Monaco - Aug. 01, 2019
GasLog Ltd. and its subsidiaries (“GasLog” or “Group” or “Company”) (NYSE: GLOG), an international owner, operator and manager of liquefied natural gas (“LNG”) carriers, today reported its financial results for the three-month period ended June 30, 2019.
• Delivery of the GasLog Warsaw on July 31, 2019, a 180,000 cubic meter (“cbm”) Mark III Flex Plus carrier with low pressure dual fuel two-stroke (“X-DF”) propulsion. The vessel was immediately delivered into a new charter with a wholly-owned subsidiary of Cheniere Energy Inc. (“Cheniere”) for the period prior to the commencement of her long-term charter with a subsidiary of Endesa S.A. (“Endesa”) in May 2021.
• Closed a follow-on issue of $75.0 million aggregate principal value of the 8.875% senior unsecured notes due 2022 (the “8.875% Senior Notes”) priced at 102.5% of par with a yield to maturity of 7.89%.
• Exited the Cool Pool (the “Cool Pool”) to assume commercial control of the vessels operating in the LNG carrier spot market and subsequently signed two time charter agreements with a subsidiary of Gunvor Group Ltd. (“Gunvor”) for the GasLog Shanghai and the GasLog Salem for three and a half years and up to nine months, respectively.
• Amended the Partnership Agreement to eliminate GasLog’s incentive distribution rights (“IDRs”), effective June 30, 2019, in order to reduce the cost of capital of GasLog Partners LP (“GasLog Partners” or the “Partnership”) and to simplify the Group’s financial structure and reporting.
• Completed the sale of the GasLog Glasgow to GasLog Partners for $214.0 million, with attached multi-year charter to a subsidiary of Royal Dutch Shell plc (“Shell”).
• Revenues of $154.3 million, Loss of ($10.5) million and Loss per share of ($0.35)(1) for the three-month period ended June 30, 2019 ($132.8 million, $14.2 million and ($0.08), respectively, for the three-month period ended June 30, 2018).
• EBITDA(2) of $106.8 million, Adjusted EBITDA(2) of $107.0 million, Adjusted Profit(2) of $20.5 million and Adjusted Earnings per share(2) of $0.03(1) for the three-month period ended June 30, 2019 ($92.6 million, $92.9 million, $14.8 million and ($0.07), respectively, for the three-month period ended June 30, 2018).
• Quarterly dividend of $0.15 per common share payable on August 22, 2019.
(1) Earnings/(loss) per share (“EPS”) and Adjusted EPS is net of the profit attributable to non-controlling interests of $15.5 million and the dividend on preferred stock of $2.5 million for the quarter ended June 30, 2019 ($17.8 million and $2.5 million, respectively, for the quarter ended June 30, 2018).
(2) EBITDA, Adjusted EBITDA, Adjusted Profit and Adjusted EPS are non-GAAP financial measures and should not be used in isolation or as a substitute for GasLog’s financial results presented in accordance with International Financial Reporting Standards (“IFRS”). For the definitions and reconciliations of these measures to the most directly comparable financial measures calculated and presented in accordance with IFRS, please refer to Exhibit II at the end of this press release.
Paul Wogan, Chief Executive Officer, stated: “GasLog’s revenues from our year-on-year fleet expansion and our time charter earnings supported our financial performance against a back drop of relatively weak LNG shipping rates in the second quarter, further validating our strategy of maximising our fleet’s multi-year charter coverage. We continued to execute on this strategy during the quarter by withdrawing our vessels from the Cool Pool, subsequently chartering the GasLog Shanghai and the GasLog Salem to Gunvor for three and a half years and up to nine months, respectively, securing full utilisation for these vessels.
During the second quarter, we continued to source attractive financing to fund our committed newbuild programme. We closed the financing of the GasLog Warsaw, which delivered earlier this week into a multi-month charter with Cheniere that covers the whole of the available period before the vessel commences her eight-year charter with Endesa, in May 2021. We also raised gross proceeds of $76.9 million through tapping our existing U.S. dollar bonds at a premium to par. Finally, we improved GasLog Partners’ cost of capital by eliminating the incentive distribution rights. This increased our stake in the Partnership and simplified both our corporate structure and the investment case for our investors.
