1, 2016. See Section 10.1 “Summary of accounting policies” and note 3 and note 8 of the interim financial statements as of December 31, 2016
The following table presents summary combined and consolidated financial and other data of the Group for each of the three years in the three-year period ended December 31, 2015.
The summary consolidated financial data for each of the three years in the three-year period ended December 31, 2015 is a summary of and is derived from the Group’s audited consolidated financial statements and notes thereto, which have been prepared in accordance with U.S. GAAP.
As of USD thousands December 31 (audited) 2015 2014 2013 Total operating revenues ...... 190,238 96,715 37,546 Net operating income/(loss) ...... (234,913) 19,486 6,824 Net (loss)/income from continuing operations ...... (220,839) 16,253 3,530 Net income/(loss) from discontinued operations ...... — (258) (7,433) Net (loss)/income ...... (220,839) 15,995 (3,903)
Total non-current assets ...... 1,975,007 1,198,461 305,117 Total assets ...... 2,178,667 1,262,740 409,858 Total equity ...... 1,158,649 884,273 307,441
Per share information (in USD): (Loss)/earnings per share from continuing operations: basic and diluted ...... (1.46) 0.31 0.14 Loss per share from discontinued operations: basic and diluted ...... — — (0.29) (Loss)/earnings per share: basic and diluted ...... (1.46) 0.30 (0.15) Cash distributions per share declared ...... — 0.63 0.70 B.8 Selected Key Pro Forma Financial Information ...... Not applicable No pro forma financial information is included in this Prospectus.
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B.9 Profit Forecast or Estimate ...... Not applicable. No profit forecast or estimate is included in this Prospectus.
B.10 Audit Report Qualification ...... Not applicable.
B.11 Working Capital ...... As of the date of this Prospectus, the Company is of the opinion that the Group’s working capital is sufficient for its present requirements and for at least the next twelve months from the date of this Prospectus.
Section C—Securities C.1 Type and Class of Securities Being The Company has one class of shares in issue, and all shares in that Offered and Admitted to Trading and class have equal rights in the Company. The Shares have been issued Identification Number ...... under the Bermuda Companies Act and are registered with the VPS under ISIN BMG396372051.
C.2 Currency of Issue ...... The Shares are issued in USD, but are quoted and traded in NOK on the Oslo Stock Exchange.
C.3 Number and Shares in Issue and Par The Company currently has an authorized share capital of USD Value ...... 7,500,000, consisting of 150,000,000 common shares with a par value of USD 0.05 each.
As of the date of this Prospectus, the Company has issued 114,572,992 common shares, fully paid and with a par value of USD 0.05 each.
C.4 Rights Attaching to the Securities ...... All shares provide equal rights in the Company in accordance with the Bermuda Companies Act. The Bye-Laws and the Bermuda Companies Act do not provide a shareholder of the Company with any preemptive rights to subscribe for additional issues of the Company’s Shares.
C.5 Restrictions on Transfer ...... The Bye-Laws do not provide for a right of first refusal on transfer of shares. Share transfers are not subject to approval by the Board of Directors, however, the Board of Directors may decline to register any transfer in certain circumstances described in the Bye-Laws. Such circumstances include, where the transfer might breach any law or requirement of any authority or listing exchange and if the transfer could result in 50% or more of the Company’s voting share capital being held by a person resident for tax purposes in Norway.
C.6 Admission to Trading ...... The Company expects commencement of trading in the Consideration Shares on the Oslo Stock Exchange in steps during the second quarter of 2017, under the trading symbol “GOGL”. Some delay might be expected due to uncertainties in the delivery schedules for the various vessels.
C.7 Dividend Policy ...... The Company’s intention is to pay out excess cash as dividends at the discretion of the Board of Directors of the Company. Dividend payments will depend on, among other things, the Group’s financial situation, any restrictions in borrowing arrangements or other contractual arrangements, need for working capital and investments or acquisition possibilities from time to time. The Company’s credit facilities currently restrict the Company from paying dividends until after September 30, 2018.
Section D—Risks D.1 Key Risks Specific to the Company or its Industry ...... Risks Relating to the Group and the Industry in which the Group Operates, including:
• Charter hire rates for dry bulk vessels are volatile and have declined significantly since their historic highs and may remain at low levels or decrease in the future, which may adversely affect the Group’s earnings, revenue and profitability and the Group’s ability to comply with its loan covenants.
• Global economic conditions may continue to negatively impact the dry bulk shipping industry.
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• The over-supply of dry bulk vessel capacity may continue to prolong or further depress the current low charter rates, which has and may continue to limit the Group’s ability to operate its dry bulk carriers profitably.
• The Group is dependent on spot charters and any decrease in spot charter rates in the future may adversely affect the Group’s earnings.
• Risks involved with operating ocean-going vessels could affect the Group’s business and reputation, which could have a material adverse effect on its results of operations and financial condition.
• World events could affect the Group’s operations and financial results.
• The Group faces risks attendant to change in economic and regulatory conditions in the world.
• Changes in the economic and political environment in China and policies adopted by the government to regulate its economy may have a material adverse effect on the Group’s business, financial condition and results of operations.
• The Group conducts a substantial amount of business in China. The legal system in China has inherent uncertainties that could have a material adverse effect on the Group’s business, financial condition and results of operations. Risks Relating to the Business of the Group, including:
• The fair market values of the Group’s vessels have declined and may decline further, which could limit the amount of funds that the Group can borrow, cause the Group to breach certain financial covenants in its credit facilities, or result in an impairment charge, and cause the Group to incur a loss if it sells vessels following a decline in their market value.
• The Group may require additional capital in the future, which may not be available on favorable terms, or at all.
• The Group is highly leveraged, which could significantly limit the Group’s ability to execute its business strategy and has increased the risk of default under its debt obligations.
• There are significant risks relating to the construction of the Group’s newbuilding vessels.
• A drop in spot charter rates may provide an incentive for some charterers to default on their charters.
• The Group’s ability to obtain additional debt financing may be dependent on the performance of its then existing charterers and their creditworthiness. Risks Relating to the Acquisition, including:
• Under the Acquisition agreements, consummation of the Acquisition is conditional upon satisfaction of a number of conditions that are beyond the control of the Company; the Acquisition may hence not be consummated and transaction costs will have been incurred for the Group regardless of whether the Transaction are consummated which could negatively affect the business, results of operation and
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financial condition of the Group.
D.3 Key Risks Specific to the Securities ...... Risks Related to the Shares, including:
• The Company’s share price may be highly volatile and future sales of its common shares could cause the market price of its common shares to decline.
• Investors may not be able to exercise their voting rights for Shares registered in a nominee account.
• Future issuance of shares or other securities may dilute the holdings of shareholders and could materially affect the price of the Shares.
Section E—Offer E.1 Proceeds and Estimated Expenses...... Not applicable. There is no offering of Shares.
E.2a Reasons for the Offering ...... Not applicable. There is no offering of Shares.
E.3 Terms and Conditions for the Offer ...... Not applicable. There is no offering of Shares.
E.4 Material and Conflicting Interests ...... Not applicable. There is no offering of Shares.
E.5 Selling Shareholders and Lock-Up Agreements ...... Not applicable. There is no offering of Shares.
E.6 Dilution ...... Not applicable. There is no offering of Shares.
E.7 Estimated Expenses Charged to Investors ...... Not applicable. There is no offering of Shares.
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2. RISK FACTORS
An investment in the Shares involves inherent risks. An investor should consider carefully all information set forth in this Prospectus and, in particular, the specific risk factors set out below. An investment in the Shares is suitable only for investors who understand the risks associated with this type of investment and who can afford a loss of the entire investment. If any of the risks described below materialize, individually or together with other circumstances, they may have a material adverse effect on the Group’s business, financial condition, results of operations and cash flow, which may affect the ability of the Group to pay dividends and cause a decline in the value and trading price of the Shares that could result in a loss of all or part of any investment in the Shares. The order in which the risks are presented below is not intended to provide an indication of the likelihood of their occurrence nor of their severity or significance. The information in this Section is as of the date of this Prospectus.
2.1 Risks Relating to the Group and the Industry in which the Group Operates
Charter hire rates for dry bulk vessels are volatile and have declined significantly since their historic highs and may remain at low levels or decrease in the future, which may adversely affect the Group’s earnings, revenue and profitability and the Group’s ability to comply with its loan covenants. The dry bulk shipping industry is cyclical with attendant volatility in charter hire rates and profitability. The current downturn in the dry bulk charter market, from which the Group derives and plans to continue to derive its revenues, has severely affected the entire dry bulk shipping industry. The degree of charter hire rate volatility among different types of dry bulk vessels has varied widely, and charter hire rates for dry bulk vessels have declined significantly from historically high levels. For example, in the past time charter and spot market rates for dry bulk vessels have declined below operating costs of vessels. The Baltic Dry Index (“BDI”) an index published by the Baltic Exchange Limited of shipping rates for 20 key dry bulk routes, fell 97% from a peak of 11,793 in May 2008 to a low of 290 in February 2016. While the BDI has increased since February 2016 to 1,200 as of March 21, 2017, there can be no assurance that the dry bulk charter market will recover and the market could continue to decline further.
Fluctuations in charter rates result from changes in the supply and demand for vessel capacity and changes in the supply and demand for the major commodities carried by water internationally. Because the factors affecting the supply and demand for vessels are outside of the Group’s control and are unpredictable, the nature, timing, direction and degree of changes in charter hires are also unpredictable.
Furthermore, a significant decrease in charter rates would cause asset values to decline, or decline further, and the Group may have to record an impairment charge in its consolidated financial statements which could adversely affect the Group’s financial results. Because the market value of the Group’s vessels may fluctuate significantly, the Group may also incur losses when it sells vessels, which may adversely affect the Group’s earnings. If the Group sell vessels at a time when vessel prices have fallen and before it has recorded an impairment adjustment to the Group’s financial statements, the sale may be at less than the vessel’s carrying amount in the Group’s financial statements, resulting in a loss and a reduction in earnings. For instance, during the year ended December 31, 2016, the Group recorded impairment losses of USD 1.0 million in connection with sale of vessels.
Factors that influence demand for vessel capacity include:
• supply of and demand for energy resources, commodities, semi-finished and finished consumer and industrial products; • changes in the exploration or production of energy resources, commodities, semi-finished and finished consumer and industrial products; • the location of regional and global exploration, production and manufacturing facilities; • the location of consuming regions for energy resources, commodities, semi-finished and finished consumer and industrial products; • the globalization of production and manufacturing; • global and regional economic and political conditions, including armed conflicts and terrorist activities, embargoes and strikes; • developments in international trade; • changes in seaborne and other transportation patterns, including the distance cargo is transported by sea; • environmental and other regulatory developments; • currency exchange rates; and • the weather.
Demand for the Group’s dry bulk vessels is dependent upon economic growth in the world’s economies, seasonal and regional changes in demand, changes in the capacity of the global dry bulk fleet and the sources and supply of dry bulk cargo transported by sea. Given the large number of new dry bulk carriers currently on order with shipyards, the capacity of the global dry bulk carrier fleet seems likely to increase and economic growth may not resume in areas that have
11 experienced a recession or continue in other areas. As such, adverse economic, political, social or other developments could have a material adverse effect on our business and operating results.
Factors that influence the supply of vessel capacity include:
• number of newbuilding orders and deliveries; • the number of shipyards and ability of shipyards to deliver vessels; • port and canal congestion; • scrapping of older vessels; • speed of vessel operation; • vessel casualties; and • number of vessels that are out of service or laid up.
In addition to the prevailing and anticipated freight rates, factors that affect the rate of newbuilding, scrapping and laying-up include newbuilding prices, secondhand vessel values in relation to scrap prices, costs of bunkers and other operating costs, costs associated with classification society surveys, normal maintenance costs, insurance coverage costs, the efficiency and age profile of the existing dry bulk fleet in the market, and government and industry regulation of maritime transportation practices, particularly environmental protection laws and regulations. These factors influencing the supply of and demand for shipping capacity are outside of the Group’s control, and the Group may not be able to correctly assess the nature, timing and degree of changes in industry conditions.
Global economic conditions may continue to negatively impact the dry bulk shipping industry. In the current global economy, operating businesses are faced with tightening credit, weak demand for goods and services, and weak international liquidity conditions. There has similarly been a general decline in the willingness by banks and other financial institutions to extend credit, particularly in the shipping industry, due to the historically volatile asset values of vessels. As the shipping industry is highly dependent on the availability of credit to finance and expand operations, it has been negatively affected by this decline. In particular, lower demand for dry bulk cargoes as well as diminished trade credit available for the delivery of such cargoes have led to decreased demand for dry bulk carriers, creating downward pressure on charter rates and vessel values. Any further weakening in global economic conditions may have a number of adverse consequences for dry bulk and other shipping sectors, including, among other things:
• low charter rates, particularly for vessels employed on short-term time charters or in the spot market; • decreases in the market value of dry bulk vessels and limited second-hand market for the sale of vessels; • limited financing for vessels; • widespread loan covenant defaults; and • declaration of bankruptcy by certain vessel operators, vessel owners, shipyards and charterers.
The occurrence of one or more of these events could have a material adverse effect on the Group’s business, results of operations, cash flows and financial condition The over-supply of dry bulk vessel capacity may continue to prolong or further depress the current low charter rates, which has and may continue to limit the Group’s ability to operate its dry bulk carriers profitably. The supply of dry bulk vessels has outpaced vessel demand growth over the past few years, thereby causing downward pressure on charter rates. As of December 31, 2016, newbuilding orders have been placed for approximately 9% of the existing fleet capacity. Until the new supply of vessels is fully absorbed by the market, charter rates may continue to be under pressure in the near to medium term.
The Group is dependent on spot charters and any decrease in spot charter rates in the future may adversely affect the Group’s earnings. The Group currently operates most of its vessels in the spot market, exposing it to fluctuations in spot market charter rates. Further, the Group may employ any additional vessels that it acquires in the spot market.
Although the number of vessels in the Group’s fleet that participate in the spot market will vary from time to time, the Company anticipates that a significant portion of the Group’s fleet will participate in this market. As a result, the Group’s financial performance will be significantly affected by conditions in the dry bulk spot market and only the Group’s vessels that operate under fixed-rate time charters may, during the period such vessels operate under such time charters, provide a fixed source of revenue to the Group.
Historically, the dry bulk markets have been volatile as a result of the many conditions and factors that can affect the price, supply of and demand for dry bulk capacity. The weak global economic trends may further reduce demand for transportation of dry bulk cargoes over longer distances, which may materially affect the Group’s revenues, profitability
12 and cash flows. The spot charter market may fluctuate significantly based upon supply of and demand of vessels and cargoes. The successful operation of the Group’s vessels in the competitive spot charter market depends upon, among other things, obtaining profitable spot charters and minimizing, to the extent possible, time spent waiting for charters and time spent traveling unladen to pick up cargo. The spot market is very volatile, and, in the past, there have been periods when spot rates have declined below the operating cost of vessels. If future spot charter rates decline, then the Group may be unable to operate its vessels trading in the spot market profitably, or meet its obligations, including payments on indebtedness. Furthermore, as charter rates for spot charters are fixed for a single voyage, which may last up to several weeks, during periods in which spot charter rates are rising, the Group will generally experience delays in realizing the benefits from such increase
Risks involved with operating ocean-going vessels could affect the Group’s business and reputation, which could have a material adverse effect on its results of operations and financial condition. The operation of an ocean-going vessel carries inherent risks. These risks include the possibility of:
• a marine disaster; • terrorism; • environmental accidents; • cargo and property losses and damage; and • business interruptions caused by mechanical failure, human error, war, terrorism, piracy, political action in various countries, labor strikes, or adverse weather conditions.
Any of these circumstances or events could increase the Group’s costs or lower its revenues. The involvement of the Group’s vessels in an oil spill or other environmental disaster may harm its reputation as a safe and reliable dry bulk operator.
World events could affect the Group’s operations and financial results. Past terrorist attacks, as well as the threat of future terrorist attacks around the world, continue to cause uncertainty in the world’s financial markets and may affect the Group’s business, operating results and financial condition. Continuing conflicts, instability and other recent developments in the Middle East and elsewhere, and the presence of U.S. or other armed forces in Afghanistan and Syria, may lead to additional acts of terrorism and armed conflict around the world, which may contribute to further economic instability in the global financial markets. Any of these occurrences could have a material adverse impact on the Group’s business, financial condition and results of operations.
The Group faces risks attendant to change in economic and regulatory conditions in the world. The Group faces risks attendant to changes in economic environments, changes in interest rates, instability in the banking and securities markets and trade regulation around the world, among other factors. Major market disruptions and adverse changes in market conditions and regulatory climate in China, the United States and worldwide may adversely affect the Group’s business or impair the Group’s ability to borrow amounts under credit facilities or any future financial arrangements.
For example, the economic slowdown in the Asia-Pacific region, especially in China, could negatively affect global economic markets and the market for dry bulk shipping. Chinese dry bulk imports have accounted for the majority of global dry bulk transportation growth annually over the last decade, with recent demand growth driven by stronger iron ore and coal imports into China. Before the global economic financial crisis that began in 2008, China had one of the world’s fastest growing economies in terms of gross domestic product (“GDP”), which had a significant impact on shipping demand. The growth rate of China’s GDP for the year ended December 31, 2016, is estimated to be around 6.7%, down from a growth rate of 6.9% for the year ended December 31, 2015, and remaining well below pre-2008 levels. China and other countries in the Asia Pacific region may continue to experience slowed or even negative economic growth in the future. The Group’s financial condition and results of operations, as well as its future prospects, would likely be hindered by a continuing or worsening economic downturn in any of these countries or geographic regions.
The United States, the European Union (“EU”) and other parts of the world have likewise experienced relatively slow growth and weak economic trends since 2008. Over the past several years, the credit markets in the United States and Europe have remained contracted, deleveraged and less liquid, and the U.S. federal and state governments and European authorities have implemented governmental action and/or new regulation of the financial markets and may implement additional regulations in the future. While credit conditions are beginning to stabilize, global financial markets have been, and continue to be, disrupted and volatile. Specifically, concerns persist regarding the debt burden of certain European countries and their ability to meet future financial obligations. Potential adverse developments in the outlook for European countries, or market perceptions concerning these and related issues, could reduce the overall demand for dry bulk cargoes and for the Group’s service, which could negatively affect the Group’s financial position, results of operations and cash flow.
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Further, governments may turn to trade barriers to protect their domestic industries against foreign imports, thereby depressing shipping demand. In particular, leaders in the United States have indicated the United States may seek to implement more protective trade measures. The new U.S. president was elected on a platform promoting trade protectionism. The results of the presidential election have thus created significant uncertainty about the future relationship between the United States and China and other exporting countries, including with respect to trade policies, treaties, government regulations and tariffs. On January 23, 2017, the U.S. President signed an executive order withdrawing the United States from the Trans-Pacific Partnership, a global trade agreement intended to include the United States, Canada, Mexico, Peru and a number of Asian countries. Protectionist developments, or the perception they may occur, may have a material adverse effect on global economic conditions, and may significantly reduce global trade. Moreover, increasing trade protectionism may cause an increase in (a) the cost of goods exported from regions globally, particularly the Asia-Pacific region, (b) the length of time required to transport goods and (c) the risks associated with exporting goods. Such increases may significantly affect the quantity of goods to be shipped, shipping time schedules, voyage costs and other associated costs
While global economic conditions have generally improved, renewed adverse and developing economic and governmental factors, together with the concurrent volatility in charter rates and vessel values, may have a material adverse effect on the Group’s results of operations, financial condition and cash flows and could cause the price of the Group’s Shares to decline. An extended period of deterioration in the outlook for the world economy could reduce the overall demand for the Group’s services and could also adversely affect its ability to obtain financing on acceptable terms or at all
Changes in the economic and political environment in China and policies adopted by the government to regulate its economy may have a material adverse effect on the Group’s business, financial condition and results of operations. The Chinese economy differs from the economies of western countries in such respects as structure, government involvement, level of development, growth rate, capital reinvestment, allocation of resources, bank regulation, currency and monetary policy, rate of inflation and balance of payments position. Prior to 1978, the Chinese economy was a “planned economy.” Since 1978, increasing emphasis has been placed on the utilization of market forces in the development of the Chinese economy. Annual and five year State Plans are adopted by the Chinese government in connection with the development of the economy. Although state-owned enterprises still account for a substantial portion of the Chinese industrial output, in general, the Chinese government is reducing the level of direct control that it exercises over the economy through State Plans and other measures. There is an increasing level of freedom and autonomy in areas such as allocation of resources, production, pricing and management and a gradual shift in emphasis to a “market economy” and enterprise reform. Limited price reforms were undertaken with the result that prices for certain commodities are principally determined by market forces. In addition, economic reforms may include reforms to the banking and credit sector and may produce a shift away from the export-driven growth model that has characterized the Chinese economy over the past few decades. Many of the reforms are unprecedented or experimental and may be subject to revision, change or abolition based upon the outcome of such experiments. The level of imports to and exports from China could be adversely affected by the failure to continue market reforms or changes to existing pro-export economic policies. The level of imports to and exports from China may also be adversely affected by changes in political, economic and social conditions (including a slowing of economic growth) or other relevant policies of the Chinese government, such as changes in laws, regulations or export and import restrictions, internal political instability, changes in currency policies, changes in trade policies and territorial or trade disputes. A decrease in the level of imports to and exports from China could adversely affect the Group’s business, operating results and financial condition.
The Group conducts a substantial amount of business in China. The legal system in China has inherent uncertainties that could have a material adverse effect on the Group’s business, financial condition and results of operations. The Chinese legal system is based on written statutes and their legal interpretation by the Standing Committee of the National People’s Congress. Prior court decisions may be cited for reference but have limited precedential value. Since 1979, the Chinese government has been developing a comprehensive system of commercial laws, and considerable progress has been made in introducing laws and regulations dealing with economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade. However, because these laws and regulations are relatively new, there is a general lack of internal guidelines or authoritative interpretive guidance and because of the limited number of published cases and their non-binding nature, interpretation and enforcement of these laws and regulations involve uncertainties. Changes in laws and regulations, including with regards to tax matters, and their implementation by local authorities could affect the Group’s vessels that are either chartered to Chinese customers or that call to Chinese ports and the Group’s vessels being built at Chinese shipyards, and could have a material adverse effect on the Group’s business, results of operations and financial condition.
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The Group may not be able to obtain financing on acceptable terms, which may negatively impact the Group’s business. As a result of concerns about the stability of financial markets generally and the solvency of counterparties specifically, the ability to obtain money from the credit markets has become more difficult as many lenders have increased interest rates, enacted tighter lending standards, refused to refinance existing debt at all or on terms similar to current debt and reduced, and in some cases ceased, to provide funding to borrowers. Due to these factors, the Company cannot be certain that financing will be available if needed and to the extent required, on acceptable terms. If financing is not available when needed, or is available only on unfavorable terms, the Group may be unable to meet its obligations as they come due or the Group may be unable to enhance its existing business, complete additional vessel acquisitions or otherwise take advantage of business opportunities as they arise.
Acts of piracy on on-going vessels and acts of terrorism could adversely affect the Group’s business. Acts of piracy have historically affected ocean-going vessels trading in regions of the world such as the South China Sea, the Indian Ocean and in the Gulf of Aden off the coast of Somalia. Sea piracy incidents continue to occur, increasingly in the Sulu Sea and in the Gulf of Guinea, with dry bulk vessels and tankers particularly vulnerable to such attacks. In the past, political conflicts have also resulted in attacks on vessels, mining of waterways and other efforts to disrupt international shipping. The perception that the Group’s vessels are potential piracy or terrorist targets could have a material adverse impact on the Group’s business, financial condition, results of operations and ability to pay dividends.
Further, if these piracy attacks occur in regions in which the Group’s vessels are deployed that insurers characterize as “war risk” zones or by the Joint War Committee as "war and strikes" listed areas, premiums payable for such coverage could increase significantly and such insurance coverage may be more difficult to obtain, if available or at all. In addition, crew costs, including costs which may be incurred to the extent the Group employ on-board security guards, could increase in such circumstances. The Group may not be adequately insured to cover losses from these incidents, which could have a material adverse effect on the Group. In addition, detention hijacking as a result of an act of piracy against the Group’s vessels, or an increase in cost, or unavailability of insurance for its vessels, could have a material adverse impact on the Group’s business, results of operations, cash flows, financial condition and may result in loss of revenues, increased costs and decreased cash flows to its customers, which could impair their ability to make payments to the Group under its charters.
The Group’s vessels may call on ports located in countries that are subject to restrictions imposed by the U.S. or other governments, which could adversely affect the Group’s reputation and the market for its Shares. From time to time on charterers' instructions, the Group’s vessels may call on ports located in countries subject to sanctions and embargoes imposed by the United States government and countries identified by the U.S. government as state sponsors of terrorism, such as Iran, Sudan and Syria. In 2016, none of the Group’s vessels had port calls in countries subject to sanctions and embargoes imposed by the U.S. government and countries identified by the U.S. government as state sponsors of terrorism. In 2015 one vessel, chartered-in through a joint venture partly owned by the Group had one call to Iran transporting non-sanction cargo. The U.S. sanctions and embargo laws and regulations vary in their application, as they do not all apply to the same covered persons or proscribe the same activities, and such sanctions and embargo laws and regulations may be amended or strengthened over time. With effect from July 1, 2010, the U.S. enacted the Comprehensive Iran Sanctions Accountability and Divestment Act (“CISADA”), which expanded the scope of the Iran Sanctions Act. Among other things, CISADA expands the application of the prohibitions to companies, such as the Group, and introduces limits on the ability of companies and persons to do business or trade with Iran when such activities relate to the investment, supply or export of refined petroleum or petroleum products. In addition, on May 1, 2012, President Obama signed Executive Order 13608 which prohibits foreign persons from violating or attempting to violate, or causing a violation of any sanctions in effect against Iran or facilitating any deceptive transactions for or on behalf of any person subject to U.S. sanctions. Any persons found to be in violation of Executive Order 13608 will be deemed a foreign sanctions evader and will be banned from all contacts with the United States, including conducting business in U.S. dollars. Also in 2012, President Obama signed into law the Iran Threat Reduction and Syria Human Rights Act of 2012 (the “Iran Threat Reduction Act”) which created new sanctions and strengthened existing sanctions. Among other things, the Iran Threat Reduction Act intensifies existing sanctions regarding the provision of goods, services, infrastructure or technology to Iran's petroleum or petrochemical sector.
On July 14, 2015, the P5+1 (the United States, United Kingdom, Germany, France, Russia and China) and the EU announced that they reached a landmark agreement with Iran titled the Joint Comprehensive Plan of Action Regarding the Islamic Republic of Iran’s Nuclear Program, or the JCPOA, which is intended to significantly restrict Iran’s ability to develop and produce nuclear weapons for ten years while simultaneously easing sanctions directed toward non-U.S. persons for conduct involving Iran, but taking place outside of U.S. jurisdiction and does not involve U.S. persons. On January 16, 2016, or Implementation Day, the United States joined the EU and the United Nations in lifting a significant number of their nuclear-related sanctions on Iran following an announcement by the International Atomic Energy Agency, or IAEA that Iran had satisfied its respective obligations under the JCPOA.
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U.S. sanctions prohibiting certain conduct that is now permitted under the JCPOA have not actually been repealed or permanently terminated at this time. Rather, the U.S. government has implemented changes to the sanctions regime by: (1) issuing waivers of certain statutory sanctions provisions; (2) committing to refrain from exercising certain discretionary sanctions authorities; (3) removing certain individuals and entities from OFAC's sanctions lists; and (4) revoking certain Executive Orders and specified sections of Executive Orders. These sanctions will not be permanently "lifted" until the earlier of “Transition Day,” set to occur on October 20, 2023, or upon a report from the IAEA stating that all nuclear material in Iran is being used for peaceful activities.
Although the Company believes that it has been in compliance with all applicable sanctions and embargo laws and regulations, and intends to maintain such compliance, there can be no assurance that the Group will be in compliance in the future, particularly as the scope of certain laws may be unclear and may be subject to changing interpretations. Any such violation could result in fines, penalties or other sanctions that could severely impact its ability to access U.S. capital markets and conduct its business, and could result in some investors deciding, or being required, to divest their interest, or not to invest, in the Company. In addition, certain institutional investors may have investment policies or restrictions that prevent them from holding securities of companies that have contracts with countries identified by the U.S. government as state sponsors of terrorism. The determination by these investors not to invest in, or to divest from, the Company’s Shares may adversely affect the price at which its common shares trade. Moreover, the Group’s charterers may violate applicable sanctions and embargo laws and regulations as a result of actions that do not involve the Group or its vessels, and those violations could in turn negatively affect the Company’s reputation. In addition, the Company’s reputation and the market for its securities may be adversely affected if the Group engages in certain other activities, such as entering into charters with individuals or entities in countries subject to U.S. sanctions and embargo laws that are not controlled by the governments of those countries, or engaging in operations associated with those countries pursuant to contracts with third parties that are unrelated to those countries or entities controlled by their governments. Investor perception of the value of the Company’s Shares may be adversely affected by the consequences of war, the effects of terrorism, civil unrest and governmental actions in these and surrounding countries.
Compliance with safety and other vessel requirements imposed by classification societies may be costly and could reduce the Group’s net cash flows and net income. The hull and machinery of every commercial vessel must be certified as being "in class" by a classification society authorized by its country of registry. The classification society certifies that a vessel is safe and seaworthy in accordance with the applicable rules and regulations of the country of registry of the vessel and the Safety of Life at Sea Convention.
A vessel must undergo annual surveys, intermediate surveys and special surveys. In lieu of a special survey, a vessel's machinery may be placed on a continuous survey cycle, under which the machinery would be surveyed periodically over a five-year period. The Group expects its vessels to be on special survey cycles for hull inspection and continuous survey cycles for machinery inspection. Every vessel is also required to be drydocked, or inspected by divers. every two to three years for inspection of its underwater parts.
Compliance with the above requirements may result in significant expense. If any vessel does not maintain its class or fails any annual, intermediate or special survey, the vessel will be unable to trade between ports and will be unemployable, which could have a material adverse effect on the Group’s business, results of operations, cash flows and financial condition.
The Group is subject to complex laws and regulations, including environmental laws and regulations, which can adversely affect its business, results of operations and financial condition. The Group’s operations will be subject to numerous laws and regulations in the form of international conventions and treaties, national, state and local laws and national and international regulations in force in the jurisdictions in which its vessels operate or are registered, which can significantly affect the ownership and operation of its vessels. These requirements include, but are not limited to, EU regulations, the U.S. Oil Pollution Act of 1990, (“OPA”), requirements of the U.S. Coast Guard (“USCG”) and the U.S. Environmental Protection Agency (“EPA”), the U.S. Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), the U.S. Clean Air Act (“CAA”), the U.S. Clean Water Act (“CWA”) the International Maritime Organization (“IMO”), the International Convention on Civil Liability for Oil Pollution Damage of 1969, as from time to time amended and replaced by the 1992 protocol (“CLC”), the IMO International Convention on Civil Liability for Bunker Oil Pollution Damage of 2001 (the “Bunker Convention”), the IMO International Convention for the Prevention of Pollution from Ships of 1973, as from time to time amended (“MARPOL”), including the designation of Emission Control Areas (“ECAs”) thereunder, the IMO International Convention for the Safety of Life at Sea of 1974, as from time to time amended (“SOLAS”), the IMO's International Safety Management code for the safe Operation of Ships and for Pollution Prevention (“ISM Code”) the IMO International Convention on Load Lines of 1966, as from time to time amended, and the U.S. Maritime Transportation Security Act of 2002 (“MTSA”).
Compliance with such laws and regulations, where applicable, may require installation of costly equipment or operational changes and may affect the resale value or useful lives of the Group’s vessels. Compliance with such laws and regulations
16 may require the Group to obtain certain permits or authorizations prior to commencing operations. Failure to obtain such permits or authorizations could materially impact the Group’s business results of operations and financial conditions by delaying or limiting its ability to accept charterers. The Group may also incur additional costs in order to comply with other existing and future regulatory obligations, including, but not limited to, costs relating to air emissions including greenhouse gases, the management of ballast waters, maintenance and inspection, development and implementation of emergency procedures and insurance coverage or other financial assurance of its ability to address pollution incidents.
A failure to comply with applicable laws and regulations may result in administrative and civil penalties, criminal sanctions or the suspension or termination of the Group’s operations. Environmental laws often impose strict liability for remediation of spills and releases of oil and hazardous substances, which could subject the Group to liability, without regard to whether the Group was negligent or at fault. Under OPA, for example, owners, operators and bareboat charterers are jointly and severally strictly liable for the discharge of oil in U.S. waters, including the 200-nautical mile exclusive economic zone around the United States. An oil spill could also result in significant liability, including fines, penalties, criminal liability and remediation costs for natural resource damages under other international and U.S. Federal, state and local laws, as well as third-party damages, including punitive damages, and could harm its reputation with current or potential charterers of the Group’s vessels. The Group will be required to satisfy insurance and financial responsibility requirements for potential oil (including marine fuel) spills and other pollution incidents. Although the Group’s technical manager will arrange for insurance to cover its vessels with respect to certain environmental risks, there can be no assurance that such insurance will be sufficient to cover all such risks or that any claims will not have a material adverse effect on its business, financial condition, results of operations and cash flows.
If the Group fails to comply with international safety regulations, the Group may be subject to increased liability, which may adversely affect its insurance coverage and may result in a denial of access to, or detention in, certain ports. The operation of the Group’s vessels is affected by the requirements set forth in the ISM Code. The ISM Code requires shipowners, ship managers and bareboat charterers to develop and maintain an extensive “Safety Management System” that includes the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. If the Group fails to comply with the ISM Code, the Group may be subject to increased liability, may invalidate existing insurance or decrease available insurance coverage for its affected vessels and such failure may result in a denial of access to, or detention in, certain ports.
Maritime claimants could arrest one or more of the Group’s vessels, which could interrupt its cash flow. Crew members, suppliers of goods and services to a vessel, shippers of cargo and other parties may be entitled to a maritime lien against a vessel for unsatisfied debts, claims or damages. In many jurisdictions, a maritime lien holder may enforce its lien by “arresting” or “attaching” a vessel through foreclosure proceedings. The arrest or attachment of one or more of the Group’s vessels could result in a significant loss of earnings for the related off-hire period. In addition, in jurisdictions where the “sister ship” theory of liability applies, such as South Africa, a claimant may arrest the vessel which is subject to the claimant's maritime lien and any “associated” vessel, which is any vessel owned or controlled by the same owner. In countries with “sister ship” liability laws, claims might be asserted against the Group or any of its vessels for liabilities of other vessels that it owns.
Governments could requisition the Group’s vessels during a period of war or emergency resulting in a loss of earnings. A government of a vessel's registry could requisition for title or seize one or more of the Group’s vessels. Requisition for title occurs when a government takes control of a vessel and becomes the owner. A government could also requisition one or more of the Group’s vessels for hire. Requisition for hire occurs when a government takes control of a vessel and effectively becomes the charterer at dictated charter rates. Generally, requisitions occur during a period of war or emergency. Government requisition of one or more the Group’s vessels could have a material adverse effect on the Group’s business, results of operations, cash flows, financial condition and ability to pay cash distributions.
2.2 Risks Relating to the Business of the Group
The fair market values of the Group’s vessels have declined and may decline further, which could limit the amount of funds that the Group can borrow, cause the Group to breach certain financial covenants in its credit facilities, or result in an impairment charge, and cause the Group to incur a loss if it sells vessels following a decline in their market value. The fair market values of dry bulk vessels, including the Group’s vessels, have generally experienced high volatility and have recently declined significantly. The fair market value of vessels may continue to fluctuate depending on but not limited to the following factors:
• general economic and market conditions affecting the shipping industry;
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• competition from other shipping companies; • types and sizes of vessels; • the availability of other modes of transportations; • cost of newbuildings; • shipyard capacity; • governmental or other regulations; • age of vessels; • prevailing level of charter rates; • the need to upgrade secondhand and previously owned vessels as a result of charterer requirements, and • technological advances in vessel design or equipment or otherwise.
During the period a vessel is subject to a charter, the Group will not be permitted to sell it to take advantage of increases in vessel values without the charterer’s consent. If the Group sells a vessel at a time when ship prices have fallen, the sale may be at less than the vessel’s carrying amount in the Group’s financial statements, with the result that the Group could incur a loss and a reduction in earnings. The carrying values of the Group’s vessels are reviewed whenever events or changes in circumstances indicate that the carrying amount of the vessel may no longer be recoverable. The Group assess recoverability of the carrying value by estimating the future net cash flows expected to result from the vessel, including eventual disposal. If the future net undiscounted cash flows and the estimated fair market value of the vessel are less than the carrying value, an impairment loss is recorded equal to the difference between the vessel's carrying value and fair value. Any impairment charges incurred as a result of declines in charter rates and other market deterioration could negatively affect the Group’s business, financial condition or operating results or the trading price of the Group’s Shares. During the year ended December 31, 2016, the Company recorded an impairment loss of USD 1.0 million related to a sale of one vessel. During the year ended December 31, 2015, the Company recorded an impairment loss of USD 148.1 million related to five vessels sold to Ship Finance and three newbuilding contracts sold to a third party.
In addition, if the Group determines at any time that a vessel’s future useful life and earnings require the Group to impair its value in its financial statements, this would result in a charge against our earnings and a reduction of the Company’s shareholders’ equity. If the fair market values of the Group’s vessels decline, the amount of funds the Group may draw down under its secured credit facilities may be limited and the Group may not be in compliance with certain covenants contained in the Group’s secured credit facilities, which may result in an event of default. In such circumstances, the Group may not be able to refinance its debt or obtain additional financing acceptable to the Group or at all. Further, if the Group is not able to comply with the covenants in its secured credit facilities, and are unable to remedy the relevant breach, the Group’s lenders could accelerate the Group’s debt and foreclose on the Group’s fleet.
Conversely, if vessel values are elevated at a time when the Company wish to acquire additional vessels, the cost of acquisition may increase and this could adversely affect our business, results of operations, cash flow and financial condition. The Group may require additional capital in the future, which may not be available on favorable terms, or at all. Depending on many factors, including market developments, the Group’s future earnings, value of its assets and expenditures for any new projects, the Group may need additional funds in the longer term. The Company cannot guarantee that the Group will be able to obtain additional financing at all or on terms acceptable to it. If adequate funds are not available, the Group may have to reduce expenditures for investments in new and existing projects, which could hinder its growth, prevent it from realizing potential revenues from prior investments which have a negative impact on its cash flows and results of operations.
As of December 31, 2016, the Group had ten vessels under construction. During the period from January 1, 2017 and up to the date of this Prospectus, the Group has taken delivery of four vessels. The Group paid USD 101.0 million in final installments for these four vessels. As of the date of this Prospectus and following these four deliveries, the Group has six vessels under construction. Subject to final acceptance by the yard’s refund banks of amended terms on four of the six remaining newbuildings, the Group has outstanding contractual commitments of USD 188.5 million, of which USD 14.6 million is due in 2017 and USD 173.9 million is due in 2018. For two of the six remaining newbuildings, the Company paid USD 4.9 million upon consent from the yard’s refund bank. The Company’s outstanding commitments are nonrecourse to the Company.
As of December 31, 2016, the Group had available debt financing of USD 200 million for 8 newbuilding contracts. During the period from January 1, 2017 and up to the date of this Prospectus, the Group has taken delivery of two of the financed vessels and drawn down debt in total of USD 50 million. Based on the amended terms under the loan agreement and draw down on delivered vessels, as of the date of this Prospectus, the available debt financing for the remaining 6 vessels is USD 150 million. The Company intends to finance the remaining newbuilding commitments and any shortfall in financing commitments arising from a fall in vessel values with cash on hand, operating cash flow, proceeds from the private placement in February 2016 (see Section 5.2 “History and Operational Development”) and the Private Placement (see Section 6 “The Private Placement”) and, if market conditions permit, proceeds from additional debt and equity
18 financing. If such financing is not available when the Group’s capital commitments are due, the Group may be unable to meet such obligations and finance its other and future obligations. If for any reason the Group fails to take delivery of the newbuilding vessels described above, it would be prevented from realizing potential revenues from these vessels, it may be required to forego deposits on construction and it may incur additional costs and liability to the shipyard under the construction contracts.
The Group is highly leveraged, which could significantly limit the Group’s ability to execute its business strategy and has increased the risk of default under its debt obligations. As of December 31, 2016, the Group had USD 1086.5 million of outstanding indebtedness under its outstanding credit facilities and debt securities. The Company cannot assure that the Group will be able to generate cash flow in amounts that is sufficient to satisfy these obligations. If the Group is not able to satisfy these obligations, the Group may have to undertake alternative financing plans or sell the Group’s assets. In addition, debt service payments under the Company’s credit facilities may limit funds otherwise available for working capital, capital expenditures, payment of cash distributions and other purposes. If the Group is unable to meet its debt obligations, or if the Group otherwise default under its credit facilities, the Group’s lenders could declare the debt, together with accrued interest and fees, to be immediately due and payable and foreclose on the Group’s fleet, which could result in the acceleration of other indebtedness that the Group may have at such time and the commencement of similar foreclosure proceedings by other lenders
The Group’s credit facilities impose operating and financial restrictions on the Group that limit its ability, or the ability of its subsidiaries party thereto to:
• pay dividends and make capital expenditures if the Company does not repay amounts drawn under its credit facilities or if there is another default under its credit facilities; • incur additional indebtedness, including the issuance of guarantees; • create liens on its assets; • change the flag, class or management of its vessels or terminate or materially amend the management agreement relating to each vessel; • sell its vessels; • merge or consolidate with, or transfer all or substantially all its assets to, another person; or • enter into a new line of business.
In addition, the Group’s loan agreements for its borrowings, which are secured by liens on its vessels, contain various financial covenants. Among those covenants are requirements that relate to the Group’s financial position, operating performance and liquidity. For example, there are financial covenants that require the Group, subject to the February 2016 amendments discussed below, to maintain (i) a minimum value adjusted equity that is based, in part, upon the market value of the vessels securing the loans, (ii) minimum levels of free cash, (iii) a positive working capital, and (iv) a loan-to-value clause, which could require the Group to post collateral or prepay a portion of the outstanding borrowings should the value of the vessels securing borrowings decrease below a required level.
In February 2016, the Group agreed with its lenders to amend certain of the terms in the Group’s senior secured loan agreements. For the period from April 1, 2016 to September 30, 2018, there would be no repayments, the minimum value covenant was set at 100% and the market adjusted equity ratio was waived. The Group agreed that for six remaining newbuilding contracts, of which six were still remaining as the date of this Prospectus, where the Group has financing in the USD 425.0 million term loan facility, there would be a fixed draw down of USD 25.0 million per vessel subject to compliance with the minimum value covenant of 100%. A cash sweep mechanism was put in place whereby the Group would pay down on the deferred repayment amount should the Group’s cash position improve. Subject to working capital changes in the first quarter of 2017, the Company expects to prepay the December 31, 2016 deferred repayment balance under the loan facilities of USD 40.5 million. The margins on the loans were unchanged and average 2.3%, however the Group would pay an increased margin of 4.25% for the deferred amount under the loan facilities. Additionally, the Group’s loan facilities would contain a minimum ownership provisions that require Hemen Holding Limited, a company indirectly controlled by trusts established by Mr. Fredriksen for the benefit of his immediate family (“Hemen”), to hold a minimum of 34% of the Shares during the period where the Group has a waiver to its covenants. The agreement with the lenders was subject to Golden Ocean raising USD 200 million in equity, which the Group completed in February 2016.
The market value of dry bulk vessels is likewise sensitive to, among other things, changes in the dry bulk market, with vessel values deteriorating in times when dry bulk rates are falling or anticipated to fall and improving when charter rates are rising or anticipated to rise. Such conditions may result in the Group not being in compliance with these loan covenants either during or after the period where the Group has a waiver to its covenants. In such a situation, unless the Group’s lenders are willing to provide waivers of covenant compliance or modifications to the Group’s covenants, or would be willing to refinance the Group’s indebtedness, the Group may have to sell vessels in its fleet and/or seek to raise additional capital in the equity markets in order to comply with its loan covenants. Furthermore, if the value of its vessels deteriorates significantly, the Group may have to record an impairment adjustment in its financial statements,
19 which would adversely affect its financial results and further hinder its ability to raise capital. For instance, during the year ended December 31, 2016, the Group recorded impairment losses of USD 1.0 million in connection with the sale of vessels.
If the Group is not in compliance with its covenants and are not able to obtain covenant waivers or modifications, its lenders could require the Group to post additional collateral, enhance its equity and liquidity, increase its interest payments or pay down its indebtedness to a level where the Group is in compliance with its loan covenants, sell vessels in its fleet, or they could accelerate the Group’s indebtedness, which would impair the Group’s ability to continue to conduct its business. In such an event, the Group’s auditors may give either an unqualified opinion with an explanatory paragraph relating to the disclosure in the notes to the Group’s financial statements as to the substantial doubt of its ability to continue as a going concern, or a qualified, adverse or disclaimer of opinion, which could lead to additional defaults under its loan agreements. If the Group’s indebtedness is accelerated, the Group might not be able to refinance its debt or obtain additional financing and could lose its vessels if its lenders foreclose their liens. In addition, if the Group finds it necessary to sell its vessels at a time when vessel prices are low, the Group will recognize losses and a reduction in its earnings, which could affect its ability to raise additional capital necessary for the Group to comply with its loan agreements.
