Industry reacts to Sohmen-Pao’s Avance Gas deal – Splash247

Good profit taking on one side and the chance to build market share on the other. Overall, analyst coverage of yesterday’s mega gas shipping deal between John Fredriksen-backed Avance Gas and Andreas Sohmen-Pao-controlled BW LPG has been positive.

The dual-listed unit of Singapore’s BW Group will be taking over 12 ships built between 2015 and 2023, adding to its fleet of 41 VLGCs, in a $1.05bn cash and shares deal that will give BW LPG a 10% market share of all the VLGCs on the water today. The transaction and vessels’ delivery are expected to close by the end of the year and cover a 12.77% stake in BW LPG worth about $333m, $585.4m in cash, and the novation of $132m debt related to two sale and leaseback vessels. Avance Gas is expected to generate a profit of $315m from the sale. 

The $87.5m average price per VLGC sets a higher mark than recent shipbroker assessments that indicate valuations closer to $86.5m based on the Avance fleet average age, analysts at Jefferies noted.

Shipping analysts at Pareto, meanwhile, warned that BW LPG was buying “expensive” ships at what could be deemed a market peak.

Pareto expects Avance to offload its last four mid-size LPG carriers, suggesting SFL would make a “natural fit”. 

The deal gives BW LPG a market cap approaching $2.5bn, according to estimates from Arctic Securities, who hailed the deal as a positive one for BW LPG as it becomes the “most relevant player” in this space, both through fleet and market cap. In comparison, Dorian LPG, a previous BW LPG target, has a market cap of $1.6bn and a fleet of 22 vessels. 

“With the acquisition of these vessels, BW LPG stands well-positioned to benefit from any upsurge in VLGC charter rates going forward.  Besides, this acquisition gives BW LPG immediate access to a younger fleet,” an update from Drewry suggested. 

Clarksons reckons that the transaction could be accretive to earnings per share when VLGC spot rates exceed $29,000 a day. 

“While this rate does not appear to be excessively high, there are potential risks to freight rates in 2025,” Clarksons warned, pointing out that the US Energy Information Administration is predicting a slowdown in US exports, which, combined with continued fleet growth and increased supply pressure from a reopened Panama Canal, could push rates lower.

BW LPG “successfully renews its fleet” and lowers its average age without having to order new vessels, Clarksons pointed out. 

Sohmen-Pao took over from his father as chair of BW Group 10 years ago. In that period of time he has embarked on consolidation on a scale not witnessed before in shipping – outside the container space – which has seen him move for brands including Hafnia, DHT, Epic Gas, Aurora, Swire Blue Ocean, and Navigator Gas.