We are seeing increasing customer interest in multi-month and multi-year charters, underpinning the long-term growth prospects for LNG and supporting our view that the second quarter weakness in LNG shipping markets is temporary. We expect shipping availability to tighten during the second half of 2019 and beyond based on new LNG supply additions, predominantly from the U.S. and almost all of which is secured by long-term off-take contracts, and continued global growth in LNG demand. This underpins our confidence in the outlook for our business and our ambition to deliver enhanced returns to shareholders.”
LNG Market Update and Outlook
Global LNG demand was 86 million tonnes (“mt”) in the second quarter, compared with 74 mt in the second quarter of 2018, an increase of 16%. Higher European imports (up 110% year-on-year) accounted for most of the growth, while demand from Northeast Asia (Japan, China, South Korea and Taiwan) was flat year-on-year, according to Poten. Natural gas prices were at multi-year lows in the second quarter of 2019 as the leveling off in demand growth from key LNG consumers in Northeast Asia coupled with elevated inventories and new LNG supply depressed LNG prices in Asia and Europe. However, low European gas prices and rising carbon prices have incentivized coal-to-gas switching in power generation, with Platts reporting that Germany’s and Italy’s gas-fired power generation has increased 54% and 37%, respectively, in 2019 to date. Global LNG demand for 2019 is estimated at 351 mt, an increase of over 37 mt, or 12%, over 2018, according to Wood Mackenzie.
Global LNG supply totaled 87 mt in the second quarter of 2019, an increase of 13 mt or 17% over the second quarter of 2018, principally driven by new supply additions in the U.S., Australia and Russia, according to Poten. Wood Mackenzie estimates that 2019 supply will be 365 mt, or 38 mt (12%), higher year-on-year as 2018’s supply additions continue to ramp up production and new projects begin production in the U.S. and Australia. The second quarter also saw significant additions to future supply growth as Cheniere reached a final investment decision (“FID”) on Sabine Pass Train 6 while Anadarko Petroleum took FID on Mozambique LNG (Area 1), in aggregate representing 17 mt of new liquefaction capacity according to Wood Mackenzie. In 2019, nearly 34 mt of new liquefaction capacity has reached FID to date.
Headline spot rates for tri-fuel diesel electric (“TFDE”) LNG carriers (“LNGCs”) averaged approximately $49,000 per day in the second quarter of 2019, compared to $58,000 per day in the second quarter of 2018, as reported by Clarksons. The year-over-year decline in headline TFDE spot rates is primarily attributed to the low global natural gas prices referenced above, which limited opportunities for inter-basin LNG trading, start-up delays of new liquefaction projects, particularly in the U.S., as well as fleet growth. Despite these headwinds, 18 charters greater than 6 months in duration were fixed during the second quarter of 2019, compared with 20 in the first quarter and 24 in the second quarter of 2018. Poten currently estimates the one-year time charter rate for TFDE LNGCs at $85,000 per day as compared with their headline spot rates of $60,000 per day, which may indicate a potentially tightening shipping market in the quarters ahead as customers look to secure their shipping ahead of the seasonally strong winter months and through 2020.
We expect multi-month and multi-year chartering activity and shipping rates to increase from current levels during the second half of 2019 and into 2020, with the magnitude and duration dependent on the pace and location of demand growth, the continued ramp-up in new LNG supply additions and cooling and heating demand during the Northern Hemisphere summer and winter, respectively. In 2021 and beyond, we continue to see a balanced market for LNG shipping relative to supply and demand for the LNG commodity.
As of July 11, 2019, the LNG fleet and orderbook (excluding floating storage and regasification units (“FSRUs”) and vessels with capacity below 100,000 cbm) stood at 498 and 109 vessels respectively, as estimated by Poten. Of the LNGCs in the orderbook, 63, or 58%, are chartered on multi-year contracts. There have been 25 vessels ordered thus far in 2019, including nine during the second quarter, and against a total of 63 for all of 2018, suggesting the pace of newbuild ordering has declined.