There are significant risks relating to the construction of the Group’s newbuilding vessels. As of the date of this Prospectus, the Group had contracts for six newbuilding vessels. Recently, the Company has agreed to postpone remaining six newbuilding vessels until the first quarter of 2018, of which the delivery of four of the newbuildings, at the date of this Prospectus, is still subject to the yard’s refund bank’s acknowledgement of the amended terms. Vessel construction projects are generally subject to risks of delay or cost overruns that are inherent in any large construction project, which may be caused by numerous factors, including shortages of equipment, materials or skilled labor, unscheduled delays in the delivery of ordered materials and equipment or shipyard construction, failure of equipment to meet quality and/or performance standards, financial or operating difficulties experienced by equipment vendors or the shipyard, unanticipated actual or purported change orders, inability to obtain required permits or approvals, unanticipated cost increases between order and delivery, design or engineering changes and work stoppages and other labor disputes, adverse weather conditions or any other events of force majeure. Significant cost overruns or delays could adversely affect the Group’s financial position, results of operations and cash flows. Additionally, failure to complete a project on time may result in the delay of revenue from that vessel, and the Group will continue to incur costs and expenses related to delayed vessels, such as supervision expense and interest expense for the outstanding debt.
A drop in spot charter rates may provide an incentive for some charterers to default on their charters. When the Group enters into a time charter or bareboat charter, charter rates under that charter may be fixed for the term of the charter. Seven of the Group’s vessels are currently on a fixed rate time charters expiring between September 2017 and December 2021. If the spot charter rates or short-term time charter rates in the dry bulk shipping industry become significantly lower than the time charter equivalent rates that some of the Group’s charterers are obligated to pay the Group under its existing charters, the charterers may have incentive to default under that charter or attempt to renegotiate the charter. If its charterers fail to pay their obligations, the Group would have to attempt to re-charter its vessels at lower charter rates, which would affect its ability to comply with its loan covenants and operate its vessels profitably. If the Group is not able to comply with its loan covenants and its lenders choose to accelerate its indebtedness and foreclose their liens, the Group could be required to sell vessels in its fleet and its ability to continue to conduct its business would be impaired.
The Group’s ability to obtain additional debt financing may be dependent on the performance of its then existing charterers and their creditworthiness. The actual or perceived credit quality of the Group’s charterers, and any defaults by them, may materially affect the Group’s ability to obtain the additional capital resources required to purchase additional vessels or may significantly increase its costs of obtaining such capital. The Group’s inability to obtain additional financing at anticipated costs or at all may materially affect its results of operations and its ability to implement its business strategy.
The Group's financing arrangements have floating interest rates which could negatively affect the financial performance of the Group as a result of interest rate fluctuations. As certain of the Group's current financing agreements have, and its future financing arrangements may have, floating interest rates, typically based on LIBOR, movements in interest rates could negatively affect the financial performance of the Group. Furthermore, historically interest in most loan agreements in the Group’s industry has been based on published LIBOR rates. Recently, however, lenders have insisted on provisions that entitle the lenders, in their discretion, to replace published LIBOR as the base for the interest calculation with their cost-of-funds rate. If the Company is required to agree to such a provision in future loan agreements, its lending costs could increase significantly, which would have an adverse effect on the Group’s profitability, earnings and cash flow.
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In order to manage the Company’s exposure to interest rate fluctuations, the Company may from time to time use interest rate derivatives to effectively fix some of its floating rate debt obligations. No assurance can however be given that the use of these derivative instruments, if any, may affectively protect the Group from adverse interest rate movements. The use of interest rate derivatives may affect Group’s results through mark to market valuation of these derivatives. Also, adverse movements in interest rate derivatives may require us to post cash as collateral, which may impact the Group’s free cash position.
Certain of the Company’s directors, executive officers and major shareholders may have interests that are different from the interests of its other shareholders. Certain of the Company’s directors, executive officers and major shareholders may have interests that are different from, or are in addition to, the interests of its other shareholders. In particular, Hemen owns, at the date of this Prospectus, approximately 40.6% of the Company’s issued and outstanding Shares.
Hemen is also a principal shareholder of a number of other large publicly traded companies involved in various sectors of the shipping and oil services industries (the “Hemen Related Companies”). In addition, certain of the Company’s directors, including Ola Lorentzon, Hans Petter Aas, John Fredriksen and Kate Blankenship, also serve on the boards of one or more of the Hemen Related Companies, including but not limited to, Frontline Ltd. (OSE/NYSE: FRO) (“Frontline”), Ship Finance International Limited (NYSE: SFL) (“Ship Finance”) Seadrill Limited (OSE/NYSE: SDRL) (“Seadrill”) and North Atlantic Drilling Ltd. (NYSE: NADL) (“NADL”). There may be real or apparent conflicts of interest with respect to matters affecting Hemen and other Hemen Related Companies whose interests in some circumstances may be adverse to the Company’s interests.
To the extent that the Company does business with or compete with other Hemen Related Companies for business opportunities, prospects or financial resources, or participate in ventures in which other Hemen Related Companies may participate, these directors and officers may face actual or apparent conflicts of interest in connection with decisions that could have different implications for the Group. These decisions may relate to corporate opportunities, corporate strategies, potential acquisitions of businesses, newbuilding acquisitions, inter-company agreements, the issuance or disposition of securities, the election of new or additional directors and other matters. Such potential conflicts may delay or limit the opportunities available to the Group, and it is possible that conflicts may be resolved in a manner adverse to the Group or result in agreements which are less favorable to the Group than terms that would be obtained in arm’s- length negotiations with unaffiliated third-parties.
The Group is subject to certain risks with respect to its counterparties on contracts, and failure of such counterparties to meet their obligations could cause the Group to suffer losses or otherwise adversely affect its business. The Group has entered into various contracts, including charter parties with its customers, loan agreements with its lenders, and vessel management, pooling arrangements, newbuilding contracts and other agreements with other entities, which subject the Group to counterparty risks. The ability of each of the counterparties to perform its obligations under a contract with the Group or contracts entered into on its behalf will depend on a number of factors that are beyond the Group’s control and may include, among other things, general economic conditions, the condition of the shipping sector, the overall financial condition of the counterparty, charter rates received for its vessels and the supply and demand for commodities. The Group has entered into newbuilding contracts with shipyards in Japan and China. Should a counterparty fail to honor its obligations under any such contract, the Group could sustain significant losses which could have a material adverse effect on its business, financial condition, results of operations and cash flows.
Charterers are sensitive to the commodity markets and may be impacted by market forces affecting commodities. In addition, in depressed market conditions, charterers may have incentive to renegotiate their charters or default on their obligations under charters. Should a charterer in future fail to honor its obligations under agreements with the Group, it may be difficult to secure substitute employment for such vessel, and any new charter arrangements the Group secures on the spot market or on charters may be at lower rates, depending on the then existing charter rate levels, compared to the rates currently being charged for its vessels. In addition, if the charterer of a vessel in the Group’s fleet that is used as collateral under one or more of the Group’s loan agreements defaults on its charter obligations to the Group, such default may constitute an event of default under its loan agreements, which may allow the bank to exercise remedies under the Group’s loan agreements. If the Group’s charterers fail to meet their obligations to the Group or attempt to renegotiate the Group’s charter agreements, the Group could sustain significant losses which could have a material adverse effect on its business, financial condition, results of operations and cash flows, as well as its ability to pay cash distributions, if any, in the future, and compliance with covenants in its loan agreements.
The Group is dependent on the success and profitability of the pools in which the Group’s vessels operate. The Group is party to a pooling arrangement through Capesize Chartering Ltd, and may be in the future be party to other pooling arrangements, pursuant to which the profitability of the Group’s vessels operating in these vessel pools is dependent upon the pool managers’ and other pool participants’ ability to successfully implement a profitable chartering
21 strategy, which could include, among other things, obtaining favorable charters and employing vessels in the pool efficiently in order to service those charters. As of the date of this Prospectus, 21 of the Group’s vessels operate in pools. If vessels from other pool participants that enter into pools in which the Group participates are not of comparable design or quality to the Group’s vessels, or if the owners of such other vessels negotiate for greater pool weightings than those obtained by the Group, this could negatively impact the profitability of the pools in which the Group may participate or the Group’s profitability or dilute the Group’s interest in the pool’s profits.
Further, in addition to bearing charterer credit risk indirectly, the Group may also face credit risk from its pool managers and other pool participants. Not all pool managers or pool participants will necessarily provide detailed financial information regarding their operations. As a result, pool manager and other pool participant risk is largely assessed on the basis of the reputation of the Group’s pool managers and other pool participants in the market, and even on that basis, there is no assurance that they can or will fulfill their obligations under the contracts the Group may enter into with them. As such, pool managers and other pool participants may fail to fulfill their obligations to the Group. Should a pool manager or other pool participant fail to honor its obligations under agreements with the Group, the Group may have to withdraw its vessels from the pool and it may be difficult to secure substitute employment for the Group’s vessels, and any new charter arrangements the Group secures on the spot market, on time charters or in alternative pooling arrangements may be at lower rates or on less favorable terms, depending on the then existing charter rate levels, compared to the rates currently being charged for the Group’s vessels, and other market conditions. If the Group’s pool managers or other pool participants fail to meet their obligations to the Group, the Group could sustain significant losses, which could have a material adverse effect on the Group’s business, financial condition, results of operations and cash flows
The Group may not be able to implement its growth successfully. Subject to the covenants in the Group’s credit facilities, the Group’s long term intention is to renew and grow its fleet through selective acquisitions of dry bulk tonnage. The Group’s business plan will therefore depend upon the Group’s ability to identify and acquire suitable vessels to grow its fleet in the future and successfully employ its vessels. As of December 31, 2016, the Group had ten vessels under construction. During the period from January 1, 2017 to the date of this Prospectus, the Group took delivery of four vessels. As of the date of this Prospectus and following these deliveries, the Group has six vessels under construction with expected delivery in 2018. Further, the Company has recently entered into the Quintana and Hemen Acquisitions (defined below), pursuant to which the Company agreed to acquire up to an additional 16 dry bulk vessels
Growing any business by acquisition presents numerous risks, including undisclosed liabilities and obligations, difficulty obtaining additional qualified personnel and managing relationships with customers and suppliers. In addition, competition from other companies, many of which may have significantly greater financial resources than the Group, may reduce its acquisition opportunities or cause the Group to pay higher prices. The Company cannot assure that the Group will be successful in executing its plans to establish and grow its business or that the Group will not incur significant expenses and losses in connection with these plans. The Group’s failure to effectively identify, purchase, develop and integrate any vessels could impede its ability to establish its operations or implement its growth successfully. The Group’s acquisition growth strategy exposes the Group to risks that may harm its business, financial condition and operating results, including risks that the Group may:
• fail to realize anticipated benefits, such as cost savings or cash flow enhancements; • incur or assume unanticipated liabilities, losses or costs associated with any vessels or businesses acquired, particularly if any vessel the Group acquires proves not to be in good condition; • be unable to hire, train or retain qualified shore and seafaring personnel to manage and operate its growing business and fleet; • decrease its liquidity by using a significant portion of available cash or borrowing capacity to finance acquisitions; • significantly increase its interest expense or financial leverage if the Group incurs debt to finance acquisitions; or • incur other significant charges, such as impairment of goodwill or other intangible assets, asset devaluation or restructuring charges. Purchasing and operating previously owned, or secondhand, vessels may result in increased drydocking costs and vessels off-hire, which could adversely affect the Group’s earnings. Subject to the covenants in the Group’s credit facilities, the Group’s long term business strategy includes growth through the acquisition of previously owned vessels. Even following a physical inspection of secondhand vessels prior to purchase, the Group does not have the same knowledge about their condition and cost of any required (or anticipated) repairs that the Group would have had if these vessels had been built for and operated exclusively by the Group. Accordingly, the Group may not discover defects or other problems with such vessels prior to purchase. Any such hidden defects or problems, when detected, may be expensive to repair, and if not detected, may result in accidents or other incidents for which the Group may become liable to third parties. Also, when purchasing previously owned vessels, the Group does not receive the benefit of any builder warranties if the vessels the Group buys are older than one year.
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In general, the costs to maintain a vessel in good operating condition increase with the age of the vessel. The average age of the Group’s dry bulk vessel fleet is approximately four years. As the Group’s fleet ages, the Group will incur increased costs. Older vessels are typically less fuel efficient than more recently constructed vessels due to improvements in engine technology. Governmental regulations, safety and other equipment standards related to the age of vessels may require expenditures for alterations or the addition of new equipment to some of the Group’s vessels and may restrict the type of activities in which these vessels may engage. The Company cannot assure that, as its vessels age, market conditions will justify those expenditures or enable the Group to operate its vessels profitably during the remainder of their useful lives. As a result, regulations and standards could have a material adverse effect on the Group’s business, financial condition, results of operations, cash flows.
The operation of dry bulk carriers involves certain unique operational risks. The operation of dry bulk vessels has certain unique operational risks. With a dry bulk vessel, the cargo itself and its interaction with the ship can be a risk factor. By their nature, dry bulk cargoes are often heavy, dense and easily shifted, and react badly to water exposure. In addition, dry bulk vessels are often subjected to battering treatment during unloading operations with grabs, jackhammers (to pry encrusted cargoes out of the hold), and small bulldozers. This treatment may cause damage to the dry bulk vessel. Dry bulk carriers damaged due to treatment during unloading procedures may be more susceptible to a breach to the sea. Hull breaches in dry bulk vessel may lead to the flooding of their holds. If a dry bulk vessel suffers flooding in its forward holds, the bulk cargo may become so dense and waterlogged that its pressure may buckle the dry bulk vessel’s bulkheads leading to the loss of the dry bulk vessel.
If the Group is unable to adequately maintain or safeguard its vessels the Group may be unable to prevent these events. Any of these circumstances or events could negatively impact the Group’s business, financial condition or results of operations. In addition, the loss of any of the Group’s vessels could harm its reputation as a safe and reliable vessel owner and operator.
Rising fuel, or bunker, prices may adversely affect the Group’s profits. Since the Group primarily employs its vessels in the spot market, the Group expects that fuel, or bunkers, will be typically the largest expense in its shipping operations for its vessels. While the Company believes that the Group will experience a competitive advantage as a result of increased bunker prices due to the greater fuel efficiency of its vessels compared to the average global fleet, changes in the price of fuel may adversely affect its profitability. The price and supply of fuel is unpredictable and fluctuates based on events outside its control, including geopolitical developments, supply and demand for oil and gas, actions by the Organization of the Petroleum Exporting Countries (“OPEC”), and other oil and gas producers, war and unrest in oil producing countries and regions, regional production patterns and environmental concerns. Despite lower fuel oil prices during 2015 and going into 2016, fuel prices have increased during 2016 and may, fuel may become much more expensive in the future, which may reduce the Group’s profitability.
The Group’s results of operations are subject to seasonal fluctuations, which may adversely affect its financial condition. The Group operates its dry bulk vessels in markets that have historically exhibited seasonal variations in demand and, as a result, in charterhire rates. The dry bulk sector is typically stronger in the fall and winter months in anticipation of increased consumption of coal and other raw materials in the northern hemisphere. The celebration of Chinese New Year in the first quarter of each year, also results in lower volumes of seaborne trade into China during this period. In addition, unpredictable weather patterns in these months tend to disrupt vessel scheduling and supplies of certain commodities. This seasonality may result in quarter-to-quarter volatility in the Group’s revenues and operating results, which could affect the Company’s ability to pay dividends, if any, in the future from quarter to quarter.
The Group may be unable to successfully compete with other vessel operators for charters, which could adversely affect its results of operations and financial position. The operation of dry bulk vessels and transportation of dry bulk cargoes is extremely competitive. Through the Company’s operating subsidiaries, the Group competes with other vessel owners, and, to a lesser extent, owners of other size vessels. The dry bulk market is highly fragmented. It is possible that the Group could not obtain suitable employment for its vessels, which could adversely affect the Group’s results of operations and financial position.
The Group’s fixed rate time charters may limit its ability to benefit from any improvement in charter rates, and at the same time, its revenues may be adversely affected if the Group does not successfully employ its vessels on the expiration of its charters. Seven of the Group’s vessels are currently on a fixed rate time charters expiring between September 2017 and December 2021. Although the Group’s fixed rate time charters generally provide reliable revenues, they also limit the portion of the Group’s fleet available for spot market voyages during an upswing in the dry bulk industry cycle, when spot market voyages might be more profitable. By the same token, the Company cannot assure that it will be able to successfully employ its vessels in the future or renew its existing charters at rates sufficient to allow the Group to operate its business
23 profitably or meet its obligations. A decline in charter or spot rates or a failure to successfully charter the Group’s vessels could have a material adverse effect on its business, financial condition, results of operations.
Operational risks and damage to the Group’s vessels could adversely impact the Group’s performance. The Group’s vessels and their cargoes are at risk of being damaged or lost because of events such as marine disasters, bad weather and other events outside the Group’s control, business interruptions caused by mechanical failures, grounding, fire, explosions and collisions, human error, war, terrorism, piracy, labor strikes, boycotts and other circumstances or events. These hazards may result in death or injury to persons, loss of revenues or property, the payment of ransoms, environmental damage, higher insurance rates, damage to the Group’s customer relationships and market disruptions, delay or rerouting.
If the Group’s vessels suffer damage, they may need to be repaired at a drydocking facility. The costs of drydock repairs are unpredictable and may be substantial. The Group may have to pay drydocking costs that its insurance does not cover at all or in full. The loss of revenues while these vessels are being repaired and repositioned, as well as the actual cost of these repairs, may adversely affect the Group’s business and financial condition. In addition, space at drydocking facilities is sometimes limited and not all drydocking facilities are conveniently located. The Group may be unable to find space at a suitable drydocking facility or its vessels may be forced to travel to a drydocking facility that is not conveniently located relative to its vessels' positions. The loss of earnings while these vessels are forced to wait for space or to travel to more distant drydocking facilities may adversely affect the Group’s business and financial condition.
Further, the total loss of any of the Group’s vessels could harm the Group’s reputation as a safe and reliable vessel owner and operator. If the Group is unable to adequately maintain or safeguard its vessels, the Group may be unable to prevent any such damage, costs or loss which could negatively impact its business, financial condition, results of operations and cash flows.
Increased inspection procedures, tighter import and export controls and new security regulations could increase costs and cause disruption of the Group’s business. International shipping is subject to security and customs inspection and related procedures in countries of origin, destination and trans-shipment points. Under the U.S. Maritime Transportation Security Act of 2002, the USCG issued regulations requiring the implementation of certain security requirements aboard vessels operating in waters subject to the jurisdiction of the United States. These security procedures can result in delays in the loading, offloading or trans- shipment and the levying of customs duties, fines or other penalties against exporters or importers and, in some cases, carriers. Future changes to the existing security procedures may be implemented that could affect the dry bulk sector. These changes have the potential to impose additional financial and legal obligations on carriers and, in certain cases, to render the shipment of certain types of goods uneconomical or impractical. These additional costs could reduce the volume of goods shipped, resulting in a decreased demand for vessels and have a negative effect on the Group’s business, revenues and customer relations.
Failure to comply with the U.S. Foreign Corrupt Practices Act of 1977 and other anti-bribery legislation in other jurisdictions could result in fines, criminal penalties, contract terminations and an adverse effect on the Group’s business. The Group may operate in a number of countries throughout the world, including countries known to have a reputation for corruption. The Group is committed to doing business in accordance with applicable anti-corruption laws and have adopted a code of business conduct and ethics which is consistent and in full compliance with the U.S. Foreign Corrupt Practices Act of 1977 (the “U.S. Foreign Corrupt Practices Act”) , and other anti-bribery legislation. The Group is subject, however, to the risk that the Group, its affiliated entities or its or their respective officers, directors, employees and agents may take actions determined to be in violation of such anti-corruption laws, including the U.S. Foreign Corrupt Practices Act. Any such violation could result in substantial fines, sanctions, civil and/or criminal penalties, curtailment of operations in certain jurisdictions, and might adversely affect the Group’s business, results of operations or financial condition. In addition, actual or alleged violations could damage the Group’s reputation and ability to do business. Furthermore, detecting, investigating, and resolving actual or alleged violations is expensive and can consume significant time and attention of the Company’s senior management.
Incurrence of expenses or liabilities may reduce or eliminate distributions. The Group’s credit facilities currently restrict the Company from paying dividends until after September 30, 2018. The amount and timing of cash distributions in the future will depend, among other things, on the Group’s compliance with covenants in its credit facilities, financial condition, cash position, Bermuda law affecting the payment of distributions, restrictions in the Group’s financing agreements and other factors. The Group could incur other expenses or contingent liabilities that would reduce or eliminate the cash available for distribution by the Group as cash distributions. In addition, the declaration and payment of cash distributions is subject at all times to the discretion of the Company’s Board. The Company cannot assure that it will pay cash distributions.
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The Group may be subject to litigation that, if not resolved in its favor and not sufficiently insured against, could have a material adverse effect on the Group. The Group may be, from time to time, involved in various litigation matters. These matters may include, among other things, contract disputes, shareholder litigation, personal injury claims, environmental claims or proceedings, asbestos and other toxic tort claims, employment matters, governmental claims for taxes or duties, and other litigation that arises in the ordinary course of the Group’s business. Although the Group intends to defend these matters vigorously, the Group cannot predict with certainty the outcome or effect of any claim or other litigation matter, and the ultimate outcome of any litigation or the potential costs to resolve them may have a material adverse effect on the Group. Insurance may not be applicable or sufficient in all cases and/or insurers may not remain solvent which may have a material adverse effect on the Group’s financial conditions.
If the Group does not set aside funds and are unable to borrow or raise funds for vessel replacement at the end of a vessel's useful life its revenue will decline, which would adversely affect its business, results of operations, financial condition. If the Group does not set aside funds and are unable to borrow or raise funds for vessel replacement, the Group will be unable to replace the vessels in its fleet upon the expiration of their remaining useful lives. The Group’s cash flows and income are dependent on the revenues earned by the chartering of its vessels. If the Group is unable to replace the vessels in its fleet upon the expiration of their useful lives, its business, results of operations, financial condition and ability to pay cash distributions would be adversely affected. Any funds set aside for vessel replacement will not be available for cash distributions.
The Group may not have adequate insurance to compensate it if its vessels are damaged or lost. The Group procures insurance for its fleet against those risks that the Company believes companies in the shipping industry commonly insure. These insurances include hull and machinery insurance, protection and indemnity insurance, which include environmental damage and pollution insurance coverage, and war risk insurance. The Company can give no assurance that it will be adequately insured against all risks and the Company cannot guarantee that any particular claim will be paid, even if the Group has previously recorded a receivable or revenue in respect of such claim. The Group’s insurance policies may contain deductibles for which it will be responsible and limitations and exclusions, which may increase its costs or lower its revenues.
The Company cannot assure that the Group will be able to obtain adequate insurance coverage for its vessels in the future or renew its existing policies on the same or commercially reasonable terms, or at all. For example, more stringent environmental regulations have in the past led to increased costs for, and in the future may result in the lack of availability of, protection and indemnity insurance against risks of environmental damage or pollution. Any uninsured or underinsured loss could harm the Group’s business, results of operations, cash flows, financial condition and ability to pay cash distributions. In addition, its insurance may be voidable by the insurers as a result of certain of its actions, such as its vessels failing to maintain certification with applicable maritime selfregulatory organizations. Further, the Company cannot assure that its insurance policies will cover all losses that the Group incurs, or that disputes over insurance claims will not arise with its insurance carriers. Any claims covered by insurance would be subject to deductibles, and since it is possible that a large number of claims may be brought, the aggregate amount of these deductibles could be material. In addition, the Group’s insurance policies may be subject to limitations and exclusions, which may increase the Group’s costs or lower its revenues, thereby possibly having a material adverse effect on its business, results of operations, cash flows, financial condition and ability to pay cash distributions.
The Group may be subject to calls because it obtains some of its insurance through protection and indemnity associations. The Group may be subject to increased premium payments, or calls, if the value of its claim records, the claim records of its fleet managers, and/or the claim records of other members of the protection and indemnity associations through which the Group receives insurance coverage for tort liability (including pollution-related liability) significantly exceed projected claims. The Group’s payment of these calls could result in significant expense to the Group, which could have a material adverse effect on its business, results of operations, cash flows, financial condition and ability to pay cash distributions. In addition, the Group’s protection and indemnity associations may not have enough resources to cover claims made against them.
The Company is a holding company, and depends on the ability of its subsidiaries to distribute funds to it in order to satisfy its financial obligations and to make dividend payments. The Company is a holding company and its subsidiaries conduct all of its operations and own all of its operating assets. As a result, the Company’s ability to satisfy its financial obligations in the future depends on the Company’s subsidiaries and their ability to distribute funds to the Company. If the Company is unable to obtain funds from its subsidiaries, the Company may not be able to satisfy its financial obligations. Pursuant to the loan agreements the Company expects to
25 enter into, the NewCo (as defined below) which indirectly will own the Quintana Fleet will be prohibited from paying dividends to the Company, without prior consent from the lenders.
The international nature of the Group’s operations may make the outcome of any bankruptcy proceedings difficult to predict. The Company is incorporated under the laws of Bermuda and it conducts operations in countries around the world. Consequently, in the event of any bankruptcy, insolvency, liquidation, dissolution, reorganization or similar proceeding involving the Company or any of its subsidiaries, bankruptcy laws other than those of the United States could apply. If the Company becomes a debtor under U.S. bankruptcy law, bankruptcy courts in the United States may seek to assert jurisdiction over all of its assets, wherever located, including property situated in other countries. There can be no assurance, however, that the Company would become a debtor in the United States, or that a U.S. bankruptcy court would be entitled to, or accept, jurisdiction over such a bankruptcy case, or that courts in other countries that have jurisdiction over the Company and its operations would recognize a U.S. bankruptcy court’s jurisdiction if any other bankruptcy court would determine it had jurisdiction.
Because the Company is a Bermuda corporation, it’s shareholders may have less recourse against the Company or its directors than shareholders of a U.S. company have against the directors of that U.S. Company. Because the Company is a Bermuda company, the rights of holders of Shares will be governed by Bermuda law and the Company’s memorandum of association and bye-laws. The rights of shareholders under Bermuda law may differ from the rights of shareholders in other jurisdictions, including with respect to, among other things, rights related to interested directors, amalgamations, mergers and acquisitions, takeovers, the exculpation and indemnification of directors and shareholder lawsuits. Among these differences is a Bermuda law provision that permits a company to exempt a director from liability for any negligence, default, or breach of a fiduciary duty except for liability resulting directly from that director’s fraud or dishonesty. The Company’s bye-laws provide that no director or officer shall be liable to the Company or its shareholders unless the director’s or officer’s liability results from that person’s fraud or dishonesty. The Company’s bye-laws also require the Company to indemnify a director or officer against any losses incurred by that director or officer resulting from their negligence or breach of duty, except where such losses are the result of fraud or dishonesty. Accordingly, the Company carries directors’ and officers’ insurance to protect against such a risk. In addition, under Bermuda law, the directors of a Bermuda company owe their duties to that company and not to the shareholders. Bermuda law does not, generally, permit shareholders of a Bermuda company to bring an action for a wrongdoing against the company or its directors, but rather the company itself is generally the proper plaintiff in an action against the directors for a breach of their fiduciary duties. Moreover, class actions and derivative actions are generally not available to shareholders under Bermuda law. These provisions of Bermuda law and the Company’s bye- laws, as well as other provisions not discussed here, may differ from the law of jurisdictions with which shareholders may be more familiar and may substantially limit or prohibit a shareholder’s ability to bring suit against the Company’s directors or in the name of the company. The Bermuda courts, however, would ordinarily be expected to permit a shareholder to commence an action in the name of a company to remedy a wrong to the company where the act complained of is alleged to be beyond the corporate power of the company or illegal, or would result in the violation of the company’s memorandum of association or bye-laws. Furthermore, consideration would be given by a Bermuda court to acts that are alleged to constitute a fraud against minority shareholders or, for instance, where an act requires the approval of a greater percentage of the company’s shareholders than that which actually approved it. It is also worth noting that under Bermuda law, the Company’s directors and officers are required to disclose to the Company’s board any material interests they have in any contract entered into by the Company or any of its subsidiaries with third parties. The Company’s directors and officers are also required to disclose their material interests in any corporation or other entity which is party to a material contract with the Company or any of its subsidiaries. A director who has disclosed his or her interests in accordance with Bermuda law may participate in any meeting of the Company’s board, and may vote on the approval of a material contract, notwithstanding that he or she has a material interest.
United States tax authorities could treat the Company as a “passive foreign investment company”, which could have adverse United States federal income tax consequences to United States shareholders. A foreign corporation will be treated as a ”passive foreign investment company“ (“PFIC”) for United States federal income tax purposes if either (1) at least 75% of its gross income for any taxable year consists of certain types of "passive income" or (2) at least 50% of the average value of the corporation's assets produce or are held for the production of those types of "passive income". For purposes of these tests, "passive income" includes cash distributions, interest, and gains from the sale or exchange of investment property and rents and royalties other than rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business. For purposes of these tests, income derived from the performance of services does not constitute "passive income". United States shareholders of a PFIC are subject to a disadvantageous United States federal income tax regime with respect to the distributions they receive from the PFIC and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC.
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Based on the Group’s current and proposed method of operation, the Company does not believe that the Company is or that the Company has been since the beginning of its 2004 taxable year, or that the Company will be a PFIC with respect to any taxable year. In this regard, the Company intends to treat the gross income the Company derives or is deemed to derive from its time chartering and voyage chartering activities as services income, rather than rental income. Accordingly, the Company believes that its income from these activities does not constitute “passive income”, and the assets that the Group owns and operates in connection with the production of that income do not constitute assets that produce, or are held for the production of, “passive income”.
Although there is no direct legal authority under the PFIC rules addressing the Company’s method of operation there is substantial legal authority supporting the Company’s position consisting of case law and United States Internal Revenue Service (the “IRS”) pronouncements concerning the characterization of income derived from time charters and voyage charters as services income for other tax purposes. However, it should be noted that there is also authority that characterizes time charter income as rental income rather than services income for other tax purposes. Accordingly, no assurance can be given that the IRS or a court of law will accept the Company’s position, and there is a risk that the IRS or a court of law could determine that the Company is a PFIC. Moreover, no assurance can be given that the Company would not constitute a PFIC for any future taxable year if there were to be changes in the nature and extent of its operations.
If the IRS were to find that the Company is or has been a PFIC for any taxable year, the Company’s United States shareholders will face adverse United States federal income tax consequences. Under the PFIC rules, unless those shareholders make an election available under United States Internal Revenue Code of 1986, as amended (the “Code”) (which election could itself have adverse consequences for such shareholders) such shareholders would be liable to pay United States federal income tax at the then prevailing income tax rates on ordinary income plus interest upon excess distributions and upon any gain from the disposition of the Company’s common shares, as if the excess distribution or gain had been recognized ratably over the shareholder's holding period of the Company’s common shares.
The Company may have to pay tax on United States source income, which would reduce its earnings. Under the Code, 50 % of the gross shipping income of a vessel owning or chartering corporation, such as the Company and its subsidiaries, that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States, may be subject to a 4% United States federal income tax without allowance for deduction, unless that corporation qualifies for exemption from tax under Section 883 of the Code and the applicable Treasury Regulations promulgated thereunder.
The Company believes that the Company and each of its subsidiaries are qualified for this statutory tax exemption for the taxable year ending on December 31, 2016 and the Company intends to this position for United States federal income tax return reporting purposes. However, there are factual circumstances beyond the Company’s control that could cause the Company to lose the benefit of this tax exemption for future taxable years and thereby become subject to United States federal income tax on its United States source shipping income. For example, the Company would no longer qualify for exemption under Section 883 of the Code for a particular taxable year if certain non-qualified shareholders with a 5% or greater interest in its common shares owned, in the aggregate, 50% or more of its outstanding common shares for more than half the days during the taxable year. It is possible that the Company could be subject to this rule for its taxable year ending on December 31, 2017. Due to the factual nature of the issues involved, there can be no assurances on its tax-exempt status or that of any of its subsidiaries.
If the Company or its subsidiaries are not entitled to exemption under Section 883 of the Code for any taxable year, the Company, or its subsidiaries, could be subject during those years to an effective 2% United States federal income tax on gross shipping income derived during such a year that is attributable to the transport of cargoes to or from the United States. The imposition of this tax would have a negative effect on the Group’s business and would result in decreased earnings available for distribution to its shareholders. However, the amount of the Group’s shipping income that would be subject to this tax has historically not been material.
2.3 Risks Relating to the Acquisition
Under the Acquisition agreement, consummation of the Acquisition is conditional upon satisfaction of a number of conditions that are beyond the control of the Company; the Acquisition may hence not be consummated and transaction costs will have been incurred for the Group regardless of whether the Acquisition are consummated which could negatively affect the business, results of operation and financial condition of the Group. Consummation of the Acquisition is conditional upon satisfaction of certain conditions, the satisfaction of which are beyond the control of the Company, see Section 7.4 “Completion of the Acquisition”. If the Acquisition is not consummated, transaction costs, including costs of advisors and the use of key management personnel’s time and attention, will have been incurred without the expected benefits and at the expense of other business opportunities.
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In addition, there will be no realisation of any of the expected benefits of having completed the Acquisition and failure to complete the Acquisition could result in a negative perception by the stock market of the Company and result in a decline of the market price of the Shares.
If any of the above risks materialise, it could negatively affect the business, results of operation and financial condition of the Group.
2.4 Risks Related to the Shares
The Company’s share price may be highly volatile and future sales of its common shares could cause the market price of its common shares to decline. The Company’s Shares commenced trading on the NASDAQ Global Select Market (“NASDAQ”) in February 1997 and currently trade under the symbol “GOGL”. Beginning on April 7, 2015, its shares traded on the Oslo Stock Exchange under the ticker code “GOGL”. The Company cannot assure that an active and liquid public market for its Shares will continue. The market price of the Company’s Shares has historically fluctuated over a wide range and may continue to fluctuate significantly in response to many factors, such as actual or anticipated fluctuations in its operating results, changes in financial estimates by securities analysts, economic and regulatory trends, general market conditions, rumors and other factors, many of which are beyond the Company’s control. Since 2008, the stock market has experienced extreme price and volume fluctuations. If the volatility in the broad stock market continues or worsens, it could have an adverse effect on the market price of the Company’s Shares and impact a potential sale price if holders of the Company’s Shares decide to sell their shares.
Investors may not be able to exercise their voting rights for Shares registered in a nominee account. Beneficial owners of Shares listed on the Oslo Stock Exchange that are registered in a nominee account (such as through brokers, dealers or other third parties) may not be able to vote for such shares unless their ownership is re-registered in their names with the VPS prior to the Company’s general meetings. The Company cannot guarantee that beneficial owners of the Shares will receive the notice of a general meeting of shareholders of the Company in time to instruct their nominees to either effect a re-registration of their Shares or otherwise vote for their shares in the manner desired by such beneficial owners.
Future issuance of shares or other securities may dilute the holdings of shareholders and could materially affect the price of the Shares. It is possible that the Company may in the future decide to offer additional shares or other securities in order to secure financing of new projects, in connection with unanticipated liabilities or expenses or for any other purposes. Any such additional offering could reduce the proportionate ownership and voting interests of holders of Shares, as well as the earnings per share and the net asset value per share of the Company, and any offering by the Company could have a material adverse effect on the market price of the Shares.
Because the Company’s offices and most of its assets are outside the United States, shareholders may not be able to bring suit against the Company, or enforce a judgment obtained against the Company in the United States. The Company’s executive offices, administrative activities and assets are located outside the United States. As a result, it may be more difficult for investors to effect service of process within the United States upon the Company, or to enforce both in the United States and outside the United States judgments against the Company in any action, including actions predicated upon the civil liability provisions of the federal securities laws of the United States.
Shareholders outside Norway are subject to exchange rate risk. The Shares listed on the Oslo Stock Exchange are priced in NOK, and any future payments of dividends on the Shares listed on the Oslo Stock Exchange will be paid in NOK. Accordingly, any investor outside Norway is subject to adverse movements in NOK against their local currency as the foreign currency equivalent of any dividends paid on the Shares listed on the Oslo Stock Exchange or price received in connection with sale of such Shares could be materially adversely affected.
There are certain risks connected to the Shares being registered in the VPS. The Shares listed on the Oslo Stock Exchange are for the purpose of Bermuda company law, registered in the Company’s register of members (directly or indirectly) in the name of Nordea Bank Norge ASA (the “VPS Registrar”), which holds the Shares as a nominee on behalf of the beneficial owners. For the purpose of enabling trading of Shares on the Oslo Stock Exchange, the Company maintains a register in the VPS, where the beneficial ownership interests in the shares and transfer of such beneficial ownership interests are recorded.
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The Company has entered into a registrar agreement with the VPS Registrar where the VPS Registrar is appointed as registrar and nominee, in order to provide for the registration of each investor’s beneficial ownership in the Shares in the VPS on investors’ individual VPS accounts.
In accordance with market practice in Norway and system requirements of the VPS, the beneficial ownership of investors is registered in the VPS under the name of a “share” and the beneficial ownership is listed and traded on the Oslo Stock Exchange as “shares” in the Company. Investors who purchase Shares (although recorded as owners of the Shares in the VPS) will have no direct rights against the Company.
Each VPS-registered share represents evidence of beneficial ownership of one of the Shares for the purposes of Norwegian law, however such ownership would not necessarily be recognized by a Bermuda or other court. The VPS-registered shares are freely transferable with delivery and settlement through the VPS-system. Investors must look solely to the VPS Registrar for the payment of dividends, for the exercise of voting rights attached to the Shares and for all other rights arising in respect of the Shares.
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3. RESPONSIBILITY STATEMENT The Board of Directors of Golden Ocean Group Limited accepts responsibility for the information contained in this Prospectus. The members of the Board of Directors confirm that, having taken all reasonable care to ensure that such is the case, the information contained in this Prospectus is, to the best of their knowledge, in accordance with the facts and contains no omissions likely to affect its import.
March 27, 2017
The Board of Directors of Golden Ocean Group Limited
Ola Lorentzon (Chairman) John Fredriksen Hans Petter Aas Kate Blankenship Gert-Jan van den Akker
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4. GENERAL INFORMATION
This Section provides general information on the presentation of financial and other information, as well as the use of forward-looking statements, in this Prospectus. You should read this information carefully before continuing.
4.1 Cautionary Note Regarding Forward-Looking Statements This Prospectus includes forward-looking statements (“Forward-looking Statements”) that reflect the Company’s current views with respect to future events and financial and operational performance; including, but not limited to, statements relating to the risks specific to the Group’s business, future earnings from charter contracts, the ability to distribute dividends, the solution to contractual disagreements with counterparties, the implementation of strategic initiatives as well as other statements relating to the Group’s future business development and economic performance. These forward- looking statements can be identified by the use of forward-looking terminology; including the terms “assumes”, “projects”, “forecasts”, “estimates”, “expects”, “anticipates”, “believes”, “plans”, “intends”, “may”, “might”, “will”, “would”, “can”, “could”, “should” or, in each case, their negative or other variations or comparable terminology. These Forward-looking Statements are not historical facts. They appear in a number of places throughout this Prospectus; Section 5 “Business Overview”, Section 8 “Industry Overview”, Section 10 “Selected Financial Information and other information” and Section 11 “Operating and Financial Review” and include statements regarding the Company’s intentions, beliefs or current expectations concerning, among other things, goals, objectives, financial condition and results of operations, liquidity, outlook and prospects, growth, strategies, impact of regulatory initiatives, capital resources and capital expenditure and dividend targets, and the industry trends and developments in the markets in which the Group operates.
Prospective investors in the Shares are cautioned that Forward-looking Statements are not guarantees of future performance and that the Group’s actual financial position, operating results and liquidity, and the development of the industry in which the Group operates may differ materially from those contained in or suggested by the Forward-looking Statements contained in this Prospectus. The Company cannot guarantee that the intentions, beliefs or current expectations that these Forward-looking Statements are based will occur.
By their nature, the Forward-looking Statements involve and are subject to known and unknown risks, uncertainties and assumptions as they relate to events and depend on circumstances that may or may not occur in the future. Because of these known and unknown risks, uncertainties and assumptions, the outcome may differ materially from those set out in the Forward-looking Statements. Should one or more of these risks and uncertainties materialize, or should any underlying assumption prove to be incorrect, the Group’s business, actual financial condition, cash flows or results of operations could differ materially from that described herein as anticipated, believed, estimated or expected.
The information contained in this Prospectus, including the information set out under Section 2 “Risk Factors”, identifies additional factors that could affect the Company’s financial position, operating results, liquidity and performance. Prospective investors in the Shares are urged to read all sections of this Prospectus and, in particular, Section 2 “Risk Factors” for a more complete discussion of the factors that could affect the Group’s future performance and the industry in which the Company operates when considering an investment in the Shares.
Except as required according to Section 7-15 of the Norwegian Securities Trading Act, the Company undertakes no obligation to publicly update or publicly revise any Forward-looking Statement, whether as a result of new information, future events or otherwise. All subsequent written and oral Forward-looking Statements attributable to the Group or to persons acting on the Company’s behalf are expressly qualified in their entirety by the cautionary statements referred to above and contained elsewhere in this Prospectus.
4.2 Presentation of Industry Data and Other Information
Sources of Industry and Market Data To the extent not otherwise indicated, the information contained in this Prospectus on the market environment, market developments, growth rates, market trends, market positions, industry trends, competition in the industry in which the Company operates and similar information are estimates based on data compiled by professional organizations, consultants and analysts; in addition to market data from other external and publicly available sources as well as the Company’s knowledge of the markets.
While the Company has compiled, extracted and reproduced such market and other industry data from external sources, the Company has not independently verified the correctness of such data. Thus, the Company takes no responsibility for the correctness of such data. The Company cautions prospective investors not to place undue reliance on the above mentioned data.
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Although the industry and market data is inherently imprecise, the Company confirms that where information has been sourced from a third party, such information has been accurately reproduced and that as far as the Company is aware and is able to ascertain from information published by that third party, no facts have been omitted that would render the reproduced information inaccurate or misleading. Where information sourced from third parties has been presented, the source of such information has been identified.
In addition, although the Company believes its internal estimates to be reasonable, such estimates have not been verified by any independent sources and the Company cannot assure prospective investors as to their accuracy or that a third party using different methods to assemble, analyze or compute market data would obtain the same results. The Company does not intend to or assume any obligations to update industry or market data set forth in this Prospectus. Finally, behavior, preferences and trends in the marketplace tend to change. As a result, prospective investors should be aware that data in this Prospectus and estimates based on those data may not be reliable indicators of future results.
Vessel Valuation Reports The information and data contained in vessel valuation reports relating to the Company’s vessels and acquired vessels have been provided by Fearnleys AS and Nordic Shipping AS at the request of the Company. Fearnleys AS and Nordic Shipping AS is each an independent and specialized ship brokerage firm with no material interests in the Company. The address of Fearnleys AS is Grev Wedels plass 9, 0107 Oslo, Norway and the address of Nordic Shipping AS is Fridtjof Nansens plass 6, 0110 Oslo, Norway.
Fearnleys AS and Nordic Shipping AS have given their consent to the inclusion of the vessel valuation reports in this Prospectus. The valuation reports relating to the Company’s vessels are as of December 31, 2016 and the valuation reports relating to the acquired vessels are as of March 16, 2016 and March 20, 2016. There have not been material changes to the values since these dates. See Appendix A “Valuation Reports” to this Prospectus for further information about the basis of preparation of the vessel valuation reports.
Financial Information; Alternative Performance Measures (Non-U.S. GAAP Measures)
The financial information included in this Prospectus includes some alternative performance measures which are not accounting measures within the scope of U.S. GAAP. As used in this Prospectus, the following terms have the following meanings:
“EBITDA” means net income (loss) plus net interest expense, income tax expense and depreciation and amortization.
“Adjusted EBITDA” means EBITDA excluding certain gains/losses such as those related to sale of vessels, bargain purchase gain arising on consolidation, impairments on vessels and marketable securities, mark to market of derivatives and other financial items.
“EBIT” means net income (loss) plus net interest expense and income tax expense.
Time Charter Equivalent Income or revenues (“TCE”) means operating revenues less voyage expenses, as a measure to compare revenue generated from a voyage charter to revenue generated from a time charter.
Table under Section 10.9 “Reconciliation of Certain Non-U.S. GAAP Measures” includes a reconciliation of net income to EBITDA and adjusted EBITDA.
In this Prospectus, the Group has used basic Alternative Performance Measures (“APMs”) like EBITDA, adjusted EBITDA, EBIT and TCE. The APMs presented herein are not measurements of performance under US GAAP or other generally accepted accounting principles and investors should not consider any such measures to be an alternative to: (a) operating revenue or operating profit, as a measure of the Group’s operating performance; or (b) any other measures of performance under generally accepted accounting principles. The APMs presented herein may not be indicative of the Group’s historical operating results, nor are such measures meant to be predictive of the Group’s future results. The Group believes that these APMs are commonly reported by companies in the market in which it competes and are widely used by investors in comparing performance on a consistent basis without regard to factors such as depreciation and amortization, which can vary significantly depending upon accounting methods or based on non-operating factors. Accordingly, the Group discloses the non-US GAAP financial measures presented herein to permit a more complete and comprehensive analysis of its operating performance relative to other companies and across periods, and of the Group’s ability to service its debts. Because companies calculate the APMs presented herein differently, the Group’s presentation of these APMs may not be comparable to similarly titled measures used by other companies.
