BW LPG has acquired a large stake in John Fredriksen-controlled Avance Gas, prompting speculation of further consolidation in the red-hot VLGC segment.
In an exchange filing, BW LPG said it purchased 9.14% of the Oslo-listed peer on Monday, which would make it Avance’s second largest shareholder.
The stock price of Avance has risen 9.32% to nearly NOK 41.8 ($4.8) since Monday’s close. BW LPG has increased by 1.98% to NOK 59.2.
BW LPG — the world’s largest VLGC owner — apparently made a strategic move since investors value the pair’s vessels similarly, Fearnleys Securities said.
“Fair to say, it has been difficult to acquire operational assets in the VLGC space in recent years on the back of thin liquidity in the secondhand hand market,” the Oslo-listed investment bank said.
“As such, it has become increasingly difficult to grow without making additions to the orderbook.”
Spot VLGC earnings have surged to their highest since 2015, riding on delays at ports and the Panama Canal, and arbitrage flows from the US to Asia during winter.
But some analysts warned the momentum could quickly slow down next quarter when those seasonal factors abate.
No newbuilding orders
In an email to TradeWinds, BW LPG chief executive Anders Onarheim said the stake buy is a financial investment “for now”, but he would not rule out any future opportunities.
“John Fredriksen is the largest shareholder in Avance and we respect that position,” Onarheim said. "But we are open to have discussions, if invited. And consolidation do make sense in our opinion."
Onarheim added that BW LPG intends to maintain exposure to the VLGC segment without newbuilding orders, having sold some of its older vessels.
“We know the VLGC space well and we are comfortable with this exposure,” Onarheim said. “We find this to be an attractive alternative in a strong market.
“We do not want to order new ships at this stage. Until the future carbon-free fuels have been developed, we will abstain from ordering new ships and have instead decided to retrofit 15 of our vessels with dual-fuel LPG propulsions.
He said retrofits leave a smaller carbon footprint than constructing a new ship.
“Reuse is good also in shipping,” Onarheim said.
Avance declined to comment on the acquisition. But its executives have been openly sceptical of dual-fuel VLGCs, citing large capital expenses and limited environmental benefits.
Contentious M&A arena
BW LPG and Avance, the fourth largest VLGC owner, have long shown ambition in taking over smaller competitors in the past few years.
In 2015, Avance offered to merge with Aurora LPG via a shares swap, but the takeover bid failed to secure enough backing from Aurora shareholders.
In the following year, BW LPG managed to acquire Aurora and its nine VLGC via a mix of cash and shares.
Avance and BW LPG have both made attempts to merge with Dorian LPG, the number three VLGC owner. Those efforts failed to bear fruit partly because Dorian chairman John Hadjipateras did not think the prices were right.
In recent quarters, BW LPG’s parent — BW Group — had exhibited more interest in smaller LPG segments.
Earlier this month, the Andreas Sohmen-Pao-led shipping conglomerate swooped on a 39.1% stake in Navigator Holding, a leading player in the handysize segment.
In 2019, BW Group successfully executed a $120m takeover of Epic Gas, which owned 39 LPG carriers between 3,500 cbm and 11,000 cbm.