Cool Pool Exit
On June 6, 2019, GasLog entered into a termination agreement with the Cool Pool and Golar LNG Ltd. (“Golar”), whereby GasLog assumed commercial control of its six vessels operating in the LNG carrier spot market through the Cool Pool. As of June 30, 2019, four of the GasLog vessels had exited the Cool Pool while the remaining two vessels were withdrawn in July 2019.
Financing and Delivery of the GasLog Warsaw
On June 25, 2019, GasLog entered into a loan agreement with ABN AMRO BANK N.V. and Oversea-Chinese Banking Corporation Limited for the financing of the GasLog Warsaw, a 180,000 cbm Mark III Flex Plus carrier with X-DF propulsion constructed by Samsung Heavy Industries Co., Ltd. (“Samsung”). The agreement provides for a single tranche of $129.5 million that was drawn on July 25, 2019 and is repayable in 28 equal quarterly installments of $1.6 million each and a final balloon payment of $84.2 million payable concurrently with the last quarterly installment in June 2026. The loan bears interest at the London Interbank Offered Rate (“LIBOR”) plus a margin.
On July 31, 2019, GasLog took delivery of the GasLog Warsaw. Upon delivery, the vessel immediately commenced a time charter with Cheniere until May 2021, when the vessel is contracted to commence an eight-year time charter with Endesa.
On May 16, 2019, GasLog closed a follow-on issue of $75.0 million aggregate principal amount of the 8.875% Senior Notes priced at 102.5% of par with a yield to maturity of 7.89%. The gross proceeds from this offering were $76.9 million, including a $1.9 million premium, while the net proceeds, after deducting the underwriting discount and offering expenses, were $75.4 million. GasLog plans to use these proceeds to partially fund its committed newbuild program and for general corporate purposes, including working capital.
Amendment of the Partnership Agreement
On June 24, 2019, the Partnership Agreement was amended to eliminate the IDRs in exchange for the issuance by the Partnership to GasLog of 2,532,911 common units and 2,490,000 Class B units (of which 415,000 are Class B-1 units, 415,000 are Class B-2 units, 415,000 are Class B-3 units, 415,000 are Class B-4 units, 415,000 are Class B-5 units and 415,000 are Class B-6 units), issued on June 30, 2019. Class B units have all of the rights and obligations attached to the common units, except for voting rights and participation in distributions until such time as GasLog exercises its right to convert the Class B units to common units. The Class B units will become eligible for conversion on a one-for-one basis into common units at GasLog’s option on July 1, 2020, July 1, 2021, July 1, 2022, July 1, 2023, July 1, 2024 and July 1, 2025 for the Class B-1 units, Class B-2 units, Class B-3 units, Class B-4 units, Class B-5 units and the Class B-6 units, respectively. Following the IDR elimination, the allocation of GasLog’s profit to non-controlling interests is based on the revised distribution policy for available cash stated in the Partnership Agreement as amended, effective June 30, 2019, and under which 98.0% of the available cash is distributed to the common unitholders and 2.0% is distributed to the general partner.
New Charter Agreements
As announced on June 14, 2019, GasLog Partners entered into a three-and-a-half-year time charter agreement with Gunvor for the GasLog Shanghai. The charter commenced on June 24, 2019 and has a variable rate of hire within an agreed range during the charter period. In addition, GasLog has entered into a time charter agreement for a period of up to nine months with Gunvor for the GasLog Salem. The charter commenced on June 27, 2019 and also has a variable rate of hire within an agreed range during the charter period.
Completion of the Sale of the GasLog Glasgow
On April 1, 2019, GasLog completed the sale of 100% of the ownership interest in GAS-twelve Ltd., the entity that owns the GasLog Glasgow, to GasLog Partners for an aggregate purchase price of $214.0 million, which includes $1.0 million for positive net working capital.
On May 10, 2019, the board of directors declared a dividend on the Series A Preference Shares of $0.546875 per share, or $2.5 million in the aggregate, payable on July 1, 2019 to holders of record as of June 28, 2019. GasLog paid the declared dividend to the transfer agent on June 28, 2019.
On July 31, 2019, the board of directors declared a quarterly cash dividend of $0.15 per common share, or $12.1 million in the aggregate, payable on August 22, 2019 to shareholders of record as of August 12, 2019.
GasLog Ltd. press release