Oystein Kalleklev is not about to fall into the trap of spending cash on newbuildings at the top of the market.
The Avance Gas executive chairman told a conference call with analysts that his VLGC company will try to be “a bit smarter” than that.
The John Fredriksen-owned firm is sitting on cash and liquidity of $188m in strong freight markets.
Kalleklev said he regularly gets asked what he will do with what he called a “huge” sum of money.
He pointed out Avance is paying out 135% of earnings to investors for the third quarter and 86% for the year.
“Some of the shipping companies, they brag they’re going to pay 50% of their earnings in dividends. We are not going to brag about that because we’re going to pay 100%,” he said.
In the spring, Avance Gas spotted it could “get better financing terms” from lenders.
“So when banks are keen to lend you money, you should try to borrow. And so we refinanced basically … almost all of the fleet,” the chairman told the call.
The six-ship newbuilding programme at Daewoo Shipbuilding & Marine Engineering is also fully financed.
“The financing market was good, but also there was a lot of concerns about [the] 2023 outlook with a lot of analysts putting in numbers where people were bleeding,” Kalleklev said.
Positive outlook
“The last thing you want to have is a situation where people are starting to calculate your runway. How long does the money last? Because then you’re going to destroy equity value, and we have seen this in this same company in the past when people are calculating how long are you going to last.”
But now the outlook has turned from “very dire” to “very positive” for next year.
“I think it’s wise for the company to have ample access to liquidity, to alleviate any concerns if there is a certain change in market sentiment that people will think that, ‘Well, I can sleep safe at night’,” he added.
He believes the owner can withstand a tough market for up to three years and he thinks it now has probably more cash than it needs.
Share buybacks are difficult because Fredriksen has 77% of the company.
“But instead, we are going to pay handsomely in dividends today and going forward,” Kalleklev said.
In the money on new ships
The South Korean newbuildings were ordered at the bottom of the market for $80m each and are now worth $95m.
Shipping companies have a good stock price when the markets are red hot, the chairman added. “And usually, when the market is red hot, newbuilding prices are also pretty firm.”
Owners then make unwise investment decisions at the top of the market.
Avance will consider newbuildings, Kalleklev told the call.
“We have looked into it. But so far, we have considered that the best alternative for our shareholders is that we focus on chartering our existing ships, taking delivery of our existing ships and maximising dividends for our shareholders rather than building more ships,” he concluded.
