GLM COMMENT: LNG shipping becomes disillusioned with public listings

LONDON (ICIS)–Shipowner Leif Hoegh is working with US investment bank Morgan Stanley to privatise Hoegh LNG, in what could be part of a trend of LNG shipowners delisting from stock exchanges due to share price under-performance over the long term.

Hoegh LNG’s move to delist from the Oslo Stock Exchange follows GasLog’s decision two weeks ago to start its process of going private. US investor BlackRock bought up to 45% of GasLog’s shares to facilitate the move. GasLog is listed on the New York Stock Exchange.

In its latest financial report, Nasdaq-listed shipowner Golar LNG talked of “a continuing disparity between the share price and the underlying value of the business”.

As a result, Golar’s board approved a share buyback programme of up to $50m of the company’s stock.

ICIS talked to a range of shipping equity analysts about share price performance.

Danske Bank shipping equity analyst Anders Karlsen said the cyclical nature of the LNG shipping market affects share price performance.

“It’s probably the most important reason,” he said.

ABG Sundal Collier shipping equity analyst Lukas Daul highlighted “significant volatility and lacklustre corporate governance in some cases”.

He added: “If you look at shipping companies’ return on capital over the past decade, there is a reason for scepticism.”

David Bhatti, equity analyst with Nordic banking group SEB, cited “leverage on leverage which gets exacerbated when investors buy when rates are up and sell when rates are down”.

Joakim Hannisdahl from shipbroker and financial services group Cleaves blamed share price under-performance in LNG shipping on assets that are not very liquid, meaning it is hard to quickly convert ships into cash. He cited the anomaly of a shipowning company with a new fleet seeing its shares trading below Net Asset Value, even over the peak part of the charter market cycle.

Other LNG shipowners listed on the New York Stock Exchange are Dynagas LNG Partners, Flex LNG, Teekay LNG Partners, and Tsakos Energy Navigation. Flex LNG is also listed on the Oslo Stock Exchange.

“Shipping has performed well the last couple of months, but looking back over the past 10 years the companies have not been able to deliver excess returns,” said Arctic Securities shipping analyst Jo Ringheim.

“The financial performance has been relatively soft, and it is also due to companies not having any clear competitive advantage,” he said. “As such, timing is crucial and investors are struggling to get good returns over the cycle.”

In the last few years, investors have been more focused on the environmental and social aspects of a company.

Shipping, alongside other stocks, has generally been out of favour in that regard, being seen as a link in a value chain which currently has a relatively large carbon footprint, although the shipping industry is taking steps to address this through a more sustainable approach and outlook.

For those LNG shipowning companies deciding to stay publicly-listed, better long-term stock performance is not unthinkable.

“Let’s hope it turns,” says Ringheim. “It seems like both the outlook and investors’ appetite for shipping stocks have improved recently.”

This could be partly related to greener operations, although this is hard to prove.

The consent of two-thirds of shareholders is required for the Hoegh LNG privatisation to go ahead. The deadline for the transaction is 9 August.