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Other Information In this Prospectus, all references to “NOK” are to the lawful currency of Norway, and all references to “U.S. dollar”, “US$”, “USD”, or “$” are to the lawful currency of the United States of America.
In this Prospectus all references to “EU” are to the European Union and its Member States as of the date of this Prospectus; all references to “EEA” are to the European Economic Area and its member states as of the date of this Prospectus; and all references to “US”, “U.S.” or “United States” are to the United States of America.
Certain figures included in this Prospectus have been subject to rounding adjustments. Accordingly, figures shown for the same category presented in different tables may vary slightly.
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5. BUSINESS OVERVIEW
This Section provides an overview of the business of the Group as of the date of this Prospectus. The following discussion contains Forward-Looking Statements that reflect the Company's plans and estimates; see Section 4.1 “Cautionary Note Regarding Forward-Looking Statements”. You should read this Section in conjunction with the other parts of this Prospectus, in particular Section 2 “Risk Factors” and Section 11 “Operating and Financial Review”.
5.1 Operations and Principal Activities
Introduction The Company is an international shipping company that owns and operates a fleet of dry bulk carrier vessels, focusing on the Capesize, Panamax and Supramax markets. As of the date of this Prospectus, the Company has a fleet of 67 vessels, including ten vessels chartered-in long term on bareboat charter or time charter and one owned in a joint venture, with an aggregate capacity of 9.1 million dwt. The fleet of the Company consists of 61 operating vessels and six vessels currently under construction at shipyards. For more details about the Company’s fleet, see Section 5.3 “Fleet” below.
The Company’s vessels transport a broad range of major and minor bulk commodities, including ores, coal, grains and fertilizers, along worldwide shipping routes.
The Company’s business strategy is to operate a diversified fleet of dry bulk carriers with flexibility to adjust its exposure to the dry bulk market depending on existing factors such as charter rates, newbuilding costs, vessel resale and scrap values and vessel operating expenses resulting from, among other things, changes in the supply of and demand for dry bulk capacity. The Company may adjust its exposure through time charters, bareboat charters, sale and leasebacks, sales and purchases of vessels, newbuilding contracts and acquisitions. The Company’s long term goal is to renew and grow its fleet through selective acquisitions.
Management Structure Overall responsibility for the oversight of the management of the Group rests with the Company’s Board of Directors. The Company operates management services through its subsidiary incorporated in Bermuda, Golden Ocean Group Management (Bermuda) Ltd, who in turn subcontracts services to Golden Ocean Management AS and Golden Ocean Management Asia Pte Ltd, subsidiaries incorporated in Norway and Singapore, respectively. The Company’s executive management team comprises Birgitte Ringstad Vartdal, CEO of Golden Ocean Management AS, Per Heiberg, CFO of Golden Ocean Management AS and Thomas Semino, CCO of Golden Ocean Management Asia Pte. Ltd. The Board of Directors defines the scope and terms of the services to be provided, including day-to-day operations, by the aforementioned subsidiaries, and requires that it be consulted on all matters of material importance and/or of an unusual nature and, for such matters, provides specific authorization to personnel to act on our behalf. The Company markets its Capesize fleet through Capesize Chartering Ltd, see Section 5.2 “History and Development”.
Technical management and newbuilding supervision is outsourced to Frontline Management (Bermuda) Ltd. The Company can add and remove vessels to the agreement when needed.
Technical operations and crewing of all owned vessels are outsourced to several leading ship management companies.
Competition The market for international seaborne dry bulk transportation services is highly fragmented and competitive. Seaborne dry bulk transportation services are generally provided by independent ship-owner fleets. In addition, many owners and operators in the dry bulk sector pool their vessels together on an ongoing basis, and such pools are available to customers to the same extent as independently owned and operated fleets. Competition for charters in the dry bulk market is intense and is based upon price, location, size, age, condition and acceptability of the vessel and its manager. Competition is also affected by the availability of other size vessels to compete in the trades in which the Company engages. Charters are to a large extent brokered through international independent brokerage houses that specialize in finding the optimal ship for any particular cargo based on the aforementioned criteria. Brokers may be appointed by the cargo shipper or the ship owner.
Regulatory and Environmental Matters The Group’s operations are subject to numerous laws and regulations in the form of international conventions and treaties, national, state and local laws and national and international regulations in force in the jurisdictions in which its vessels operate or are registered, which can significantly affect the ownership and operation of its vessels. These requirements include EU regulations, the OPA, requirements of the USCG and the EPA, the CAA, the CWA, the IMO, the CLC, the Bunker Convention, the MARPOL, including the designation of ECAs thereunder, the SOLAS, the IMO International Convention on Load Lines of 1966, as from time to time amended, and the MTSA. Compliance with such laws and
34 regulations, where applicable, may require installation of costly equipment or operational changes and may affect the resale value or useful lives of the Group’s vessels. Compliance with such laws and regulations may require the Group to obtain certain permits or authorizations prior to commencing operations.
The EPA has enacted rules requiring a permit regulating ballast water discharges and other discharges incidental to the normal operation of certain vessels within United States waters under the Vessel General Permit for Discharges Incidental to the Normal Operation of Vessels (“VGP). For a new vessel delivered to an owner or operator after September 19, 2009 to be covered by the VGP, the owner must submit a Notice of Intent (“NOI”) at least 30 days before the vessel operates in United States waters. On March 28, 2013, EPA re-issued the VGP for another five years; this 2013 VGP took effect December 19, 2013. The 2013 VGP contains numeric ballast water discharge limits for most vessels to reduce the risk of invasive species in US waters, more stringent requirements for exhaust gas scrubbers and the use of environmentally acceptable lubricants.
Golden Ocean has submitted NOIs for its vessels where required and the Company does not believe that the costs associated with obtaining and complying with the VGP will have a material impact on the Group’s operations.
USCG regulations adopted under the U.S. National Invasive Species Act (the “NISA”), also impose mandatory ballast water management practices for all vessels equipped with ballast water tanks entering or operating in U.S. waters, which require the installation of equipment to treat ballast water before it is discharged in U.S. waters or, in the alternative, the implementation of other port facility disposal arrangements or procedures. Vessels not complying with these regulations are restricted from entering U.S. waters. The USCG must approve any technology before it is placed on a vessel, but has not yet approved the technology necessary for vessels to meet the foregoing standards.
However, as of January 1, 2014, vessels became technically subject to the phasing-in of these standards. As a result, the USCG has provided waivers to vessels which cannot install the as-yet unapproved technology. The EPA, on the other hand, has taken a different approach to enforcing ballast discharge standards under the VGP. In December 2013, the EPA issued an enforcement response policy in connection with the new VGP in which the EPA indicated that it would take into account the reasons why vessels do not have the requisite technology installed, but will not grant any waivers.
It should also be noted that in October 2015, the Second Circuit Court of Appeals issued a ruling that directed the EPA to redraft the sections of the 2013 VGP that address ballast water. However, the Second Circuit stated that 2013 VGP will remains in effect until the EPA issues a new VGP. It presently remains unclear how the ballast water requirements set forth by the EPA, the USCG, and IMO BWM Convention (discussed below), some of which are in effect and some which are pending, will co-exist.
In addition, at the international level, the IMO adopted an International Convention for the Control and Management of Ships’ Ballast Water and Sediments (the “BWM Convention”) in February 2004. The BWM Conventions implementing regulations call for a phased introduction of mandatory ballast water exchange requirements to be replaced in time with mandatory concentration limits. All ships will also have to carry a ballast water record book and an International Ballast Water Management Certificate. The BWM Convention enters into force 12 months after it has been adopted by 30 states, the combined merchant fleets of which represent not less than 35% of the gross tonnage of the world's merchant shipping. On September 8, 2016, this threshold was met (with 52 contracting parties making up 35.14%). Thus, the BWM Convention will enter into force on September 8, 2017. Many of the implementation dates originally written into the BWM Convention have already passed, so that once the BWM Convention enters into force, the period for installation of mandatory ballast water exchange requirements would be extremely short, with several thousand ships a year needing to install ballast water management systems (“BWMS”). For this reason, on December 4, 2013, the IMO Assembly passed a resolution revising the application dates of the BWM Convention so that they are triggered by the entry into force date and not the dates originally in the BWM Convention. This in effect makes all vessels constructed before the entry into force date “existing” vessels, and allows for the installation of a BWMS on such vessels at the first renewal survey following entry into force. At the IMO’s Marine Environmental Protection Committee (the “MEPC”), 70th Session in October 2016, MEPC adopted updated “guidelines for approval of ballast water management systems (G8).” G8 updates previous guidelines concerning procedures to approve BWMS. Upon entry into force of the BWM Convention, mid-ocean ballast water exchange would become mandatory for the Group’s vessels. When mid-ocean ballast exchange or ballast water treatment requirements become mandatory, the cost of compliance for ocean carriers could be significant and the costs of ballast water treatments may be material. However, many countries already regulate the discharge of ballast water carried by vessels from country to country to prevent the introduction of invasive and harmful species via such discharges. The United States, for example, requires vessels entering its waters from another country to conduct mid-ocean ballast exchange, or undertake some alternate measure, and to comply with certain reporting requirements. The Company has 24 ships that may need to install ballast water treatment systems over the course of the next five years. The economic impact of the installation is significant. However, the total costs of compliance with a mandatory mid-ocean ballast exchange are dependent on available systems, and as such systems are still under development and it is challenging to estimate the overall impact of such a requirement on the Group’s operations.
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5.2 History and Operational Development The Company was incorporated as Knightsbridge Tankers Limited in Bermuda as an exempted company under the Bermuda Companies Act of 1981 on September 18, 1996. The Company has been listed on the NASDAQ under the symbol “VLCCF” since its initial public offering in February 1997. The Company was originally established for the purpose of owning and operating five very large crude oil carriers (“VLCCs”). Upon the purchase from their previous owners on February 27, 1997 until March 2004, the Company chartered its vessels to Shell International on long-term bareboat charters.
In 2007, the Company entered into agreements for the construction of two Capesize dry bulk carriers. Both of the vessels commenced five-year time charters following their delivery to the Company in August and October 2009. In July 2010, the Company acquired a 2010-built Capesize dry bulk carrier from Former Golden Ocean and in October 2010, the Company acquired a second 2010-built Capesize dry bulk carrier from Former Golden Ocean. Both vessels were acquired with existing time charters.
The Company sold one VLCC in 2007, three in 2012 and one in 2013, and from that time owned dry bulk vessels only. In 2013, the Company concluded newbuilding contracts for two 182,000 dwt Capesize bulk carriers with Japan Marine United Corporation and two 180,000 dwt Capesize bulk carriers with Daehan Shipyard. The design of these vessels represented the next generation of Capesize bulk carriers using the latest technology available in order to secure fuel efficiency.
In March 2014, the Company agreed to acquire five special purpose companies (“SPCs”) from Frontline 2012 Ltd. (“Frontline 2012”), each owning a fuel efficient 180,000 dwt Capesize dry bulk newbuilding and one 2013-built Capesize dry bulk carrier from Karpasia Shipping Inc. (“Karpasia”). The consideration consisted of the issuance of 18.6 million shares, USD 150.0 million was assumed in remaining newbuilding installments and USD 24.0 million was paid in cash. The 18.6 million shares were valued at USD 12.54 per share. The vessels were delivered to the Company from April 2014 to September 2014.
In April 2014, the Company agreed to acquire 25 SPCs from Frontline 2012, each owning a fuel efficient Capesize dry bulk newbuilding. In September 2014, the Company acquired 13 of these SPCs. The consideration for the SPCs consisted of the issuance of 31.0 million shares, valued at USD 11.51 per share. The remaining 12 SPCs were acquired on March 16, 2015 and the Company issued 31.0 million shares as consideration, valued at USD 4.10 per share.
On October 7, 2014, the Company entered into an agreement and plan of merger (the “Merger Agreement”) with Former Golden Ocean, pursuant to which the two companies agreed to merge, with the Company as the surviving company (the “Merger”). The Merger was completed on March 31, 2015 and the Company issued 61.4 million shares (net) as consideration to the shareholders of Former Golden Ocean. At the same time the Company obtained a secondary listing at the Oslo Stock Exchange.
Former Golden Ocean was established in 2004 and its shares were admitted for trading on the Oslo Stock Exchange in December 2014. Starting off with a fleet of three vessels and options to acquire two newbuilding orders, Former Golden Ocean had a substantial growth in fleet size and business activity. Expansion took place both through purchases of second hand tonnage and newbuildings, as well as through time charter and bareboat agreements.
At the time of the Merger, Former Golden Ocean owned 28 vessels and had at the same time five Supramax vessels under construction and had several chartered-in vessels both on short term and longer term duration.
Upon completion of the Merger the Company had a fleet of 82 vessels, including 4 vessels chartered-in long term on bareboat charter or time charter and one owned in a joint venture. Two of the vessels on long term charter were redelivered to their owners during the second quarter of 2015. The fleet of the Company consisted of 59 operating vessels and 23 vessels currently under construction at shipyards.
In April 2015, the Company entered into various transactions related to its fleet. The Company agreed to a sale and leaseback transaction with Ship Finance for eight Capesize vessels. These vessels were built in Korea and China between 2009 and 2013 and were sold en-bloc for an aggregate price of USD 272.0 million or USD 34.0 million per vessel on average. The vessels were time chartered-in by one of the Company’s subsidiaries for a period of 10 years. The transaction was completed during the third quarter of 2015. Further, the Company agreed to sell two old Capesize vessels, which were delivered to new owners during second quarter of 2015, and four Capesize newbuilding vessels under construction. The four Capesize newbuilding contracts have been completed at yard and were delivered to new owners upon completion. Two of these vessels were completed and delivered in 2015, one in February 2016 and the last was completed and delivered in October 2016. The Company also agreed with the various yards to postpone delivery date on its newbuilding contracts.
In November 2015 the Company converted two Capesize newbuilding contracts to Suezmax newbuilding contracts and subsequently sold these newbuilding contracts to Frontline. The transaction closed in December 2015. The Company
36 transferred the newbuilding contracts to Frontline at that time and have no further commitment related to these contracts.
In January 2016, the Company entered into a Capesize vessel revenue sharing agreement with Bocimar International NV, C Transport Holding Ltd. and Star Bulk Carriers Corp. The Company has agreed to include 21 Capesize dry bulk vessels in the revenue sharing agreement. These vessels had previously been operating in the spot market as part of Capesize Chartering Ltd’s (“CCL”) fleet. The revenue sharing agreement will initially apply to 65 modern Capesize vessels and will be managed from the Company’s offices in Singapore and Bocimar’s offices in Antwerp. Each vessel owner shall continue to be responsible for the operation and technical management of their respective vessels. The Company expects to achieve improved scheduling ability through the joint marketing opportunity that CCL represents for its Capesize vessels, with the overall aim of enhancing economic efficiencies.
In February 2016, the Company took delivery of, and simultaneously sold, the Front Caribbean and chartered the vessel in for a period of twelve months. The vessel was redelivered in December 2016.
In February 2016, the Company agreed with its lenders to amend certain of the terms in its senior secured loan agreements. For the period from April 1, 2016 to September 30, 2018 there would be no repayments, the minimum value covenant was set at 100% and the market adjusted equity ratio was waived. The Company agreed that for the nine undelivered newbuildings where the Company has financing in the USD 425.0 million term loan facility, there would be a fixed draw down of USD 25.0 million per vessel subject to compliance with the minimum value covenant of 100%. A cash sweep mechanism would be put in place whereby the Company would pay down on the deferred repayment amount should the Company’s cash position improve. The margins on the loans were unchanged and average 2.3% above LIBOR, however, the Company would pay an increased margin of 4.25% above LIBOR for the deferred amount under the loan facilities. The agreement with the lenders was subject to the Company raising USD 200 million in equity.
In February 2016, the Company announced a private placement of 343,684,000 new Shares at NOK 5.00 per Share, generating gross proceeds of NOK 1.7 billion (approximately USD 200 million), in order to fulfill the equity requirement in its amended loan agreements. The conversion price on the USD 200 million convertible bond was adjusted from USD 19.93 to USD 17.63 per Share effective from February 23, 2016 as a result of the private placement. As the Company’s existing unused authorized share capital was not sufficient to issue all the Shares in the private placement, the Company’s shareholders approved an increase of authorized share capital to USD 6,000,000.00 divided into 600,000,000 Shares of USD 0.01 par value each.
In February 2016, the Company announced a subsequent offering of up to 34,368,400 Shares for gross proceeds of up to NOK 171,842,000 (approximately USD 20 million). Ultimately, 13,369,291 Shares were issued in connection with the subsequent offering for gross proceeds of NOK 66,846,455 (approximately USD 7.8 million). In total, net proceeds from the private placement were USD 205.4 million comprising USD 208.0 million gross proceeds from the placement net of issue costs of USD 2.6 million.
In May 2016, the Company took delivery of Golden Fulham, a Capesize newbuilding. Also in May 2016, the owner of Golden Lyderhorn, which was chartered in by the Company and classified as a capital lease, notified the Company that they intended to exercise their option to sell the vessel to the Company for a net price of USD 9.5 million with delivery in August. The Company entered into an agreement to sell the vessel at the time of its re-delivery to the Company to an unrelated third party for net proceeds of USD 3.5 million. The vessel was delivered to the new owner on August 22, 2016.
On August 1, 2016 the Company completed a 1-for-5 reverse share split of the Company’s ordinary shares, whereby every five shares of the Company’s issued and outstanding ordinary shares with par value USD 0.01 per share were automatically combined into one issued and outstanding ordinary share par with value USD 0.05 per share. The reverse share split reduced the number of outstanding Shares from 529,728,928 to 105,945,238.
In August 2016, the Company took delivery of Golden Leo, a Ultramax newbuilding, and in October 2016 the Company took delivery of the Capesize newbuilding Front Mediterranean and immediately sold and delivered the vessel to its new owner.
In January, 2017 the Company took delivery of two Ultramax newbuildings, Golden Virgo and Golden Libra, and in February 2017 the Company took delivery of two Capesize newbuildings, Golden Surabaya and Golden Savannah. The Company also agreed to further postpone of all six remaining newbuildings until the first quarter of 2018. Four of these agreements are still subject to final acceptance from the yard’s refund banks.
On March 15, 2017, the Company announced that it had completed a private placement of 8,607,800 new Shares at NOK 60 per Share (the “Private Placement Shares”), raising a total of NOK 516.5 million or approximately USD 60 million (the “Private Placement”), see Section 6 “The Private Placement”. The Company intends to apply the net proceeds of the Private Placement to fund working capital in newly-established wholly-owned non-recourse subsidiaries of the Company
37 established in relation to the Acquisition (the “NewCos”) and to strengthen the Company’s balance sheet and create a comfortable liquidity runway through the current market cycle.
5.3 Fleet As of the date of this Prospectus, the Company owns or controls 67 vessels, including six newbuildings under construction (excluding the acquisition of the Quintana Fleet and the Hemen Fleet as described in Section 7 “The Acquisition”). Of this fleet, ten vessels are chartered-in long term on bareboat charter or time charter and one vessel is owned through a joint venture which is accounted for under the equity method. Six of the vessels are chartered out on long time charter (TC), while most vessels operate directly in the spot market or through pool arrangements, or are fixed out on index linked time charter contracts. For more information about the different types of charter contracts, see Section 8.4 “Charter Contracts”. The table below summarizes key information about the fleet of the Company as of the date of this Prospectus.
Vessel Type Vessel Name Year Built Dwt Flag Spot/TC Status Capesize Golden Feng 2009 169,232 Marshall Island Spot with RSA Operating Capesize Golden Shui 2009 169,333 Marshall Island Spot with RSA Operating Capesize KSL Salvador 2014 180,958 Hong Kong Cape index + Operating premium Capesize KSL San Francisco 2014 181,066 Hong Kong Cape index + Operating premium Capesize KSL Santiago 2014 181,020 Hong Kong Cape index + Operating premium Capesize KSL Santos 2014 181,055 Hong Kong TC (expires in Operating February 2018) Capesize KSL Sapporo 2014 180,960 Hong Kong Spot with RSA Operating Capesize KSL Seattle 2014 181,015 Hong Kong Cape index + Operating premium Capesize KSL Singapore 2014 181,062 Hong Kong Cape index + Operating premium Capesize KSL Sydney 2014 181,000 Hong Kong Cape index + Operating premium Capesize KSL Sakura 2015 181,062 Hong Kong Cape index + Operating premium Capesize KSL Seoul 2015 181,010 Hong Kong Cape index + Operating premium Capesize KSL Stockholm 2015 181,055 Hong Kong Cape index + Operating premium Capesize KSL Seville 2015 181,062 Hong Kong Cape index + Operating premium Capesize Golden Kathrine 2015 182,486 Hong Kong Spot with RSA Operating Capesize Golden Aso 2015 182,472 Hong Kong TC (expires in Operating January 2018) Capesize Golden Finsbury 2015 182,418 Hong Kong Spot with RSA Operating Capesize Golden Barnet 2016 180,355 Hong Kong Spot with RSA Operating Capesize Golden Bexley 2016 180,209 Hong Kong Spot with RSA Operating Newcastlemax Golden Scape 2016 211,112 Hong Kong Spot Operating Newcastlemax Golden Swift 2016 211,112 Hong Kong Spot Operating Capesize Golden Fulham 2016 182,418 Hong Kong Spot with RSA Operating Capesize Golden Surabaya January 2017 180,044 Hong Kong Spot with RSA Operating Capesize Golden Savannah January 2017 180,046 Hong Kong Spot with RSA Operating Capesize Golden Cirrus 2018 180,000 Hong Kong n/a Newbuilding Capesize Golden Arcus 2018 180,000 Hong Kong n/a Newbuilding Capesize Golden Nimbus(2) 2018 180,000 Hong Kong n/a Newbuilding Capesize Golden Cumulus(2) 2018 180,000 Hong Kong n/a Newbuilding Capesize Golden Calvus(2) 2018 180,000 Hong Kong n/a Newbuilding Capesize Golden Incus(2) 2018 180,000 Hong Kong n/a Newbuilding Ice class Panamax Golden Ice 2008 75,500 Hong Kong Spot Operating Ice class Panamax Golden Opportunity 2008 75,500 Hong Kong Spot Operating
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Ice class Panamax Golden Saguenay 2008 75,500 Hong Kong Spot Operating Ice class Panamax Golden Strength 2009 75,500 Hong Kong Spot Operating Ice class Panamax Golden Suek 2011 74,849 Hong Kong Spot Operating Ice class Panamax Golden Bull 2012 75,000 Hong Kong TC (expires in Operating September 2017) Ice class Panamax Golden Brilliant 2013 74,500 Hong Kong Spot Operating Ice class Panamax Golden Diamond 2013 74,186 Hong Kong Spot Operating Ice class Panamax Golden Pearl 2013 74,186 Hong Kong Spot Operating Ice class Panamax Golden Ruby 2014 74,052 Hong Kong Spot Operating Kamsarmax Golden Eminence 2010 79,463 Hong Kong Spot Operating Kamsarmax Golden Empress 2010 79,463 Hong Kong TC (expires in Operating December 2021) Kamsarmax Golden Endeavour 2010 79,454 Hong Kong TC (expires in Operating October 2020) Kamsarmax Golden Endurer 2011 79,474 Hong Kong TC (expires in Operating November 2020) Kamsarmax Golden Enterprise 2011 79,463 Hong Kong Spot Operating Kamsarmax Golden Daisy 2012 81,507 Marshall Island Spot Operating Kamsarmax Golden Ginger 2012 81,487 Marshall Island Spot Operating Kamsarmax Golden Rose 2012 81,585 Marshall Island Spot Operating Supramax Golden Aries 2015 63,605 Hong Kong Spot Operating Supramax Golden Cecilie 2015 60,263 Hong Kong Spot Operating Supramax Golden Cathrine 2015 60,263 Hong Kong Spot Operating Supramax Golden Gemini 2015 63,605 Hong Kong Spot Operating Supramax Golden Taurus 2015 63,658 Hong Kong Spot Operating Supramax Golden Leo 2016 63,650 Hong Kong Spot Operating Supramax Golden Virgo January 2017 63,650 Hong Kong Spot Operating Supramax Golden Libra January 2017 63,679 Hong Kong Spot Operating Capesize Golden Opus 2010 180,715 Hong Kong Spot with RSA Operating(1) ______(1) Owned through joint venture with ST Shipping and Transportation Pte Ltd.
(2) Expected delivery in 2018, subject to yard’s refund bank’s acknowledgment of amended contracts.
Chartered In Tonnage Below is an overview of the contracts for the vessels chartered in either on bareboat or time charter contract for a contract duration of more than one year:
Vessel Type Vessel Name Dwt Net Pay Expiry (min period)
Capesize Golden Future(1) 176,000 17,600 August 2025 Capesize Golden Beijing(1) 176,000 17,600 August 2025 Capesize Battersea(1) 169,391 17,600 July 2025 Capesize Belgravia(1) 169,332 17,600 August 2025 Capesize Golden Magnum(1) 179,788 17,600 August 2025 Capesize Golden Zhejiang(1) 175,834 17,600 July 2025 Capesize Golden Zhoushan(1) 175,835 17,600 July 2025 Capesize KSL China(1) 179,109 17,600 September 2025 Kamsarmax Golden Eclipse(2) 79,600 16,284 April 2020 Supramax Golden Hawk(3) 58,000 13,035 February 2025 ______(1) On time charter (10 + 3 years) with purchase options (2) On bareboat charter (with purchase option) (3) On time charter (7+1+1+1 years) (with purchase option)
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Vessel Employment Below is an overview of the contracts for the vessels on fixed rate time charter contracts with initial contract duration of more than nine months:
Vessel Type Vessel Name Dwt Net Rate Expiry (min period)
Capesize KSL Santos 181,085 12,587 February 2018 Capesize Golden Aso 182,472 14,345 January 2018 Ice class Panamax Golden Bull 74,500 16,788 September 2017 Kamsarmax Golden Empress 79,463 22,800 December 2021 Kamsarmax Golden Endeavour 79,600 18,525 October 2020 Kamsarmax Golden Endurer 79,600 22,800 November 2020 Kamsarmax Golden Eclipse 79,600 28,025 February 2020
Several of the Company’s vessels are fixed out on various index linked contracts, meaning that the charter rates under the contracts are linked to the Baltic time charter indexes for the relevant vessel type, possibly adjusted for a premium/discount for the specific vessel relative to the index vessel. This implies that the charter earnings are variable and similar to the earnings obtained in the spot market, as opposed to charter rates under time charter contracts where the earnings are fixed for a period of time.
In particular, the Company has an agreement with RWE Supply & Trading GmbH (“RWE”), a wholly owned subsidiary of RWE AG (a major European energy company), for chartering out a total of ten Capesize vessels on index-linked contracts for seven and a half year. As of the date of this Prospectus, all vessels are delivered to RWE.
In January 2016, the Company entered into a Capesize vessel revenue sharing agreement with Bocimar International NV, C Transport Holding Ltd. and Star Bulk Carriers Corp. The Company has agreed to include 21 Capesize dry bulk vessels in the revenue sharing agreement. As of the date of this Prospectus, all Capesize vessels that are spot are managed through this cooperation.
In February 2017 the Company, Bocimar International NV and C Transport Holding Ltd. extended their relationship by establishing a revenue sharing agreement for Newcastlemax vessels. The Group’s two Newcastlemax vessels will join the pool once they have completed performing under their current index linked contracts.
5.4 Material Contracts Neither the Group nor any member of the Group has entered into any material contracts outside the ordinary course of business for the two years prior to the date of this Prospectus. Further, the Group has not entered into any other contract outside the ordinary course of business which contains any provision under which any member of the Group has any obligation or entitlement which is material to the Group.
5.5 Dependency on Contracts, Patents, Licences etc. The charter rates on the Company’s time charter contracts of more than one year, as set out under Section 5.3 “The Fleet—Vessel Employment” are at levels that are not possible to obtain in the current market. In the event any of these contracts should be cancelled, the Company would have to reemploy the vessels in the spot market, where the rates are lower and accordingly would reduce the revenues of the Company going forward.
The financing arrangements of the Company, as described under Section 11.6 “Borrowing Activities”, are necessary to finance newbuildings and existing vessels. The Company is dependent on these agreements to the extent it would not be able to replace these financing arrangements with agreements at similar terms and conditions.
It is the opinion of the Company that the Group’s existing business or probability is not dependent on any patents or licenses.
5.6 Legal and Arbitration Proceedings As of the date of this Prospectus, the Company is not aware of any governmental, legal or arbitration proceedings during the course of the preceding twelve months, including any such proceedings which are pending or threatened, that they have had in the recent past, or may have, a significant effect on the Company or the Group’s financial position or profitability.
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5.7 Research and Development The Group is not involved in any material research and development activities.
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6. THE PRIVATE PLACEMENT
This Section provides summary information about the Private Placement of the Company. You should read this Section in conjunction with the other parts of this Prospectus, in particular, Section 7 “The Acquisition” and Section 11 “Operating and Financial Review”.
The discussion about use of proceeds below only addresses the intentions of the Company as of the date of this Prospectus; and no assurance can be made that the proceeds actually will be applied to all or any of the purposes identified herein.
6.1 The Private Placement On March 15, 2017, the Company announced that it had completed a Private Placement of Private Placement Shares of a total of NOK 516.5 million, approximately USD 60 million directed towards certain Norwegian and international institutional investors. The Private Placement Shares were subscribed for at a subscription price of NOK 60 per Private Placement Share.
On March 15, 2017, the Board of Directors resolved to increase the Company’s share capital pursuant to the authorized share capital of the Company, from USD 5,298,259.6 to USD 5,728,649.6 by issue of the 8,607,800 Private Placement Shares. The Private Placement Shares was delivered on a delivery-versus-payment basis from March 17, 2017.
The Private Placement Shares were issued pursuant to the Bermuda Companies Act of 1981 (the “Bermuda Companies Act”) and are registered in the register of members that the Company maintains pursuant to Bermuda law and with an equivalent number of depository receipts in book-entry form with the VPS. The Company’s register of shareholders with the VPS is administered by Nordea Issuer Services, Essendropsgate 7, 0386 Oslo, Norway. See Section 16.3 “Registration of the Shares with the VPS”.
The Private Placement Shares carry full shareholder rights and rank in parity with all Shares in the Company. Each Private Placement Share has a nominal value of USD 0.05 and carries one vote per Private Placement Share.
The Private Placement Shares is registered with the ISIN BMG396372051 and trading in the Private Placement Shares on the Oslo Stock Exchange commenced under the trading symbol “GOGL” on March 17, 2017.
6.2 Reasons for the Private Placement Following the financial restructuring of the Group in the first quarter of 2016, and the implementation of agreed amendments and waivers to the Group’s loan agreements (see Section 11.6 “Borrowing Activities―Borrowing Activities Entered Into by the Company―Loan Amendments and Covenants” below) the market has developed in a positive direction.
The Company has been working consistently to achieve further reductions in capital expenditures and postponement of newbuilding deliveries, which have improved the Company’s cash projections. Given this development, and assumed further improvements of the market current market conditions, which combines strong equity pricing with low asset values, the Company has started to look for opportunities to grow by acquiring vessels and/or companies, such as the Acquisition.
6.3 Use of Proceeds and Expenses The gross proceeds from the Private Placement were NOK 516.5 million, or approximately USD 60 million.
The Company estimates that the total expenses in connection with the Private Placement will amount to approximately USD 1.6 million, including fees to advisors, auditor and additional listing fees. Hence, the net cash proceeds from the Private Placement, is estimated to amount to approximately USD 58.4 million.
The Company intends to use the net proceeds from the Private Placement to partially pre-pay debt under the new loan agreements the Company expects to enter into in connection with the Quintana Acquisition, and to use the balance for general corporate purposes of the NewCos.
6.4 Dilution The table below shows the number of Shares in the Company following the Private Placement and the Acquisition; split by pre-Private Placement number of Shares and number of Shares issued in the Private Placement (Private Placement Shares) and the Acquisition (Consideration Shares):
Number of Shares pre-Private Placement ...... 105,965,192
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Number of Shares after Private Placement ...... 114,572,992 Number of Shares after completion of the Acquisition ...... 132,372,992
The Private Placement resulted in a dilution of the then existing shareholders of the Company of approximately 8.1%. Taken together with the Private Placement, the Acquisition will, upon completion, result in a dilution of the shareholders of the Company prior to the Private Placement of approximately 24.9%.
6.5 Participation of Members of the Management and the Board of Directors in the Private Placement Members of Management did not participated in the Private Placement. Hemen, which is indirectly controlled by trusts established by John Fredriksen, director in the Company, for the benefit of his immediate family, did not participate in the Private Placement.
There have been no cash contributions from members of the Management for acquisition of Shares in the Company during the past year, as Shares being issued pursuant to the RSUs are not being made against cash contributions.
6.6 Interests of Natural and Legal Persons Involved in the Private Placement ABN AMRO Securities (USA) LLC and DNB Markets, Inc. (the “Managers”) or its affiliates have provided from time to time, and may provide in the future, investment and commercial banking services to the Company and its affiliates in the ordinary course of business, for which they may have received and may continue to receive customary fees and commissions. The Managers, their employees and any affiliates may currently own Shares in the Company. The Managers do not intend to disclose the extent of any such investments or transactions otherwise than in accordance with any legal or regulatory obligation to do so.
In accordance with market practice, the Managers receive a fee calculated as a certain percentage of the proceeds from the Private Placement.
Beyond the abovementioned, the Company is not aware of any interest of natural or legal persons involved in the Private Placement.
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7. THE ACQUISITION
This Section provides information on the background and reason for the Acquisition as well as a discussion of certain related arrangements and agreements entered into or to be entered into in conjunction with the Acquisition. You should read this Section in conjunction with the other parts of this Prospectus, in particular, Section 5 “Business Overview”, Section 6 “The Private Placement”, Section 9 “Capitalization and Indebtedness” and Section 11 “Operating and Financial Review”
7.1 Description of the Acquisition On March 14, 2017, the Company entered into memoranda of agreement with Quintana, to acquire Quintana’s fleet of 14 dry bulk carrier vessels (the “Quintana Fleet”). The Quintana Fleet consists of six Capesize vessels and eight Kamsarmax/Panamax vessels, mainly built in Japan and Korea. As consideration, the Company will issue 14.5 million Shares to Quintana, corresponding to a value of USD 103.6 million, and assume the Quintana Fleet’s corresponding debt of approximately USD 262.7 million through amended loan agreements with the banks currently financing the Quintana Fleet. The vessels will be owned indirectly by Golden Ocean Shipholding Limited, one of the NewCos, see Section 15.3 “Information on Holdings” for a list of the companies which will be ship owning entities for the Quintana Fleet. The Company has agreed to a USD 17.4 million down payment of the debt associated with the Quintana Fleet in order to obtain no fixed debt repayments and soft covenants through June 2019. A cash sweep mechanism will be in place for excess cash generated by the Quintana Fleet. In addition, the Company has granted customary registration rights with respect to the Quintana Shares. The Quintana Shares will be issued with respect to each vessel upon the delivery of the vessel.
The Company has also agreed, subject to definitive documentation, to acquire two 2017 ice class Panamax vessels from subsidiaries of Seatankers, which are affiliated with Hemen (the “Hemen Fleet”). These vessels will be indirectly owned through Golden Ocean Holdings Limited, another NewCo, see Section 15.3 “Information on Holdings” for a list of companies which will be ship owning entities for the acquired Hemen Fleet. Hemen will issue a seller credit of USD 22.5 million in total, non-amortizing until June 2019 and with interest rate of LIBOR plus a margin of 3.0%. As consideration, the Company will issue 3.3 million Shares to Hemen, corresponding to a value of USD 23.6 million. The Hemen Shares will be issued with respect to each vessel upon the delivery of the vessel.
See Section 11.5 “Liquidity and Capital Resources” for a further description of the financing arrangements entered into in connection with the Acquisition. 7.2 Quintana Fleet The table below summarizes key information about the Quintana Fleet as of the date of this Prospectus.
Vessel Type Vessel Name Year Built Dwt Flag Capesize Q Myrtalia 2011 177,979 Marshall Island Capesize Q Gayle 2011 206,565 Marshall Island Capesize Q Kaki 2014 181,200 Marshall Island Capesize Q Houston 2014 181,200 Marshall Island Capesize Q Anastasia 2014 179,189 Marshall Island Capesize Q Amreen 2015 179,337 Marshall Island Panamax Q Shea 2012 81,586 Marshall Island Post Panamax Q Sue 2013 84,943 Marshall Island Post Panamax Q Deb 2014 84,943 Marshall Island Post Panamax Q Kennedy 2015 84,978 Marshall Island Kamsarmax Q Jake 2011 82,188 Marshall Island Kamsarmax Q Arion 2011 82,188 Marshall Island Kamsarmax Q Ioanari 2011 81,526 Marshall Island Kamsarmax Q Keen 2012 81,586 Marshall Island
7.3 Hemen Fleet The table below summarizes key information about the Hemen Fleet as of the date of this Prospectus.
Vessel Type Vessel Name Year Built Dwt Flag Ice class Panamax Sea Amber 2017 74,500 Malta
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Ice class Panamax Sea Opal 2017 74,500 n/a
7.4 Completion of the Acquisition The closing of the Acquisition is subject to execution of definitive loan documents, customary closing conditions and regulatory approvals. Closing is expected to take place during the second quarter of 2017 and on a vessel-by-vessel basis.
7.5 Listing of the Consideration Shares The Board of Directors of the Company will, at the time of delivery of a vessel pursuant to the Acquisition, resolve to issue the relevant portion of the Consideration Shares pursuant to the authorized share capital of the Company.
The Consideration Shares will be registered under ISIN BMG396372051 and will be issued with respect to each vessel upon the delivery of the vessel and be listed on the Oslo Stock Exchange under ticker code “GOGL”.
The Consideration Shares will be issued pursuant to the Bermuda Companies Act and will be registered in the register of members that the Company maintains pursuant to Bermuda law and with an equivalent number of depository receipts in book-entry form with the VPS. The Company’s register of shareholders with the VPS is administered by Nordea Issuer Services, Essendropsgate 7, 0386 Oslo, Norway. See Section 16.3 “Registration of the Shares with the VPS”.
The Company expects commencement of trading in the Consideration Shares on the Oslo Stock Exchange in steps during the second quarter of 2017, under the trading symbol “GOGL”. Some delay might be expected due to uncertainties in the delivery schedules for the various vessels.
The Consideration Shares carry full shareholder rights and rank in parity with all Shares in the Company. Each Consideration Share will have a nominal value of USD 0.05 and carry one vote per Consideration Share.
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8. INDUSTRY OVERVIEW
This Section discusses the dry bulk industry in which the Group operates. Certain of the information in this Section relating to market environment, market developments, growth rates, market trends, industry trends, competition and similar information are estimates based on data compiled by professional organisations, consultants and analysts, in addition to market data from other external and publicly available sources, see Section 4.2 “Presentation of Industry Data and Other Information—Sources of Industry and Market Data”.
Fearnley Consultants (“Fearnleys”) has provided the information and data presented in this section. Fearnleys has advised that the statistical and graphical information contained herein is drawn from its databases and other published and private industry sources. The main source for data in this Section is Fearnresearch, the market research department of Fearnleys AS. This data is normally not publicly available, but is published in various forms in market reports to the benefit of Fearnleys’ clients. In connection therewith, Fearnleys has advised that: (i) certain information in Fearnleys’ databases are derived from estimates or subjective judgments, (ii) the information in the databases of other shipping data collection agencies may differ from the information in Fearnleys’ database and (iii) while Fearnleys has taken reasonable care in the compilation of the statistical and graphical information and believes it to be accurate and correct, data compilation is subject to limited audit and validation procedures. Although data is taken from the most recently available published sources, these sources do revise figures and forecasts from time to time.
8.1 Overview Dry bulk shipping comprises shipments of free flowing bulk raw materials like iron ore, grains, and coal; free flowing finished or semi-finished bulk materials like alumina, fertilizers, and sugar; and unitized commodities like steel, semi- finished metals, lumber/logs, and metal scrap. The latter group is often denoted “neo-bulks”.
Dry bulk shipping demand (billion tonne-miles) 2008-16 2000 2005 2008 2009 2010 2011 2012 2013 2014 2015e 2016f growth (%) CAGR Iron ore 2,545 3,918 4,849 5,346 5,540 5,913 6,230 6,325 6,870 7,050 7,400 53 % 6.2 % Coal 2,509 3,113 3,905 2,890 3,547 3,614 4,085 4,585 4,193 3,800 3,805 -3 % -0.4 % Grains 1,244 1,688 1,930 1,905 2,190 2,174 2,283 2,397 2,517 2,950 3,150 63 % 7.3 %
Major bulks 6,298 8,719 10,684 10,141 11,277 11,701 12,598 13,307 13,580 13,800 14,355 34 % 4.3 % Minor bulks 4,894 5,642 6,738 5,508 6,084 6,591 6,986 7,222 7,281 7,440 7,515 12 % 1.6 %
Total 11,192 14,361 17,422 15,649 17,361 18,292 19,584 20,528 20,860 21,240 21,870 26 % 3.3 % e – estimate, f - forecast Charterers in the dry bulk shipping industry include cargo owners such as mining companies, grain houses, and steel mills as well as end-users such as steel mills, alumina refineries and power utilities. The charterers also include trading houses, ship operators and even traditional ship owners.
Preliminary data indicates a total demand for dry bulk shipping of about 21,870 billion tonne-miles in 2016, which entails an increase of approximately 3.0% compared to 2015 and is slightly below the compounded average growth (“CAGR”) rate in the period from 2008 to 2016 (CAGR: 3.3%).
The 2015 estimate is based on Fearnleys’ tracking of all bulk carriers larger than 50,000 dwt and customs statistics for both major and minor bulk commodities for major importers. The 2016 forecast is based on 10 months tracking and 11 months customs statistics for major bulk commodities and major importers.
8.2 Major Bulk Commodities The three major bulk commodities constitute about two thirds of the total demand for dry bulk shipping. The ratio has increased from about 55% at the beginning of the century to about 66% in 2014 to 2016.
Iron Ore Iron ore is the key ingredient in steelmaking. Seaborne iron ore volumes almost doubled, from 306 million tonnes to 589 million tonnes, over the 20-year period from 1984 to 2004. Seaborne volumes have doubled over the last nine years, mainly due to the rapid and unprecedented industrialisation of China during the latest decade.
Iron ore is the single largest seaborne dry bulk commodity. In 2016, it is estimated that 1,375 million tonnes iron ore was shipped, generating about 7,400 billion tonne-miles. Iron ore constituted about one third of total seaborne dry bulk demand in 2016.
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Chinese seaborne imports constitute about 73% of total seaborne volumes followed by Japan, Europe1, South Korea, and Taiwan. Japan and Europe combined constituted about 17%. In 2002, the year before Chinese imports took off, Europe and Japan combined constituted about 53% of global seaborne imports (and China about 23%)2.
China Japan Europe South Korea Taiwan Others Volume (mt) 1007 130 92 72 24 50 Share 73 % 9 % 7 % 5 % 2 % 4 % Transportation work (btm) 5450 861 347 381 116 245 Share 74 % 12 % 5 % 5 % 2 % 3 %
The source for data for China has been several issues of the Tex Report3, for South Korea it has been Korea International Trade Association4, for Japan it has been the Japan Customs5, for Taiwan it has been the CPT6 and for EU it has been Eurostat7.
The main exporters of iron ore are Australia and Brazil, which handle approximately 87% of world seaborne exports, while South Africa and Canada also are major exporters. India used to be the third largest exporter, but due to a governmental crackdown on illegal mining and breaches of environmental legislation, their exports have been reduced by close to 90% since 2010. However, in 2016 we observed that Indian exports are increasing.
The majority of iron ore shipments are shipped by Capesize bulk carriers or VLOCs, but due to port limitations and the nature of the trade, certain volumes are also shipped by smaller vessels. For vessels larger than 50,000 dwt, more than 85% of the shipments are carried by Capesize bulkers.
Coal Coal has principally two uses; (i) being fuel for electricity and heat generation, and (ii) as reduction agent in blast furnace iron making. An estimated 1,025 million tonnes of coal, generating about 3,804 billion tonne-miles, were shipped by sea in 2016. In metric tonnes, this is about unchanged from 2015. Except for 2014 and 2015, the average annual growth in volume and transportation work has been quite strong since 2008. The period between 2008 and 2013 shows a volume growth of coal of about 7.6% p.a. and a growth in transportation work of about 3.3% p.a.
The key importing countries are principally the same as for iron ore, with the addition of India. Up to 2009, China was a net exporter of coal, but during the last few years, China developed into the single largest importer of coal. Chinese imports decreased markedly in 2014/15, but due to domestic restrictions on coal mining we observe that seaborne imports rose about 30 million tonnes in 2016.
China India Japan Europe S. Korea Taiwan Others Volume (mt) 202 166 189 122 132 70 144 Share 20 % 16 % 18 % 12 % 13 % 7 % 14 % Transportation work (btm) 650 650 700 625 474 195 510 Share 17 % 17 % 18 % 16 % 12 % 5 % 13 %
The source for data for China has been various issues of the Tex Report2, for South Korea it has been Korea International Trade Association3, for Japan it has been the Japan Customs4, for Taiwan it has been the CPT5 and for EU it has been Eurostat6. For India, India Coal Market Watch8 has been used.
This market has traditionally been dominated by imports to Japan and Europe9. This was the case until quite recently, but since 2003, China has emerged as the by far largest importer of coal.
