John Fredriksen's Avance Gas can look forward to useful savings from its new series of dual-fuel VLGCs.
The Oslo-listed company contracted another two 91,000-cbm ships at South Korea's Daewoo Shipbuilding & Marine Engineering on Monday, adding to the two it ordered there in December.
Norwegian investment bank Fearnley Securities estimates cost savings of between $4,000 and $5,000 per day from running on LPG, which involves burning six tonnes per day less fuel.
The savings, which come in addition to emissions reductions, are on the basis of blended long-term prices and a $35 per tonne terminal fee.
A higher proportion of refuellings in the US would increase the savings, Fearnley said.
The new ships are said to be costing $77.5m each and are due in the fourth quarter of 2022 and the first three months of 2023.
Fearnley said that, as with the first two newbuildings, payment terms are expected to be favourable, with a tail-heavy structure.
Dividend warning
"We believe leverage on the assets would be in the 60% to 70% range, suggesting an equity outlay of $46m to $62m," analysts Espen Landmark Fjermestad, Peder Nicolai Jarlsby and Ulrik Mannhart said.
In terms of dividend potential, there will still be capacity to pay circa 50% of earnings per share, Fearnley believes.
But the analysts cautioned: "Avance will have to adopt a more conservative approach to shareholder distributions (than what was the case in the past) in order to build scale, something we consider the right decision given the size of the current company."
They also do not rule out Avance disposing of one or more of its 2008-built ships to fund the equity portion and potentially facilitate further renewal of the fleet.
The Baltic Exchange VLGC index dropped to $96 per tonne or $84,568 per day on Monday, a drop of 8% on the day and a steep fall from $110,000 at the start of 2020.
Product margins are tight, with the price differential between US spot and Asian two-month forward prices at $137 per tonne, against freight rates quoted at $150 per tonne, Fearnley said.
