Tanker group Navig8 has branched out into gas shipping with an investment in Norwegian shipowner Awilco LNG.

Oslo-listed Awilco, which owns two LNG carriers, said that Navig8 group's private investment company Navig8 Topco Holdings had acquired a 13.87% holding.

Indirectly held subsidiaries bought just over 10.2m shares on Wednesday.

The slice is worth NOK 11.63m ($1.17m) based on the closing price of NOK 1.14 yesterday.

The stock was trading up nearly 10% on Thursday morning following the announcement, however.

The deal makes Navig8 Topco the second biggest shareholder after Awilco AS on 38.6% and ahead of Strawberry Capital and Morgan Stanley with around 8% each.

Navig8 had no further comment on the deal when contacted by TradeWinds. Awilco LNG has also been contacted.

Navig8 Topco initially flagged a 6.16% position in Awilco LNG on 22 May.

Obvious M&A target

Cleaves Securities head of research Joakim Hannisdahl said: "We will not speculate what the goal is, but priced at a large discount to steel, Awilco is an obvious merger and acquisition (M&A) candidate."

He has upgraded the stock to hold from sell, with a target price of NOK 1.40, as liquidity concerns are balanced by the M&A potential.

Cleaves said the two vessels are implicitly priced at a 16% discount to steel and a massive 73% discount to net asset value.

"This also highlights the inherent risk in the company which is highly leveraged at an adjusted equity ratio of only 20% as it faces a market trough which we believe could last until 2023/24," added Hannisdahl.

"Thus, our base case is for the company to be in breach of its debt covenants in the fourth quarter of 2020 and out of liquidity in 2021."

The earlier sell rating was based on the risk of a potential dilutive equity issue.

"Investing in Awilco LNG is highly risky given the circumstances, but we find the risk/reward to be neutral," he added.

Tanker specialist revealed profit

Last August, Navig8 Topco Holdings, registered in the Marshall Islands, posted net profit of $6.9m in the quarter to 30 June, against $2.2m in the same period of 2018.

The fleet of 20 owned or partially owned LR1s, LR2s, MRs, bunker tankers and a VLCC brought in revenue of $774m, compared to $699m in 2018.

The Navig8 group owns 57 tankers and offshore vessels, with many more operated by its pools.

The closest it is known to have previously come to LNG is when it forged a deal in December with a Chinese leasing company that saw it book LNG-fuelled newbuildings by placing an order at CSSC's Qingdao Beihai Shipbuilding Heavy Industry.

The operator teamed up with CSIC Leasing to order up to four LNG-fuelled LR2 product tankers at the Chinese yard, TradeWinds reported.

Awilco LNG posted a net profit of $2.69m in the first quarter, from a loss of $3.36m a year ago.

Revenue grew to $14m, up from $9.35m. Vessel utilisation was 100%, compared to 95% in 2019.

It operates the 156,000-cbm sisters WilPride and WilForce (both built 2013).