The main exporting countries are Indonesia and Australia. In addition, the USA, the Former Soviet Union (FSU), Colombia and South Africa are also key exporting countries. Fearnleys estimates that exports from Australia10 in 2016 were
1 Europe in this context includes the major importerts Germany, the UK, France, Italy, the Netherlands, Belgium and Spain 2 Source: World Bulk Trades 2003, Fearnresearch 2003 3 Not publicly available 4 www.KITA.org 5 http://www.customs.go.jp/english/index.htm 6 https://portal.sw.nat.gov.tw/PPL/;PPLJSESSIONID=chXYJCjKQ5PDpYs118C3n1lBqZDd1WybzpSpb5nBcB90kvDPsjzv!-807587640 7 http://ec.europa.eu/eurostat/data/database 8 India Coal Market Watch, January 2017 issue 9 The thirteen major importing countries in Europe. 10 Australian Bureau of Statistics
47 unchanged from 2015 at about 387 million tonnes. Indonesian exports11, however, declined to about 285 million tonnes in 2015 and further to 275 million tonnes in 2016 (estimate). Still, the two countries represent about 70% of total seaborne trade.
The size of bulk carriers deployed in coal trades is much more heterogeneous than the ones in iron ore trades. One of the reasons is that the average coal haul is much shorter than the average iron ore haul (3,700 nm vs. 5,330 nm). Another factor is that port infrastructure and restrictions result in many trades being served by Handysize and Supramax bulkers. Shipments by Panamax vessel remain to be the largest vessel size, but shipments by vessels larger than 50,000 dwt have changed considerably from 2008 till 2015:
2008 2015 Shipments (mdwt) Share Shipments (mdwt) Share Supramax 50-60 kdwt 71 9 % 141 11 % Panamax/Ultramax 60-70 kdwt 83 11 % 69 6 % Panamax/Kamsarmax 70-100 kdwt 379 48 % 566 46 % Capesize 100 kdwt+ 257 33 % 453 37 % Total 790 100 % 1229 100 %
Supramax and Capesize bulkers have both gained market shares over this period.
Grains Seaborne trade in grains is estimated to about 500 million tonnes and 2,800 b tonne-miles in 2016. Grains comprise wheat, coarse grains (maize, rye, oats, barley, and sorghum), and soyabean/meal. The demand for transportation stemming from grains has traditionally increased slower compared to minerals. However, the 2008-16 growth in grain transportation has been very high at average growth rates of about 4.5% and 6.3% in terms of volume and transportation work, respectively.
The longer term demand for transportation of grains is primarily a function of dietary habits, which to a large extent are dependent on economic development in individual countries and regions. When the economy improves, the food intake tends to increase, which also increases the demand for feed grain.
In the shorter term, grains are a key source for market freight volatility. One key factor for this volatility is the seasonality and the fact that harvesting periods are quite different in the northern and southern hemispheres. Another key factor is the weather, which greatly impact crops and could result in significantly changed trading patterns from year to year.
Soya beans/meal is the largest of the three main categories of grains, with U.S., Brazil, and Argentina being the main producers and exporters. The principal markets for sale of grains are West Europe and Asia. China has been a major force in soya bean/meal trades as imports have increased from about 12 million tonnes in 2000 to about 84 million tonnes in 201612. China is sourcing most of its imports in the Americas, and the substantial distance has contributed significantly to the demand. Grain is primarily shipped in Handysize-Panamax bulk carriers.
2008 2015 Shipments (mdwt) Share Shipments (mdwt) Share Supramax 50-60 kdwt 52 25 % 141 28 % Panamax/Ultramax 60-70 kdwt 45 21 % 49 10 % Panamax/Kamsarmax 70-100 kdwt 113 54 % 309 62 % Capesize 100 kdwt+ 0.4 0 % 1 0.2 % Total 210.4 100 % 500 100 %
Over the period between 2008 and 2015 it is quite evident that a further polarisation of shipment sizes has occurred for shipments larger than 50,000 dwt. The share of shipments by Supramax and Panamax bulkers have increased from approximately 79% to 90%.
It should be noted, however, that a fair share of grain shipments occur in vessels smaller than 50,000 dwt. Total shipments in 2015 were about 470 million tonnes. Using a rule-of-thumb load factor, with load factor being the ratio
11 Platts International Coal Report 12 China customs statistics
48 between cargo intake and deadweight of 0.8 for grains, shows that about 40 million tonnes grains were shipped by vessels smaller than 50,000 dwt.
Others This residual group covers all other dry bulk commodities, such as free flowing bulk commodities like bauxite, alumina, petroleum coke, fertilisers, metallic ores and concentrates, sugar and seeds, cement. In addition, there is a long array of dry commodities that are unitized rather than free flowing, but still carried by bulk carriers. These include commodities such as steel and other metals, lumber, logs, woodpulp and metal scrap. A common denominator for this residual group is that the majority is finished or semi-finished commodities and as such the demand for these goods is more linked to the general economic development than the major bulk commodities. Fearnleys estimates that global seaborne trade of dry bulk commodities in this group ended at about 1,405 million tonnes in 2015.
Shipments of these dry bulk commodities are to a very high degree carried out by vessels smaller than 50,000 dwt. Using the general load factor of 0.85 results in a seaborne traded volume of about 378 million tonnes in 2015 by vessels larger than 50,000 dwt. This implies that close to three quarters, or about 1,027 million tonnes, were carried by vessels smaller than 50,000 dwt.
2008 2015 Shipments (mdwt) Share Shipments (mdwt) Share Supramax 50-60 kdwt 133 39 % 301 68 % Panamax/Ultramax 60-70 kdwt 65 19 % 54 12 % Panamax/Kamsarmax 70-100 kdwt 136 40 % 82 18 % Capesize 100 kdwt+ 4.4 1 % 7 2 % Total 338.4 100 % 444 100 %
For vessels larger than 50,000 dwt about two thirds were carried by Supramax bulkers.
Demand for dry bulk shipping Dry bulk trade is a function of several factors:
• general economic activity; • industrialization/urbanization of developing countries; • population growth (plus changes in dietary habits); and • regional shifts in cargo supply/demand balances.
General economic activity and growth in GDP indirectly has an impact on demand for both raw materials and finished/semi-finished products. However, in the developed world and when developing countries reach a certain level of maturity, GDP is normally a poor indicator for dry bulk demand. The reason for this is that the value of services constitutes a large share of GDP and the sectors driving dry bulk demand constitute a minor share of economic activity.
In developing countries, steel and energy intensities are normally high due to the industrialisation required for construction of infrastructure, housing and industrial facilities. In the initial phase of an industrialisation, fixed asset investments tend to constitute a fairly high proportion of GDP and as such have a positive impact on dry bulk demand.
Population growth alone contributes to demand as people need housing, transportation and infrastructure and these necessities increase in line with the population growth. Changes in dietary habits and increased demand of meat result in an over-proportional growth in grain demand due to increased need of feed grain.
Finally, global imbalances in raw material supplies and demand impact the demand for dry bulk shipping. The distances for shipment chiefly reflect regional commodity surpluses and deficits. Changes occur as a result of depletion of local resources or that local demand exceeds local supply. On the other hand, down-stream involvement could have a negative impact on dry bulk demand. Generally, the more concentrated the sources of cargo supply, the greater the average distance shipped. Ship demand is determined by the overall volumes of cargo moved and the distances for shipment (i.e. tonne-mile demand), as well as changes in vessel efficiency. Changes in vessel efficiency may be caused by factors such as:
(a) Vessel speed: In the high fuel cost/low freight rate environment of recent years, there has been an incentive for shipowners to reduce speed and so lower fuel consumption;
(b) Port delays: Port delays have been a common occurrence in the last ten years as inland and port logistics in several key export areas have struggled to meet surging global demand; and
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(c) Laden to ballast ratios: I.e. how much time vessels spend sailing empty on re-positioning voyages. Ballasting has also increased over the last ten years, mainly due to the widening imbalance in cargo flows between the Atlantic and Pacific Basins.
World seaborne dry bulk trade has followed a steady underlying upward trend during the 1980s and 1990s. The compound annual average growth in the major dry bulk cargoes over this period was an estimated 2.0%, before doubling to about 4.0% in the decade from 2000 to 2009. In the period from 2010 to 2014 a further increase to an estimated 5.0% occurred.
The seaborne estimate is for all vessels larger than 10,000 dwt , but it must also be taken into consideration that the fleet structure has changed considerably over this period. The fleet below 50,000 dwt is today at about 123 million dwt whereas at the end of 1989 the fleet stood at 103 million dwt, and the total fleet has grown from about 203 million dwt to about 794 million dwt. This implies that virtually all growth in seaborne dry bulk trades has occurred in the 50,000 dwt or larger type vessels. Considering this vessel size, seaborne trade rose an average of 3.7% in the 1990s; about 6.7% p.a. from 2000 to 2009 and about 3.9% p.a. from 2010 to 2016.
China has been the key driver for the growth in seaborne dry bulk volumes over the last decade. From 2003 to 2015, Chinese iron ore imports have almost seven folded from 147 million tonnes in 2003 to an estimated 1,007 million tonnes in 2016. Coal imports have risen from 34 million tonnes in 2008 to an estimated 202 million tonnes in 2016. As mentioned above, soya bean/meal imports have risen from about 12 million tonnes in 2000 to about 84 million tonnes in 2016. Such, there has been a solid growth of several commodities China has needed to industrialise and urbanise the country.
8.3 Fleet In international dry bulk shipping it is common to refer to the fleet above 10,000 dwt as the fleet. Bulk carriers and other single-deckers below 10,000 dwt are typically deployed in regional and short haul trades, although vessels within this fleet size also perform longer haul trades. This Section covers vessels larger than 10,000 dwt.
Dry bulk carriers are single-decked ships that transport dry bulk commodities that are either free-flowing like grain and coal, or unitized like steel. The free-flowing cargoes are carried in a “loose” form in the sense that the cargo is put into the cargo holds without any means of bags, nets, or even crates. The unitized cargoes might be bundled like steel beams or logs, but could also be loose. Carriage of unitised commodities often requires the cargo to be secured by means of dunnage in order to avoid the cargo to shift during voyage.
The fleet is usually divided into four main vessel sizes given generic names. Below is an overview of these main vessel sizes and with a reference to sub-groupings within these:
Handysize Handysize vessels are between 10,000 and 39,999 dwt, and typically have four or five cargo holds and four cranes and/or derricks. The ships are highly versatile and carry almost all types of cargoes and this vessel size has to a certain degree more specialised designs than other vessel sizes. The vessels can be designed for various purposes; for carrying steel; for carriage of logs and lumber; vessels designs with speciality cranes and wide open hatches and boxed holds as well as vessels designed for the carriage of cement. The hull design does not differ much, but the configuration of cargo holds and their design and the equipment for loading and discharging are the key differences between the various designs. Handysize bulk carriers trade both regionally as well as long haul trades across the Atlantic or Pacific oceans, or between them. The economy of size benefits of the Handysize is limited and they are typically deployed in trades where significant port limitations exists and/or trades where there is limited storage capacity in place which limits shipment sizes.
Handymax Handymax vessels are between 40,000 and 69,999 dwt and typically have five holds and hatches and four cranes. The generic name Handymax used to be a reference to vessels 40,000-50,000 dwt, but this has changed over the past 15 years. Around 2000 the first 50,000 dwt+ vessels with the same features as the traditional Handymax vessels were delivered from shipyards. The new group, 50,000-60,000 dwt, was named Supramax. In the last years there has been yet an increase of the Handymax as the Supramax has developed into a vessel of 60,000-70,000 dwt named Ultramax. A vessel of this size would normally be called a Panamax, but the new Ultramax differs from the Panamax as it has five holds/hatches and cargo cranes whereas a Panamax has seven holds/hatches and usually is gearless. Thus, the new Ultramax tend to compete with the Supramaxes with respect to hold configuration and cargo gear whereas it could compete with Panamax with respect to deadweight and hold volume.
The Handymax bulker trades world-wide with all kinds of dry bulk cargoes. The degree of specialisation in this size group is less than in the Handysize, but to a certain degree there are vessels specially designed for, among other things, carrying forest products.
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Panamax Panamax vessels are between 70,000 and 99,999 dwt and are in principle the largest vessels that can transit the Panama Canal, however the largest vessels in this group cannot transit the canal as of yet. The maximum beam for transiting the canal currently is 32.26 m. The conventional Panamax is 225 m long with a beam of 32.26 m. The vessel is fitted with seven holds and hatches and is normally gearless.
This vessel size is sub-divided into three groups. Firstly it is the traditional Panamax. Secondly it is the Kamsarmax, which has derived its name from Port Kamsar in Guinea. This port has a length restriction of 229.5 metres, and hence the Kamsarmax is a stretched Panamax providing extra cargo capacity. Apart from this, the design carries the same features as a traditional Panamax. Finally, there is a group of vessels that fall in under the generic name Panamax, but these vessels are currently too wide to transit the Panama Canal. The vessels are often denoted Post Panamax bulk carriers and the reason for categorizing them in this group is that they compete with Panamax/Kamsarmax bulkers rather than Capesize bulkers.
Close to 90% of all cargoes carried by Panamax bulkers are either coal, grain, or iron ore. Coal is by far the dominant commodity constituting about 53% of the Panamax cargo base. Panamax bulkers trade world-wide, including short haul trades regionally.
Capesize Capesize vessels larger than 100,000 dwt and derive the name from the fact that they are too large to transit the Panama Canal and traditionally had to go around Cape Horn. Despite seeing increased interest for small Capesizes in recent years, the typical Capesize vessel is between 150,000 dwt and 220,000 dwt. The 150-200,000 dwt category is simply referred to as Capesize whereas the 200-220,000 dwt vessels are called Newcastlemaxes. These vessels have a slightly wider beam and are generally a little bit longer than the Capesize bulkers. Apart from this they are quite similar with nine holds/hatches and gearless. Finally the largest category of dry bulk carriers is Very Large Ore Carriers (VLOCs). These are vessels specially designed to carry iron ore. The holds of the VLOCs have a different design than those of a bulk carrier and the bottom of the hold is raised in order to lift the center of gravity of the cargo. These vessels are unsuitable to carry other cargoes than iron orde due to their limited cubic capacity. The VLOCs are about 220-400,000 dwt. About 99% of the commodities carried by Capesize bulkers are iron ore or coal. Iron ore constitute about 69% alone.
The following table shows the current age distribution of the dry bulk fleet in million deadweight tonnage, in addition to information about the average age for each vessel size:
10-39,999 40-69,999 70-99,999 100,000+ Total <=1997 19.0 21.6 9.0 22.8 70.5 1998-02 7.6 15.9 23.8 15.8 64.0 2003-07 8.5 23.3 30.0 42.1 89.0 2008-12 33.9 75.1 76.1 155.6 195.4 2013-17 21.1 56.5 54.4 81.6 350.2 Total fleet 90.1 192.4 193.3 317.9 793.7
Average age 11.8 8.8 8.2 7.8 8.6
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Supply of Dry Bulk Vessels The supply of dry bulk carriers is mainly determined by deliveries of new vessels from shipyards and the demolition, recycling, of obsolete vessels. In addition, there are permanent conversion of bulk carriers to other uses and losses at sea and constructional total losses. The latter causes are very small in comparison to demolition.
The demand for newbuildings and subsequent deliveries of newbuildings is to large extent a function demand for new tonnage from ship owners and available shipyard capacity. Following the upturn in the market from 2004 to 2006, ship owners ordered a large number of new vessels from the yards. At the same time, shipbuilding capacity increased substantially, especially in China, resulting in delivery of new tonnage increasing rapidly in 2009 and the subsequent years. In 2008 about 24.3m dwt were delivered, which was in line with the preceding three years. However, in 2009 approximately 42.3m dwt were delivered before more than 79 m dwt in 2010 and 96.1 m dwt and 97.9 m dwt in 2011 and 2012, respectively. This resulted in substantial net fleet growth rates causing freight markets to tumble and contracting of new tonnage slowed down resulting in lower deliveries in 2013-15.
In 2013 and 2014, contracting picked up again and one of the key drivers for this revival was the focus on fuel efficient vessels. Yards have marketed new designs with significantly lower fuel consumption than existing ones, and in a market environment with very high bunker prices this was considered attractive despite the prices of newbuildings.
The figure below shows the end of year order books from 2005 to 2016:
The typical useful trading life of a bulk carrier is about 25 years, but varies over time. In periods of good market earnings owners tend to maintain and keep their vessels longer. The following chart shows how the average demolition age has changed during 2011 to 2015 broken down by vessel sizes. Note the vessel size division is slightly different from elsewhere in this Section.
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The decision to scrap a vessel is usually reactive rather than proactive. This means that owners often decide to scrap vessels following a period with poor market conditions where the owners do not see or expect a market revival in the short term. In addition, the vessel might be in for a special survey which is associated with costs, and the owners could then decide to scrap the vessel when expectations for improvement are very low.
In the period between 2004 and 2008, when there was a significant increase of newbuildings, very few vessels were sold for scrap and annual demolition sales varied between 0.8 and 3.0 million dwt. The demolition sales increased in 2009 and 2010 but did not reach significant levels before 2011 to 2016, where a total of about 160 million dwt of tonnage was sold for demolition. The peak years were 2012 and 2015, coinciding with a freight market low, at about 33 m dwt each year.
As a result of deliveries and demolition activity, the dry bulk fleet has on average increased by approximately 7.1% p.a. since 2000. The following table shows average growth rates for the individual vessel sizes and the total fleet:
10-39,999 dwt 40-69,999 dwt 70-99,999 dwt 100,000 dwt+ Total Nos Kdwt Nos Kdwt Nos Kdwt Nos Kdwt Nos Kdwt 2000 2,865 75,602 1,517 79,389 496 36,960 516 84,320 5,394 276,271 2005 2,729 72,482 1,869 97,494 839 63,176 657 111,094 6,094 344,246 2008 2,864 76,315 2,155 113,064 1,120 85,586 836 145,815 6,975 420,780 2009 2,813 75,211 2,295 120,868 1,205 92,790 960 170,748 7,273 459,617 2010 2,977 80,566 2,599 138,117 1,384 108,195 1,169 210,374 8,129 537,252 2011 3,059 84,240 2,871 153,611 1,619 128,160 1,367 249,739 8,916 615,750 2012 3,110 86,893 3,012 161,818 1,914 152,520 1,502 278,553 9,538 679,784 2013 3,078 86,754 3,123 168,396 2,139 170,924 1,560 292,197 9,900 718,271 2014 3,082 87,660 3,196 173,207 2,276 182,095 1,623 305,428 10,177 748,390 2015 3,088 88,673 3,367 183,919 2,345 188,085 1,621 307,124 10,421 767,801 2016 3,104 90,091 3,450 190,145 2,378 191,595 1,646 313,692 10,579 785,589
CAGR 2000-2005 -1.0% -0.8% 4.3% 4.2% 11.1% 11.3% 5.0% 5.7% 2.5% 4.5% 2005-2008 1.6% 1.7% 4.9% 5.1% 10.1% 10.6% 8.4% 9.5% 4.6% 6.9%
2000-2008 0.0% 0.1% 4.5% 4.5% 10.7% 11.1% 6.2% 7.1% 3.3% 5.4% 2008-2016 1.0% 2.1% 6.1% 6.7% 9.9% 10.6% 8.8% 10.0% 5.3% 8.1%
8.4 Charter Contracts Chartering of bulk carriers can take different forms. In principle most owners are targeting a certain income on time charter basis. The main difference between the various forms of charter contracts is the allocation of risk between the owner and the charterer. The main forms of charter contracts are:
Voyage charter The owner agrees with the charterer to perform a single voyage. The parties furthermore agree on the loading and discharging ports, the commodity and quantity, the rate of loading and discharging and the dates of loading. The charterer pays the owner a freight, normally in USD/million tonnes loaded cargo quantity. Under a voyage charter, the owner is responsible for all voyage related costs such as the cost of bunkers, the port costs and canal costs, if any, in addition to operating costs (insurance, manning, repair & maintenance, etc.) and capital costs. Under a voyage charter the owner bears the risk for delays at sea (bad weather) and changes in voyage related cost elements. The charterer bears the risk of increased loading and discharging time.
Contracts of Affreightment (COA) Under a contract of affreightment (”COA”), the owner and charterer agree on the terms for carrying a certain volume of cargo from A to B, or any combination of ports, over a certain period. The cargoes are normally carried at fairly regular intervals. The name of the vessels deployed under a COA are usually not specified in the contract and the owner nominates vessels for each lifting according to agreed routines. Freight is normally paid in US$/million tonnes and otherwise a COA is quite similar to a spot voyage charter with similar obligations and rights as agreed under a voyage charter. COAs may cover only a few cargoes over a short period of time or up to several years covering dozens of cargoes per year.
Time charters A time charter is a contract for the use of a vessel for a fixed period of time at a specified daily rate. Under a typical time charter, the ship owner provides crewing and other services related to the operation of the vessel’s operation, the cost of which is included in the daily rate, and the customer is responsible for substantially all of the vessel’s voyage related costs. When the vessel is off-hire, the customer is usually not required to pay the hire rate and the owner is responsible for all costs. Under a time charter the point and time of delivery and redelivery is pre-agreed. The charterer is commercially responsible for the utilization of the vessel, and as opposed to a voyage charter, the charterer takes over all risks for voyage related costs and delays at sea. The charterer normally selects a time charter if it wants a dedicated vessel. A time charter can have a duration of less than a week or up to many years.
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Bareboat Charters A bareboat charter is in principle a lease. Similar to a time charter, the owner provides the customer with a vessel at a specified daily rate and for a fixed period of time. However, under a bareboat charter, the customer provides crewing and all necessary services required for the operation of the vessel, in addition to all voyage related costs. In practice, the customer becomes a shipowner without holding title to the ship. During the bareboat charter, a charterer must pay the hire rate regardless of whether or not the vessel is in service and all time and operational risk is transferred to the charterer.
8.5 Freight Rates The freight rates of charter contracts are determined by the balance, or imbalance, between supply and demand. This balance can broadly be divided into the global demand and supply balance governing the global market conditions, and the short term balance regionally that could cause rates to temporary increase or decrease.
The Baltic Exchange issues daily freight and hire assessments based on the input of data from ship brokers. These daily assessments are presented both as an average of the broker assessments as well as an index – the Baltic Dr Index, or BDI. In addition, the Baltic calculates time charter average earnings for each of the main sub-vessel sizes: Handysize, Supramax, Panamax, and Capesize bulkers.
The freight and time charter assessments presented by the Baltic Exchange deviate from individual fixtures made in the market place, but its daily assessments have for several purposes become the norm for market levels and development.
The following chart shows the time charter average development for Supramax, Panamax, and Capesize and is a representation of average spot earnings:
______TC avg BSI (BSI=Baltic Supramax Index) refers to the average time charter earnings as calculated/presented by the Baltic Exchange and covers Supramax bulk carriers
TC avg BPI (BPI=Baltic Panamax Index) refers to the average time charter earnings as calculated/presented by the Baltic Exchange and covers Panamax bulk carriers
TC avg BCI (BCI=Baltic Capesize Index) refers to the average time charter earnings as calculated/presented by the Baltic Exchange and covers Capesize bulk carriers. The Baltic Exchange introduced a new Capesize reference vessel in February 2014. The current BCI refers to this 180,000 dwt vessels whereas the ‘BCI 172’ refers to the old reference vessel of 172,000 dwt.
Another way of illustrating the dry bulk market is to show the 12 month time charter rates. The variation in the 12 months charter rates have in several period been close correlated with second hand values. Normally, this period rate is also an indicator of short term expectations. An owner will often opt for a charter for a period of 12 months if it expects a decreasing market, whereas a charter will opt for a period charter if its expects a rising market.
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8.6 Asset Values The shipping markets differ from other markets in one major aspect; that the market for sale and purchase of the production assets is quite liquid and normally considered a vital part of the business plan for most ship owners. Price assessments are typically made by brokers on a regular basis for standard vessels for newbuildings, newbuilding resale values as well as assessments for 5, 10, and 15 year old vessels.
Newbuilding prices are determined by the balance between supply and demand for newbuildings as well as changes in production costs, currency exchange rates and interest rates. Price differences between individual shipyards are often due to the quality of their vessels, both with respect to design and workmanship.
The value of second hand vessel values is influenced by several factors. Normally an owner will consider either to order a new vessel or to purchase a modern vessel typically being less than five years. The decision is influenced by short term market development and pricing. In late 2009 and 2010 newbuilding resales (i.e., vessels due for delivery from the shipyard within a few months) were valued significantly higher than newbuilding contracts. In addition, expectations for freight development were not optimistic in the short term and owners opted for newbuilding contracts.
Values of older vessels, 10-15 years old, are more prone to be impacted by freight market developments. If the spot market is expected to firm prices tend to increase, whereas increase when the expectations are lower.
In sum, second hand values are primarily shaped by actual and anticipated earnings, newbuilding replacement costs (relevant to modern second hand vessels) and demolition value for old vessels. For an individual transaction, the class position (when is the next special survey due) and the technical condition play an important role in setting the value.
The following charts show newbuilding price and second hand value development for Supramax, Panamax, and Capesize bulk carriers:
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8.7 Market Developments Over the past five years, the total fleet growth has been moderately high at about 5% p.a. (CAGR), whereas demand in the same period has increased by about 2.6% p.a. (CAGR). The latter figure is below a historical average growth rate. However, the growth in supply has by far outpaced the growth in demand and the increased supply has resulted in the very low current freight conditions. Measured by the Baltic Dry Index (BDI), the February 2016 average level was 307 – about 46% lower than the preceding all-time low of 572 in July 1986. Freight market conditions have improved throughout 2016 and January 2017 showed an average BDI of 907 points.
Following the significant ordering activity in 2013 and 2014, it was expected that a high delivery rate of bulk carriers would continue in 2015 and 2016. In 2016 we observed total deliveries of about 46.6 million dwt. To mitigate the effects of these deliveries a continued, and preferably increased, demolition activity is necessary in order to balance supply and demand growth going forward. A challenging factor in this respect is that the current bulk carrier fleet is a quite modern
56 fleet with an average age of 8.6 years, which indicates a lower demand for new vessels. The Panamax and Capesize vessel sizes are even younger; at 8.2 and 7.8 years, respectively.
In order to balance the market, this implies that the demand has to increase at similar rates, or preferably higher, and that the growth in demand accordingly must continue at the average rate for the past five years in the next years to come. In the past five years the key driver in the dry bulk market has been the Chinese stimulus package early in the period, and the significant growth in Chinese coal imports throughout the period. In 2016, total iron ore trade expanded by about 5% whereas coal trades remained about unchanged from 2015, resulting in a combined growth of approximately 3.3%. There is currently an overcapacity in the Chinese steel industry and an increased recycling of steel scrap in China that may affect the level of growth going forward. Furthermore, the level of air pollution in China and the recent Paris climate agreement may also impact Chinese coal consumption and the dry bulk market accordingly.
8.8 IMO Regulations Operating ships is regulated by both national and international regulations. The UN, through the International Maritime Organisation (IMO), is the key international regulatory body. IMO regulation covers safety (SOLAS), pollution (MARPOL), standards for measurement (e.g. The Loadline Covention) and more.
In 2016 two sets of regulations were ratified and become effective in the coming few years: “The International Convention for the Control and Management of Ships’ Ballast Water and Sediments (BWM Convention)”, which will become effective on September 8, 2017, and the decision to implement a global sulphur cap of 0.50% m/m (mass/mass) in marine fuels.
Both decisions have an impact on international shipping.
8.9 BWM Convention Over the years it has become evident that disposal of ballast water is a key source to introduce potential invasive and harmful organic organisms and species all over the world, e.g the introduction of zebra mussels in the Great Lakes or the Pacific oyster in Scandinavian waters. The introduction of invasive species could potentially harm the local marine eco- systems and in addition have serious negative economic consequences. As a result, the IMO several years ago introduced ballast water management regulations before eventually ratifying a requirement for ballast water treatment systems. The latter enters into force September 8, 2017.
As a result all sea-going vessels need to fit/retrofit an approved treatment system upon renewal of the vessels International Oil Pollution Prevention (“IOPP”) certificate after this date. The IOPP certificate is renewed every 5 years, usually at the same time as for class renewal.
For owners of ships the regulation has a cost consequence. Depending on the size, type and design of a vessel the cost for retrofitting a ballast water treatment system is about USD 0.4 to 2.5 million.
8.10 Global Sulphur Cap Within certain, defined geographical areas there is in place limits on emissions of sulphur. These are the Baltic Sea, the North Sea and the English Channel which jointly are defined as a Sulphur Emission Control Area (“SECA”). As a result, vessels navigating in these waters must adhere to a 0.5% sulphur cap.
There is also an Emission Control Area (ECA) in North America and parts of the Caribbean. This zone is formed by the 200 nm economic zone around North America. Although not defined as a SECA, vessels navigating within the 200 nm limit must adhere to a 0.5% sulphur limit.
Most vessels entering these zones will meet the requirements by changing from residual fuel oil to marine gas oil, which is much lower in sulphur content.
For several years, it has been evident that the IMO would introduce a global sulphur cap similar to those applicable for SECA/ECA. In the Marine Environment Protection Committee (MEPC) meeting in October 2016 it was decided that this limit will become effective from January 1, 2020.
The current global sulphur cap is 3.5% and there are several options to reduce Sulphur emissions:
• exhaust cleaning (“scrubbers”); • run the main engine on low sulphur fuel; or • run the main engine on gas (LNG, LPG, ethane). We believe the latter alternative is unacceptable for bulk carriers and retrofits due to costs.
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Scrubbers are designed to clean the exhaust emissions for sulphur and as such, one can continue operating the main engine on residual fuel oil. The costs for scrubbers vary with ship type/size and are assumed to cost between USD 2 and 3.5 million. In addition, a scrubber increases fuel consumption by about 3% to 5%.
The other alternative is to run the main engine on a low sulphur fuel. Today this means running on marine gas oil. This has a cost implication as the gas oil premium to residual fuel oil on average is about 160 USD/mt. However, back in 2012- 2014, whilst crude oil prices were hovering around 100 USD/bbl, the premium was in region of 400 USD/mt. It is therefore quite clear that this option has a major cost consequence.
Finally, there is an open question linked to low sulphur residual fuel oil. There are products on the market meeting the coming cap, although availability is limited. A key question here is what the refining industry intends to do about the approximately 250 million tonnes of residual fuel oil that is supplied to the merchant fleet annually. Crack the fuel oil to lighter distillates or desulphurise the fuel to meet the cap. At the time of writing there is no clear answer to these questions.
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9. CAPITALIZATION AND INDEBTEDNESS
This Section provides information of the Company’s capitalization and net financial indebtedness as of December 31, 2016 both on an actual basis and on an adjusted basis to show the estimated effects of the items listed below. You should read this information together with the other parts of this Prospectus, in particular Section 10 “Selected Financial Information and Other Information” and Section 11 “Operating and Financial Review”, as well as the Company's financial statements incorporated by reference into this Prospectus; see Section 18 “Incorporation by Reference; Documents on Display”.
The “actual” columns in the tables below set out the Company’s unaudited capitalization and net financial indebtedness, respectively, as of December 31, 2016 and has been based on the Company’s unaudited interim financial information as of December 31, 2016, whereas the “as adjusted” columns set out the Company's unaudited capitalization and net indebtedness, respectively, on an adjusted basis as of the date of this Prospectus to show the estimated effects of:
• The draw down of USD 50.0 million in debt in relation to payments of final delivery installments of Golden Surabaya and Golden Savannah, two newbuildings delivered to the Company in February 2017. • The total payment of USD 101.0 million in final delivery installments of Golden Virgo and Golden Libra, two newbuildings delivered to the Company in January 2017, and Golden Surabaya and Golden Savannah, two newbuildings delivered to the Company in February 2017. • For two of the remaining six newbuildings at the date of this Prospectus, the Company paid USD 4.9 million upon consent from the yard’s refund bank on amended contractual terms. • The Private Placement, which raised net proceeds to the Company of NOK 502.9 million, or approximately USD 58.4 million. • The Quintana Acquisition whereby the Company will acquire 14 vessels and assume corresponding debt of USD 262.7 million in consideration for 14.5 million Shares at NOK 61.50, equal to USD 7.14 per Share, corresponding to USD 103.6 million in equity. The Company has agreed to a USD 17.4 million down payment of the debt associated with the acquired vessels. • The Hemen Acquisition whereby the Company will acquire two 2017-built ice class Panamax vessels from affiliates of Hemen in consideration for 3.3 million Shares at NOK 61.50, equal to USD 7.14 per Share, corresponding to USD 23.6 million in equity, and Hemen’s issuance of a seller credit of USD 22.5 million. Other than the USD 50.0 million drawdown in debt, the payment of USD 101.0 million in final delivery installments on four newbuilding vessels, payment of USD 4.9 million in installments on two newbuildings, the Private Placement and the Acquisition, there has been no material change to the Company’s capitalization and net financial indebtedness since December 31, 2016.
For the purposes of arriving at the USD figures in the “as adjusted columns” a NOK/USD exchange rate of 8.608 has been applied. For further details regarding the Acquisition, see Section 7 “The Acquisition”.
9.1 Capitalization As of December 31, 2016 USD thousands (unaudited) Actual following significant changes as of date of the Actual Adjustment Prospectus Total current liabilities ...... 43,606 — 43,606 —Guaranteed ...... —— — —Secured(1) ...... —— — —Unguaranteed/ unsecured ...... 43,606 — 43,606 Total non-current liabilities ...... 1,079,303 — 1,397,103 —Guaranteed ...... —— — —Secured(1)(2) ...... 881,118 317,800 1,198,918 —Unguaranteed/unsecured(3) ...... 198,185 — 198,185 Total liabilities (A)...... 1,122,909 317,800 1,440,709 Shareholders’ equity(4) — —
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—Share capital ...... 5,298 1,320 6,618 —Legal reserves ...... — — — —Other reserves ...... 1,582,971 184,276 1,767,247 —Retained deficit ...... (349,557) (349,557) Total equity (B) ...... 1,238,712 185,596 1,424,308 Total capitalization (A)+(B) ...... 2,361,621 503,396 2,865,017 ______(1) See Section 11.6 “Borrowing Activities” for a description of the security under the Company’s loan agreements. This amount includes USD 5.3 million related to debt issuance costs which are presented as a direct reduction from the carrying amount of the related debt.
(2) USD 317.8 million in increased debt includes the net debt increase of USD 267.8 million from the Acquisition, including downpayment of USD 17.4 million of the transferred debt and the Hemen seller credit, and the USD 50 million in debt draw down to finance delivery installments of newbuildings.
(3) In addition to long term leasing obligations and other long term liabilities, this amount includes the convertible bond debt recorded in the balance sheet at a value of USD 177.3 million based on its estimated fair value at the time of the Merger with Former Golden Ocean and the impact of the subsequent amortization of the fair value adjustment. The nominal value of the convertible bond debt is USD 200.0 million.
(4) The USD 185.6 million in increased equity, includes USD 58.4 million from the Private Placement and USD 127.2 million from the Acquisition as consideration shares.
9.2 Net Financial Indebtedness As of December 31, 2016 USD thousands (unaudited) Actual following significant changes as of date of the Actual Adjustment Prospectus A. Cash(1) ...... 212,942 (14,900) 198,042 B. Cash equivalents(2) ...... 54,112 — 54,112 C. Trading securities ...... 6,524 — 6,524 D. Liquidity (A)+(B)+(C) ...... 273,578 (14,900) 258,678 E. Current financial receivables(3) ...... 29,263 — 29,263 F. Current bank debt ...... —— — G. Current portion of non-current debt(4) ...... —— — H. Other current financial debt(4) ...... 32,425 — 32,425 I. Current financial debt (F)+(G)+(H) ...... 32,425 — 32,425 J. Net current financial indebtedness (I)-(E)-(D) ...... (270,416) 14,900 (255,516) K. Non-current bank debt(4,6) ...... 881,118 — 881,118 L. Bonds issued(7) ...... 177,300 — 177,300 M. Other non-current financial debt(5) ...... 20,885 317,800 338,685 N. Non-current financial debt (K)+(L)+(M) ...... 1,079,303 317,800 1,397,103 O. Net financial indebtedness (J)+(N) ...... 808,887 332,700 1,141,587 ______(1) Net decrease in cash of USD 14.9 million, includes USD 50 million in proceeds from the debt draw down to finance delivery installments of newbuildings, USD 101 million in payment of final delivery installments on four newbuildings and payment of USD 4.9 million in installments on two newbuildings, USD 58.4 million in net proceeds from the Private Placement and USD 17.4 million in down payment of debt associated with the acquired vessels.
(2) Cash equivalents are restricted cash that is classified in the balance sheet as short term and long term restricted cash in accordance with U.S. GAAP. Long-term restricted cash is the minimum cash balance that must be maintained at all times in accordance with our loan agreements with various banks
(3) Other current financial receivables include trade accounts receivable, related party receivables, other receivables and fair value of derivative instruments receivable.
(4) Other current financial debt includes the Current portion of obligations under capital lease, Related party payables, Trade accounts payable, Accrued expenses, Other current liabilities and Derivative instruments payable. It excludes Deferred charter revenue and the value of Unfavorable time charter.
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(5) Other non-current financial debt is the long-term portion of obligations under capital lease and other long term liabilities. The USD 317.8 million in increased debt includes the net debt increase of USD 267.8 million from the Acquisition, including downpayment of USD 17.4 million of the transferred debt and the Hemen seller credit, and the USD 50 million in debt draw down to finance delivery installments of newbuildings.
(6) See Section 11.6 “Borrowing Activities” for a description of the security under the Company’s loan agreements. This amount includes USD 5.3 million related to debt issuance costs which are presented as a direct reduction from the carrying amount of the related debt.
(7) The convertible bond debt is recorded in the balance sheet at a value of USD 177.3 million based on its estimated fair value at the time of the Merger with Former Golden Ocean and the impact of the subsequent amortization of the fair value adjustment. The nominal value of the convertible bond debt is USD 200.0 million.
Indirect and Contingent Indebtedness The Company guarantees debt and other obligations of certain of its equity method investees. The debt and other obligations are primarily due to banks in connection with financing the purchase of vessels and equipment used in the joint venture operations. As of December 31, 2016, the joint venture owning Golden Opus had total bank debt outstanding of USD 17.9 million. The Company has guaranteed for 50% of the outstanding debt in the joint venture. Therefore the maximum potential amount of future principle payments (undiscounted) that the Company could be required to make relating to equity method investees secured bank debt was USD 8.95 million and the carrying amount of the liability related to this guarantee was nil.
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10. SELECTED FINANCIAL INFORMATION AND OTHER INFORMATION
The following selected financial information has been extracted from the Company’s unaudited financial statements as of and for the three months and year ended December 31, 2016, the Company’s audited financial statements as of and for the years ended December 31, 2015, 2014 and 2013. The Company’s financial statements have been prepared in accordance with U.S. GAAP. The selected financial information included herein should be read in connection with the financial statements which are incorporated by reference to this Prospectus, see Section 18 “Incorporation by Reference; Documents on Display”. This Section should be read together with Section 11 “Operating and Financial Review”.
The financial information below includes certain non-U.S. GAAP measures used to evaluate the Company’s economic and financial performance. These measures are not identified as accounting measures under U.S. GAAP and therefore should not be considered as an alternative measure to evaluate the performance of the Group. See Section 4.2 “Presentation of Industry Data and Other Information—Financial Information; Alternative Performance Measures (Non-U.S GAAP Measures)”. This Section also contains Forward-Looking Statements that reflect the Company’s plans and estimates; see Section 4.1 “Cautionary Note Regarding Forward-Looking Statements”.
Please refer to Section 18.2 “Documents on Display” for the Former Golden Ocean group’s consolidated financial statements as of and for the years December 31, 2014 and 2013. Former Golden Ocean was merged with the Company in 2015, as further described in Section 5.2 “History and Operational Development”.
10.1 Summary of Accounting Policies For information regarding accounting policies and the use of estimates and judgements, refer to Note 2 of the annual financial statements as of, and for the year ended, December 31, 2015, and Note 3 and note 8 of the interim financial statements as of December 31, 2016, incorporated by reference to this Prospectus.
Restatement of Prior Year Amounts All Share and per Share amounts disclosed in this Prospectus give retroactive effect to the one-for-five reverse stock split effected on August 1, 2016. Accordingly, all such amounts have been restated, for all periods presented.
As a result of change in U.S. GAAP, as of January 1, 2016, the Company changed the presentation of debt issuance costs, i.e. deferred charges, in the balance sheet as a direct deduction from the carrying amount of the related debt rather than as an asset. The change has been retrospectively applied. As a result USD 5,797 thousand, USD 3,533 thousand and USD 664 thousand have been reclassified from deferred charges under long-term assets, to long-term debt under long- term liabilities in 2015, 2014 and 2013, respectively. Compared with the audited numbers from the same periods, total assets and long term debt have decreased by the amounts stated above in the respective periods.
10.2 Selected Income Statement Information The table below sets out a summary of the Company’s unaudited consolidated statement of operations information for the three months ended December 31, 2016 and 2015 and the year ended December 31, 2016, and the Company’s unaudited* consolidated statement of operations information for the years ended December 31, 2015, 2014 and 2013.
For the For the For the USD thousands Three Months Ended Year Ended Year Ended December 31 December 31 December 31 (unaudited) (unaudited) (unaudited)* 2016 2015 2016 2015 2014 2013 Operating revenues Time charter revenues ...... 35,343 28,028 91,407 85,960 22,656 27,677 Voyage charter revenues ...... 49,886 28,661 159,108 102,972 53,706 9,869 Other operating income ...... 933 440 7,293 1,306 20,353 ― Total operating revenues ...... 86,222 57,129 257,808 190,238 96,715 37,546 Loss on sale of newbuilding and amortization of deferred gain ...... (78) (8,524) 300 (10,788) — — Operating expenses Voyage expenses and commission ...... 23,876 20,729 89,886 78,099 33,955 6,809 Ship operating expenses ...... 27,202 25,495 105,843 83,022 18,676 7,897 Charter hire expenses ...... 14,267 12,575 53,691 30,719 — — Administrative expenses ...... 3,130 3,427 12,728 12,469 5,037 4,937 Impairment loss on vessels and newbuildings ...... — 4,525 985 152,597 — — Provision for uncollectible receivables ...... — 4,729 1,800 4,729 — —
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For the For the For the USD thousands Three Months Ended Year Ended Year Ended December 31 December 31 December 31 (unaudited) (unaudited) (unaudited)* 2016 2015 2016 2015 2014 2013 Depreciation ...... 16,431 13,769 63,433 52,728 19,561 11,079 Total operating expenses...... 84,906 85,217 328,366 414,363 77,229 30,722 Net operating income/(loss) ...... 1,395 (36,611) (70,258) (234,913) 19,486 6,824 Other income/(expenses) Interest income ...... 386 302 1,666 849 29 41 Interest expense ...... (12,096) (6,028) (44,166) (28,270) (2,525) (2,827) Impairment loss on marketable securities ..... — (23,323) (10,050) (23,323) — — Equity results of associated companies, including impairment ...... 299 (4,456) (2,523) (5,033) — — Gain (Loss) on derivatives ...... 16,734 1,215 (675) (6,939) — — Bargain purchase gain arising on consolidation ...... — — — 78,876 — — Other financial items ...... (445) (176) (1,860) (1,897) (737) (508) Net other income/(expenses) ...... 4,879 (33,466) (57,608) 14,263 (3,233) (3,294) Net (loss)/income before income taxes ...... 6,273 (69,079) (127,866) (220,650) 16,253 3,530 Income tax expense ...... 203 (189) 155 (189) — — Net (loss)/income from continuing operations ...... 6,476 (69,267) (127,711) (220,839) 16,253 3,530 Net income/(loss) from discontinued operations ...... — — — — (258) (7,433) Net (loss)/income ...... 6,476 (69,268) (127,711) (220,839) 15,995 (3,903)
Per share information (in USD): (Loss)/earnings per share from continuing operations: basic and diluted ...... 0.06 (2.01) (1.34) (7.30) 1.55 0.70 Loss per share from discontinued operations: basic and diluted ...... — — — — — (1.45) (Loss)/earnings per share: basic and diluted ...... 0.06 (2.01) (1.34) (7.30) 1.50 (0.75) Cash distributions per share declared ...... — — — — 3.15 3.50
* Following the adoption of Accounting Standards Update (ASU) 2015-30 in 2016, the Company has applied this ASU on a retrospective basis to all prior periods presented, and has recorded debt issuance costs (i.e. deferred charges) as a direct deduction from the carrying amount of the related debt rather than as an asset. In addition for all periods presented, the Company has given retroactive effect to the one-for-five reverse stock split effected on August 1, 2016. See Section 10.1 “Summary of accounting policies” and note 3 and note 8 of the interim financial statements as of December 31, 2016.
10.3 Selected Balance Sheet Information The table below sets out a summary of the Company’s unaudited consolidated balance sheet information as of December 31, 2016, and the Company’s unaudited* consolidated balance sheet information as of December 31, 2015, 2014 and 2013.
