The event occurred last week - I was mostly away from home last week.
08/14
BW LPG have acquired 12 VLGCs from Avance Gas in exchange for cash and shares. Part of the deal is in shares, and makes Avance a 12.77% stakeholder in BW LPG (BWLP). Fredriksen trusts are a majority shareholder in Avance, so they get a decent chunk of BWLP
https://seekingalpha.com/news/4140355-bw-lpg-to-buy-12-very-large-gas-carriers-from-avance-gas-in-105b-deal#comment-98496949
Avance selling its two VLGC newbuilds at the start of 2024 should have been a clue the company was not too interested in being a player in the VLGC market. On a cost basis, Avance did well with this deal - the eight older VLGCs only cost about $64M each (Chinese yards) and the 4 newer vessels were order from South Korean shipyards [Edit: $80M - $84M], but prior to the VLGC price spike in 2023.
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The transaction from Avance Gas’ perspective - gain of 42% from monetization of VLGC fleet.
https://newsweb.oslobors.no/message/625267
For those not familiar, Fredriksen’s venture in LPG shipping came via Frontline 2012, the investment entity created to bail-out the original Frontline (FRO) entity. Besides bailing out FRO, Frontline 2012 ventured into other forms of shipping, including LPG shipping. Fredriksen’s initial contribution to the entity that became Avance Gas was 8 Chinese built VLGCs still in the yard at the time. After 9 - 10 years of utilization, those are 8 of the 12 vessels sold to BW LPG. The initial Avance Gas fleet was 6 or 7 operating vessels contributed by the other two major partners.
It is odd that “scaling the fleet” is the reason given. Another Fredriksen backed entity, Flex LNG (FLNG), has been stuck at 13 vessels. In FLNG’s latest earnings call, their management team indicated a reluctance to order new LNG vessels. However, they did ask existing owners of modern LNG tonnage to come and talk to them rather than pursue a public listing.
Since I have a BW LPG position, now is probably a good time to assess the impact of this event. From a growth perspective, this seems to be a good move. The four newer VLGCs can easily be folded into the owned fleet. The eight Chinese built VLGCs can either go in the owned fleet or become replacement vessels in the BW India subsidiary.
But my BWLP investment decision also had some expectation of a dividend. The BWLP payout is definitely going to be impacted by the fleet expansion. If nothing else, the % of cashflow that goes towards the dividend will be impacted. Since the Avance Gas vessels deliver over a 3.5-month timeframe, the revenue and debt will likely also ramp up over time. Since the payment per vessel has a BWLP share component, share count will also grow over a 3.5-month period. Factor in what seems to be a weaker Q3-to-date, … maybe 35c - 40c for a Q3 payout.
My initial BWLP nibbles were in the $18 level. That’s a little higher than the $17.25 price being paid for partial payment of the 12 Avance Gas vessels.