John Fredriksen’s Avance Gas is set to bank a huge profit from offloading its last two VLGC newbuildings as resales.
The unknown buyer will pay $240m for the Oslo-listed company’s last two 91,000-cbm dual-fuel ships on order at Hanwha Ocean in South Korea, giving Avance Gas a $73m profit.
The VLGCs Avance Castor and Avance Pollux were originally scheduled for handover in the third and fourth quarters of this year.
Delays to their construction mean they will now be finished in March and May 2024.
Fearnleys brokers estimated new VLGCs are worth $115m each, against the $120m secured by Avance Gas.
They were contracted in April 2021 for $78m each. Their sale price reflects a huge rise in asset values in record freight markets.
An extra $3m has been spent on each ship to enable ammonia loadings, as well as allowing the carriers to run on the zero-carbon fuel when it is available.
The cash release will be $120m, as $47m has already been handed over to the yard.
The vessels were financed with a $135m sale-and-leaseback deal in August 2022.
The leases are being swapped to the sister ships Avance Polaris and Avance Capella (both built 2022), which are currently funded by a bank loan maturing in 2027.
This will give Avance Gas a further $41m in cash.
Maturity will be pushed out to 2034.
Cash flowing back to shareholders?
The owner will have no loan expiring before 2028.
Chief executive Oystein Kalleklev called the profit “very attractive”.
“While we were looking forward to expanding and renewing our fleet with these two high-spec newbuildings, our focus is maximising shareholder value,” he said.
While this “might seem less in vogue these days than in the past, it remains our number one priority and is our licence to operate as prudent stewards of our shareholders’ capital”.
The deal highlights the sharp positive shift in outlook for the VLGC market, Kalleklev added: “This has enabled us to pocket a sizeable profit and thus take some money off the table in an improved market.”
Avance Gas will consider handing back a major part of the proceeds to shareholders.
Fearnley Securities said shareholders could receive 26% of the current share price as handouts by the end of the second quarter alone.
The owner raised $65m in an equity issue in April 2021 to finance the acquisition of the two newbuildings, of which $49m has been used as pre-delivery capex.
“Given the fact that we already hold a substantial cash position, we will therefore consider reducing our paid-in capital to make such return of capital to our shareholders more tax efficient than through ordinary dividends,” Kalleklev said.
Avance Gas retains four 40,000-cbm LPG carrier newbuildings in China for delivery in 2025 and 2026. It has 13 operational VLGCs.