As of As of USD thousands December 31 December 31 (unaudited) (unaudited)* 2016 2015 2014 2013 Assets Current assets Cash and cash equivalents ...... 212,942 102,617 42,221 98,250 Restricted cash ...... 315 351 — — Marketable securities ...... 6,524 14,615 — — Trade accounts receivable, net ...... 14,755 9,631 2,770 3,298 Related party receivables ...... 1,927 8,451 449 — Other receivables ...... 10,987 14,992 3,430 943 Derivative instruments receivable ...... 1,594 1,641 ― ― Inventories ...... 17,953 15,156 13,243 1,729 Prepaid expenses and accrued income ...... 6,524 5,687 844 521
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As of As of USD thousands December 31 December 31 (unaudited) (unaudited)* 2016 2015 2014 2013 Voyage in progress ...... 3,998 1,690 1,322 ― Favorable charter party contracts ...... 22,413 28,829 ― ― Total current assets ...... 299,931 203,660 64,279 104,741 Restricted cash ...... 53,797 48,521 18,923 15,000 Vessels and equipment, net ...... 1,758,939 1,488,205 852,665 262,747 Vessels under capital lease, net ...... 2,956 8,354 — — Newbuildings ...... 180,562 338,614 323,340 26,706 Favorable charter contracts ...... 53,686 74,547 — — Investments in associated companies ...... 4,224 6,225 — — Other long terms assets ...... 7,527 4,744 — — Total assets ...... 2,361,621 2,172,870 1,259,207 409,194
Equity and liabilities Current liabilities Current portion of long-term debt ...... — 20,380 19,812 — Current portion of obligations under capital lease ...... 4,858 15,749 — — Derivative instruments payable ...... 1,990 5,400 — — Related party payables ...... 1,387 4,101 2,555 — Trades accounts payable ...... 2,882 2,533 4,937 1,430 Accrued expenses ...... 17,872 17,878 4,190 2,364 Other current liabilities ...... 14,617 13,993 3,285 3,623 Total current liabilities ...... 43,606 80,034 34,779 7,417 Long-term liabilities Long term debt...... 1,058,418 908,116 340,155 94,336 Obligations under capital leases ...... 12,673 17,531 — — Other long term liabilities ...... 8,212 8,540 — — Total liabilities ...... 1,122,909 1,014,221 374,934 101,753 Equity Share capital (2016: 105,965,192 Shares. 2015: 34,535,128 Shares. 2014: 16,024,310 Shares. 2013: 6,094,412 Shares. All Shares are issued and outstanding at par value USD 0.05) ...... 5,298 1,727 801 305 Additional paid in capital ...... 201,863 — 772,863 183,535 Contributed capital surplus ...... 1,378,821 1,378,766 111,614 131,520 Other Comprehensive income ...... 2,287 — — — Retained deficit ...... (349,557) (221,844) (1,005) (7,919) Total equity ...... 1,238,712 1,158,649 884,273 307,441 Total liabilities and equity ...... 2,361,621 2,172,870 1,259,207 409,194
* Following the adoption of Accounting Standards Update (ASU) 2015-30 in 2016, the Company has applied this ASU on a retrospective basis to all prior periods presented, and has recorded debt issuance costs (i.e. deferred charges) as a direct deduction from the carrying amount of the related debt rather than as an asset. In addition for all periods presented, the Company has given retroactive effect to the one-for-five reverse stock split effected on August 1, 2016. See Section 10.1 “Summary of accounting policies” and note 3 and note 8 of the interim financial statements as of December 31, 2016.
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10.4 Selected Changes in Equity Information The table below sets out a summary of the Company’s unaudited* changes in equity information for the years ended December 31, 2015, 2014 and 2013, and the Company’s unaudited changes in equity information for the year ended December 31, 2016.
For the For the USD thousands, except number of shares Year Ended Year Ended December 31 December 31 (unaudited) (unaudited)* 2016 2015 2014 2013 Number of shares outstanding Balance at the beginning of the period ...... 34,535,128 16,024,310 6,094,412 4,887,400 Shares issued ...... 71,430,612 18,522,116 9,929,898 1,207,012 Shares canceled ...... (548) (11,298) — — Balance at the end of the period ...... 105,965,192 34,535,128 16,024,310 6,094,412
Share capital Balance at the beginning of the period ...... 1,727 801 305 244 Shares issued ...... 3,572 926 496 61 Balance at the end of the period ...... 5,298 1,727 801 305
Additional paid in capital Balance at the beginning of the period ...... — 772,863 183,535 131,766 Shares issued ...... 201,783 433,526 589,557 51,106 Restricted stock unit expense/(income) ...... — 92 (229) 663 Stock option expense ...... 81 967 — — Transfer to contributed surplus ...... — (1,207,448) — — Balance at the end of the period ...... 201,863 — 772,863 183,535
Contributed capital surplus Balance at the beginning of the period ...... 1,378,766 111,614 131,520 149,700 Contribution from shareholder ...... — 59,746 — — Distributions to shareholders ...... — — (19,906) (18,180) Restricted stock unit expense ...... 5 (102) — — Stock option expense ...... 53 60 — — Transfer from additional paid in capital ...... — 1,207,448 — — Balance at the end of the period ...... 1,378,821 1,378,766 111,614 131,520
Other comprehensive income (loss) Unrealized loss ...... (7,763) 23,323 — — Reclassification of loss to net income ...... 10,050 23,323 — — Other comprehensive income ...... 2,287 — — —
Retained deficit Balance at the beginning of the period ...... (221,846) (1,005) (7,919) (4,016) Net income/(loss) ...... (127,711) (220,839) 15,995 (3,903) Distributions to shareholders ...... — — (9,081) — Balance at the end of the period ...... (349,557) (221,844) (1,005) (7,919) Total equity ...... 1,238,712 1,158,649 884,273 307,441
* Following the adoption of Accounting Standards Update (ASU) 2015-30 in 2016, the Company has applied this ASU on a retrospective basis to all prior periods presented, and has recorded debt issuance costs (i.e. deferred charges) as a direct deduction from the carrying amount of the related debt rather than as an asset. In addition for all periods presented, the Company has given retroactive effect to the one-for-five reverse stock split effected on August 1, 2016. See Section 10.1 “Summary of accounting policies” and note 3 and note 8 of the interim financial statements as of December 31, 2016.
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10.5 Selected Cash Flow Information The table below sets out a summary of the Company’s unaudited consolidated cash flow information for the three months ended December 31, 2016 and 2015 and the year ended December 31, 2016 and the Company’s unaudited* consolidated cash flow information for the years ended December 31, 2015, 2014 and 2013.
For the For the For the USD thousands Three Months Ended Year Ended Year Ended December 31 December 31 December 31 (unaudited) (unaudited) (unaudited)* 2016 2015 2016 2015 2014 2013 Cash flow from operating activities Net (loss)/income ...... 6,476 (69,268) (127,711) (220,839) 16,253 3,530 Net loss from discontinued operations ...... — — — — (258) (7,433) Net (loss)/income from continuing operations .. 6,476 (69,268) (127,711) (220,839) 15,995 (3,903) Adjustments to reconcile net (loss)/income to net cash (used in)/provided by operating activities: Depreciation and amortization of deferred charges ...... 16,782 13,942 64,778 54,290 20,246 11,637 Loss on sale of assets and amortization of deferred gains ...... (78) 8,524 (300) 10,788 — — Impairment loss on vessels and newbuildings ... — 4,525 985 152,597 — — Restricted stock unit expense ...... 81 49 85 (10) 242 919 Bargain purchase gain arising on consolidation . — — — (78,876) — — Equity results from associated companies ...... (299) (144) 381 433 — — Impairment of associated companies ...... — 4,600 2,142 4,600 — — Amortization of favorable charter party contracts ...... 6,372 7,261 27,277 23,714 — — Amortization of unfavorable charter party contracts ...... (169) (169) (674) (1,399) — — Amortization of other fair value adjustments, net, arising of the Merger ...... 2,478 178 9,434 6,479 — — Impairment loss on marketable securities ...... — 23,323 10,050 23,323 — — Mark-to-market (gain)/loss on derivatives ...... (17,336) (3,787) (3,363) 2,429 — — Provision for onerous contracts ...... (3,259) 475 (2,370) 2,370 — — Provision for doubtful debts ...... (71) (100) 199 512 — — Provision for uncollectible receivables ...... — 4,729 1,800 4,729 — — Other adjustments...... (737) — (4,333) — — — Changes in operating assets and liabilities, net of acquisition: Trade accounts receivable, net ...... (983) 5,669 (5,323) (5,039) 528 (2,309) Related party balances ...... (865) (5,603) 1,883 (5,080) 622 — Other receivables ...... 1,197 5,484 5,255 (3,321) (2,487) 1,431 Inventories ...... 4,785 2,200 (2,797) 7,705 (11,514) (1,294) Voyages in progress ...... 2,358 842 (2,308) (367) (1,322) — Prepaid expenses and accrued income ...... 1,371 585 (837) 11,627 (323) (14) Other non-current assets (245) — (118) — — — Trade accounts payable ...... (3,112) (3,828) 348 (5,445) 1,862 231 Accrued expenses ...... 3,637 (5,938) (9) (6,597) 1,096 724 Other current liabilities ...... (664) 303 2,715 6,647 (339) (647) Other long term liabilities...... (95) (13) (178) (97) — — Cash provided by operating activities of discontinued operations ...... — — — — 258 5,538 Net cash (used in)/provided by operating activities ...... 17,623 (6,161) (23,054) (14,827) 24,864 12,313
Cash flow from investing activities Changes in restricted cash ...... 13,522 1,888 (5,240) 4,052 (3,924) — Dividends from associated companies ...... — — 256 88 — — Purchase of marketable securities ...... — — — (32,159) — — Additions to newbuildings ...... (41,586) (65,339) (267,341) (518,989) (357,402) (26,706) Refund of newbuilding installments ...... — — — 40,148 — —
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For the For the For the USD thousands Three Months Ended Year Ended Year Ended December 31 December 31 December 31 (unaudited) (unaudited) (unaudited)* 2016 2015 2016 2015 2014 2013 Purchase of investments in associated companies...... — — (754) — — — Cash acquired upon purchase of SPCs ...... — — — 108,645 68,560 — Cash acquired upon merger with Former Golden Ocean ...... — — — 129,084 — — Purchase of vessels and equipment ...... — — (194) (24) (24,085) — Proceeds from sale of vessels ...... 46,252 46,215 97,837 381,723 — — Proceeds from sale of marketable securities.... — — 125 — — — Cash provided by investing activities of discontinued operations ...... — — — — — 17,075 Net cash provided by/(used in) investing activities ...... 18,888 (17,236) (175,310) 112,568 (316,851) (9,631)
Cash flow from financing activities Proceeds from long-term debt ...... — — 142,200 215,975 270,000 — Repayment of long-term debt...... — (11,446) (22,219) (244,338) (1,500) (4,508) Repayment of capital leases ...... (1,168) (1,725) (15,749) (5,157) — — Debt fees paid ...... — — (898) (3,825) (3,555) — Net proceeds from share issuance ...... — — 205,354 — — 51,167 Distributions to shareholders ...... — — — — (28,987) (18,180) Cash used in financing activities of discontinued operations ...... — — — — — (12,170) Net cash provided by/(used in) financing activities ...... (1,168) (13,171) 308,688 (37,345) 235,958 16,309 Net change in cash and cash equivalents ...... 34,643 (36,568) 110,324 60,396 (56,029) 18,991 Cash and cash equivalents at beginning of the period...... 178,299 139,185 102,617 42,221 98,250 79,259 Cash and cash equivalents at end of the period...... 212,942 102,617 212,942 102,617 42,221 98,250
* Following the adoption of Accounting Standards Update (ASU) 2015-30 in 2016, the Company has applied this ASU on a retrospective basis to all prior periods presented, and has recorded debt issuance costs (i.e. deferred charges) as a direct deduction from the carrying amount of the related debt rather than as an asset. In addition for all periods presented, the Company has given retroactive effect to the one-for-five reverse stock split effected on August 1, 2016. See Section 10.1 “Summary of accounting policies” and note 3 and note 8 of the interim financial statements as of December 31, 2016.
10.6 Historical Audited Financial Information The following table presents summary consolidated financial and other data of the Group for each of the three years in the three-year period ended December 31, 2015.
The summary consolidated financial data for each of the three years in the three-year period ended December 31, 2015 is a summary of and is derived from our audited consolidated financial statements and notes thereto, which have been prepared in accordance with U.S. GAAP, and incorporated by reference to this Prospectus, see Section 18 “Incorporation by Reference; Documents on Display”).
As of USD thousands December 31 (audited) 2015 2014 2013 Total operating revenues ...... 190,238 96,715 37,546 Net operating income/(loss) ...... (234,913) 19,486 6,824 Net (loss)/income from continuing operations ...... (220,839) 16,253 3,530 Net income/(loss) from discontinued operations ...... — (258) (7,433) Net (loss)/income ...... (220,839) 15,995 (3,903)
Total non-current assets ...... 1,975,007 1,198,461 305,117 Total assets ...... 2,178,667 1,262,740 409,858
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As of USD thousands December 31 (audited) 2015 2014 2013 Total equity ...... 1,158,649 884,273 307,441
Per share information (in USD): (Loss)/earnings per share from continuing operations: basic and diluted ...... (1.46) 0.31 0.14 Loss per share from discontinued operations: basic and diluted ...... — — (0.29) (Loss)/earnings per share: basic and diluted ...... (1.46) 0.30 (0.15) Cash distributions per share declared ...... — 0.63 0.70
Note that certain amounts have been restated, as discussed in Section 10.1 “Summary of Accounting Policies”.
10.7 Selected Segment Information The revenues and operating results of the Company relates to its chartering operations which are carried out internationally and cannot be attributable to any particular geographical location or separate into any various products. No analysis by either business or geographical segment is required by key management and is therefore not included in the financial reporting.
10.8 Other Selected Financial and Operating Information The table below sets out certain other unaudited key financial and operating information for the Company on a consolidated basis.
As of or for the As of or for the USD thousands, except ratios Year Ended Year Ended December 31, December 31, 2016 2015 (unaudited) (unaudited) EBITDA(1) ...... 6,015 (116,625) NIBD(2) ...... 808,896 810,288 Equity ratio(3) ...... 52.45 53.32 Debt-to-equity ratio(4) ...... 0.91 0.88 Interest coverage ratio(5) ...... (2.01) (7.05) ______(1) EBITDA is defined as earnings before interest, taxes, depreciation and amortization. (2) Net interest bearing debt, which is interest bearing debt less cash and cash equivalents and restricted cash. (3) Total shareholders’ equity divided by total assets, multiplied by 100. (4) Total liabilities to shareholders equity. (5) Interest coverage ratio is defined as EBIT divided by net interest expense. EBIT is defined as earnings before interest and taxes.
10.9 Reconciliation of Certain Non-U.S. GAAP Measures The following table is a summary of EBITDA and adjusted EBITDA for the periods presented.
For the For the For the USD thousands Three Months Ended Year Ended Year Ended December 31 December 31 December 31 (unaudited) (unaudited) (unaudited) 2016 2015 2016 2015 2014 2013 Net income/(loss) ...... 6,476 (69,267) (127,711) (220,839) 16,253 3,530 Interest income ...... (386) (302) (1,666) (849) (29) (41) Interest expense ...... 12,096 6,028 44,166 28,270 2,525 2,827 Income tax expense ...... (203) 189 (155) 189 ― ― Depreciation expense ...... 16,431 13,737 63,433 52,728 19,561 11,079 Amortization of favorable charter party contracts ...... 6,372 7,261 27,277 23,714 ― ― Amortization of unfavorable charter party ― ― contracts ...... (169) (169) (674) (1,399) Amortization of deferred charges ...... 351 204 1,345 1,561 ― ― Earnings before Interest Taxes (42,319) 6,015 38,310 17,395
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For the For the For the USD thousands Three Months Ended Year Ended Year Ended December 31 December 31 December 31 (unaudited) (unaudited) (unaudited) 2016 2015 2016 2015 2014 2013 Depreciation and Amortization ...... 40,986 (116,625) Bargain purchase gain ...... ― ― ― (78,876) ― ― Gain/(loss) on sale of assets and deferred ― ― gains ...... (78) 8,524 (300) 10,788 Vessel impairment loss ...... ― 4,525 985 152,597 ― ― Mark-to-market of derivatives ...... (16,734) 1,215 675 6,938 ― ― Impairment loss on marketable securities ..... ― 23,323 10,050 23,323 ― ― Other financial items ...... 53 (45) 404 151 ― ― Adjusted Earnings before Interest Taxes Depreciation and Amortization ...... 24,209 (4,777) 17,828 (1,704) 38,310 17,395
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11. OPERATING AND FINANCIAL REVIEW
This operating and financial review should be read together with Section 10 “Selected Financial Information and Other Information” and the financial statements which are incorporated by reference to this Prospectus, see Section 18 “Incorporation by Reference; Documents on Display”. The following discussion contains Forward-looking statements that reflect the Company’s plans and estimates. Factors that could cause or contribute to differences to these Forward- looking Statements include those discussed in Section 2 “Risk Factors”, see also Section 4.1 “Cautionary Note Regarding Forward-Looking Statements”.
11.1 Introduction The Company is an international shipping company that owns and operates a fleet of dry bulk carrier vessels, focusing on the Capesize, Panamax and Supramax markets. As of the date of this Prospectus, the Company has a fleet of 67 vessels, including ten vessels chartered-in long term on bareboat charter or time charter and one owned in a joint venture, with an aggregate capacity of 9.1 million dwt. The fleet of the Company consists of 61 operating vessels and six vessels currently under construction at shipyards. For more details about the Company’s fleet, see Section 5.3 “Fleet” above
The Company’s vessels transport a broad range of major and minor bulk commodities, including ores, coal, grains and fertilizers, along worldwide shipping routes. The Company’s executive management team comprises Birgitte Ringstad Vartdal, CEO of Golden Ocean Management AS, Per Heiberg, CFO of Golden Ocean Management AS and Thomas Semino, CCO of Golden Ocean Management AS.
The Company’s business strategy is to operate a diversified fleet of dry bulk carriers with flexibility to adjust its exposure to the dry bulk market depending on existing factors such as charter rates, newbuilding costs, vessel resale and scrap values and vessel operating expenses resulting from, among other things, changes in the supply of and demand for dry bulk capacity. The Company may adjust its exposure through time charters, bareboat charters, sale and leasebacks, sales and purchases of vessels, newbuilding contracts and acquisitions. The Company’s long term goal is to renew and grow its fleet through selective acquisitions.
The main currency of the Company is USD and normally all revenues and expenses are in USD. The main exceptions from this are related to port costs, part of the operating expenses and the administrative costs with the offices located in Oslo and Singapore.
The Company prepares its consolidated financial statements in USD and in accordance with U.S. GAAP.
The carrying values of the Company’s vessels and newbuildings may not represent their fair market value at any point in time since the market prices of second-hand vessels and the cost of newbuildings tend to fluctuate with changes in charter rates. Historically, both charter rates and vessel values tend to be cyclical. The carrying amounts of vessels that are held and used by the Company and newbuildings under development are reviewed for potential impairment whenever events or changes in circumstances indicate that the carrying amount of a particular vessel or newbuilding may not be fully recoverable. In such instances, an impairment charge would be recognized if the estimate of the undiscounted future cash flows expected to result from the use of the vessel and its eventual disposition is less than the vessel’s carrying amount. This assessment is made at the individual vessel level as separately identifiable cash flow information for each vessel is available. Fair value is estimated based on values achieved for the sale/purchase of similar vessels and appraised valuations. The Company believes that the basic charter-free market value for all of its vessels is lower than its carrying value. The Company believes that the future undiscounted cash flows expected to be earned by each of these vessels over its remaining estimated useful life will exceed the vessel’s carrying value as of December 31, 2016, and accordingly, have not recorded an impairment charge.
11.2 Principal Factors Affecting the Group’s Financial Condition and Results of Operations The business, financial condition, results of operations and cash flows, as well as the period-to-period comparability of the financial results of the Group, are affected by a number of factors, see Section 2 “Risk Factors”. Some of the factors that have influenced the Group’s financial condition and results of operations during the periods under review and which are expected to continue to influence the Company’s business, financial condition, results of operations and cash flows, as well as the period-to-period comparability of the Company’s financial results, are:
• The level of charter rates in the dry bulk carrier market. The Company earns its revenues through employment of its vessels in the dry bulk carrier market, and the charter rates for dry bulk carrier vessels are subject to market fluctuations. Historically, the Company has had a high degree of fixed rate charter contracts with long duration, and during the last years these rates have been higher than the spot market rates. When the fixed rate charter contracts have expired, the vessels have started to trade in the spot market at the prevailing rates and thus the revenues per vessel have dropped in this period. The rates in the spot market depend on a various supply and demand factors, see Section 8 “Industry Overview”.
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• The number of vessels owned or chartered in. The Company has expanded its fleet significantly during the last few years and also chartered in vessels for longer and shorter durations. The number of vessels in the Company’s portfolio will affect the revenues and expenses.
• The costs and expenses associated with the Company’s operations. The operating expenses for the Company’s vessels include crewing, repairs, maintenance and insurance, as well as docking costs. The Company also has other operating expenses, mainly general and administrative expenses for its offices in Norway and Singapore.
• Level of debt and related interest expense. The Company normally finances its acquisitions of new vessels with equity and debt financing and this may affect the cash position and financial gearing of the Company. The vessels are normally financed with ordinary bank financing, whereby the loan is repaid in instalments over fifteen to twenty years with quarterly repayments, a balloon repayment after around five years and with interest at LIBOR plus a margin. Alternatively, the Company can finance acquisition through unsecured bond financing, where there typically is no repayment prior to maturity, but quarterly interest payments. For more information about the borrowing arrangements of the Company, see Section 11.6 “Borrowing Activities”.
11.3 Recent Developments
• On January 6, 2017, the Company took delivery of Golden Virgo and paid a final installment of USD 15.9 million. There is no related debt on the vessel.
• On January 20, 2017, the Company took delivery of Golden Libra and paid a final installment of USD 15.9 million. There is no related debt on the vessel.
• In January 2017, the Company agreed to further postpone of all remaining newbuildings until the first quarter of 2018. At the date of this Prospectus, four of these agreements are still subject to final acceptance and documentation in order to become effective.
• On February 13, 2017, the Company took delivery of Golden Surabaya and Golden Savannah and paid a final installment of USD 69.2 million in total and USD 50.0 million in debt was drawn down.
• In March, 2017, the Company agreed with its lenders to further amend some of its credit facilities in order to enable the Company to enter into the Acquisition, see Section 11.6 “Borrowing Activities―Borrowing Activities Entered Into by the Company―Loan Amendments and Covenants”.
• On March 14, 2017, the Company announced that it had entered into an acquisition agreement with Quintana for the acquisition of the Quintana Fleet, see Section 7 “The Acquisition”.
• On March 14, 2017, the Company announced that it had agreed to acquire the Hemen Fleet from subsidiaries from Seatankers, which are affiliated with Hemen, see Section 7 “The Acquisition”
• On March 15, 2017, the Company announced it had completed the Private Placement.
Apart from the above, and as further detailed elsewhere in this Prospectus, there has been no significant change in the Group’s financial and trading position since December 31, 2016.
11.4 Results of Operations of the Company
Operating Results for the Year Ended December 31, 2016 Compared to the Year Ended December 31, 2015 Operating Revenues For the year ended December 31, 2016, time charter revenues were USD 91.4 million compared to USD 86.0 million for the year ended December 31, 2015. The increase was primarily due to improved market conditions captured in index- linked time charter for ten of our Capesize vessels and full year results for the vessels acquired upon the merger, partly offset by amortization of estimated fair value allocated to favorable time charter contracts which has been recognized as a reduction of time charter revenue.
For the year ended December 31, 2016, voyage charter revenues were USD 159.1 million compared to USD 103.0 million for the year ended December 31, 2015. The increase was primarily due to a significant increase in the number of trading days following an increase in fleet and an increase in short term charter in vessels trading spot, in addition to improved rates.
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For the year ended December 31, 2016, other operating income was USD 7.3 million compared to USD 1.3 million for the year ended December 31, 2015. Other operating income in the year ended December 31, 2016 includes USD 2.4 million from a final settlement of claims for unpaid charter hire and damages, a compensation receipt of USD 2.0 million for loss of hire in relation to warranty claims on four Capesize newbuilding deliveries, and USD 2.1 million in relation to commercial management fee revenues, while other operating income in the year ended December 31, 2015 mainly consisted of management fee revenues received for management services provided to related parties.
Loss on Sale of Newbuilding and Amortization of Deferred Gain For the year ended December 31, 2016, Gain/(loss) on sale of newbuilding and amortization of deferred gain amounted to USD 0.3 million, compared to USD 10.8 million for the year ended December 31, 2015.
Voyage Expenses and Commission For the year ended December 31, 2016, voyage expenses and commission were USD 89.9 million compared to USD 78.1 million for the year ended December 31, 2015, an increase which was primarily due to more bunkers consumed relative to the prior year due to a significantly larger fleet.
Ship Operating Expenses Ship operating expenses are the direct costs associated with running a vessel and include crew costs, vessel supplies, repairs and maintenance, lubricating oils and insurance. For the year ended December 31, 2016, ship operating expenses were USD 105.8 million compared to USD 83.0 million for the year ended December 31, 2015. The increase was primarily due to the increase in the fleet. The average operating expenses in USD/day per vessel have been stable between the periods.
Charter Hire Expenses For the year ended December 31, 2016, charter hire expenses were USD 53.7 million compared with USD 30.7 million for the year ended December 31, 2015. The increase in charter hire expenses is mainly due to more short term charter in activity.
Administrative Expenses For the year ended December 31, 2016, administrative expenses were overall stable at USD 12.7 million compared with USD 12.5 million for the year ended December 31, 2015.
Impairment Loss on Vessels and Newbuildings The Company recorded an impairment loss on vessels and newbuildings of USD 1.0 million in the year ended December 31, 2016. In the second quarter of 2016 the owner of Golden Lyderhorn, a vessel chartered in and classified as capital lease, declared their put option to sell the vessel to the Company for a net price of USD 9.5 million with intended delivery in August 2016. In July 2016, the Company entered into an agreement to sell the vessel at the time of its re-delivery to the Company to an unrelated third party for net proceeds of USD 3.5 million and recorded an impairment loss of USD 1.0 million.
In the year ended December 31, 2015, the Company recorded a vessel impairment loss of USD 152.6 million comprising (i) a loss of USD 141.0 million recorded in the first quarter relating to five vessels (KSL China, Battersea, Belgravia, Golden Future and Golden Zhejiang), which the Company agreed in April 2015 to sell to, and lease back, from Ship Finance, (ii) a loss USD 7.1 million recorded in the third quarter relating to three of the four Capesize newbuildings, which the Company agreed to sell to in April 2015 (the Company completed the sale of one of these newbuildings in August and recorded a loss on disposal of USD 2.3 million) and (iii) a loss of USD 4.5 million recorded in the fourth quarter relating to the Golden Lyderhorn, which was a vessel held under capital lease.
Impairment losses are taken when events or changes in circumstances occur that cause the Company to believe that future cash flows for an individual vessel will be less than its carrying value and not fully recoverable. In such instances an impairment charge is recognized if the estimate of the undiscounted cash flows expected to result from the use of the vessel and its eventual disposition is less than the vessel's carrying amount.
Provision for Uncollectible Receivables The Company recorded a provision for uncollectible in the year ended December 31, 2016 receivables of USD 1.8 million mainly relating to a seller credit receivable, compared with USD 4.7 million in the year ended December 31, 2015.
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Depreciation For the year ended December 31, 2016, depreciation was USD 63.4 million compared to USD 52.7 million for the year ended December 31, 2015. The increase was primarily due to the increase in the fleet.
Interest Income For the year ended December 31, 2016, interest income was USD 1.7 compared to USD 849,000 for the year ended December 31, 2015, and relates primarily to interest received on bank deposits.
Interest Expense For the year ended December 31, 2016, interest expense was USD 44.2 million compared to USD 28.3 million for the year ended December 31, 2015. The increase was primarily due to a larger debt portfolio due to the increased size of the fleet, and the amortization of the fair value adjustment to the Company’s convertible bond at the time of the Merger with Former Golden Ocean.
Impairment Loss on Marketable Securities The Company recorded an impairment loss on securities of USD 10.1 million relating to investments classified as available for sale compared with an impairment loss on securities of USD 23.3 million relating to its investments in listed and unlisted equity securities for the year ended December 31, 2015.
Equity Results of Associated Companies, Including Impairment For the year ended December 31, 2016, equity results of associated companies, including impairment, were negative USD 2.5 million compared with negative 5.0 million in the year ended December 31, 2015 following improved results in the associated companies.
Gain/(Loss) on Derivatives In the year ended December 31, 2016, the Company recorded a loss of USD 0.7 million on derivatives compared with a USD 7.0 million loss in the year ended December 31, 2015.
Bargain Purchase Gain Arising on Consolidation In the year ended December 31, 2016, the Company recorded a bargain purchase gain arising on consolidation of nil compared to USD 78.9 million in the year ended December 31, 2015.
Other Financial Items For the year ended December 31, 2016, other financial items were negative USD 1.9 million compared to USD 1.9 million for the year ended December 31, 2015.
Operating Results for the Three Months Ended December 31, 2016 Compared to the Three Months Ended December 31, 2015 Operating Revenues For the three months ended December 31, 2016, time charter revenues were USD 35.3 million compared to USD 28.0 million for the three months ended December 31, 2015. The increase was primarily due to improved market conditions captured in index-linked time charter for ten of our Capesize vessels and full year results for the vessels acquired upon the merger, partly offset by amortization of estimated fair value allocated to favorable time charter contracts which has been recognized as a reduction of time charter revenue.
For the three months ended December 31, 2016, voyage charter revenues were USD 49.9 million compared to USD 28.1 million for the three months ended December 31, 2015. The increase was primarily due to a significant increase in the number of trading days following an increase in fleet and an increase in short term charter in vessels trading spot, in addition to improved rates.
For the three months ended December 31, 2016, other operating income was USD 1.0 million compared to USD 0.4 million for the three months ended December 31, 2015. Other operating income in the three months ended December 31, 2016 was mainly related to management fee revenue and pool income.
Loss on Sale of Newbuilding and Amortization of Deferred Gain For the three months ended December 31, 2016, loss on sale of newbuilding and amortization of deferred gain amounted to USD 0.1 million, compared with a USD 8.5 million loss for the three months ended December 31, 2015. The
73 increase/decrease was primarily due to a loss from the sale of two Capesize newbuildings in the fourth quarter in 2015, while there were none in the comparative quarter 2016.
Voyage Expenses and Commission For the three months ended December 31, 2016, voyage expenses and commission were USD 23.9 million compared to USD 20.7 million for the three months ended December 31, 2015, an increase which was primarily due to a the increase in the fleet.
Ship Operating Expenses Ship operating expenses are the direct costs associated with running a vessel and include crew costs, vessel supplies, repairs and maintenance, lubricating oils and insurance. For the three months ended December 31, 2016, ship operating expenses were USD 27.2 million compared to USD 25.5 million for the three months ended December 31, 2015. The increase was primarily due to the increase in the fleet.
Charter Hire Expenses
For the three months ended December 31, 2016, charter hire expenses were USD 14.3 million, compared with USD 12.6 million for the three months ended December 31, 2015. The increase was mainly due to an increase in short term charter in commitments.
Impairment Loss on Vessels and Newbuildings The Company did not record any impairment for the three months ended December 31, 2016. In the three months ended December 31, 2015, the Company recorded a vessel impairment loss of USD 4.5 million on Golden Lydernhorn, a vessel classified as a capital lease.
Administrative Expenses
For the three months ended December 31, 2016, administrative expenses were USD 3.1 million compared with USD 3.4 million for the three months ended December 31, 2015. The decrease was primarily due to slightly lower external professional service fees.
Provision for Uncollectible Receivables The Company recorded a provision for uncollectible receivables of nil in the three months ended December 31, 2016. In the three months ended December 31, 2015, the Company recorded a provision for uncollectible receivables of USD 4.7 2015 relating to a long term receivable
Depreciation For the three months ended December 31, 2016, depreciation was USD 16.4 million compared to USD 13.8 million for the three months ended December 31, 2014. The increase was primarily due to an increase in the fleet.
Interest Income For the three months ended December 31, 2016, interest income was USD 0.4 compared to USD 0.3 million for the three months ended December 31, 2014, and relates primarily to interest received on bank deposits.
Interest Expense For the three months ended December 31, 2016, interest expense was USD 12.1 million compared to USD 6.0 million for the three months ended December 31, 2015. The increase was primarily due to a larger debt portfolio due to the increased size of the fleet, and the amortization of the fair value adjustment to the Company’s convertible bond at the time of the Merger with Former Golden Ocean.
Impairment Loss on Marketable Securities The Company recorded an impairment loss on securities of nil in the three months ended December 31, 2016, compared to a loss of USD 23.3 million in the three months ended December 31, 2015 relating to its investments in listed and unlisted equity securities.
Gain/(Loss) on Derivatives In the three months ended December 31, 2016, the Company recorded a gain of USD 16.7 million on derivatives compared with a USD 1.2 million gain in the three months ended December 31, 2015. The increase in gain primarily follows a positive mark to market change of the portfolio of interest rate swaps.
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Equity Results of Associated Companies, Including Impairment For the three months ended December 31, 2016, equity results of associated companies, including impairment, were USD 0.3 million compared with negative 4.5 million for the three months ended December 31, 2015 following improved results in the associated companies.
Other Financial Items For the three months ended December 31, 2016, other financial items were negative USD 0.4 million compared with negative USD 0.2 million for the three months ended December 31, 2015.
Operating Results for the Year Ended December 31, 2015 Compared to the Year Ended December 31, 2014 Operating Revenues For the year ended December 31, 2015, time charter revenues were USD 86.0 million compared to USD 22.7 million for the year ended December 31, 2014. The increase was primarily due to the increased size of the trading fleet, partly offset by a larger portion of the fleet trading on voyage charter as well as amortization of estimated fair value allocated to favorable time charter contracts which has been recognized as a reduction of time charter revenue.
For the year ended December 31, 2015, voyage charter revenues were USD 103.0 million compared to USD 53.7 million for the year ended December 31, 2014. The increase was primarily due to the increased size of the trading fleet and a larger portion of the fleet trading on voyage charter.
For the year ended December 31, 2015, other operating income was USD 1.3 million compared to USD 20.4 million for the year ended December 31, 2014. Other operating income in the year ended December 31, 2015 mainly consists of management fee revenues received by Golden Ocean Group Management (Bermuda) Ltd for management services provided to related parties. Other operating income in the year ended December 31, 2014 mainly consists of amounts received in respect of claims for unpaid charter hire.
Voyage Expenses and Commission For the year ended December 31, 2015, voyage expenses and commission were USD 78.1 million compared to USD 34.0 million for the year ended December 31, 2014, an increase which was primarily due to the significantly larger fleet, partly offset by lower fuel costs on the fleet.
Ship Operating Expenses Ship operating expenses are the direct costs associated with running a vessel and include crew costs, vessel supplies, repairs and maintenance, lubricating oils and insurance. For the year ended December 31, 2015, ship operating expenses were USD 83.0 million compared to USD 18.7 million for the year ended December 31, 2014. The increase was primarily due to the significantly larger fleet. The operating expenses in USD/day per vessel have been stable between the periods.
Charter Hire Expenses For the year ended December 31, 2015, charter hire expenses were USD 30.7 million due to the vessels chartered in by Former Golden Ocean. Charter hire expenses for the year ended December 31, 2014 were USD nil as the Company did not charter in any vessels prior to the Merger with Former Golden Ocean. Administrative Expenses For the year ended December 31, 2015, administrative expenses were USD 12.5 million compared to USD 5.0 million for the year ended December 31, 2014. The increase was primarily due to the Merger with Former Golden Ocean.
Impairment Loss on Vessels and Newbuildings The Company recorded a vessel impairment loss of USD 152.6 million in the year ended December 31, 2015. This loss comprises (i) a loss of USD 141.0 million recorded in the first quarter relating to five vessels (KSL China, Battersea, Belgravia, Golden Future and Golden Zhejiang), which the Company agreed in April 2015 to sell to, and lease back, from Ship Finance, (ii) a loss USD 7.1 million recorded in the third quarter relating to three of the four Capesize newbuildings, which the Company agreed to sell to in April 2015 (the Company completed the sale of one of these newbuildings in August and recorded a loss on disposal of USD 2.3 million) and (iii) a loss of USD 4.5 million recorded in the fourth quarter relating to the Golden Lyderhorn, which was a vessel held under capital lease.
Provision for Uncollectible Receivables The Company recorded a provision for uncollectible receivables of USD 4.7 million in the year ended December 31, 2015 relating to a long term receivable.
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Depreciation For the year ended December 31, 2015, depreciation was USD 52.7 million compared to USD 19.6 million for the year ended December 31, 2014. The increase was primarily due to a significantly larger fleet.
Interest Income For the year ended December 31, 2015, interest income was USD 849,000 compared to USD 29,000 for the year ended December 31, 2014, and relates solely to interest received on bank deposits.
Interest Expense For the year ended December 31, 2015, interest expense was USD 28.3 million compared to USD 2.5 million for the year ended December 31, 2014. The increase was primarily due to a larger debt portfolio due to the increased size of the fleet, and the amortization of the fair value adjustment to the Company’s convertible bond at the time of the Merger with Former Golden Ocean.
Impairment Loss on Marketable Securities The Company recorded an impairment loss on securities of USD 23.3 million in the year ended December 31, 2015 relating to its investments in listed and unlisted equity securities.
Loss on Derivatives In the year ended December 31, 2015, the Company recorded a loss of USD 6.9 million which mainly resulted from the Company’s portfolio of interest rate swaps and bunker derivatives.
Bargain Purchase Gain Arising on Consolidation The Company recorded a bargain purchase gain of USD 78.9 million in the year ended December 31, 2015, which resulted from the merger of the Company with Former Golden Ocean in March 2015, and is the amount by which the fair value of the net assets acquired exceeded the value of the consideration paid.
Other Financial Items For the year ended December 31, 2015, other financial items were USD 1.9 million compared to USD 0.8 million for the year ended December 31, 2014, an increase which was primarily due to an impairment loss of USD 4.6 million relating to an equity investment and unfavorable movements in the mark-to-market valuations of derivative instruments
Net Loss From Discontinued Operations For the year ended December 31, 2015, net loss from discontinued operations was nil compared to USD 258,000 for the year ended December 31, 2014. The net loss from discontinued operations for the year ended December 31, 2014 relates to the operations of Knightsbridge’s VLCCs. Knightsbridge had one VLCC at the start of 2013, which was sold in April 2013.
Operating Results for the Year Ended December 31, 2014 Compared with Year Ended December 31, 2013 Operating Revenues Time charter revenues decreased in the year ended December 31, 2014 as compared to the year ended December 31, 2013 primarily due to a decrease in revenues of USD 9.3 million from the Belgravia, which traded on time charter to mid- June 2014 at which time it was redelivered to the Company and commenced trading in the spot market. This was partially offset by an increase in revenues of USD 3.5 million from the Golden Zhejiang, which resulted in part due to USD 1.9 million received as partial settlement of a claim for unpaid charter hire and damages. This amount was received in March 2014 and was recorded as time charter revenue as it related to unrecognized time charter revenue in respect of services previously rendered.
Voyage charter revenues increased in the year ended December 31, 2014 as compared to the year ended December 31, 2013 primarily due to the following reasons:
• An increase in revenues of USD 41.4 million, which resulted from the delivery of eight newbuildings in 2014 (KSL Seattle and KSL Singapore were delivered in May; KSL Sapporo and KSL Sydney were delivered in June and July, respectively; • KSL Salvador and KSL Santiago were delivered in September and KSL San Francisco and KSL Santos were delivered in October) and the delivery of Bulk China (renamed KSL China), purchased from Karpasia, in April 2014, all of which commenced trading in the spot market upon delivery. • An increase in revenues of USD 5.5 million from the Belgravia, which commenced trading in the spot market during the second half of 2014 following its redelivery from time charter.
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This was partially offset by a decrease in revenues of USD 3.0 million from the Battersea, which traded in the spot market to August 2014 at which time it commenced a time charter terms with an earliest redelivery in July 2015.
Other operating income in the year ended December 31, 2014 comprises:
• USD 17.5 million received in respect of a claim for unpaid charter hire and damages for early termination of the time charter for the Golden Zhejiang. The Company also received USD 1.9 million in this respect and this amount was recorded as time charter revenue as it related to unrecognized time charter revenue in respect of services previously rendered. • USD 0.3 million received in respect of a claim for unpaid charter hire and damages for early termination of the time charter for the Battersea, and • UDS 2.6 million received as settlement for the early charter termination of a time charter for the Belgravia.
Operating Expenses Voyage expenses and commissions increased in the year ended December 31, 2014 as compared to the year ended December 31, 2013 primarily due to the following reasons;
• An increase USD 25.6 million, which resulted from the delivery of eight newbuildings in 2014 (KSL Seattle and KSL Singapore were delivered in May; KSL Sapporo and KSL Sydney were delivered in June and July, respectively; KSL Salvador and KSL Santiago were delivered in September and KSL San Francisco and KSL Santos were delivered in October) and the delivery of Bulk China (renamed KSL China), purchased from Karpasia, in April 2014, all of which commenced trading in the spot market upon delivery. • An increase of USD 3.1 million from Belgravia, which commenced trading in the spot market during the second half of 2014 following its redelivery from time charter.
This was partially offset by a decrease of USD 1.7 million from the Battersea which traded on the spot market to August and upon redelivery from the charterer commenced trading on time charter terms.
Ship operating expenses are the direct costs associated with running a vessel and include crew costs, vessel supplies, repairs and maintenance, lubricating oils and insurance. Ship operating expenses increased in the year ended December 31, 2014 compared to the year ended December 31, 2013 primarily due to the addition of nine vessels to the fleet during 2014.
Administrative expenses increased in the year ended December 31, 2014 as compared to the year ended December 31, 2013 primarily due to an increase in professional fees and audit fees incurred in connection with the Company's then prospective merger with Former Golden Ocean, which was partially offset by a decrease in RSU expense.
On January 1, 2014, the Company changed the estimated scrap rate for its four Capesize vessels from an average of USD 281 per lightweight ton to USD 361 per lightweight ton. The resulting change in salvage value has been applied prospectively and reduced depreciation by approximately USD 0.3 million for the year ended December 31, 2014. This change also resulted in an increase in net income of approximately USD 0.3 million for the year ended December 31, 2014. Depreciation increased in the year ended December 31, 2014 compared to the year ended December 31, 2013 primarily due to the addition of nine vessels to the fleet during 2014.
Bulk China (renamed KSL China) was purchased in April 2014. KSL Seattle and KSL Singapore were delivered in May; KSL Sapporo and KSL Sydney were delivered in June and July, respectively; KSL Salvador and KSL Santiago were delivered in September and KSL San Francisco and KSL Santos were delivered in October.
Other Income (Expenses) Interest income in the years ended December 31, 2014 and December 31, 2013 relates solely to interest received on bank deposits.
Interest expense decreased in the year ended December 31, 2014 as compared to the year ended December 31, 2013 primarily due to the following reasons:
• An increase in bank loan interest expense of USD 2.2 million, which resulted from USD 270.0 million of additional borrowings in connection with the Company's newbuilding program. • An increase in commitment fees of USD 1.3 million resulting from an increase in committed, undrawn loan facilities.
This was offset by an increase in capitalized interest on newbuildings of USD 3.8 million, primarily due to the newbuildings acquired from Frontline 2012 in April 2014 and September 2014.
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Losses related to other financial items increased in the year ended December 31, 2014 as compared to the year ended December 31, 2013 primarily due to increased amortization of deferred charges.
Net loss from Discontinued Operations Net loss from discontinued operations relates to the operations of the Company’s VLCCs.
The Company had one VLCC at the start of 2013, which was sold in April 2013. There were no operating revenues in the year ended December 31, 2013, while a provision of USD 0.2 million was made in respect of a doubtful demurrage balance. There was a gain of USD 0.3 million relating to the sale of equipment, operating costs of USD 7.3 million (including an impairment loss on vessels of USD 5.3 million) and non-operating expenses of USD 0.2 million.
11.5 Liquidity and Capital Resources The Company operates in a capital intensive industry and has historically financed its purchase of vessels through a combination of equity capital and borrowings from commercial banks, as well as the convertible bond issuance which was originally issued by Former Golden Ocean. The Company’s ability to generate adequate cash flows on a short and medium term basis depends substantially on the trading performance of its vessels in the market. Periodic adjustments to the supply of and demand for dry bulk carriers cause the industry to be cyclical in nature.
The Company’s short-term liquidity requirements relate to service of debt, payment of operating costs, funding working capital requirements and maintaining cash reserves against fluctuations in operating cash flows and payment of cash distributions. Sources of short-term liquidity include cash balances, restricted cash balances, short-term investments and receipts from customers. Restricted cash balances are related to the minimum cash covenant in the Company’s loan agreements and to margin calls on derivative positions or minor amounts secured for tax payments or for claims processes.
Revenues from time and bareboat charters are generally received monthly or bi-weekly in advance while revenues from voyage charters are received on negotiated terms for each voyage, normally 90/95% after completed loading and the remaining after completed discharge.
The Company has significant exposure to the spot market as only seven of its vessels have fixed long term time charter contracts. The revenues and net operating income are therefore dependent on the earnings in the spot market. In February 2016, the Company agreed with its lenders to amend the repayment profile of the debt, whereby there is no debt repayment from April 1, 2016 to September 30, 2018. Based on this and the current level of operating expenses, interest expenses and general and administrative cost the average cash breakeven rates on a TCE basis for the Group’s Capesize vessels are around USD 10,400 per day, for its Panamax and Kamsarmax vessels the average cash breakeven is USD 7,900 per day and for the Group’s Supramax vessels the average cash breakeven is USD 7,400 per day. According to industry sources, the average spot rates in 2017 to date were as follows; Capesize vessels USD 9,750 per day, Panamax and Kamsarmax vessels USD 7,950 per day and for Supramax vessels USD 7,950 per day.
