Target Information

Teekay Tankers Ltd. (the Company) has entered into a 50/50 joint venture with Wah Kwong Shipping of Hong Kong to invest in a Very Large Crude Carrier (VLCC) newbuilding scheduled for delivery in April 2013. This VLCC will be sourced from the Shanghai Waigaoqiao shipyard, with the vessel expected to be time-chartered to a major Chinese shipping company for a five-year term. The time-charter agreement features a fixed floor rate along with a profit-sharing component.

The total contract value of the VLCC is $98 million, with the joint venture planning to finance approximately $70 million through commercial banking institutions. The remaining $28 million will be provided by the joint venture partners, and Teekay Tankers anticipates utilizing its revolving credit facility to cover its share of the equity requirement, estimated at $14 million.

Industry Overview in China

China has become a dominant player in the global shipping and oil transportation sectors, driven by the country's rapid industrial growth and rising energy demands. The shipping industry in China has seen significant advancement in shipbuilding capabilities, positioning the country as one of the largest shipbuilders worldwide. This trend is fueled by a combination of state support, technological investments, and a strong domestic maritime economy.

Furthermore, regulatory measures in China have encouraged the development of the shipping sector, including the push for stricter environmental guidelines which has led to the construction of more efficient vessels. The growing emphasis on sustainability has prompted shipping companies to upgrade their fleets, aligning with global efforts to minimize carbon emissions.

Chinese shipping companies increasingly pursue long-term charter agreements to stabilize revenue in the fluctuating oil market. By locking in time-charters, both international and domestic firms are strategically managing risks associated with oil price volatility, ensuring consistent cash flows despite market uncertainties.

Additionally, China's Belt and Road Initiative has significantly boosted trade logistics, enhancing shipping routes across Asia and expanding market access for oil transportation. This presents multiple opportunities for foreign investors looking to penetrate or expand their presence in the Chinese market.

Rationale Behind the Deal

This joint venture marks a strategic step for Teekay Tankers, as it aims to deepen its involvement in the lucrative Chinese shipping market while extending its fleet's capabilities in the VLCC sector. By entering into this time-charter agreement, the Company is hedging against market risks while simultaneously gaining exposure to increased revenue potential through profit-sharing components.

The deal illustrates Teekay’s commitment to strengthening longstanding relationships with partners like Wah Kwong Shipping, demonstrating a shared vision to capitalize on the growing demand for oil transportation in China. The investment is viewed as an opportunity to leverage local expertise and connections, thereby maximizing operational efficiency and profitability.

Information About the Investor

Teekay Tankers Ltd. was established in December 2007 as a subsidiary of Teekay Corporation, aimed at expanding its conventional oil tanker business. The Company has built a diverse fleet, which currently includes nine double-hull Aframax tankers and five double-hull Suezmax tankers. Teekay Tankers is managed through a mix of short- and medium-term fixed-rate time-charter contracts as well as spot trading in the tanker market.

Teekay Corporation, listed on the New York Stock Exchange under the ticker symbol

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