Mutual fund giant Fidelity Management & Research (FMR) took a 10% stake in Teekay LNG Partners, according to a US regulatory filing, as long-term investors hope to ride the upcycle in LNG shipping.
FMR beneficially owns 7.9 million units in the publicly listed partnership for the LNG shipowner spun off from Teekay Corp. The filing indicates it is a passive stake, with no interest in control of Teekay LNG. In its last annual report, Teekay LNG listed Neuberger Berman as its largest outside shareholder with a 14.7% stake, followed by Oppenheimer Funds, with a 7% stake.
Teekay LNG is the among the handful of shipping names, mostly all LNG shipowners, who have seen positive equity returns for the year. Units in Teekay LNG Partner have returned close to 18%, including dividend distributions. Teekay LNG Partners cut its distribution payout by some 80% last December in a move to save cash through the year.
UBS analyst Spiro Dounis, who covers Teekay LNG said long-only investors are betting on the earlier distribution payout ratio to eventually be restored as LNG freight rates rebound. Dounis himself pegs Teekay LNG Partner to restore the earlier payout mark starting in 2018.
The distribution cut has kept Teekay LNG trading nearing its net asset value, while peers have been trading at premiums to that level. That discount also makes Teekay LNG attractive to long-term investors.
“This is a name that’s trading near its charter-free net asset value, which is below where peer marine partnerships trade,” Dounis said. “A big part of that is because Teekay hasn’t restored their prior distribution. For a long-term investor, part of the catalyst for the units is the restoration of the higher distribution.”
The overall mood in LNG shipping is also improving, Dounis notes, with anecdotal evidence of better spot rates and charterers offering ballast bonuses. Teekay LNG also reportedly secured a long-term charter at a rate believed to be above $70,000 per day, well above the spot market, Dounis says.