In addition to the short term funding requirements, the Company’s liquidity requirements include funding the newbuilding vessels, funding the equity portion of investments in new or replacement vessels and repayment of bank loans. Additional sources of funding for the Company’s medium and long-term liquidity requirements include new loans, refinancing of existing arrangements, equity issues, public and private debt offerings, vessel sales, sale and leaseback arrangements and asset sales.
As of December 31, 2016, the Company had ten vessels under construction. There is no debt drawn in relation to these vessels. The Company’s outstanding contractual commitments as of December 31, 2016, for its ten newbuildings amounted to USD 303.2 million all due in 2017.
During the period from January 1, 2017 and up to the date of this Prospectus, the Company has taken delivery of four vessels. The Company paid USD 101 million in final installments for these four newbuildings. As of the date of this Prospectus, following these deliveries, the Company has six vessels under construction and all of these are agreed with the yard to postpone delivery until first quarter 2018. As of the date of this Prospectus and subject to the yard’s refund bank’s final acceptance of four of the amended contracts, the Company’s outstanding commitments for the remaining six newbuildings amounts to USD 188.5 million, of which USD 14.6 million is due in 2017 and USD 173.9 million is due in 2018. For two of these newbuildings the Company paid 4.9 million upon consent from the yard’s refund bank.
As of December 31, 2016, the Company had available, undrawn, debt financing of USD 200 million for eight Capesize newbuilding contracts. During the period from January 1, 2017 and up to the date of this Prospectus, the Company has taken delivery of two of the financed vessels and drawn down debt in total of USD 50.0 million. Based on the amended terms under the loan agreement and draw down on delivered vessels, as of the date of this Prospectus, the available debt financing for the remaining six vessels is USD 150 million. The Company intends to finance the remaining newbuilding
78 commitments and any shortfall in financing commitments arising from a fall in vessel values with cash on hand, operating cash flow and, if market conditions permit, proceeds from debt and equity financings.
As of the date of this Prospectus, the Company’s available sources of liquidity, including the proceeds from the Private Placement, comprise of USD 255 million in cash and USD 150 million under undrawn facilities, which are reserved for commitments under the Company’s newbuilding program.
As of December 31, 2016 and 2015, the Company had cash and cash equivalents of USD 212.9 million and USD 102.6 million, respectively. As of December 31, 2016 and 2015, we had restricted cash of USD 54.1 million and USD 48.9 million, respectively, which is the minimum liquidity balance that the Company was required to maintain under its loan facilities.
On March 14, 2017, the Company entered into memoranda of agreement with Quintana, to acquire the Quintana Fleet. As consideration, the Company will issue 14.5 million Shares to Quintana and assume the Quintana Fleet’s corresponding debt of approximately USD 262.7 million. The vessels will be owned indirectly by one of the new subsidiaries incorporated and owned by Golden Ocean Shipholding Limited, see Section 15.3. According to binding term sheets the Company has entered into with the lenders with respect to the Quintana Fleet, the Company has negotiated a USD 17.4 million down- payment of the debt in exchange for no mandatory debt repayment until July 2019. In the period prior to July 2019, a cash sweep mechanism is put in place whereby if certain conditions are met, the Company will pay down on the deferred repayment amount of USD 40.6 million. The average interest rate of the debt to be assumed in connection with the Quintana Acquisition is LIBOR plus 3.1% margin and ordinary debt repayments, following the end of the waiver period in July 2019, will amount to USD 5.8 million per quarter. Pursuant to the loan agreements the Company expects to enter into, the NewCo which indirectly owns the Quintana Fleet will be prohibited from paying dividends to the Company. During the waiver period through June 2019, the Company will be required under the loan agreements the Company expects to enter into for the Quintana Fleet to satisfy financial covenants including USD 10 million in minimum cash and 105% minimum asset value. Following this waiver period, the financial covenants under these loans will include 25% market adjusted equity, USD 10 million in minimum cash and 125-135% minimum asset value. In addition, the Company has granted customary registration rights with respect to the Quintana Shares. The Quintana Shares will be issued with respect to each vessel upon the delivery of the vessel. The closing of the Quintana Acquisition is subject to customary conditions to closing and entry into final binding loan agreements substantially in accordance with the binding term sheets the Company has entered into.
The Company has also agreed, subject to definitive documentation, to acquire the Hemen Fleet. These vessels will be indirectly owned through new subsidiaries incorporated and owned by Golden Ocean Holdings Limited, see Section 15.3. Hemen will issue a seller credit of USD 22.5 million in total, non-amortizing until June 2019 and with interest rate of LIBOR plus a margin of 3.0%. The Company will issue the Hemen Shares which will be issued with respect to each vessel upon the delivery of the vessel. See Section 7.1 “Description of the Acquisition” for further details regarding the Acquisition.
Pursuant to the loan agreements the Company expects to enter into, the NewCo which indirectly will own the Quintana Fleet and the NewCo that will indirectly own the Hemen Fleet will be prohibited from paying dividends to the Company.
11.6 Borrowing Activities
Borrowing Activities Entered Into by the Company Introduction The Company has six loan facilities with a combination of eight different banks. While the facilities have different terms on items such as margin, profile and gearing amount, the Company has aligned the financial covenants and other general terms in the agreement.
Due to the prevailing market conditions in February 2016, the Company agreed with its lenders to amend certain of the terms in its senior, secured loan agreements. Please refer to Section 11.6 “Borrowing Activities―Borrowing Activities Entered Into by the Company―Loan Amendments and Covenants” below for a further description of these amendments.
USD 420 Million Term Loan Facility In June 2014, the Company entered into a USD 420.0 million term loan facility divided into fourteen tranches of USD 30.0 million each to part finance fourteen of the Company's current and future newbuildings. In total, the loan is repayable by quarterly installments of USD 5.2 million and all amounts outstanding shall be repaid on the final maturity date, which is June 30, 2020. The loan has an interest rate of LIBOR plus a margin of 2.50%. As of December 31, 2016, USD 388.5 million was outstanding on this facility, the facility was fully drawn and USD 15.5 million in installments was deferred.
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This facility is secured by 14 of the Group’s Capesize bulk carriers.
This loan was amended March 31, 2016. See “Loan Amendments and Covenants” below.
USD 425 Million Senior Secured Post-Delivery Term Facility In February 2015, the Company entered into a senior secured post-delivery term loan facility of up to USD 425.0 million, depending on the market values of the vessels at the time of draw down, to partially finance fourteen newbuilding vessels. The facility was initially divided into twelve tranches of USD 30.0 million and two tranches of USD 32.5 million. Each tranche was originally repayable in quarterly payments of 1/80 of the drawn down amount and all amounts outstanding are to be repaid on the final maturity date, of March 31, 2021. The loan bore interest at LIBOR plus a margin of 2.00%.
In December 2015, the loan agreement was amended and the minimum level of the loan to value was increased from 55% to 70%. The margin was also amended to 2.20% plus LIBOR and the quarterly repayments changed from 1/80 to 1/64 of the drawn down amount. The amendment also allowed the Company to substitute the optional additional borrowers with another of the Company’s wholly owned subsidiaries.
In March 2016, the Company agreed to amend the commitment per vessel to USD 25.0 million per tranche for the vessels not yet delivered. The amount per tranche is not subject to the draw down test on delivery, and with a minimum value covenant of 100%, the Company expects to draw down the full amount of this facility. As of December 31, 2016 the un- drawn commitment under this facility was USD 200.0 million, USD 166.7 million was outstanding under the facility and USD 7.6 million in installments was deferred. In February 2017, the Company drew down USD 50.0 million in relation to delivery of two newbuildings. As of the date of this Prospectus, the un-drawn commitment under this facility is USD 150.0 million, based on six tranches of USD 25.0 million per tranche.
USD 33.93 Million Credit Facility This facility finances two vessels, Golden Pearl and Golden Diamond, and bears interest of LIBOR plus a margin of 2.75%. Repayments are made on a quarterly basis, each in an amount USD 0.6 million, with a balloon payment of USD 22.6 million on the final maturity date of May 25, 2018. At December 31, 2016, this facility was secured by two of the Group’s Panamax bulk carriers. As of December 31, 2016, USD 28.3 million was outstanding under this facility and there was no available, undrawn amount and USD 1.7 million in installments was deferred.
This loan was amended March 31, 2016. See “Loan Amendments and Covenants” below.
USD 82.5 Million Credit Facility The Company assumed this debt of USD 67.8 million as a result of the Merger. This facility financed six vessels and bears interest of LIBOR plus a margin of 2.75%. Repayments are made on a quarterly basis, each in an amount USD 1.2 million, with a balloon payment on the final maturity date on October 2018. In May 2015, the Company repaid USD 17.7 million of this facility following the sale of Channel Alliance and Channel Navigator. At December 31, 2016, this facility was secured by four of our Panamax bulk carriers. As of December 31, 2016, USD 44.4 million was outstanding under this facility and there was no available, undrawn amount and USD 3.7 million in installments was deferred.
This loan was amended March 31, 2016. See “Loan Amendments and Covenants” below.
USD 284 Million Credit Facility The Company assumed this debt of USD 260.5 million as a result of the Merger. This facility finances nineteen vessels and bears interest of LIBOR plus a margin of 2.0%. Repayments are made on a quarterly basis, each in an amount USD 4.0 million, with a balloon payment on the final maturity date of December 31, 2019. At December 31, 2016, this facility was secured by two of our Capesize bulk carriers, four Panamax vessels, five Supramax vessels and four Ice class Panamax vessels. As of December 31, 2016, USD 258.5 million was outstanding under this facility and there was no available, undrawn amount and USD 12.0 million in installments was deferred.
This loan was amended March 31, 2016. See “Loan Amendments and Covenants” below.
USD 200 Convertible Bond In January 2014, Former Golden Ocean issued a USD 200 million convertible bond with a five year tenor and coupon of 3.07% per year, payable bi-annually in arrears. The convertible bond has no regular repayments and matures in full on January 30, 2019. There are no financial covenants in the convertible bond agreement. At the time of the Merger, the Company assumed the convertible bond and the conversion price was adjusted based on the exchange ratio in the Merger. The conversion price at December 31, 2016 was USD 88.15 per share and was subject to adjustment for any dividend
80 payments in the future. The bonds will be redeemed at 100% of their principal amount and will, unless previously redeemed, converted or purchased and cancelled, mature on January 30, 2019.
The Company has a right to redeem the bonds at par plus accrued interest at any time during the term of the loan, provided that 90% or more of the bonds issued shall have been redeemed or converted to shares.
Loan Amendment and Covenants The Company’s loan agreements contain certain financial covenants, including the requirement to maintain a certain level of free cash, positive working capital and a value adjusted equity covenant. The Company’s loan agreements also include cross default provisions. Failure to comply with any of the covenants in the loan agreements could result in a default, which would permit the lender to accelerate the maturity of the debt and to foreclose upon any collateral securing the debt.
In February 2016, the Company agreed with its lenders to amend certain of the terms of the USD 420.0 million term loan facility, the USD 425.0 million senior secured post-delivery term facility, the USD 33.93 million credit facility, the USD 82.5 million credit facility and the USD 284.0 million credit facility (collectively, the “Amended Loan Facilities”).
The Amended Loan Facilities generally provide, among other things, for the following amendments:
• the suspension of the Company’s obligation to repay each Amended Loan Facility starting on April 1, 2016 until September 30, 2018; • the setting of the loan-to-value clause, or the minimum value covenant, in each Amended Loan Facility to 100% until September 30, 2018, with a subsequent increase to 125% or 135% (depending on the facility) on October 1, 2018 and anytime thereafter; • the waiver of the market adjusted equity ratio covenant in each Amended Loan Facility until October 1, 2018 (with the market adjusted equity ratio returning to at least 25% of our value adjusted total assets thereafter); • the fixing of the draw down to USD 25.0 million per vessel (subject to compliance with the minimum value covenant of 100%) for the six remaining newbuilding contracts under the USD 425.0 million term loan facility; • an increase in the margin in each Amended Loan Facility on any deferred amount to 4.25% from April 1, 2016 to September 30, 2018 (with the margins returning to their pre-amendment amounts thereafter); • the instituting of a cash sweep mechanism in each Amended Loan Facility pursuant to which the Company will pay down on the deferred repayment amount should our cash position improve; and • the Company’s agreement to resume the repayment of each Amended Loan Facility on October 1, 2018 based on the repayment model as if October 1, 2018 was April 1, 2016 (regardless of any repayment made during the period in accordance with the cash sweep mechanism described herein and without affecting the final maturity date).
Pursuant to the Amended Loan Facilities, a cash sweep mechanism has been put in place whereby the Company will pay down on the deferred repayment amount should its cash position improve. The Company will furnish to its lenders at the end of each first and third quarter a calculation of free projected cash anticipated at September 30, 2018 (the “Free Projected Cash”). All Free Projected Cash above a threshold of USD 25 million will be used to repay the loans on the cash sweep repayment date, which is when the compliance certificates fall due. The first cash sweep repayment date fell due at the end of the third quarter of 2016. The cash sweep that the Company will pay to each lender will be based on a percentage of the excess cash as calculated as per end of that half year period equal to:
• the installments that had fallen due and payable under the agreements during that period had not such installments been suspended in accordance; over • all regular installments that had fallen due and payable under all existing credit facilities during that period had not such installments been suspended.
Existing credit facilities include the Amended Loan Facilities and the USD 22 million senior secured term loan agreement made between Golden Opus Inc and the Company as guarantor of 50% of the facility. Any repayments made under the cash sweep will be applied against balloon payments due on the Company’s loans.
The Amended Loan Facilities also contain certain restrictions and undertakings, including, among others:
• restrictions on the Company’s payment of dividends and distribution of assets; • restrictions on the Company’s incurrence of debt without the prior consent of the applicable lenders; • restrictions on the Company’s ability to acquire additional vessels without the prior consent of the applicable lenders; • restrictions on the Company’s ability to sell, transfer or otherwise dispose of its interests in the Group’s vessels without the prior written consent of the applicable lenders (unless, in the case of a vessel sale, the outstanding borrowings under the credit facility applicable to that vessel are repaid in full);
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• restrictions on the Company’s ability to pledge the Group’s vessels without the prior consent of the applicable lenders; and • minimum ownership provisions that require Hemen to hold a minimum of 34% of the Company’s Shares until the later of September 30, 2018 or the date the Company repaid each loan facility in such amounts that the Company is in compliance with the original payment schedule applicable before it entered into the Amended Loan Facilities.
The agreement with the Company’s lenders to enter into the Amended Loan Facilities was subject to the Company raising USD 200 million in equity. The Company announced in February 2016 that it had successfully completed a private placement that raised USD 200 million in equity.
The impact of these loan amendments was to defer USD 113.9 million of loan repayments due in the period from April 1, 2016 to September 30, 2018 and to postpone repayments on future drawings on the delivery of newbuilding vessels and Golden Opus in this period. As of December 31, 2016 the deferred repayments under the loan facilities amounted to USD 40.5 million. Based on the improved cash position and amended terms on the outstanding newbuildings, the Company expects to prepay part of the deferred debt repayments during the second quarter of 2017 based on the first quarter 2017 reporting of the Free Projected Cash. The estimated prepayment amount is classified as long term debt as of December 31, 2016 as the measurement and compliance periods under the loan agreements being the first and third quarters. Subject to working capital changes in the first quarter of 2017, the Company expects to prepay the December 31, 2016 deferred repayment balance under the loan facilities.
As of December 31, 2016, the Company was in compliance with all of the amended financial and other covenants contained in its loan agreements.
In March 2017, the Company agreed with its lenders to further amend certain of the terms of the USD 425 million term loan facility, the USD 33.93 million term loan facility, the 82.5 million term loan facility, the USD 420.0 million term loan facility and the USD 284.0 million credit facility, consenting to the establishing of the NewCos and potentially other wholly owned non-recourse subsidiaries of the Company. The amendments include, among other things, that equity raised in connection with the NewCos shall be carved-out from the cash sweep mechanism, a carve-out for the NewCos from all consolidated financial covenants applicable to the Company, to allow for the establishing and funding of the NewCos by the Company and certain other amendments in order to facilitate the establishment of the NewCos and completing the Acquisition and future transactions and acquisitions through the NewCos. Similar consent was given for USD 22 million senior secured term loan agreement made between Golden Opus Inc and the Company as guarantor of 50% of the facility.
Maturity Overview The table below sets out the repayment schedule of the Company’s financing arrangements as of December 31, 2016. Expected drawdowns for certain of the loans are also included in the numbers. The overview includes estimated interest payments for the bank financing based on an assumed average 3 month LIBOR interest rate of 2% and including entered into interest rate swaps and fixed rate for the convertible bond. For the USD 425 million facility, drawdown is assumed during the period for six newbuilding vessels. The repayment schedule does not include any ordinary scheduled debt repayment for the period starting 1 April 2016 to 30 September 2018. Should the market improve, the cash sweep mechanism described under Section 11.6 “Borrowing Activities—Borrowing Activities Entered Into by the Company— Introduction” above, will ensure that debt is repaid up to the scheduled annual repayment for approximately USD 65 million.
USD million Original Loan Outstanding Payments Due by Period Loan Amount Principal 2017 2018 2019— USD 420 million facility ...... 420.00 388.5 18 23 409 USD 425 million facility ...... 425.00 166.7 7 17 386 USD 33.93 million facility ...... 33.93 28.3 1 29 — USD 82.5 million facility ...... 82.50 44.4 2 46 — USD 284 million facility ...... 284.00 258.5 11 15 264 USD 200 million convertible bond ...... 200.00 200.0 6 6 201 Total ...... 1,445.43 1,086.4 46 136 1260
11.7 Cash Flows
Operating Cash Flows Net cash flow provided by operating activities was USD 17.6 million and net cash flow provided by operating activities was negative USD 6.2 million for the three months ended December 31, 2016 and 2015, respectively. The improvement was primarily due to a significant increase in the number of trading days following an increase in the fleet and in short term
82 charter in vessels trading spot, in addition to improved rates. This improvement was offset by an increase in net interest expenses.
Net cash flow used in operating activities was USD 23.1 million for the year ended December 31, 2016 and net cash flow used in operating activities was USD 14.8 million for the year ended December 31, 2015. Although the net cash inflow from improved voyage results increased, this was offset by an increase in operating costs primarily following a larger fleet in addition to an increase in net interest expenses as a result of the increase in interest bearing debt.
Net cash flow used in operating activities was USD 14.8 million for the year ended December 31, 2015 and net cash flow provided by operating activities was USD 24.9 million for the year ended December 31, 2014. The difference was primarily due to a deterioration in the Company’s operating results (based on net loss for the period excluding vessel impairment loss, impairment loss on securities and bargain purchase gain), which was primarily attributable to a deterioration in the dry bulk market and the Company’s increased fleet size following the merger with Former Golden Ocean.
Net cash flow provided by operating activities was USD 24.9 million and USD 12.3 million for the year ended December 31, 2014 and 2013, respectively. The increase was primarily due to an improvement in the Company’s operating results in 2014, explained by an increased fleet size due to delivery of newbuilding contracts and acquisition of KSL China.
Investing Cash Flows Net cash flow used in investing activities was USD 18.9 million and USD 17.2 million for the three months ended December 31, 2016 and 2015, respectively, and relatively stable.
Net cash flow used for investing activities was USD 175.3 million for the year ended December 31, 2016 and net cash flow used in investing activities was USD 112.6 million for the year ended December 31, 2015. The difference was primarily due to payment of delivery installments on newbuildings delivered during 2016 compared to cash received following the Merger in 2015.
Net cash flow provided by investing activities was USD 112.6 million for the year ended December 31, 2015 and net cash flow used in investing activities was USD 316.9 million for the year ended December 31, 2014. The difference was primarily due to the year ended December 31, 2015 (i) cash proceeds from the sale of eight vessels to Ship Finance and two vessels to a third party, (ii) an increase in cash acquired on the purchase of SPCs, (iii) a refund of newbuilding installments, and (iv) cash that was acquired on the merger with Former Golden Ocean. Additionally, one sailing vessel was purchased in the year ended December 31, 2014 and, other than those acquired at the time of the Merger with Former Golden Ocean, no sailing vessels were purchased in the year ended December 31, 2015. These items were partially offset by an increase in capital expenditure on newbuildings and investments in the year ended December 31, 2015.
Net cash flow used in investing activities was USD 316.9 million and USD 9.6 million for the year ended December 31, 2014 and 2013, respectively. The increase was primarily due to the funding of the company’s newbuilding program in 2014 and the purchase of a vessel, partially offset by cash acquired on the purchase of SPCs.
Financing Cash Flows Net cash flow used in financing activities was USD 1.2 million and net cash flow used in financing activities was USD 13.2 million for the three months ended December 31, 2016 and 2015, respectively. The difference was primarily due to the repayment of debt related to the vessels sold to Ship Finance during 2015 while in 2016 the cash flow used in financing activities was related to a down payment on financial lease.
Net cash flow provided by financing activities was USD 308.7 million for the year ended December 31, 2016 and net cash flow used in financing activities was USD 37.3 million for the year ended December 31, 2015. The difference was primarily due to a increase in borrowings, the repayment of debt related to the vessels sold to Ship Finance during 2015 and capital lease repayments, which was partially offset by the cash distributions to shareholders in 2014.
Net cash flow used in financing activities was USD 37.3 million for the year ended December 31, 2015 and net cash flow provided by financing activities was USD 236.0 million for the year ended December 31, 2014. The difference was primarily due to a decrease in borrowings and proceeds from share issuance in 2016, while in 2015 it was related to repayment of debt on vessels sold to Ship Finance and capital lease repayments.
Net cash flow provided by financing activities was USD 236.0 million and USD 16.3 million for the year ended December 31, 2014 and 2013, respectively. The increase was primarily due to increased debt drawdown related to delivered and purchased vessels during 2014.
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11.8 Balance Sheet Data
The balance sheet information discussed below for the years ended December 31, 2015, 2014 and 2013 is based on unaudited balance sheet information, as the Company in 2016 changed the presentation of debt issuance costs, i.e. deferred charges, in the balance sheet as a direct deduction from the carrying amount of the related debt rather than as an asset. The change has been retrospectively applied. Total Assets As of December 31, 2016, the Company’s total assets were USD 2,361.6 million compared to USD 2,172.9 million as of December 31, 2015, an increase which was primarily due to increased asset following deliveries of newbuildings and cash position following the share issuance, partly offset by regular depreciation of assets and operational loss during the year.
As of December 31, 2015, the Company’s total assets were USD 2,172.9 million compared to USD 1,259.2 million as of December 31, 2014, an increase which was primarily due to the acquisition of newbuildings from Frontline 2012 and from the Merger with Former Golden Ocean Group.
As of December 31, 2014, the Company’s total assets were 1,259.2 million compared to USD 409.2 million as of December 31, 2013, an increase which was primarily due to increase in fleet size from the acquisition of Capesize vessels, mainly from Frontline 2012.
Total Liabilities As of December 31, 2016, the Company’s total liabilities were USD 1,122.9 million compared to USD 1,014.2 million as of December 31, 2015, an increase which was primarily due to increased long term debt followed by debt on delivered new buildings during the year.
As of December 31, 2015, the Company’s total liabilities were USD 1,014.2 million compared to USD 374.9 million as of December 31, 2014, an increase which was primarily due to new debt drawn in relation to vessels delivered from the yard as well as the debt assumed by the Company upon the Merger with Former Golden Ocean.
As of December 31, 2014, the Company’s total liabilities were USD 374.9 million compared to USD 101.8 million as of December 31, 2013, an increase which was primarily due to new debt drawn in relation to vessels delivered from the yard or purchased to the Company.
Total Equity As of December 31, 2016, the Company’s total equity was USD 1,238.7 million compared to USD 1,158.6 million as of December 31, 2015. The increase was primarily due to share issue in 2016 offset by loss of the year.
As of December 31, 2015, the Company’s total equity was USD 1,158.6 million compared to USD 884.3 million as of December 31, 2014. The increase was primarily due to the impact of the share issuance in connection with the Merger with Former Golden Ocean and the contribution from the shareholder in connection with the purchase of 12 SPCs, each owning a fuel efficient Capesize dry bulk newbuilding, from Frontline 2012, partially offset by the net loss for the year ended December 31, 2015.
As of December 31, 2014, the Company’s total equity was USD 884.3 million compared to USD 307.4 million as of December 31, 2013, an increase which was primarily due to issuance of new shares to part finance the acquisition of vessels.
11.9 Funding and Treasury Policies The Company’s funding and treasury activities are conducted within corporate policies to increase investment returns while maintaining appropriate liquidity for our requirements. Cash and cash equivalents are held primarily in U.S. dollars with some balances held in Norwegian Kroner and Singapore dollars.
The Company’s bank financing has a floating interest rate exposure, while the convertible bond has a fixed interest rate exposure. The Company has entered into some interest rate derivatives and will monitor its aggregate interest rate exposure going forward, and may use further interest rate derivatives to further adjust the position.
11.10 Working Capital Statement As of the date of this Prospectus, the Company is of the opinion that its working capital is sufficient for its present requirements and for at least the next twelve months from the date of this Prospectus.
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11.11 Investing Activities The principal investments of the Company and Former Golden Ocean made during 2013, 2014, 2015, 2016 and up to the date of this Prospectus have consisted of investments in newbuildings and second-hand vessels. For more information about the fleet of the Company, see Section 5.3 “Fleet”. Golden Ocean has also invested in shares in other dry bulk companies.
On March 14, 2017, the Company entered into memoranda of agreement with Quintana, to acquire the Quintana Fleet. As consideration, the Company will issue the Quintana Shares, corresponding to a value of USD 103.6 million, and assume the Quintana Fleet’s corresponding debt of approximately USD 262.7 million. The Company has also agreed, subject to definitive documentation, to acquire the Hemen Fleet. Hemen will issue a seller credit of USD 22.5 million in total, non- amortizing until June 2019 and with interest rate of LIBOR plus a margin of 3.0%. As consideration, the Company will issue the Hemen Shares, corresponding to a value of USD 23.6 million. See Section 7.1 “Description of the Acquisition” for further details regarding the acquisition of the Quintana Fleet and the Hemen Fleet. See also Section 11.5 “Liquidity and Capital Resources”.
Each vessels is mortgaged in favor of the banks providing the relevant financing, see Section 11.6 “Borrowing Activities” for more information about the financing of the vessels.
The table below sets forth a summary of the capital expenditures of the Company for the years ended 2016, 2015, 2014, 2013 and up to the date of this Prospectus:
USD thousands Year to Year the date of ended this Prospectus December 31 2017 2016 2015 2014 2013 Additions to newbuildings ...... 105,900 267,341 518,989 357,402 26,706 Purchase of vessels and equipment(1) ...... ― 194 24 24,085 ― Total ...... 105,900 267,535 519,013 381,487 26,706 ______(1) See Section 7.1 “Description of the Acquisition” for purchase of vessels year to date of this Prospectus.
Additions to newbuildings comprise installments paid to the yards as well as costs related to financing, capitalized interest expenses, legal fees and supervision of the newbuilding contracts. The Company has significant capital requirements for its newbuilding vessels.
During the period from January 1, 2017 and up to the date of this Prospectus, the Company has taken delivery of four vessels. The Company paid USD 101 million in final installments for these four newbuildings. As of the date of this Prospectus, following these deliveries, the Company has six vessels under construction, and subject to the yard’s refund bank’s final acceptance of four of the amended contracts, the Company’s outstanding commitments for the remaining six newbuildings amounts to USD 188.5 million, of which USD 14.6 million is due in 2017 and USD 173.9 million is due in 2018. For two of these newbuildings the Company paid 4.9 million upon consent from the yard’s refund bank in 2017.
As of the date of this Prospectus, the Company has committed financing for these six newbuildings, in a total amount of USD 150 million. See also Section 11.5 “Liquidity and Capital Resources”.
The six remaining vessels under construction are all being built in China. The payment schedules for newbuildings vary, but payments normally become due on certain milestones, like steel cutting, keel laying, launching and delivery. For more information about the newbuildings, see Section 5.3 “Fleet”.
11.12 Significant Recent Trends The market during the fourth quarter of 2016 was the strongest since the fourth quarter of 2014 across all vessel sizes. With the combined effect of negotiated delays on the Company’s newbuilding program, reduction in capital expenditure and revenues that exceed earlier projections the Company expects to prepay part of the deferred debt repayments during the second quarter of 2017 through the cash sweep mechanism included in the financial plan.
Golden Ocean continues to operate the majority of its fleet in the spot market in order to maintain the Company’s leverage to an improving rate environment. The Company has also enhanced its commercial capabilities through an expansion of its relationship with the partners of Capesize Chartering, with the establishment of a Newcastlemax pool and participation in a Supramax pool. The Company’s spot market exposure is partially offset by some contract coverage for the winter period for the Company’s ice class Panamax vessels, and recently secured one year time charter contracts for two Capesize vessels.
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The volatility experienced in the fourth quarter is a positive indication that the market may be in the beginning of a recovery. However, newbuilding vessels will be added to the fleet in the first half of 2017, and there will be periods of seasonality throughout the year. Although scrapping has picked up, the Company expects to see positive net fleet growth at the start of 2017. The Company is encouraged, however, that the order book in percentage of the fleet is at its lowest in at least fifteen years. Absent a dramatic increase in scrapping, a continued low order book is a condition necessary to further reduce the market imbalance and support a prolonged recovery. Demand growth in 2016 was higher than expected on strong imports to China of both iron ore and coal. While there are signs of decreasing stimuli in China there are positive signs for steel production in the rest of the world, and a more diversified improvement in the global economy should support demand growth in 2017. Based on cautious estimates for demand growth combined with low fleet growth, utilization should continue to improve going forward.
11.13 Off-Balance Sheet Arrangements The Company guarantees debt and other obligations of certain of its equity method investees. The debt and other obligations are primarily due to banks in connection with financing the purchase of vessels and equipment used in the joint venture operations. As of December 31, 2016, the joint venture owning Golden Opus had total bank debt outstanding of USD 17.9 million. The Company has guaranteed for 50% of the outstanding debt in the joint venture. Therefore the maximum potential amount of future principle payments (undiscounted) that the Company could be required to make relating to equity method investees secured bank debt was USD 8.95 million and the carrying amount of the liability related to this guarantee was nil.
In October 2013, Former Golden Ocean entered into a long term Time Charter for the Supramax vessel Golden Hawk. The vessel was built in Japan and delivered in February 2015 on a seven year Time Charter at a daily time charter rate of USD 13,200. The Company has the option to extend the charter for one plus one plus one year at a daily time charter rate of USD 13,700, USD 14,200 and USD 14,700 respectively. After five years the Company has the option to purchase the vessel throughout the remaining time charter period.
In April 2015, the Company agreed to a sale and leaseback transaction with Ship Finance for eight Capesize vessels. These vessels were built in Korea and China between 2009 and 2013 and have been sold en-bloc for an aggregate price of USD 272.0 million. All eight vessels were delivered to Ship Finance in the third quarter of 2015 and have been time chartered- in by one of the Company’s subsidiaries for a period of 10 years. The daily time charter rate is USD 17,600 during the first seven years and USD 14,900, thereafter, of which USD 7,000 is for operating expenses (including dry docking costs). In addition, 33% of the profit from revenues above the daily time charter rate for all eight vessels aggregated will be calculated and paid on a quarterly basis to Ship Finance. The Company has a purchase option of USD 112 million en-bloc after 10 years and, if such option is not exercised, Ship Finance will have the option to extend the charters by 3 years at a time charter rate of USD 14,900 per day.
Apart from the above, the Company is currently not subject to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on the Company's financial condition.
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12. RELATED PARTY TRANSACTIONS
This Section provides information about related party transactions the Company is, or has been, subject to with its related parties during the years ended December 31, 2016, 2015, 2014 and 2013 and up to the date of this Prospectus. The Company transacts business with the following related parties, being companies in which Hemen and companies associated with Hemen have a significant interest: Frontline Ltd. and its subsidiaries (Frontline Management (Bermuda) Ltd, ICB Shipping (Bermuda), Ltd and Seateam Management Pte Ltd), Karpasia Shipping Inc., and Frontline 2012 Ltd. The Company also transacts business with the Company’s associated companies.
Former Golden Ocean was considered a related party from September 2014 when the Company became a majority-owned subsidiary of Frontline 2012 following the acquisition of thirteen SPCs from Frontline 2012.
12.1 Introduction
Frontline Transactions In April 2014, the Company acquired five SPCs from Frontline 2012, each owning a fuel efficient 180,000 dwt Capesize dry bulk newbuilding and a subsidiary of the Company acquired a 2013-built Capesize dry bulk carrier, Bulk China (renamed KSL China), from Karpasia. The consideration was settled by the issuance of 15.5 million shares and 3.1 million shares to Frontline 2012 and Hemen (on behalf of Karpasia), respectively, which were recorded at a price of USD 12.54 per share, USD 150.0 million was assumed in remaining newbuilding installments in connection with the SPCs acquired from Frontline 2012 and USD 24.0 million was paid in cash to Karpasia. Cash of USD 43.4 million was acquired on the purchase of the five SPCs. No other working capital balances were acquired.
In April 2014, the Company agreed to acquire 25 SPCs from Frontline 2012, each owning a fuel efficient dry bulk newbuilding. In September 2014, the Company acquired 13 of these SPCs. The consideration for the 13 SPCs was settled by the issuance of 31.0 million shares. The issuance of the 31.0 million shares was recorded at an aggregate value of USD 356.8 million based on the closing price of USD 11.51 per share on September 15, the closing date of the transaction. USD 490.0 million was assumed in remaining newbuilding installments and cash of USD 25.1 million was acquired on the purchase of the thirteen SPCs. The Company acquired the remaining twelve SPCs in March 2015 and issued 31.0 million shares as consideration. USD 512.6 million was assumed in remaining newbuilding installments and cash of USD 108.6 million was acquired on the purchase of the twelve SPCs, so that the net capital expenditure acquired was USD 404 million.
In November 2015, in a merger transaction by and among Frontline, Frontline 2012 and Frontline Acquisition Ltd., a wholly owned subsidiary of Frontline, Frontline Acquisition Ltd. merged with and into Frontline 2012, with the result that Frontline 2012 became a wholly-owned subsidiary of Frontline.
Also in November 2015, the Company entered into an agreement with New Times Shipbuilding Co. Ltd in China to convert two Capesize dry bulk newbuildings to Suezmax oil tanker newbuildings, with expected delivery in the first quarter of 2017. On November 23, 2015, the Company agreed to sell these newbuilding contracts to Frontline for USD 1.9 million. The sale was completed on December 31, 2015 and the Company recognized a loss of USD 8.9 million.
Ship Finance Transactions In April 2015, the Company agreed to a sale and leaseback transaction with Ship Finance for eight Capesize vessels. Five of these vessels (KSL China, Battersea, Belgravia, Golden Future and Golden Zhejiang) were owned by the Company prior to the completion of the Merger and three vessels (Golden Zhoushan, Golden Beijing and Golden Magnum) were acquired as a result of the Merger. These vessels were built in Korea and China between 2009 and 2013 and were sold en-bloc for an aggregate price of USD 272.0 million or USD 34.0 million per vessel on average. The vessels were delivered to Ship Finance in the third quarter of 2015 and were time chartered-in by one of the Company’s subsidiaries for a period of ten years. The daily time charter rate is USD 17,600 during the first seven years and USD 14,900 thereafter, of which USD 7,000 is for operating expenses (including dry docking costs). In addition, 33% of the Company’s profit from revenues above the daily time charter rate for all eight vessels aggregated will be calculated and paid on a quarterly basis to Ship Finance and the daily hire payments will be adjusted if the actual three month LIBOR should deviate from a base LIBOR of 0.4% p.a. For each 0.1% point increase/decrease in the interest rate level, the daily charter hire will increase or decrease by USD 50 per day in the first seven years and USD 25 per day in the remaining three years. The Company has a purchase option of USD 112 million en-bloc after 10 years and, if such option is not exercised, Ship Finance will have the option to extend the charters by 3 years at USD 14,900 per day. The Company incurred USD 25.6 million of charter hire expenses in 2016 (2015: 12.1 million; 2014: nil) in respect of the eight vessels.
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The Company is the commercial manager for twelve dry bulk and nine container vessel owned and operated by Ship Finance. Pursuant to the management agreements, the Company receives USD 125 a day for managing the dry bulk vessels and USD 65 a day for managing the container vessels.
Seatankers Transactions The Company is the commercial manager of 24 dry bulk vessel owned and operated by Seatankers. Pursuant to the management agreements, the Company receives USD 125 a day for managing the dry bulk vessels.
Capesize Chartering Transactions In February 2015, the Former Golden Ocean, Bocimar International NV, CTM, Golden Union Shipping Co S.A., and Star Bulk Carriers Corp. announced the formation of a new joint venture company, Capesize Chartering Ltd, or CCL. In January 2016, Golden Union Shipping Co S.A. equally transferred its 20% stake in CCL to the remaining four joint venture partners. At the same time, the Former Golden Ocean entered into a revenue sharing agreement for Capesize dry bulk vessels with the joint venture partners whereby it was agreed to include 21 Capesize dry bulk vessels in the revenue sharing agreement. The revenue sharing agreement applies to 65 modern Capesize dry bulk vessels across the joint venture partners and is being managed from our offices in Singapore and Bocimar’s offices in Antwerp. The Company acquired the Former Golden Ocean’s 20% interest in Capesize Chartering upon completion of the Merger on March 31, 2015. During 2016, the Company earned USD 0.9 million under the revenue sharing agreement.
United Freight Carriers LLC The Company acquired the Former Golden Ocean’s 50% interest United Freight Carriers LLC, or UFC, upon completion of the Merger on March 31, 2015. During 2016, the Company received USD 0.2 million for management and administrative services rendered to UFC during 2015.
Management Agreements General Management Agreement Up to March 31, 2015, the Company was provided with general administrative services by ICB Shipping (Bermuda) Ltd (the “General Manager”). Pursuant to the terms of the Amended General Management Agreement, the General Manager was entitled to a management fee of USD 2.3 million per annum from January 1, 2010, which was subject to annual adjustments, plus a commission of 1.25% on gross freight revenues from the Company’s vessels, 1% of proceeds on the sale of any of the Company’s vessels, and 1% of the cost of the purchase of the Company’s vessels. In addition, the Company, in its discretion, awarded equity incentives to the General Manager based upon its performance. Such awards were subject to the approval of the Company’s Board of Directors. The Company was responsible for paying all out-of- pocket expenses incurred by the General Manager from third parties in connection with the services provided under the Amended General Management Agreement, such as audit, legal and other professional fees, registration fees and directors’ and officers’ fees and expenses. The Amended General Management Agreement was terminated on March 31, 2015.
Technical Supervision Services The Company receives technical supervision services from Frontline Management (Bermuda) Ltd. Pursuant to the terms of the agreement, Frontline Management (Bermuda) Ltd receives a management fee of USD 31,875. This fee is subject to annual review. Frontline Management also manages the Company’s newbuilding supervision and charges the Company for the costs incurred in relation to the supervision. Ship Management The ship management of the Company’s vessels is provided by external ship managers except for fifteen (2015: 14 vessels; 2014: three vessels) vessels which is provided by SeaTeam Management Pte. Ltd, a majority owned subsidiary of Frontline.
Other Management Services The Company aims to operate efficiently through utilizing competence from Frontline or other companies with the same main shareholder and these costs are allocated based on a cost plus mark-up model. During 2016 and 2015, the Company received assistance in relation to consolidation and reporting as well as management of its Sarbanes Oxley compliance from Frontline and the Company was charged a fee of USD 115,000 per quarter for these services. Effective January 1, 2017, the Company only receives services in relation to management of Sarbanes Oxley compliance from Frontline at a quarterly fee of USD 15,000. The Company also received services in relation to sales and purchase activities, bunker procurement and administrative services in relation to the corporate headquarter.
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12.2 Transactions Carried out with Related Parties in the Years Ended December 31, 2016, 2015, 2014 and 2013 A summary of net amounts charged by related parties in the years ended December 31, 2016, 2015, 2014 and 2013 is as follows:
USD thousands Year ended December 31 2016(1) 2015 2014 2013 ICB Shipping (Bermuda) Ltd ...... — 579 2,315 2,315 Frontline Ltd ...... 6,521 13,192 2,962 154 Former Golden Ocean ...... — 134 1,034 408 Ship Finance International Ltd...... 25,564 12,060 — — Seateam Management Pte Ltd ...... 2,638 1,932 562 228 Capesize Chartering Ltd ...... 98 — — — ______(1) Amounts for 2016 are unaudited.
Net amounts charged by related parties comprise of general management and commercial management fees, newbuilding supervision fees and newbuilding commission fees.
A summary of net amounts charged to related parties in the years ended December 31, 2016, 2015, 2014 and 2013 is as follows:
USD thousands Year ended December 31 2016(1) 2015 2014 2013 Ship Finance International Ltd...... 795 560 — — Seatankers Management Co Ltd ..... 957 310 — — Capesize Chartering Ltd ...... 945 — — — United Freight Carriers LLC...... 150 — — — ______(1) Amounts for 2016 are unaudited.
Net amounts charged to related parties comprise of commercial management fees from April 1, 2015. Such fees were charged by Former Golden Ocean prior to that.
A summary of balances due from related parties for the years ended December 31, 2016, 2015, 2014 and 2013 is as follows:
USD thousands Year ended December 31 2016(1) 2015 2014 2013 Management ...... — 285 — — Frontline 2012 Ltd ...... — — 38 — Golden Opus Inc ...... 4 2,534 Seateam Management Pte Ltd ...... — — 411 108 Frontline Management (Bermuda) Ltd ...... — — — 9 Frontline Ltd ...... 1,523 4,455 — 11 Seatankers Management Co Ltd ..... 77 1,139 — — United Freight Carriers Inc ...... — 2 — — Capesize Chartering Ltd 322 — — — Ship Finance International Ltd...... 2 36 — — Total ...... 1,927 8,451 449 128 ______(1) Amounts for 2016 are unaudited.
A summary of balances due to related parties for the years ended December 31, 2016, 2015, 2014 and 2013 is as follows:
USD thousands Year ended
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December 31 2016(1) 2015 2014 2013 Former Golden Ocean ...... — — 356 158 Frontline Management (Bermuda) Ltd ...... — 3,924 1,558 — Frontline Ltd...... 1,044 176 62 — Seatankers Management Co Ltd ..... 270 — — — Golden Opus Inc ...... 73 — — — ICB Shipping (Bermuda) Ltd ...... — — 579 — Seateam Management Pte Ltd ...... — 1 — — Total ...... 1,387 4,101 2,555 158 ______(1) Amounts for 2016 are unaudited. Receivables and payables with related parties mainly comprise unpaid fees for services rendered from and to related parties.
In addition certain payables and receivables arise when the Company pays an invoice on behalf of a related party and vice versa.
12.3 Transactions Carried out with Related Parties in the Period Following December 31, 2016 Except from the Hemen Acquisition, there have been no significant changes to the related party services or transactions following December 31, 2016.
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13. THE BOARD OF DIRECTORS AND MANAGEMENT
This Section provides summary information about the Board of Directors and the executive management of the Company and disclosures about their arrangements with the Company and other relations with the Group, summary information about the certain other corporate bodies and the governance of the Company.
13.1 Overview The Board of Directors of the Company is responsible for the overall management of the Company and may exercise all the powers of the Company. In accordance with Bermuda law, the Board of Directors is responsible for, among other things, supervising the general and day-to-day management of the company’s business; ensuring proper organization, preparing plans and budgets for its activities; ensuring that the company’s activities, accounts and asset management are subject to adequate controls and to undertake investigations necessary to ensure compliance with its duties. The Board of Directors may delegate such matters as it seems fit to the executive management of the Company (the “Management”).
The Management is responsible for the day-to-day management of the Company’s operations in accordance with instructions set out by the Board of Directors. Among other responsibilities, the Management is responsible for keeping the Company’s accounts in accordance with existing Bermuda legislation and regulations and for managing the Company’s assets in a responsible manner.
13.2 Board of Directors and Management
Board of Directors The Bye-Laws of the Company provide that the Board of Directors shall consist of not less than two members and shall at all times comprise a majority of directors who are not residents in the United Kingdom or Norway. The current maximum numbers of board members is not more than eight directors.
The Board of Directors of the Company consists of the following members:
Name Position Served Since Expiry of Term Ola Lorentzon Chairman September 1996 AGM 2017 Hans Petter Aas Director September 2008 AGM 2017 Gert-Jan van den Akker Director March 2015 AGM 2017 Kate Blankenship Director March 2015 AGM 2017 John Fredriksen Director March 2015 AGM 2017
The Company’s registered business address, Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton HM 08 Bermuda, serves as c/o address for the members of the Board of Directors in relation to their directorship of the Company.
Set out below are brief biographies of the directors of the Company, along with disclosures about the companies and partnerships of which each director has been member of the administrative, management and supervisory bodies in the previous five years, not including directorships and executive management positions in the Company or its subsidiaries.
Ola Lorentzon, Chairperson Ola Lorentzon has been a director of the Company since its incorporation on September 18, 1996, Chairman since May 26, 2000 and Chief Executive Officer from May 5, 2010 to the completion of the Merger on March 31, 2015. He is also a director of Frontline and Erik Thun AB. Mr. Lorentzon was the Managing Director of Frontline Management AS, a subsidiary of Frontline, from April 2000 until September 2003.
Hans Petter Aas, Director Hans Petter Aas has been a director of the Company since September 2008. Mr. Aas has a long career as a banker in the international shipping and offshore market, and retired from his position as Global Head of the Shipping, Offshore and Logistics Division of DNB Bank ASA in August 2008. He joined DNB Bank ASA (then Bergen Bank) in 1989 and has previously worked for the Petroleum Division of the Norwegian Ministry of Industry and the Ministry of Energy, as well as for Vesta Insurance and Nevi Finance.
Gert-Jan van den Akker, Director Gert-Jan van den Akker has been a director of the Company from the time of the completion of the Merger. Mr. van den Akker is President and Chief Executive Officer at Cargill International SA Geneva, Switzerland. He is a member of Cargill’s Executive Team. In 2013 and 2014 he was Senior Head of Region at Louis Dreyfus Commodities, but prior to this he had 27 years of experience at Cargill where his last position was a platform leader for the global energy, transportation and metals platform.
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Kate Blankenship, Director Kate Blankenship has been a director of the Company since March 2015. Mrs. Blankenship also serves as a director of Seadrill Limited, Frontline, Ship Finance, Archer Limited, NADL, Avance Gas and Independent Tankers Corporation Limited. She has also served as Chief Accounting Officer and Secretary of Frontline. She is a member of the Institute of Chartered Accountants of England and Wales.
John Fredriksen, Director John Fredriksen has been a director of the Company since March 2015. Mr. Fredriksen has served as Chairman of the Board, President and a director of Seadrill Limited since 2005. Mr. Fredriksen has established trusts for the benefit of his immediate family which indirectly control Hemen. Mr. Fredriksen is Chairman, President, Chief Executive Officer and a director of Frontline Ltd., a Bermuda company listed on the NYSE and the Oslo Stock Exchange.
Management The Company’s executive management team comprises Birgitte Ringstad Vartdal, CEO of Golden Ocean Management AS, Per Heiberg, CFO of Golden Ocean Management AS and Thomas Semino, CCO of Golden Ocean Management AS. Set out below are brief biographies of the members of the Management.
Birgitte Ringstad Vartdal, CEO of Golden Ocean Management AS Birgitte Ringstad Vartdal has served as CEO of Golden Ocean Management AS since April 2016. Ringstad Vartdal previous position was CFO in Golden Ocean Management AS, as position she held from June 2010. She has held several positions within the Torvald Klaveness Group, as VP Head of Commercial Controlling, Risk Manager and Financial Analyst. Before this she was Structuring Analyst in Hydro Energy. Birgitte Ringstad Vartdal holds the degree of Siv.Ing. (MSc) in Physics and Mathematics from the Norwegian University of Science and Technology (NTNU) and an MSc in Financial Mathematics from Heriot-Watt University, Scotland.
Per Heiberg, CFO of Golden Ocean Management AS Per Heiberg has served as CFO of Golden Ocean Management AS since April 2016. Per Heiberg has been with the Company since July 2005, and his previous position was Vice President of Finance. Prior to joining Golden Ocean he served as Back Office Officer for Electrabel Nordic. Before that he hold several positions within Statkraft, as Controller and Market Analyst. Per Heiberg holds a Bachelors degree in administration and economics from the University College of Southeast Norway.
Thomas Semino, CCO of Golden Ocean Management Asia Pte. Ltd. Thomas Semino has served as CCO of Golden Ocean Management Asia Pte. Ltd. since November 2016. Prior to joining Golden Ocean Semino was Head of Dry Freight in Vitol S.A., and has previously been Managing Director of Ocean Freight in Bunge S.A., and also has background from Cargill S.A. and Coeclerici Spa. Thomas Semino has a law degree in Maritime Law from Universita' degli Studi di Genova.
13.3 Disclosure of Conflicts of Interests Certain of the directors of the Company, including Hans Petter Aas, Ola Lorentzon, John Fredriksen and Kate Blankenship, also serve on the boards of one or more of the Hemen Related Companies, including Frontline, Ship Finance, Seadrill and NADL. There may be real or apparent conflicts of interest with respect to matters affecting Hemen and other Hemen Related Companies whose interests in some circumstances may be adverse to the interests of the Company. To the Company's knowledge, there are currently no other actual or potential conflicts of interest between the Company and members of the Board of Directors or Management.
13.4 Disclosure About Convictions in Relation to Fraudulent Offences During the last five years preceding the date of this Prospectus, no member of the board of directors or the Management has:
• any convictions in relation to indictable offences or convictions in relation to fraudulent offences;
• received any official public incrimination and/or sanctions by any statutory or regulatory authorities (including designated professional bodies) or ever been disqualified by a court from acting as a member of the administrative, management or supervisory bodies of a company or from acting in the management or conduct of the affairs of any company; or
• been declared bankrupt or been associated with any bankruptcy, receivership or liquidation in his capacity as a founder, director or senior manager of a company.
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13.5 Disclosure About Directorships and Other Positions
Board of Directors Ola Lorentzon, Chairperson Current other directorships and management positions ...... Frontline Ltd. (Director), Erik Thun AB (Director).
Previous directorships and management positions held during the last five years .....Sea Bird Exploration Ltd (Director), Remedial Offshore (Director), Laurin Shipping AB (Director). Hans Petter Aas, Director Current other directorships and management positions ...... Ship Finance International Limited (Chairman), Seadrill Limited (Director), Deep Sea Supply plc (Director), Knutsen NYK Offshore Tankers AS (Director), Gearbulk Holding AG (Director), HPA Consult AS (CEO), Solvang ASA (Director).
Previous directorships and management positions held during the last five years .....J O Odfjell Tankers (Director), Frontline 2012 Ltd., The Norwegian Export Credit Guaranty Institute (Director), Golar LNG Limited (Director), Golar LNG Partners LLP (Director), Knutsen NYK Offshore Partners (Director).
Gert-Jan van den Akker, Director Current other directorships and management positions ...... Cargill International SA (President and Chief Executive Officer).
Previous directorships and management positions held during the last five years .....Cargill International S.A. Switzerland (Vice president) and Cargill International Asia Pacific Ltd. (Vice president). Louis Dreyfus Commodities Suisse S.A. (Senior head of regions), L.D.C. Argentina S.A. (Director) Kate Blankenship, Director Current other directorships and management positions ...... Seadrill Limited (Director), Seadrill Partners LLP (Director), Frontline Ltd. (Director), Frontline 2012 Ltd. (Director), Ship Finance International Limited (Director), Archer Limited (Director), North Atlantic Drilling Ltd. (Director), Avance Gas Holding Ltd. (Director), Independent Tankers Corporation Limited (Director).
Previous directorships and management positions held during the last five years .....Golar LNG Limited (Director), Golar LNG Partners LLP (Director), Former Golden Ocean (Director). John Fredriksen, Director Current other directorships and management positions ...... Seadrill Limited (Chairman and President), Frontline Ltd. (Chairman, President and CEO).
Previous directorships and management positions held during the last five years .....Golar LNG Limited (Chairman and President), Frontline 2012 Ltd. (Director), North Atlantic Drilling Ltd. (Chairman), Former Golden Ocean (Chairman).
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Management Birgitte Ringstad Vartdal, CEO of Golden Ocean Management AS Current other directorships and management positions ...... Vartdal Fiskeriselskap AS (Director), Golden Ocean Management AS (Director), Marine Harvest ASA (Director). Previous directorships and management positions held during the last five years .....Sevan Drilling Ltd (Chairperson), Sevan Drilling ASA (Director), Sevan Drilling Managament AS (Director). Per Heiberg, CFO of Golden Ocean Management AS Current other directorships and management positions ...... Golden Ocean Management AS (Director).
Previous directorships and management positions held during the last five years .....―
Thomas Semino, CCO of Golden Ocean Management Asia Pte Ltd Current other directorships and management positions ...... ―
Previous directorships and management positions held during the last five years .....Vitol S.A. (Head of Dry Freight), Ocean Freight in Bunge S.A. (Managing Director).
13.6 Remuneration and Benefits
Board of Directors and Management The compensation for the members of the Board of Directors is determined on an annual basis by the shareholders of the Company at the Annual Shareholders’ Meeting.
For the management services provided by Birgitte Ringstad Vartdal and Per Heiberg through their positions in Golden Ocean Management AS, the Company pays an annual fee to Golden Ocean Management AS which also includes other additional services.
The compensation for the members of the Board of Directors and management of the Company for the financial year 2016 was approximately USD 1,325,000. The members of management are entitled to severance pay from Golden Ocean Management AS from six to fifteen months upon termination of their management of the Company.
Disclosure on Shareholdings The table below shows the shareholdings and rights to shares in the Company of each member of the Board of Directors and the Management.
USD Position Shareholding Options etc. Ola Lorentzon ...... Chairman 16,877 ― Hans Petter Aas ...... Director 14,860 ― Gert-Jan van den Akker ...... Director ― ― Kate Blankenship ...... Director 5,901 2,063 options John Fredriksen(1) ...... Director ― 27,498 options Birgitte Ringstad Vartdal ...... CEO of Golden Ocean 11,300 236,000 options Management AS Per Heiberg ...... CFO of Golden Ocean 3,000 105,638 options Management AS Thomas Semino ...... CCO of Golden Ocean ― 150,000 options Management AS ______(1) Hemen, a company indirectly controlled by trusts established by John Fredriksen for the benefit of his immediate family, and certain of its affiliates, including Frontline 2012, currently owns 46,487,224 Shares. In addition, In addition, Hemen Holding holds TRS agreements with underlying exposure to 39,129 shares in the Company. Franklin Enterprises Inc., a company indirectly controlled by trusts established by John Fredriksen for the benefit of his immediate family, owns USD 93.6 million of the USD 200 million convertible bond, which is convertible into 1,061,826 Shares in the Company at an exercise price of USD 88.15 per Share.
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13.7 Nomination Committee As permitted under Bermuda law and the Company’s Bye-Laws, the Company does not have a nomination committee. The Board of Directors is responsible for identifying and recommending potential candidates to become board members and recommending directors for appointment to board committees.
13.8 Audit Committee The Company has an audit committee, the members of which as of the date of this Prospectus are Kate Blankenship (Chair) and Hans Petter Aas, both members of the Board of Directors. The primary purposes of the audit committee are to:
• assist the Board of Directors in discharging its duties relating to the safeguarding of assets; the operation of adequate system and internal controls; control processes and the preparation of accurate financial reporting and statements in compliance with all applicable legal requirements, corporate governance and accounting standards; and
• provide support to the board of directors on the risk profile and risk management of the Company.
The audit committee reports and makes recommendations to the Board of Directors, but the board of directors retains responsibility for implementing such recommendations. Both Ms. Blankenship and Mr. Aas have relevant qualifications within accounting/auditing.
13.9 Corporate Governance The Company reports on the corporate governance practices followed by U.S. companies under the NASDAQ listing standards, on a “comply or explain” basis in its annual report. The deviations mainly relate to items where the Company has chosen to follow Bermuda law instead. The significant differences between the Company’s corporate governance practices and the NASDAQ standards applicable to listed U.S. companies are set forth below:
• Independence of Directors: The Company is exempt from certain NASDAQ requirements regarding independence of directors. Consistent with Bermuda law, the Company’s Board of Directors is not required to be composed of a majority of independent directors.
• Executive sessions: NASDAQ requires that non-management directors meet regularly in executive sessions without management. As permitted under Bermuda law and the Company’s Bye-Laws, the Company’s non- management directors do not regularly hold executive sessions without management and the Company does not expect them to do so in the future.
• Nominating/corporate governance committee: NASDAQ requires that a listed U.S. company have a nominating/corporate governance committee composed solely of independent directors. As permitted under Bermuda law and the Company’s Bye-Laws, the Company does not currently have a nominating or corporate governance committee. The Company’s Board of Directors is responsible for identifying and recommending potential candidates to become board members and recommending directors for appointment to board committees.
• Compensation committee: NASDAQ requires that a listed U.S. company have a compensation committee composed solely of independent directors. As permitted under Bermuda law and the Company’s Bye-Laws, compensation of executive officers is not required to be determined by a committee composed of independent members.
• Audit Committee: NASDAQ requires, among other things, that a listed U.S company have an audit committee with a minimum of three independent members. As permitted under Bermuda law and Company’s Bye-laws, Company’s audit committee consists of two members that currently meet the NASDAQ independence requirements.
• Related party transactions: NASDAQ requires that a listed U.S. company conduct appropriate review and oversight of all related party transactions for potential conflict of interests on an ongoing basis by the company’s audit committee or another independent body of the board of directors. As permitted under Bermuda law and the Company’s Bye-Laws, the directors of the Company are not prohibited from being a party to, or otherwise interested in, any transaction or arrangement with the Company or in which the Company is otherwise interested, provided that the director makes proper disclosure of same as required by the Company’s Bye-Laws and Bermuda law.
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• Proxy Materials: NASDAQ requires that a listed U.S. company solicit proxies and provide proxy statements for all shareholder meetings. Such company must also provide copies of its proxy solicitation to NASDAQ. As permitted under Bermuda law and the Company’s Bye-Laws, the Company does not currently solicit proxies or provide proxy materials to NASDAQ. The Company’s Bye-Laws also require that the Company notifies its shareholders of meetings no less than 5 days before the meeting.
• Share Issuance: In lieu of obtaining shareholder approval prior to the issuance of securities, consistent with Bermuda law and the Company’s Bye-Laws, the Company’s Board of Directors approves share issuances.
13.10 Employees As of December 31, 2016, the Group employed 28 people in its offices in Oslo and Singapore compared to 28 employees as of December 31, 2015, 23 employees as of December 31, 2014, and 16 employees in 2013. In addition the Company has a crew of approximately 22 people on each vessel, implying currently around 1,350 seafarers onboard the Company’s vessel at any given time.
The Group contracts with independent ship managers to manage and operate its vessels. The fleet of the Company is managed by its fully owned subsidiary Golden Ocean Group Management (Bermuda) Ltd and technical operations and crewing of all owned vessels are outsourced to a few leading ship management companies, as further described in Section 5.1 “Operations and Principal Activities—Management”.
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14. DIVIDEND AND DIVIDEND POLICY
This Section provides information about the Company’s dividend policy and dividend history, as well as certain legal constraints on the distribution of dividends under the Bermuda Companies Act. For a discussion of certain financial covenants under the Company’s borrowing arrangements which may restrict distribution of dividends, see Section 11.6 "Operating and Financial Review—Borrowing Activities". Any future dividends declared by the Company on the Shares listed on the Oslo Stock Exchange will be paid in NOK as this is the currency that currently is supported by the VPS.
14.1 Dividend Policy The Company’s intention is to pay out excess cash as dividends at the discretion of the Board of Directors of the Company. Dividend payments will depend on, among other things, the Group’s financial situation, any restrictions in borrowing arrangements or other contractual arrangements, need for working capital and investments or acquisition possibilities from time to time. The Company’s credit facilities currently restrict the Company from paying dividends until after September 30, 2018.
There is no guarantee that the Company’s shareholders will receive quarterly cash distributions from the Company. The Company’s cash distribution policy may be changed at any time at the sole discretion of the Board, who will take into account, among other things, the Company’s newbuilding commitments, financial condition and future prospects, any restrictions in borrowing arrangements or other contractual arrangements and the requirements of Bermuda law in determining the timing and amount of cash distributions, if any, that the Company may pay.
The Company’s credit facilities currently restrict the Company from paying dividends until after September 30, 2018. The Company’s goal is to generate competitive returns for its shareholders. After September 30, 2018, subject to market conditions, the Company plans to return to its cash distribution policy of declaring quarterly cash distributions to shareholders, substantially equal to or at times greater than net operational cash flow in the reporting quarter less reserves that the Board may from time to time determine are necessary (such as reserves for drydocking and other possible cash needs). For more information about the amended terms of the Company’s loan agreements see Section 11.6 “Borrowing Activities―Borrowing Activities Entered Into by the Company―Loan Amendments and Covenants” above.
14.2 Share Price and Dividend History The following table sets forth, for the respective calendar year and quarters indicated, the high and low closing prices on NASDAQ and the Oslo Stock Exchange of the Company’s Shares and the declared dividends per Share.
USD NASDAQ Oslo Stock Exchange Dividend per High Low High Low Share 2013 First Quarter ...... USD 8.20 USD 5.94 — — USD 0.175 Second Quarter ...... USD 8.21 USD 6.24 — — USD 0.175 Third Quarter ...... USD 10.45 USD 6.96 — — USD 0.175 Fourth Quarter ...... USD 10.40 USD 7.27 — — USD 0.175 2014 First Quarter ...... USD 14.50 USD 8.98 — — USD 0.20 Second Quarter ...... USD 16.16 USD 11.38 — — USD 0.20 Third Quarter ...... USD 14.45 USD 8.79 — — USD 0.05 Fourth Quarter ...... USD 9.03 USD 3.46 — — USD 0.05 2015 First Quarter ...... USD 5.49 USD 4.01 — — — Second Quarter ...... USD 5.73 USD 3.58 NOK 44.80 NOK 28.00 — Third Quarter ...... USD 4.45 USD 2.46 NOK 37.50 NOK 21.40 — Fourth Quarter ...... USD 2.83 USD 0.99 NOK 22.40 NOK 8.55 — 2016 First Quarter ...... USD 4.55 USD 2.71 NOK 21.30 NOK 40.70 — Second Quarter ...... USD 4.60 USD 3.10 NOK 36.50 NOK 27.25 — Third Quarter ...... USD 4.55 USD 3.30 NOK 36.90 NOK 28.25 — Fourth Quarter ...... USD 4.78 USD 3.50 NOK 41.70 NOK 28.90 —
14.3 Legal Constraints on the Distribution of Dividends Under the Bermuda Companies Act, a company may, subject to its bye-laws and by resolution of the directors, declare and pay a dividend, or make a distribution out of contributed surplus, provided there are reasonable grounds for believing
97 that after any such payment (a) the company will be solvent and (b) the realizable value of its assets will be greater than its liabilities.
Pursuant to the Bye-Laws, the Board of Directors of the Company may from time to time declare cash dividends or distributions out of contributed surplus to be paid to the shareholders according to their rights and interests including such interim dividends as appear to the Board of Directors to be justified by the position of the Company. The Company may by resolution of a shareholders meeting or the Board of Directors fix any date as the record date for any such dividend.
The Board of Directors may also pay any fixed cash dividend which is payable on any shares of the Company half yearly or on such other dates, whenever the position of the Company, in the opinion of the Board of Directors, justifies such payment.
Except insofar as the rights attaching to, or the terms of issue of, any share otherwise provide:
(i) all dividends or distributions out of contributed surplus may be declared and paid according to the amounts paid up on the shares in respect of which the dividend or distribution is paid, and an amount paid up on a share in advance of calls may be treated for the purpose of the Bye-Laws as paid-up on the share;
(ii) dividends or distributions out of contributed surplus may be apportioned and paid pro rata according to the amounts paid-up on the shares during any portion or portions of the period in respect of which the dividend or distribution is paid.
The Board of Directors may deduct from any dividend, distribution or other moneys payable to a shareholder by the Company on or in respect of any shares all sums of money (if any) presently payable by him to the Company on account of calls or otherwise in respect of shares of the Company.
No dividend, distribution or other moneys payable by the Company on or in respect of any share shall bear interest against the Company.
Any dividend distribution, interest or other sum payable in cash to the holder of shares may be paid by cheque or warrant sent through the mail addressed to the holder at his address in the shareholder register or, as the case may be, the VPS, or, in the case of joint holders, addressed to the holder whose name stands first in the register or, as the case may be, the VPS, in respect of the shares at his registered address as appearing in the shareholder register or, as the case may be, the VPS, or addressed to such person at such address as the holder or joint holders may in writing direct. Every such cheque or warrant shall, unless the holder or joint holders otherwise direct, be made payable to the order of the holder or, in the case of joint holders, to the order of the holder whose name stands first in the shareholder register or, as the case may be, the VPS, in respect of such shares, and shall be sent at his or their risk, and payment of the cheque or warrant by the bank on which it is drawn shall constitute a good discharge to the Company. Any one of two or more joint holders may give effectual receipts for any dividends, distributions or other moneys payable or property distributable in respect of the shares held by such joint holders.
Any dividend or distribution out of contributed surplus unclaimed for a period of six years from the date of declaration of such dividend or distribution shall be forfeited and shall revert to the Company and the payment by the Board of Directors of any unclaimed dividend, distribution, interest or other sum payable on or in respect of the share into a separate account shall not constitute the Company a trustee in respect thereof.
With the sanction of a resolution the Board of Directors may direct payment or satisfaction of any dividend or distribution out of contributed surplus wholly or in part by the distribution of specific assets, and in particular of paid-up shares or debentures of any other company, and where any difficulty arises in regard to such distribution or dividend the Board of Directors may settle it as it thinks expedient, and in particular, may authorize any person to sell and transfer any fractions or may ignore fractions altogether, and may fix the value for distribution or dividend purposes of any such specific assets and may determine that cash payments shall be made to any shareholders upon the footing of the values so fixed in order to secure equality of distribution and may vest any such specific assets in trustees as may seem expedient to the Board of Directors.
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15. CORPORATE INFORMATION; SHARES AND SHARE CAPITAL
The following is a summary of certain corporate information and other information relating to the Company, the Shares and share capital of the Company summaries of certain provisions of the Company’s Memorandum of Association and Bye-laws and applicable Bermuda law in effect as of the date of this Prospectus, including the Bermuda Companies Act. This summary does not purport to be complete and is qualified in its entirety by the Company’s Bye-Laws and applicable Bermuda law.
15.1 Incorporation; Registration Number; Registered Office and Other Company Information On September 18, 1996, the Company was incorporated in Bermuda under the name Knightsbridge Tankers Limited as an exempted company pursuant to the Bermuda Companies Act 1981. In October 2014, the Company changed its name to Knightsbridge Shipping Limited, and following the completion of the Merger on March 31, 2015, the Company changed its name to Golden Ocean Group Limited. The Company’s business registration number is EC22353. The head office and registered address of the Company is Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton HM 08 Bermuda, its telephone number is +1 (441) 295 6935, and its website is www.goldenocean.no.
15.2 Legal Structure The Company is a holding company and its operations are carried out through its operating subsidiaries. As of the date of this Prospectus, the Company has 103 directly wholly-owned vessel owning subsidiaries, being: KTL Belgravia I Inc., KTL Belgravia II Inc., Golden Future Inc., Golden Zhejiang Inc., KTL Bromley Inc., Paila Inc., Parula Inc., Petrel Inc., Piper Inc., Front Singapore Inc., Front San Francisco Inc., Front Seol Inc., Front Stockholm Inc., Front Santiago Inc., Front Santos Inc., Front Shanghai Inc., Front Savannah Inc., Front Sakura Inc., Front Seville Inc., Golden Finsbury Inc., Golden Fulham Inc., Golden Bexley Inc., Golden Barnet Inc., Golden Scope Inc., Golden Swift Inc., Front Fuji Inc., Front Aso Inc, Front Atlantic Inc., Front Baltic Inc., Front Caribbean Inc., Front Mediterranean Inc., Golden Cirrus Inc., Golden Cumulus Inc., Golden Nimbus Inc., Golden Arcus Inc., Golden Incus Inc., Golden Calvus Inc., Golden Aries Inc., Golden Arima Inc., Golden Beppu Inc., Golden Brilliant Inc., Golden Crystal Inc., Golden Daisy Inc., Golden Diamond Inc., Golden Eclipse Inc., Golden Effort Inc., Golden Eminence Inc., Golden Empress Inc., Golden Endeavour Inc., Golden Endurer Inc., Golden Enterprises Inc., Golden Excalibur Inc., Golden Excellence Inc., Golden Explorer Inc., Golden Express Inc., Golden Exquisite Inc., Golden Extreme Inc., Golden Eye Inc., Golden Feng Inc., Golden Future Inc., Golden Gemini Inc., Golden Ginger Inc., Golden Hilton Shipping Corp., Golden Ice Inc., Golden Leo Inc., Golden Libra Inc., Golden Magnum Inc., Golden Nantong Inc., Golden Opportunity Inc., Golden Pearl Inc., Golden President Shipping Corp., Golden Rose Inc., Golden Ruby Inc., Golden Saguenay Inc., Golden Sapphire Inc., Golden Shui Inc., Golden Strenght Inc., Golden Taurus Inc., Golden Virgo Inc., Golden Beijing Inc., Golden Zhoushan Inc., Golden Gayle Inc., Golden Myrtalia Inc., Golden Sue Inc., Golden Deb Inc., Golden Jake Inc., Golden Arion Inc., Golden Ioanari Inc., Golden Keen Inc., Golden Shea Inc., Golden Kaki Inc., Golden Houston Inc., Golden Anastasia Inc., Golden Amreen Inc., Golden Kennedy Inc., Golden Amber Inc., Golden Opal Inc., KTL Camden Inc., KTL Hampstead Inc., KTL Kensington Inc., KTL Mayfair Inc., KTL Brompton Inc. and KTL Brixton Inc.
The Company also has the following wholly-owned subsidiaries; Golden Ocean Group Management (Bermuda) Ltd, Golden Ocean Management AS, Golden Ocean Management Asia Pte Ltd, Golden Ocean Trading Limited, Golden Ocean (Cyprus) Limited, Golden Ocean Shipping Co Pte Ltd, Golden Lyderhorn Inc, Golden Ocean Shipholding Limited and Golden Ocean Holdings Limited.
In addition, the Company owns 22.19% of SeaTeam Management Pte Ltd, 50% of Golden Opus Inc. and 50% of United Freight Carriers Inc. The Company has also established a joint venture, CCL, with Bocimar International NV, C Transport Holding Ltd and Star Bulk Carriers Corp, with the purpose of combining and coordinating the chartering services of all the parties for the Capesize vessels. The Company owns 25% of CCL.
The chart below shows a high-level overview of the corporate structure of the Group. Unless otherwise shown in the structure chart, the subsidiaries are 100% owned.
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15.3 Information on Holdings The following table sets out information about the entities in which the Company holds (directly or indirectly) more than 10% of the outstanding capital and votes (dormant companies are not included).
Country of Name Incorporation Field of Activity % Holding Golden Ocean Group Management (Bermuda) Ltd Bermuda Management 100% Golden Ocean Management AS Norway Management 100% Golden Ocean Management Asia Singapore Management 100% Pte Ltd Golden Ocean Trading Ltd Bermuda 100% Golden Ocean (Cyprus) Ltd Cyprus 100% Golden Ocean Shipping Co Pte Singapore Trading company 100% Ltd United Freight Carriers Inc Liberia 50% Sea Team Management Pte Ltd Singapore Technical 22.19% Capesize Chartering Ltd Bermuda Management 25% Golden Aries Inc Liberia Shipowning (Golden Aries) 100% Golden Arima Inc Liberia Shipowning (Golden Cecilie 100% Golden Beijing Inc Liberia 100% Golden Beppu Inc Liberia Shipowning (Golden Cathrine)100% Golden Brilliant Inc Liberia Shipowning (Golden Brilliant) 100% Golden Crystal Inc Liberia Shipowning (Golden Bull) 100% Golden Daisy Inc Liberia Shipowning (Golden Daisy) 100%
Golden Diamond Inc Liberia Shipowning (Golden Diamond) 100% Golden Eclipse Inc Liberia Bareboat charterer (Golden Eclipse)100% Golden Effort Inc Liberia 100%
Golden Eminence Inc Liberia Shipowning (Golden Eminence) 100% Golden Empress Inc Liberia Shipowning (Golden Empress) 100% Golden Endeavour Inc Liberia Shipowning (Golden Endeavour) 100% Golden Endurer Inc Liberia Shipowning (Golden Endurer)100% Golden Enterprise Inc Liberia Shipowning (Golden Enterprise) 100% Golden Excalibur Inc Liberia 100% Golden Excellence Inc Liberia 100% Golden Explorer Inc Liberia 100% Golden Express Inc Liberia 100%
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Golden Exquisite Inc Liberia 100% Golden Extreme Inc Liberia 100% Golden Eye Inc Liberia 100% Golden Feng Inc Liberia Shipowning (Golden Feng) 100% Golden Gemini Inc Liberia Shipowning (Golden Gemini) 100% Golden Ginger Inc Liberia Shipowning (Golden Ginger)100%
Golden Ice Inc Liberia Shipowning (Golden Ice) 100% Golden Leo Inc Liberia Shipowning (Golden Leo) 100% Golden Libra Inc Liberia Shipowning (Golden Libra) 100% Golden Nantong Inc Liberia 100%
Golden Opportunity Inc Liberia Shipowning (Golden Opportunity) 100% Golden Opus Inc Liberia Shipowning (Golden Opus) 50% Golden Pearl Inc Liberia Shipowning (Golden Pearl) 100% Golden Rose Inc Liberia Shipowning (Golden Rose) 100% Golden Ruby Inc Liberia Shipowning (Golden Ruby) 100% Golden Saguenay Inc Liberia Shipowning (Golden Saguenay)100% Golden Sapphire Inc Liberia Shipowning (Golden Suek) 100% Golden Shui Inc Liberia Shipowning (Golden Shui) 100% Golden Strenght Inc Liberia Shipowning (Golden Strength) 100% Golden Taurus Inc Liberia Shipowning (Golden Taurus) 100% Golden Virgo Inc Liberia Shipowning (Golden Virgo) 100% Palila Inc Liberia Shipowning (KSL Seattle)100% Parula Inc Liberia Shipowning (KSL Sapporo) 100% Petrel Inc Liberia Shipowning (KSL Sydney) 100% Piper Inc Liberia Shipowning (KSL Salvador) 100% Front Singapore Inc Liberia Shipowning (KSL Singapore) 100% Front San Francisco Inc Liberia Shipowning (KSL San Francisco) 100% Front Seol Inc Liberia Shipowning (KSL Seoul)100% Front Stockholm Inc Liberia Shipowning (KSL Stockholm) 100% Front Santiago Inc Liberia Shipowning (KSL Santiago) 100% Front Santos Inc Liberia Shipowning (KSL Santos) 100% Front Shanghai Inc Liberia Shipowning (Golden Surabaya) 100% Front Savannah Inc. Liberia Shipowning (Golden Savannah) 100% Front Sakura Inc Liberia Shipowning (KSL Sakura)100% Front Seville Inc Liberia Shipowning (KSL Seville) 100% KTL Finsbury Inc Liberia Shipowning (Golden Finsbury) 100% KTL Fulham Inc Liberia Shipowning (Golden Fulham) 100% KTL Bexley Inc Liberia Shipowning (Golden Bexley) 100% KTL Barnet Inc Liberia Shipowning ( Golden Barnet) 100% Front Scape Inc Liberia Shipowning (Golden Scape)100% Front Swift Inc Liberia Shipowning (Golden Swift) 100% Font Fuji Inc Liberia Shipowning ( Golden Kathrine) 100% Front Aso Inc Liberia Shipowning (Golden Aso) 100% Front Atlantic Inc Liberia 100% Front Baltic Inc Liberia 100% Front Caribbean Inc Liberia 100% Front Mediterranean Inc Liberia 100% Golden Cirrus Inc Liberia Shipowning (Golden Cirrus) 100% Golden Cumulus Inc Liberia Shipowning (Golden Cumulus) 100% GoldenNimbus Inc Liberia Shipowning (Golden Nimbus) 100% Golden Arcus Inc Liberia Shipowning (Golden Arcus) 100% Golden Incus Inc Liberia Shipowning (Golden Incus)100% Golden Calvus Inc Liberia Shipowning (Golden Calvus) 100% Golden Lyderhorn Inc Liberia 100%
Golden Ocean Shipholding Bermuda Shipholding 100% Limited Golden Gayle Inc Liberia Shipowning (Golden Gayle)(1) 100% Golden Myrtalia Inc Liberia Shipowning (Golden Myrtalia)(1) 100% Golden Sue Inc Liberia Shipowning (Golden Sue)(1) 100% Golden Deb Inc Liberia Shipowning (Golden Deb)(1) 100%
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Golden Jake Inc Liberia Shipowning (Golden Jake)(1) 100% Golden Arion Inc Liberia Shipowning (Golden Arion)(1) 100% Golden Ioanari Inc Liberia Shipowning (Golden Ioanari)(1) 100% Golden Keen Inc Liberia Shipowning (Golden Keen)(1) 100% Golden Shea Inc Liberia Shipowning (Golden Shea)(1) 100% Golden Kaki Inc Liberia Shipowning (Golden Kaki)(1) 100% Golden Houston Inc Liberia Shipowning (Golden Houston)(1) 100% Golden Anastasia Inc Liberia Shipowning (Golden Anastasia)(1) 100% Golden Amreen Inc Liberia Shipowning (Golden Amreen)(1) 100% Golden Kennedy Inc Liberia Shipowning (Golden Kennedy)(1) 100%
Golden Ocean Holdings Limited Bermuda Shipholding 100% Golden Amber Inc Liberia Shipowning (Golden Amber)(1) 100% Golden Opal Inc Liberia Shipowning (Golden Opal)(1) 100% ______(1) Upon delivery the respective vessels.
As of the date of this Prospectus, the Company is of the opinion that its holdings in all of the entities specified above are likely to have a significant effect on the assessment of its own assets and liabilities, financial condition or profits and losses.
15.4 Share Capital and Share Capital History As of the date of this Prospectus, the Company has an authorized share capital of USD 7,500,000 comprising of 150,000,000 Shares, fully paid and with a par value of USD 0.05 each. The Company has issued 114,572,992 Shares, each with a par value of USD 0.05.
The table below shows the development in the issued share capital of the Company since January 1, 2012 and up to the date of this Prospectus.
Capital Total Increase/ Share Capital Par Value Subscription Number of decrease After Change of Shares Price per Outstanding Date (USD) (USD) (USD) Share New Shares Shares Share capital increase ...... 31.05.2012 113.01 244,370.00 0.01 USD 9.28 11,301 24,437,000 Share capital increase 24.01.2013 350.61 244,720.61 0.01 USD 6.74 35,061 24,472,061 Share capital increase ...... 23.10.2013 60,000 304,720.61 0.01 USD 9.00 6,000,000 30,472,061 Share capital increase ...... 14.02.2014 494.89 305,215.50 0.01 USD 10.09 49,489 30,521,550 Share capital increase ...... 23.04.2014 186,000 491,215.50 0.01 USD 12.54 18,600,000 49,121,550 Share capital increase ...... 15.09.2014 310,000 801,215.50 0.01 USD 11.51 31,000,000 80,121,550 Share capital increase ...... 15.03.2015 310,000 1,111,215.50 0.01 USD 4.10 31,000,000 111,121,550 Share capital increase ...... 17.03.2015 1,101.38 1,112,316.78 0.01 USD 4.24 110,128 111,231,678 Cancellation of shares(1) ...... 31.03.2015 (514.98) 1,111,801.80 0.01 — (51,498) 111,180,180 Share capital increase (merger)...... 31.03.2015 615,000 1,726,801.80 0.01 USD 5.00 61,500,000 172,680,180 Cancellation of shares(2) ...... 08.04.2015 (45.30) 1,726,756.50 0.01 — (4,530) 172,675,650 Cancellation of shares(2) ...... 24.04.2015 (0.13) 1,726,756.37 0.01 — (13) 172,675,637 Share capital increase ...... 22.02.2016 3,436,840 5,163,596.37 0.01 NOK 5.00 343,684,000 516,359,637 Share capital increase ...... 18.03.2016 133,692.91 5,297,289.28 0.01 NOK 5.00 13,369,291 529,728,928
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Reverse share split ...... 01.08.2016 — 5,297,261.9 0.05 — (423,783,690) 105,945,238 Share capital increase ...... 24.10.2016 997.7 5,298,259.6 0.05 — 19,954 105,965,192 Share capital increase ...... 17.03.2017 430,390 5,728,649.6 0.05 NOK 60.00 8,607,800 114,572,992 Share capital increase(3) ...... n/a 890,000 6,618,649.6 0.05 — 17,800,000 132,372,992 ______(1) This cancellation of Shares was made pursuant to the merger agreement pertaining to the Merger with Former Golden Ocean. (2) This cancellation of Shares accounted for fractional shares not being distributed as merger consideration in the Merger with Former Golden Ocean. (3) Following issuance of all the Consideration Shares. The Consideration Shares will be issued with respect to each vessel upon the delivery of such vessel, see Section 7.1 “Description of the Acquisition”.
15.5 Authorization to Increase the Share Capital The Company’s memorandum of association, as amended, authorizes the issuance of up to 150,000,000 Shares, with a par value of USD 0.05 per Share.
15.6 Other Financial Instruments As of December 31, 2016, the Company had 700,000 outstanding share options under the November 2016 grant to senior management of which none are vested and exercisable. The current strike price for these share options is USD 4.20 per Share.
As of December 31, 2016, the Company had 83,669 outstanding share options under the October 2012 grant of the Former Golden Ocean for Management and directors of the Company, which are all vested and exercisable. The current strike price for the share options is NOK 144.45 per share.
Apart from the above, the Company does not have any warrants, options or other instruments convertible into shares in issue as of the date of this Prospectus.
15.7 Disclosure on Notifiable Holdings As of March 23, 2017, which was the latest practicable date prior to the date of this Prospectus, and insofar as known to the Company, the following persons had, directly or indirectly, interest in 5% or more of the issued share capital of the Company (which constitutes a notifiable holding under the Norwegian Securities Trading Act):
Number of shares % (1)(2) Hemen Holding Limited ...... 46,487,224 40.6% Folketrygdefondet ...... 6,292,402 5.5% Skagen AS ...... 6,304,313 5.5% ______(1) In addition, Hemen Holding holds TRS agreements with underlying exposure to 39,129 Shares. Franklin Enterprises Inc., a company indirectly controlled by trusts established by John Fredriksen for the benefit of his immediate family, owns USD 93.6 million of the USD 200 million convertible bond, which is convertible into 1,061,826 Shares in the Company at an exercise price of USD 88.15 per Share.
(2) Upon completion of the Acquisition, Hemen will own an aggregate of 49,787,224 Shares equalling approximately 37.6% of the issued share capital of the Company, and Quintana and subsidiaries will own 11.0% of the of the issued share capital of the Company and become the second largest shareholder of the Company.
When agreements are being entered into between the Company and Hemen, or other companies controlled by Hemen, the Board of Directors has particular focus on acting in the best interest of the Company, in accordance with good corporate governance practice. If needed, external, independent opinions are sought. The Company is not aware of any arrangements, the operation of which may at a date subsequent to the date of this Prospectus result in a change of control in the Company. None of the major shareholders have different voting rights than the other shareholders of the Company. 15.8 The Bye-Laws and Certain Aspects of Bermuda Company Law The Company’s Memorandum of Association and Bye-Laws are set out in Appendix B “Memorandum of Association” and Appendix C “Bye-Laws” to this Prospectus.
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Objective The objects, purposes and powers of the Company are set forth in Items 6 and 7 of its Memorandum of Association and in the Second Schedule of the Bermuda Companies Act. These purposes include exploring, drilling, moving, transporting and refining petroleum and hydro-carbon products, including oil and oil products; acquiring, owning, chartering, selling, managing and operating ships and aircraft; the entering into of any guarantee, contract, indemnity or suretyship to assure, support, secure, with or without the consideration or benefit, the performance of any obligations of any person or persons; and the borrowing and raising of money in any currency or currencies to secure or discharge any debt or obligation in any manner.
Registered Office The Company’s registered office is at Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton HM 08, Bermuda.
Board of Directors, Management and Supervisory Bodies It follows from the Bye-Laws section 97 that the Company’s Board of Directors shall consist of not less than two members and shall at all times comprise a majority of directors who are not residents in the United Kingdom.
The Company’s shareholders may change the number of directors by the vote of shareholders representing a majority of the total number of votes which may be cast at any annual or special general meeting, or by written resolution. Each director is elected at an annual general meeting of shareholders for a term commencing upon election and expiring on the date of the next scheduled annual general meeting of shareholders. The Bye-Laws do not permit cumulative voting for directors.
Share Class The Company has one class of common shares and the holders of the shareholders are entitled to one vote per share on each matter requiring the approval of the holders of the common shares. At any annual or special general meeting of shareholders where there is a quorum, a simple majority vote will generally decide any matter, unless a different vote is required by express provision of the Bye-Laws or Bermuda law. In general, only shareholders registered in the company’s Register of Members are entitled to vote on the shares.
No Restrictions on Transfer of Shares The Bye-Laws do not provide for a right of first refusal on transfer of shares. Share transfers are not subject to approval by the Board of Directors, however, the Board of Directors may decline to register any transfer in certain circumstances described in the Bye-Laws. Such circumstances include, where the transfer might breach any law or requirement of any authority or listing exchange and if the transfer could result in 50% or more of the Company’s voting share capital being held by a person resident for tax purposes in Norway.
General Meetings Under the Bermuda Companies Act, an annual general meeting of the shareholders shall be held for the election of directors on any date or time as designated by or in the manner provided for in the bye-laws and held at such place within or outside Bermuda as may be designated in the bye-laws. Any other proper business may be transacted at the annual general meeting. The Bye-Laws provide that the Board of Directors may fix the date, time and place of the annual general meeting within or without Bermuda (but never in the United Kingdom or Norway) for the election of directors and to transact any other business properly brought before the meeting.
Under the Bermuda Companies Act, any meeting that is not the annual general meeting is called a special general meeting, and may be called by the board of directors or by such persons as authorized by the company’s bye-laws. It further follows from the Bermuda Companies Act, that holders of 1/10 of a company’s issued common shares may also call special general meetings. At such special general meeting, only business that is related to the purpose set forth in the required notice may be transacted. Additionally, under Bermuda law, a company may, by resolution at a special general meeting, elect to dispense with the holding of an annual general meeting for (a) the year in which it is made and any subsequent year or years; (b) for a specified number of years; or (c) indefinitely.
The Bye-Laws provide that special general meetings may be called by the Board of Directors and when required by the Bermuda Companies Act, i.e., by holders of one-tenth of a company’s issued common shares through a written request to the board.
Under the Bermuda Companies Act, notice of any general meeting must be given not less than five days before the meeting and shall state the place, date and hour of the meeting and, in the case of a special general meeting, shall also state the purpose of such meeting and the that it is being called at the direction of whoever is calling the meeting. Under Bermuda law, accidental failure to give notice will not invalidate proceedings at a general meeting.
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Under the Bye-Laws, quorum at annual or special general meetings shall be constituted by two or more shareholders either present in person or represented by proxy, provided that if the Company has only one shareholder, one shareholder present in person or by proxy shall constitute the necessary quorum.
Change of Control The Company’s Memorandum of Association and Bye-Laws contain provisions that may have an effect of delaying, deferring or preventing a change of control of the Company, including (i) the authorization of up to 150,000,000 common shares with potential voting powers, designations, preferences and other rights as may be provided for by the Board of Directors and (ii) no provision allowing for cumulative voting in the election of directors.
Additionally, as required by the Bermuda Companies Act, at least 10% of the issued and outstanding shares entitled to vote are allowed to call for a special general meeting to effectuate change at the Company, which may prevent a shareholder from forcing a special general meeting of shareholders and impede a change of control of the Company or the removal of management.
Disclosure of Shareholdings Pursuant to the Bye-Laws section 41, if 50% or more of the aggregate issued share capital or votes of the Company or are found to be held or owned directly or indirectly by a person or persons resident for tax purposes in Norway, other than the registrar in respect of those shares registered in its name in the register as nominee of persons whose interests in such shares are reflected in a branch register, such as the VPS, the Board of Directors shall make an announcement to such effect through the Oslo Stock Exchange.
The Board of Directors and the registrar of the relevant branch register shall thereafter be entitled and required to dispose of such number of shares of the Company or interests therein held or owned by such persons as will result in the percentage of the aggregate issued share capital of the Company held or owned as aforesaid being less than 50%, and, for these purposes, the Board of Directors and the registrar shall in such case dispose of shares or interests therein owned by persons resident for tax purposes in Norway on the basis that the shares or interests therein most recently acquired shall be the first to be disposed of (i.e. on the basis of last acquired first sold) save where there is a breach of the obligation to notify tax residency pursuant to the foregoing, in which event the shares or interests therein of the person in breach thereof shall be sold first. Shareholders shall not be entitled to raise any objection to the disposal of their shares, but the provisions of the Bye Laws relating to the protection of purchasers of shares sold under lien or upon forfeiture shall apply mutatis mutandis to any disposal of shares or interests therein made in accordance with the Bye-Laws.
In addition, pursuant to the Bye-laws section 49, any person (other than the registrar as the nominee of persons whose interests in such shares are reflected in a branch register, such as the VPS) who acquires or disposes of an interest in shares to the effect that the requirements of the Oslo Stock Exchange in effect from time to time concerning the duty to flag changes in a person’s interest in shares require such changes to be notified shall notify the registrar immediately of such acquisition or disposal and the resulting interest of that person in shares.
Share Capital The Memorandum of Association of the Company provides for an authorized share capital of USD 7,500,000.00, divided into 150,000,000 common shares, with a par value of USD 0.05 per share.
The Bye-Laws section 5A provides that the Company’s Board of Directors may exercise all the powers of the Company to:
(a) divide the Company’s shares into several classes and attach thereto respectively any preferential, deferred, qualified or special rights, privileges or conditions;
(b) consolidate and divide all or any of the Company’s share capital into shares of larger amount than its existing shares;
(c) subdivide the Company’s shares, or any of them, into shares of smaller amount than is fixed by the memorandum, so, however, that in the subdivision the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived; or
(d) make provision for the issue and allotment of shares which do not carry any voting rights.
