Conversion into a public limited company

On 17 January 2005, Danish Ship Finance, the Danish Ministry of Economic and Business Affairs and Danmarks Nationalbank (the Danish central bank) signed a framework agreement concerning the conversion of DSF into a public limited company (in Danish: A/S - aktieselskab) . The framework agreement is intended to lead to the drafting of the necessary legislation during the spring of 2005, and the various preconditions of the framework agreement are expected to be met during this period.

The conversion aims to modernise the framework for conducting a ship financing operation in Denmark. Over the years, DSF has played an important role in the financing of the Danish maritime sector, and this primary focus will be maintained. However, the new company will to a greater extent have a free hand in relation to its sphere of activity, providing for a better diversification of risk and facilitating the maintenance and development of a prudent lending scope. The current prudent credit policy will also be characteristic of the continuing company.

In practice, all assets and liabilities in DSF will be taken over by a subsidiary owned by DSF. DSF will subsequently merge with the subsidiary, with the subsidiary as the continuing

company. DSF will be wound up without liquidation. DSF's existing guarantors will be offered an opportunity to subscribe for shares in the continuing company.

The conversion is not expected to affect holders of DSF's bonds, swap counterparties or customers. The conversion will only involve a formal change of the legal basis, and the giltedged status of DSF's bonds will be maintained. The new company will continue to exclusively conduct ship financing activities, and will still be subject to its own specific legislation.

In connection with the conversion, DKK 1.6 billion will be transferred to the Danish government and Danmarks Nationalbank. Half of this amount will derive from DSF's existing capital and reserves, while the other half will be obtained through premiums on the new shares to be issued. The transfer relates to an adjustment of profits that would have accrued to the government in connection with loan schemes during the period 1969-1984.

Based on the annual accounts 2004, the capital and reserves of the continuing company, after distribution to the government, will largely correspond to the capital and reserves in DSF at year end 2003. The solvency ratio of the continuing company, calculated according to the rules applicable to DSF, will continue to be approximately 20 per cent. In addition, the debt to Danmarks Nationalbank of DKK 800 million will be subordinated to other creditors until 2006 and 2007, when the debt will be repaid.

The entire wording of the framework agreement is available on DSF's website ww.shipfinance.dk.

Due to the planned conversion of DSF into a public limited company, Moody's, the rating agency, has placed DSF's rating under review for a possible downgrade.

The conversion is expected to take retroactive effect as of 1 January 2005. The pro forma balance sheet of the converted company, encompassing the subsequent subscription of share capital in the public limited company and the transfer to the Danish government and Danmarks Nationalbank, can be illustrated as follows: