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UPDATE 1-Trafigura takes stake in Frontline in $675 mln tanker deal

(Adds detail, background)

OSLO, Aug 23 (Reuters) - Frontline has agreed to buy 10 Suezmax oil tankers from Trafigura in a cash and share deal worth up to $675 million which will make the Geneva-based trading firm a large shareholder in the shipping group.

Under the terms of the deal Trafigura will take an 8.5% stake in Frontline, valued at $128 million, and will receive a cash payment of between $538 million and $547 million, the companies said on Friday.

Frontline and Trafigura, together with dry bulk shipping firm Golden Ocean, announced a marine fuel partnership earlier this month ahead of a shake-up in regulation that will enforce cleaner fuels for ships.

The Suezmax tanker deal will allow Frontline, which is controlled by Norwegian-born billionaire John Fredriksen, to boost its future dividends, the Oslo-listed tanker operator said.

"The structure of the transaction creates an immediate impact to our earnings at a time when we expect freight rates to increase significantly," Frontline Chief Executive Robert Hvide Macleod said in a statement.

Frontline has already agreed to time-charter all the ten vessels, which were built this year and fitted with exhaust gas cleaning systems, from Trafigura until the acquisition is closed.

Frontline also has an option to buy a further four vessels.

Trafigura sees "significant upside potential in our equity investment in Frontline, a company with vast commercial scale and capabilities with whom we already enjoy a close working relationship," its Global Head of Wet Freight Rasmus Bach Nielsen said in the statement.

Frontline's fleet will consist of 75 vessels after the transaction, including newbuilds. The company's shares rose following the announcement, trading 5.5% higher at 0818 GMT. (Reporting by Victoria Klesty and Terje Solsvik; Editing by Gwladys Fouche and Jan Harvey)