Treasury Shares The Bye-Laws section 58 permit the Company to have the option, but not the obligation, to repurchase from any shareholder all fractions of shares, and all holdings of fewer than 100 shares. Such repurchase shall be on such terms and
105 conditions as the Company's board of directors may determine, provided that in any event, the repurchase price shall be not less than the closing market price per share quoted on the Oslo Stock Exchange on the effective date of the repurchase.
Amendments to the Memorandum of Association and Bye-Laws Subject to the Bermuda Companies Act, all or any of the special rights attached by the Company's Board of Directors to any class of shares may only be altered or abrogated with the consent in writing of the holders of not less than 75% of the issued shares of that class or with the sanction of a resolution passed at a separate general meeting of the holders of such shares voting in person or by proxy. Additionally, the special rights conferred upon the holders of any shares or class of shares shall not, unless otherwise expressly provided in the rights attaching to or the terms of issue of such shares, be deemed to be altered by the creation or issue of further shares ranking pari passu therewith.
Under Bermuda law, a company may, by resolution passed at an annual or special general meeting of shareholders, alter the provisions of the memorandum of association. An application for alteration can only be made by (i) holders of not less in the aggregate than 20% in par value of a company's issued share capital, (ii) by holders of not less in the aggregate that 20% of the company's debentures entitled to object to alterations to the memorandum, or (iii) in the case a company that is limited by guarantee, by not less than 20% of the shareholders.
The Bye-Laws may be amended in the manner provided for in the Bermuda Companies Act, provided that such amendment should only become operative to the extent that it has been confirmed by resolution passed at an annual or special general meeting of shareholders by a simple majority vote.
Additional Issuances and Pre-Emptive Rights The Bye-Laws do not provide a shareholder of the Company with any pre-emptive rights to subscribe for additional issues of the Company’s shares.
Rights of Redemption and Conversion of Shares The Bye-Laws do not provide for any shareholder rights of conversion or redemption of the common shares in the Company.
Shareholder Vote on Certain Reorganizations Under the Bermuda Companies Act, any plan of merger or amalgamation must be authorized by the resolution of a company’s shareholders and must be approved by a majority vote of 3/4 of those shareholders voting at such special general meeting. A quorum of two or more persons holding or representing more than 1/3 of the issued and outstanding common shares of the company on the record date of such special general meeting must be in attendance in person or by proxy at such special general meeting.
Liability of Directors Under Bermuda law, directors and officers shall discharge their duties in good faith and with that degree of diligence, care and skill which reasonably prudent people would exercise under similar circumstances in like positions. In discharging their duties, directors and officers may rely upon financial statements of the company represented to them to be correct by the president or the officer having charge of its books or accounts or by independent accountants.
The Bermuda Companies Act provides that a company’s bye-laws may include a provision for the elimination or limitation of liability of a director to the corporation or its shareholders for any loss arising or liability attaching to him by virtue of any rule of law in respect to any negligence, default, breach of any duty or breach of trust of which the director may be guilty of; provided that such provision shall not eliminate or limit the liability of a director for any fraud or dishonesty he may be guilty of.
Indemnification of Directors and Officers Bermuda law permits the bye-laws of a Bermuda company to contain a provision indemnifying the company’s directors and officers for any loss arising or liability attaching to him or her by virtue of any rule of law in respect of any negligence, default, breach of duty or breach of trust of which the officer or person may be guilty, save with respect to fraud or dishonesty. Bermuda law also grants companies the power generally to indemnify directors and officers of a company, except in instances of fraud and dishonesty, if any such person was or is a party or threatened to be made a party to a threatened, pending or completed action, suit or proceeding by reason of the fact that he or she is or was a director and officer of such company or was serving in a similar capacity for another entity at such company’s request.
The Bye-Laws section 159 provide that each director, alternate director, officer, person or member of a board committee, if any, resident representative, and his or her heirs, executors or administrators will be indemnified and held
106 harmless out of the Company’s assets to the fullest extent permitted by Bermuda law against all liabilities, loss, damage or expense (including but not limited to liabilities under contract, tort and statute or any applicable foreign law or regulation and all reasonable legal and other costs and expenses properly payable) incurred or suffered by him or her as such director, alternate director, officer, person or committee member or resident representative. The restrictions on liability, indemnities and waivers provided for in the Bye-Laws do not extend to any matter that would render the same void under the Bermuda Companies Act. In addition, each such person shall be indemnified out of the assets of the Company against all liabilities incurred in defending any proceedings, whether civil or criminal, in which judgment is given in such person’s favor, or in which he or she is acquitted.
Under the Bye-Laws section 164, shareholders have further agreed to waive any claim or right of action they may have at any time against any director, alternate director, officer, person or member of a board committee on account of any action taken by such person or the failure of such person to take any action in the performance of his or her duties with or for the Company with the exception of any claims or rights of action arising out of fraud or dishonesty.
Distribution of Assets on Liquidation Upon a liquidation, dissolution or winding up, the shareholders of the Company will be entitled under Bermuda law to receive, pro rata, the net assets available after the payment of all of the Company’s debts and liabilities and any preference amount owed to any preference shareholders. The rights of shareholders, including the right to elect directors, are subject to the rights of any series of preference shares the Company may issue in the future.
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16. SECURITIES TRADING IN NORWAY
The following is a summary of certain information in respect of trading and settlement of shares on the Oslo Stock Exchange, securities registration in Norway and certain provisions of applicable Norwegian securities law, including the Norwegian Securities Trading Act, in effect as of the date of this Prospectus. This summary does not purport to be complete and is qualified in its entirety by Norwegian law.
16.1 Trading and Settlement The Oslo Stock Exchange comprise two separate trading markets for trading in equities, Oslo Børs, a stock exchange operated by Oslo Børs ASA, and Oslo Axess, a regulated market operated by Oslo Børs ASA.
Trading of equities on the Oslo Stock Exchange is carried out in the electronic trading system Millennium Exchange. This trading system is in use by all markets operated by the London Stock Exchange as well as by the Borsa Italiana and the Johannesburg Stock Exchange.
Official trading on the Oslo Stock Exchange takes place between 09:00 hours (CET) and 16:20 hours (CET) each trading day, with pre-trade period between 08:15 hours (CET) and 09:00 hours (CET), a closing auction from 16:20 hours (CET) to 16:25 hours (CET), and a post-trade period from 16:25 hour (CET) to 17:30 hours (CET). Reporting of after exchange trades can be done until 17:30 hours (CET).
The settlement period for trading on the Oslo Stock Exchange is two trading days (T+2). This means that securities will be settled on the investor’s account in the VPS two trading days after the transaction, and that the seller will receive payment after two trading days.
Investment services in Norway may only be provided by Norwegian investment firms holding a license under the Norwegian Securities Trading Act, branches of investment firms from a member state of the EEA or investment firms from outside the EEA that have been licensed to operate in Norway. Investment firms in an EEA member state may also provide cross-border investment services into Norway.
16.2 Information, Control and Surveillance Under Norwegian law, the Oslo Stock Exchange is required to perform a number of surveillance and control functions. The Surveillance and Corporate Control unit of the Oslo Stock Exchange monitors all market activity on a continuous basis. Market surveillance systems are largely automated, promptly warning department personnel of abnormal market developments.
The Norwegian FSA controls the issuance of securities in both the equity and the bond markets in Norway.
Under Norwegian law, a company that is listed on a Norwegian regulated market, or is subject to the application for listing on such market, must promptly release any inside information (that is, precise information about financial instruments, the issuer thereof or other matters that are likely to have a significant effect on the price of the relevant financial instruments or related financial instruments, and that are not publicly available or commonly known in the market). A company may, however, delay the release of such information in order not to prejudice its legitimate interests, provided that it is able to ensure the confidentiality of the information and that the delayed release would not be likely to mislead the public. The Oslo Stock Exchange may levy fines on companies violating these requirements.
16.3 Registration of the Shares with the VPS In order to facilitate registration of the beneficial interests in the Shares with the VPS, the Company has entered into a registrar agreement with the VPS Registrar Nordea Bank Norge ASA, who will operate the Company’s VPS share register. Pursuant to the registrar agreement, the VPS Registrar is (directly or indirectly) registered as holder of the Shares listed on the Oslo Stock Exchange in the register of members that the Company maintains pursuant to Bermuda law. The VPS Registrar will register the beneficial interests in the Shares listed on the Oslo Stock Exchange in book-entry form with the VPS. Therefore, it is not the Shares in registered form issued in accordance with the Bermuda Companies Act, but the beneficial interests in such Shares in book-entry form that are registered with the VPS.
The beneficial interests in the Shares are registered in book-entry form with VPS under the category of a “share” and it is such interest in the Shares that is registered and traded on the Oslo Stock Exchange. Each such share registered with the VPS will represent beneficial ownership of one Share. The beneficial interests registered with the VPS are freely transferable, with delivery and settlement through the VPS system, however, the Company cannot have 50% or more of its aggregated issued share capital or votes held by a person or persons resident for tax purposes in Norway, see Section 15.8 “The Bye-laws and Certain Aspects of Bermuda Law―Disclosure of Shareholdings”.
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The VPS is the Norwegian paperless centralized securities register. It is a computerized bookkeeping system in which the ownership of, and all transactions relating to, Norwegian listed shares must be recorded. The VPS and the Oslo Stock Exchange are both owned by Oslo Stock Exchange VPS Holding ASA.
All transactions relating to securities registered with the VPS are made through computerized book entries. No physical share certificates are, or may be, issued. The VPS confirms each entry by sending a transcript to the registered shareholder irrespective of any beneficial ownership. To give effect to such entries, the individual shareholder must establish a share account with a Norwegian account agent. Norwegian banks, Norges Bank (that is, Norway's central bank), authorized securities brokers in Norway and Norwegian branches of credit institutions established within the EEA are allowed to act as account agents.
The entry of a transaction in the VPS is prima facie evidence in determining the legal rights of parties as against the issuing company or any third party claiming an interest in the given security.
The VPS is liable for any loss suffered as a result of faulty registration or an amendment to, or deletion of, rights in respect of registered securities unless the error is caused by matters outside the VPS’ control which the VPS could not reasonably be expected to avoid or overcome the consequences of. Damages payable by the VPS may, however, be reduced in the event of contributory negligence by the aggrieved party.
The VPS must provide information to the Norwegian FSA on an on-going basis, as well as any information that the Norwegian FSA requests. Further, Norwegian tax authorities may require certain information from the VPS regarding any individual's holdings of securities, including information about dividends and interest payments.
16.4 Disclosure Obligations If a person's, entity's or consolidated group's proportion of the total issued shares and/or rights to shares in a company listed on a regulated market in Norway (with Norway as its home state, which will be the case for the Company) reaches, exceeds or falls below the respective thresholds of 5%, 10%, 15%, 20%, 25%, 1/3, 50%, 2/3 or 90% of the share capital or the voting rights of that company, the person, entity or group in question has an obligation under the Norwegian Securities Trading Act to notify the Oslo Stock Exchange and the issuer immediately. The same applies if the disclosure thresholds are passed due to other circumstances, such as a change in the company's share capital.
Under U.S. securities laws and related SEC rules, any person (or group of persons) who, after acquiring directly or indirectly the beneficial ownership of more than 5% of a class of an equity security registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, is required to file a beneficial ownership report on Schedule 13D with the SEC (depending upon the facts and circumstances, the person or group of persons may be eligible to file the more abbreviated Schedule 13G in lieu of Schedule 13D). The Schedule 13D reports the acquisition and other information within ten days after the purchase. Any material changes in the facts contained in the Schedule 13 require a prompt amendment (the SEC considers increases or decreases in holdings of such class of such equity security by 1% or more of the total outstanding class to be material). A person will be attributed beneficial ownership of all shares held by persons that are acting in concert as part of a group. A person is deemed to have beneficial ownership of an equity security if he, directly or indirectly, through any contract arrangement, understanding, relationship, or otherwise, has or shares: (i) voting power which includes the power to vote, or to direct the voting of, such security; or (ii) investment power which includes the power to dispose, or to direct the disposition of, such security.
16.5 Insider Trading According to Norwegian law, subscription for, purchase, sale or exchange of financial instruments that are listed, or subject to the application for listing, on a Norwegian regulated market, or incitement to such dispositions, must not be undertaken by anyone who has inside information, as defined in Section 3-2 of the Norwegian Securities Trading Act. The same applies to the entry into, purchase, sale or exchange of options or futures/forward contracts or equivalent rights whose value is connected to such financial instruments or incitement to such dispositions.
16.6 Tender Offer Rules Parties engaging in a tender offer must comply with certain SEC rules governing these types of transactions. While the SEC does not define a tender offer, several courts have provided guidance in determining whether a tender offer is taking place. If an offeror is making open market purchases of a company's shares with a view toward acquiring that company, the offeror will need to determine whether these purchases could be considered a tender offer, requiring the offeror to comply with certain tender offer rules. It is widely understood that a tender offer is an offer to purchase shares of stock directly from shareholders of a public company, however the tender offer rules may apply under certain circumstances for the offer to purchase shares of a private company.
In circumstances where the tender offer rules apply, a tender offer requires the provision of a Schedule TO, an Offer to Purchase and a letter of transmittal. The Schedule TO is an SEC form document, which generally incorporates information
109 by reference to the Offer to Purchase and requires the offeror to complete certain disclosure items. In a cash deal, the offeror must include a plain English summary term sheet describing the material terms of the transaction for the benefit of the stockholders. The offeror must file Schedule TO with the SEC (along with the accompanying exhibits such as the offer to purchase, letter of transmittal and any other materials) and pay the related filing fee as soon as practicable on the date the tender offer commences.
An Offer to Purchase sets out the terms of the transaction and is the primary disclosure document for the target company's stockholders. The offer to purchase includes information on (i) the identity and background of the parties; (ii) the material terms of the transaction, including conditions to completing the tender offer (for example, the minimum number of shares to be tendered, absence of a material adverse effect and receipt of regulatory approvals); (iii) previous dealings between the parties; (iv) the offeror's plans or proposals concerning the target company; (v) the source and amount of the offeror's funds, including a summary of financing arrangements; and (vi) audited financial statements of the offeror if its financial condition is material to the stockholders. A letter of transmittal details the process for stockholders to tender their shares and must be filed with the SEC. The offeror also files other documents providing instructions and means for tendering shares, as well as any other disclosure materials provided to stockholders.
In an exchange offer, unless an exemption from SEC registration is available, the offeror must also prepare a registration statement on Form S-4 or F-4 containing a prospectus with additional disclosures. Information required in the Form S-4 or F-4 includes: (i) a description of both companies; (ii) a description of the offeror's securities; (iii) audited financial statements of the offeror and, if the acquisition is material to the offeror, the target company; and (iv) a description of the buyer's capital stock.
The SEC rules further provide that the offer period must remain open for at least 20 business days from the date on which the tender offer commences, i.e. when the offeror files Schedule TO with the SEC and publishes the summary advertisement or mails the tender offer materials to the target company's stockholders. In addition, (i) the offeror must extend the offer period by 10 business days after any change in the percentage of target company shares being sought (except for an increase of less than 2% of the target company shares) or the amount of consideration being offered; (ii) in an exchange offer (where shares are being issued as part of the consideration), if there are any other material changes to the offer, the offeror must extend the offer period by at least five business days (or ten business days if the change is significant, depending on the facts and circumstances); and (iii) a prospectus in an exchange offer is deemed "materially deficient" by the SEC, then the offer must remain open for an additional 20 business days from the time that the SEC made that determination.
The SEC rules further require that the shareholders of the target company receive the highest consideration per share paid or agreed to be paid to any of the shareholders during the offer period. The payment for the shares tendered under the offer must be carried out promptly following the expiry of the acceptance period.
When the offeror has filed the required documents with the SEC, the target company’s Board of Directors must state a position regarding the cash tender offer within 10 business days. In this regard the Board of Directors has four options; (i) recommend acceptance of the offer; (ii) recommend rejection of the offer; (iii) state that it is expressing no opinion and is remaining neutral; or (iv) state that it is unable to take a position. In addition, the statement must include the reasons for the position, or express inability to take a position.
The tender offer rules contain two tiers of exemptions based on the level of ownership by U.S. shareholders in the target securities of the company to be acquired, or the subject company. The exemptions are available where the subject company is a foreign private issuer. The Tier I exemption (the “Tier I Exemption”) applies where U.S. shareholders of a subject company hold 10% or less of the subject company’s securities. The effect of the Tier I Exemption is that the transaction will be exempt from most of the U.S. tender offer rules and the offeror will need to comply with any applicable rules of the subject company’s home country relating to tender offers. The Tier II exemption (the “Tier II Exemption”) applies where U.S. shareholders of the subject company hold more than 10% but less than 40% of the subject company’s shares. The Tier II Exemption offers limited relief from the U.S. tender offer rules. Under the Tier II Exemption, among other things, it is permissible for an offeror to separate its offer into multiple offers, typically one offer made to U.S. holders, and one or more offers made to non-U.S. holders.
The Company has been granted an exemption from the Norwegian take-over rules by the Oslo Stock Exchange in its capacity as take-over supervisory authority in Norway due to being subject to the U.S. tender offer rules.
16.7 Compulsory Acquisition Under Bermuda law, an acquiring party is generally able to acquire compulsorily the common shares of minority holders in the following ways:
• By a procedure under the Companies Act known as a "scheme of arrangement". A scheme of arrangement could be effected by obtaining the agreement of the company and of holders of common shares, comprising in the
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aggregate a majority in number representing at least 75% in value of the shareholders (excluding shares owned by the acquirer) present and voting at a meeting ordered by the Bermuda Supreme Court held to consider the scheme of arrangement. Following such approval by the shareholders, the Bermuda Supreme Court may then sanction the scheme of arrangement. If a scheme of arrangement receives all necessary agreements and sanctions, upon the filing of the court order with the Registrar of Companies in Bermuda, all holders of common shares could be compelled to sell their shares under the terms of the scheme of arrangement.
• Where an acquiring party makes an offer in a scheme or contract for shares or class of shares in a company and the acquiring party receives acceptances, pursuant to the offer, for not less than 90% of the shares in issue (other than those already held by the acquiring party, its subsidiary or by a nominee for the acquiring party or its subsidiary as at the date of the offer) the acquiring party may, at any time within two months from the date the acceptance was obtained, give notice to any dissenting shareholder that it wishes to acquire his shares on the same terms as the original offer. The dissenting shareholders could be compelled to transfer their shares unless the Bermuda Supreme Court (on application made within a one-month period from the date of the offeror's notice of its intention to acquire such shares) orders otherwise.
• The holder(s) of not less than 95% of the shares or any class of shares of a company may give a notice to the remaining shareholders of the intention to acquire the shares of such remaining shareholders on the terms set out in the notice. When this notice is given, the acquiring party is entitled and bound to acquire the shares of the remaining shareholders on the terms set out in the notice, unless a remaining shareholder, within one month of receiving such notice, applies to the Bermuda Supreme Court for an appraisal of the value of their shares. This provision only applies where the acquiring party offers the same terms to all holders of shares whose shares are being acquired.
16.8 Foreign Exchange Controls There are currently no foreign exchange control restrictions in Norway that would potentially restrict the payment of dividends to a shareholder outside Norway, and there are currently no restrictions that would affect the right of shareholders of a Norwegian company who are not residents in Norway to dispose of their shares and receive the proceeds from a disposal outside Norway. There is no maximum transferable amount either to or from Norway, although transferring banks are required to submit reports on foreign currency exchange transactions into and out of Norway into a central data register maintained by the Norwegian customs and excise authorities. The Norwegian police, tax authorities, customs and excise authorities, the National Insurance Administration and the Norwegian FSA have electronic access to the data in this register.
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17. TAXATION
This Section describes certain tax rules in Bermuda and Norway applicable to shareholders in the Company who are resident in Norway for tax purposes (“Norwegian Shareholders”) and to shareholders who are not resident in Norway for tax purposes (“Non-Norwegian Shareholders”). The statements herein regarding taxation are based on the laws in force in Bermuda and Norway as of the date of this Prospectus and are subject to any changes in law occurring after such date. Such changes could be made on a retrospective basis. The following summary does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to purchase, own or dispose of shares in the Company. Investors are advised to consult their own tax advisors concerning the overall tax consequences of their ownership of shares in the Company. The statements only apply to shareholders who are beneficial owners of shares in the Company. Please note that for the purpose of the summary below, references to Norwegian Shareholders and Non-Norwegian Shareholders refers to the tax residency rather than the nationality of the shareholder.
17.1 Norwegian Shareholders
Taxation of Dividends Dividends distributed by companies resident in Bermuda for tax purposes, including dividends from the Company, received by Norwegian corporate shareholders (i.e. limited liability companies and similar entities) (“Norwegian Corporate Shareholders”) are taxable as ordinary income in Norway for such shareholders at a flat rate of 24%.
Dividends distributed to Norwegian individual shareholders (i.e. other Norwegian shareholders than Norwegian Corporate Shareholders) (“Norwegian Individual Shareholders” and taken together with Norwegian Corporate Shareholders “Norwegian Shareholders”) are taxable under the “shareholder model”. According to the shareholder model, dividends distributed to individual shareholders are multiplied with a factor of 1.24 before taken to taxation at the ordinary income rate of 24% (resulting in an effective tax rate of 29.76%) to the extent the dividend exceeds a basic tax-free allowance. The tax-free allowance shall be computed for each individual shareholder on the basis of the cost price of each of the shares multiplied by a risk-free interest rate. The risk-free interest rate will be calculated every income year and is allocated to the shareholder owing the share on December 31 of the relevant income year. Any part of the calculated tax- free allowance one year exceeding the dividend distributed on the share (“unused allowance”) may be carried forward and set off against future dividends received on (or gains upon realization of, see below) the same share. Any unused allowance will also be added to the basis of computation of the tax-free allowance on the same share the following year.
Taxation of Capital Gains Sale, redemption or other disposal of shares is considered as a realization for Norwegian tax purposes.
Norwegian Corporate Shareholders are taxable in Norway for capital gains on the realization of shares in the Company, and have a corresponding right to deduct losses. This applies irrespective of how long the shares have been owned by the Norwegian Corporate Shareholders and irrespective of how many shares that are realized. The taxable gain or deductible loss is calculated per share, as the difference between the consideration received and the tax value of the share. The tax value of each share is based on the Norwegian Corporate Shareholders cost price of the share. Costs incurred in connection with the acquisition or realization of the shares may be deducted in the year of sale. Any capital gain or loss is included in or deducted from the basis for computation of ordinary income in the year of disposal. Ordinary income is taxable at a rate of 24%.
Norwegian Individual Shareholders are taxable in Norway for capital gains on the realization of shares, and have a corresponding right to deduct losses. This applies irrespective of how long the shares have been owned by the individual shareholder and irrespective of how many shares that are realized. Gains are taxable as ordinary income in the year of realization, and losses can be deducted from ordinary income in the year of realization. Any gains or losses are also multiplied with a factor of 1.24 before taken to taxation at the tax rate for ordinary income of 24%. Under current tax rules, gain or loss is calculated per share, as the difference between the consideration received and the tax value of the share. The tax value of each share is based on the individual shareholder's purchase price for the share. Costs incurred in connection with the acquisition or realization of the shares may be deducted in the year of sale. Unused tax-free allowance connected to a share may be deducted from a capital gain on the same share, but may not lead to or increase a deductible loss. Further, unused tax-free allowance may not be set off against gains from realization of the other shares.
If Norwegian Shareholders realizes shares acquired at different times, the shares that were first acquired will be deemed as first sold (the “first in first out”-principle) upon calculating taxable gain or loss.
A shareholder who ceases to be tax resident in Norway due to domestic law or tax treaty provisions may become subject to Norwegian exit taxation of capital gains related to shares in certain circumstances.
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Controlled Foreign Corporation (CFC) taxation Norwegian Shareholders in the Company will be subject to Norwegian taxation according to the Norwegian Controlled Foreign Corporations regulations (the “Norwegian CFC-regulations”) if Norwegian Shareholders directly or indirectly own or control (together referred to as “Control”) the shares of the Company.
Norwegian Shareholders will be considered to Control the Company if:
• Norwegian Shareholders Control 50% or more of the shares or capital in the Company at the beginning of and at the end of a tax year; or
• If Norwegian Shareholders Controlled the Company the previous tax year, the Company will also be considered Controlled by Norwegian Shareholders in the following tax year unless Norwegian Shareholders Control less than 50% of the shares and capital at both the beginning and the end of the following tax year; or
• Norwegian Shareholders Control more than 60% of the shares or capital in the Company at the end of a tax year.
If less than 40% of the shares or capital are Controlled by Norwegian Shareholders at the end of a tax year, the Company will not be considered Controlled by Norwegian Shareholders for Norwegian tax purposes.
Under the Norwegian CFC-regulations Norwegian Shareholders are subject to Norwegian taxation on their proportionate part of the taxable net income generated by the Company, calculated according to Norwegian tax regulations, regardless of whether or not any dividends are distributed from the Company.
Net Wealth Tax The value of shares is taken into account for net wealth tax purposes in Norway. The marginal tax rate is currently 0.85%. Norwegian limited liability companies and similar entities are exempted from net wealth tax.
Shares listed on the Oslo Stock Exchange are valued at 90% of the quoted value at 1 January in the assessment year.
Norwegian Corporate Shareholders are not subject to net wealth tax.
VAT and Transfer Taxes No VAT, stamp duty or similar duties are currently imposed in Norway on the transfer or issuance of shares.
Inheritance Tax A transfer of shares through inheritance or as a gift does not give rise to inheritance or gift tax in Norway.
17.2 Non-Norwegian Shareholders
Taxation of dividends Dividends received by Non-Norwegian Shareholders from shares in Non-Norwegian companies are not subject to Norwegian taxation unless the Non-Norwegian Shareholders holds the shares in connection with the conduct of a trade or business in Norway.
Taxation of Capital Gains Capital gains generated by Non-Norwegian Shareholders are not taxable in Norway unless the Non-Norwegian Shareholders holds the shares in connection with the conduct of a trade or business in Norway.
Net Wealth Tax Non-Norwegian Shareholders are generally not subject to Norwegian net wealth tax. Non-Norwegian personal shareholders may, however, be taxable if the shareholding is effectively connected to the conduct of trade or business in Norway.
VAT and transfer taxes No VAT, stamp duty or similar duties are currently imposed in Norway on the transfer or issuance of shares.
Inheritance Tax A transfer of shares through inheritance or as a gift does not give rise to inheritance or gift tax in Norway.
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17.3 Bermuda Withholding Tax There is no Bermudian withholding tax on dividends paid from a Bermuda resident company.
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18. INCORPORATION BY REFERENCE; DOCUMENTS ON DISPLAY
The Norwegian Securities Trading Act and the Norwegian Securities Trading Regulations, implementing Commission Regulation (EC) no. 809/2004 implementing Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 regarding information contained in prospectuses as well as the format, incorporation by reference and publication of such prospectuses and dissemination of advertisements, allow the Company to incorporate by reference information into this Prospectus that has been previously filed with the Oslo Stock Exchange or the Norwegian Financial Supervisory Authority in other documents. The Company’s audited financial consolidated financial statements as of and for the years ended 2014, 2013 and 2012 and the Company’s consolidated interim financial statements as of and for the year ended December 31, 2015, are by this reference incorporated as a part of this Prospectus. Accordingly, this Prospectus is to be read in conjunction with these documents.
18.1 Cross Reference Table The information incorporated by reference in this Prospectus should be read in connection with the following cross- reference table. References in the table to “Annex” and “Items” are references to the disclosure requirements as set forth in the Norwegian Securities Trading Act cf. the Norwegian Securities Trading Regulations by reference to such Annex (and Item therein) of Commission Regulation (EC) no. 809/2004.
Page of Reference Disclosure Requirement Reference Document Document
Annex I, Audited Annual Report 2015 Amendment: Page 1 ― 7 Item 20.1 historical http://hugin.info/132879/R/2009168/743473.pdf financial information Annual Report 2015: F-1 — F-43 http://hugin.info/132879/R/2003817/739727.pdf
Annual Report 2014: F-1 — F-27 http://hugin.info/132879/R/1917027/685702.pdf
Annual Report 2013: F-1 — F-19 http://hugin.info/132879/R/1767260/600411.pdf
Annex I, Audit reports Audit report 2015: F-2 Item 20.3 http://hugin.info/132879/R/2003817/739727.pdf
Audit report 2014: F-2 http://hugin.info/132879/R/1917027/685702.pdf
Audit Report 2013: F-2 http://hugin.info/132879/R/1767260/600411.pdf
Annex I, Interim financial Fourth Quarter Report 2016: Item 20.6 information http://hugin.info/132879/R/2082700/784909.pdf Page 1 ― 16
18.2 Documents on Display For twelve months from the date of this Prospectus, copies of the following documents will be available for inspection at the Company's registered office during normal business hours from Monday through Friday each week (except public holidays):
• The Memorandum of Association and the Bye-Laws of the Company.
• All reports, letters, and other documents, historical financial information, valuations and statements prepared by any expert at the Company's request any part of which is included or referred to in the Prospectus.
• The Group’s consolidated financial statements as of and for the years ending December 31, 2015, 2014 and 2013, and the related auditor reports thereto.
• The Group’s consolidated interim unaudited financial statements as of and for the three months and year ended December 31, 2016 and 2015.
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• The Former Golden Ocean group’s consolidated financial statements as of and for the years December 31, 2014 and 2013, and the related auditor reports thereto. The Former Golden Ocean group’s consolidated financial statements can also be accessed on the following website: http://www.goldenocean.no/?view=hugin_feed_old&feed=reports_list&menu=128
• This Prospectus.
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19. ADDITIONAL INFORMATION
19.1 Independent Auditors The Company’s independent auditors are PricewaterhouseCoopers AS (“PwC”) which has their registered address at Dronning Eufemias gate 8, 0191 Oslo. PwC is a member of The Norwegian Institute of Public Accountants (Nw. Den Norske Revisorforening).
PwC has been the Company’s auditors since 2010 and has audited the annual financial statements of the Company for the years ended 2010 to 2015.
19.2 Legal Advisors Advokatfirmaet BA-HR DA is acting as legal adviser (as to Norwegian law) to the Company in connection with the Private Placement. Seward & Kissel LLP is acting as legal adviser (as to United States law) and MJM Limited is acting as legal advisor (as to Bermuda law) to the Company in connection with the Private Placement.
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20. DEFINITIONS
Capitalized terms used throughout this Prospectus shall have the meaning ascribed to such terms as set out below, unless the context require otherwise.
Acquisition ...... The Hemen Acquisition and the Quintana Acquisition taken together. Amended Loan Facilities ...... The USD 420.0 million term loan facility, the USD 425.0 million senior secured post-delivery term facility, the USD 33.93 million credit facility, the USD 82.5 million credit facility and the USD 284.0 million credit facility which the Company in February 2016 agreed with its lenders to amend certain of the terms of. APMs ...... Alternative Performance Measures. ASC ...... Accounting Standards Codification. ASC 805 ...... Accounting Standards Codification 805. ASC 820 ...... Accounting Standards Codification 820. BDI ...... The Baltic Dry Index. Bermuda Companies Act ...... The Bermuda Companies Act of 1981. Bunker Convention ...... The IMO International Convention on Civil Liability for Bunker Oil Pollution Damage of 2001. BWM Convention ...... The International Convention for the Control and Management of Ship Ballast Water and Sediments. CAA ...... The U.S. Clean Air Act. CAGR ...... Compounded average growth. The compound annual growth rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer than one year. CCL ...... Capesize Chartering Ltd. CCO ...... Chief Commercial Officer. CEO ...... Chief Executive Officer. CERCLA ...... The U.S. Comprehensive Environmental Response, Compensation and Liability Act. CFO ...... Chief Financial Officer. CISADA ...... The Comprehensive Iran Sanctions Accountability and Divestment Act. CLC ...... The International Convention on Civil Liability for Oil Pollution Damage of 1969. COA ...... Contract of Affreightment. Code ...... United States Internal Revenue Code of 1986 Company ...... Golden Ocean Group Limited. Consideration Shares ...... The Hemen Shares and the Quintana Shares taken together. Control ...... Direct or indirect control by Norwegian shareholders. CWA ...... The U.S. Clean Water Act. Dwt ...... Dead weight tonnes. EC Regulation 809/2004 ...... Commission Regulation (EC) no. 809/2004 regarding information to be contained in prospectuses. ECAs ...... Emission Control Areas. EFSF ...... European Financial Stability Facility EFSM ...... European Financial Stability Mechanism EPA ...... U.S. Environmental Protection Agency ESM...... European Stability Mechanism. EU ...... European Union. Former Golden Ocean ...... The former Golden Ocean Group Limited which was merged into Knightsbridge. Forward-looking Statements ...... Has the meaning ascribed to it in Section 4.1. Free Projected Cash ...... The calculation of free projected cash anticipated at September 30, 2018 which the Company will furnish to its lenders at the end of each
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first and third quarter. Frontline ...... Frontline Ltd. Frontline 2012 ...... Frontline 2012 Ltd. FSMA ...... The Financial Services and Markets Act. GDP ...... Gross domestic product. General Manager ...... ICB Shipping (Bermuda) Limited Golden Ocean ...... Golden Ocean Group Limited. Group ...... The Company together with its consolidated subsidiaries. Hemen ...... Hemen Holding Limited, a company indirectly controlled by trusts established by John Fredriksen for the benefit of his immediate family. Hemen Acquisition ...... The acquisition by the Company of two dry bulk vessels from subsidiaries of Seatankers, an affiliate of Hemen. Hemen Fleet ...... Two ice class Panamax vessels owned by subsidiaries of Seatankers, an affiliate of Hemen. Hemen Related Companies ...... Publicly traded companies involved in various sectors of the shipping and oil services industries with Hemen as principal shareholder. Hemen Shares ...... 3,300,000 new Shares in the Company, each with a par value of USD 0.05, issued in connection with the Hemen Acquisition. IMO ...... The International Maritime Organization. IOPP ...... International Oil Pollution Prevention. Iran Threat Reduction Act ...... The Iran Threat Reduction and Syria Human Rights Act of 2012. IRS...... The United States Internal Revenue Service. ISM Code ...... The International Management Code for Safe Operation of Ships and Pollution Prevention. Jinhaiwan ...... Zhoushan Jinhaiwan Shipyard Co. Ltd. JPOA ...... The Joint Plan of Action between the United States, the United Kingdom, Germany, France, Russia and China. Karpasia ...... Karpasia Shipping Inc. Knightsbridge ...... Knightsbridge Shipping Limited as the Company was named prior to the Merger. Management ...... The members of the Company’s executive management. Managers ...... ABN AMRO Securities (USA) LLC and DNB Markets, Inc. MARPOL ...... The International Convention for the Prevention of Pollution from Ships of 1973. MEPC ...... Marine Environmental Protection Committee. Merger ...... The merger between the Company and Former Golden Ocean, with the Company as the surviving entity. Merger Agreement ...... The merger agreement as entered into between the Company and Former Golden Ocean on October 7, 2014. Minimum Value Covenant ...... The loan-to-value clause as described in Section 11.6 “Borrowing Activities―Borrowing Activities Entered Into by the Company―Loan Amendments and Covenants”. MTSA ...... The U.S. Maritime Transportation Security Act of 2002. NADL ...... North Atlantic Drilling Ltd. NASDAQ...... NASDAQ Global Select Market NewCos ...... Newly-established wholly-owned non-recourse subsidiaries of the Company established in relation to the Acquisition. NISA ...... U.S. National Invasive Species Act. NOI ...... Notice of Intent. Non-Norwegian Shareholders ...... Shareholders who are not resident in Norway for tax purposes. Norwegian CFC-regulations ...... Norwegian Controlled Foreign Corporations regulations. Norwegian Corporate Shareholders ...... Norwegian corporate shareholders (i.e. limited liability companies and similar entities).
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Norwegian FSA ...... The Norwegian Financial Supervisory Authority (Nw. Finanstilsynet). Norwegian Individual Shareholders ...... Norwegian individual shareholders (i.e. other Norwegian shareholders than Norwegian corporate shareholders). Norwegian Shareholders ...... Norwegian Corporate Shareholders taken together with Norwegian Individual Shareholders. OPA ...... U.S. Pollution Act. OPEC The Organization of the Petroleum Exporting Countries. Oslo Stock Exchange ...... Oslo Børs, a stock exchange operated by Oslo Børs ASA. PD Amending Directive ...... The Directive 2010/73/EU of the European Parliament and of the Council of 24 November 2010 amending the Prospectus Directive. PFIC ...... Passive foreign investment company. Plan ...... The 2010 Equity Incentive Plan of the Company. Private Placement ...... The private placement of 8,607,800 Shares in the Company. Private Placement Shares...... Shares issued in the Private Placement. Prospectus ...... This prospectus dated March 27, 2017. Prospectus Directive ...... Directive 2003/71/EC of the European Parliament and the Council of 4 November 2003, as amended, regarding information contained in prospectuses. PwC ...... PricewaterhouseCoopers AS. Quintana ...... Quintana Shipping Ltd. Quintana Acquisition ...... The acquisition by the Company of Quintana’s fleet of 14 dry bulk vessels. Quintana Fleet ...... Quintana’s fleet of 14 dry bulk carriers Quintana Shares ...... 14,500,000 new Shares in the Company, each with a par value of USD 0.05, issued in connection with the Quintana Acquisition. Relevant Member State ...... Each member state of the EEA which has implemented the Prospectus Directive. RSA ...... Revenue sharing agreement. RSUs ...... Restricted Share Units. RWE ...... RWE Supply & Trading GmbH. Seadrill ...... Seadrill Limited. Seatankers ...... Seatankers Management Co. Ltd. SEC ...... U.S. Securities and Exchange Commission. SECA ...... Sulphur Emission Control Area. Securities Act ...... The U.S. Securities Act of 1933. Securities Trading Act ...... The Norwegian Securities Trading Act of 27 June 2007 no. 75. Shares ...... The common shares in the Company, each with a par value of USD 0.05. Ship Finance ...... Ship Finance International Limited. SOLAS ...... The IMO International Convention for the Safety at Sea of 1974. SPC ...... Special purpose company. TCE/Time Charter Equivalent Revenues ...... Represents operating revenues less voyage expenses, as a measure to compare revenue generated from a voyage charter to revenue generated from a time charter.
Tier I Exemption ...... Has the meaning ascribed to it in Section 16.6. Tier II Exemption...... Has the meaning ascribed to it in Section 16.6. TRS ...... Total return swap. USCG ...... Requirements of the U.S. Coast Guard VGP ...... Vessel General Permit for Discharges Incidental to the Normal Operation of Vessels. VLCC ...... Very large crude oil carrier. VPS ...... The Norwegian Central Securities Depository (Nw.
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Verdipapirsentralen) VPS Registrar ...... Nordea Bank Norge ASA.
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APPENDIX A—VALUATION REPORTS
A1
FEARNSALE CERTIFICATE OF VALUATION
Name IMO Number Dwt Type Built Yard Value Q SHEA 9335991 76,939 BULK 2007 Namura Shipbuilding - Imari USD 11.50M Q JAKE 9461324 82,188 BULK 2011 Tsuneishi Shbldg - Fkym - curr USD 17.50M Q ARION 9461336 82,188 BULK 2011 Tsuneishi Shbldg - Fkym - curr USD 17.50M Q IOANARI 9586344 81,827 BULK 2011 Hyundai Mipo Dockyard Co Ltd USD 17.00M Q KEEN 9595723 81,586 BULK 2012 Hyundai Mipo Dockyard Co Ltd USD 17.00M Q SUE 9678472 84,943 BULK 2013 Sasebo Heavy Industries USD 22.00M Q DEB 9678484 84,970 BULK 2014 Sasebo Heavy Industries USD 23.50M Q KENNEDY 9740835 84,978 BULK 2015 Sasebo Heavy Industries USD 25.00M Q KAKI 9701176 181,214 BULK 2014 Imabari Shbldg - Hiroshima USD 34.00M Q HOUSTON 9701188 181,214 BULK 2014 Imabari Shbldg - Hiroshima USD 34.00M Q ANASTASIA 9696046 179,188 BULK 2014 Sungdong Shipbuilding & Eng USD 33.00M Q AMREEN 9696058 179,337 BULK 2015 Sungdong Shipbuilding & Eng USD 35.00M Q MYRTALIA 9511416 177,979 BULK 2011 Shanghai Waigaoqiao Shbldg USD 26.50M Q GAYLE 9479228 206,565 BULK 2011 Universal Shbldg - Tsu USD 30.00M
as per 20 March 2017
This valuation is performed on "willing Seller and willing Buyer" basis and is given to the best of our knowledge and based on the sale & purchase market condition prevailing at the time mentioned subject to the vessel being in sound condition and made available for delivery fairly prompt charter free and further subject to the conditions printed on the reverse side hereof.
Date: 20 March 2017 FEARNSALE
VALUATION DISCLAIMER (i) Introduction This valuation represents our opinion as to the fair and reasonable market value of the vessel(s) as specified, on the basis of the further assumptions set out herein as of the date hereof, and is given to the best of our knowledge. (ii) Main valuation assumptions This valuation is performed on the basis of ''willing seller and willing buyer'' at arm's length (assuming that no party is in a forced situation). The valuation is provided on a gross basis, not taking into account relevant transaction costs to bring a sale about. The valuation is provided on the basis of vessels being sold individually. No assurance can be given that the values can be sustained or are realisable in actual transactions.
The valuation and particulars are statements of opinion and are not to be taken as representations of fact. The figures relate solely to our opinion of the market value as of the date given and should not be taken to apply to any other date. (iii) Factual assumptions and estimates and valuation methodology
The valuation may be based on factual assumptions and estimations and in some cases forward looking estimates. There may also exist uncertainty relating to the facts in question. A breach of these assumptions may have consequences for the valuation, rendering it invalid or non-representable.
Any forward looking estimates involve known and unknown risks, uncertainties and other factors which can result in a deviation from the estimates and might thus change the final result, outcome or development. Such forward looking statements may also be based on many assumptions relating to the vessel(s), the owner of the vessel and market conditions.
The valuation methodology is adapted to each case, based on our professional judgment, and the valuation depends upon this. A change in the method or the weighing of different factors may have consequences for the valuation, rendering it invalid or non-representable. In addition, the valuation may require the exercise of judgment, and differences of opinion as to the judgments may have consequences for the valuation.
Reference sales and prices might form part of our valuation, and such prices are only representative at and around the relevant time of transaction. Later transactions or subsequent market events might change the relevance of these prices significantly, and may have consequences for the valuation. New transactions concluded concurring with the finalization of our valuation may not have been taken into consideration. Estimation of potential sales prices based on estimates of bid- or ask prices on vessel(s) for sale might form part of our valuation, and its subjective and uncertain nature are prone to estimation errors.
Our valuation does not take into consideration the form or level of debt, if any. Any value of market debts relating to the vessel(s) or secured mortgages in the vessel(s) are not taken into consideration. Furthermore, our valuation does not take into account the potential implicit value of the vessel(s) based on an enterprise- or equity value of the owner of the vessel. Material changes in these market prices will therefore be deemed irrelevant for our valuation.
(iv) No physical inspection - good and seaworthy condition We have not made a physical inspection of the vessel, nor have we inspected the classification or maintenance records. Our opinion is based on information of the vessel stipulated in standard reference books, or obtained by other sources as we have deemed appropriate. We have assumed for the purpose of the valuation that the vessel is in good and seaworthy condition with prompt charter free delivery (unless otherwise noted), with her class fully maintained, free of conditions and recommendations, undamaged and normally equipped. We have not assessed the validity of employment contracts or the standing of charterers. Our assumptions are made irrespective of any actual knowledge of facts to the contrary. We assume no responsibility for the accuracy of such assumptions or information. Any person contemplating entering into a transaction or otherwise relying on this valuation should satisfy himself by inspection of the vessel or otherwise as to the correctness of the statements and assumptions which the valuation contains. (v) Conflicting mandates We might have valuation assignments and/or other advisory mandates for your competitors or for potential buyers of similar vessel(s), which could be construed as a conflict of interest. We might also be involved as advisor or otherwise in transactions for purchase or sale of vessel(s), which we for confidentiality reasons may not take into account in our valuations. (vi) Addressees This valuation is provided solely for the use of the person to whom it is addressed for the intended non-public purposes. No liability or responsibility can be accepted towards any other person, neither by ourselves or our officers or directors. The valuation should not be disclosed to any third party, published or circulated without our written permission. (vii) Date and duration This valuation has been made as of the date specified, and is only representative of the fair value as of this date. It does not purport to be forward looking, and any material facts or matters of any kind arising up to or beyond this date may have significance for the assumptions and the opinion and estimation of fair market value stated herein.
This valuation shall be governed by the Agreement and Norwegian law, with Oslo city court as exclusive venue for any disputes arising in relation hereto.
Date: 20 March 2017
APPENDIX B—MEMORANDUM OF ASSOCIATION
B1
APPENDIX C—BYE-LAWS
C1
REGISTERED OFFICE AND ADVISORS
Golden Ocean Group Limited Par-la-Ville Place 14 Par-la-Ville Road Hamilton, HM 08 Bermuda Tel: +1 (441) 295 6935 www.goldenocean.no
Legal Advisor to the Company Legal Advisor to the Company Legal Advisor to the Company (as to Norwegian law) (as to United States law) (as to Bermuda law)
Advokatfirmaet BA-HR DA Seward & Kissel LLP MJM Limited Tjuvholmen allé 16 One Battery Park Plaza Thistle House, 4 Burnaby Street N-0252 Oslo New York, New York 10004 Hamilton HM 11 Norway United States Bermuda
VPS Registrar Nordea Issuer Services Essendropsgate 7 N-0386 Oslo Norway