Reference is made to the stock exchange release on 17 November 2017, and the IMS 3Q17 report dated 30 November 2017.
I.M. Skaugen SE (“IMS”) is in the process of completing a business transformation, shifting its focus from long haul seaborne transportation of LPG/Petrochemicals (mostly spot business) to regional distribution of LNG (feedstock for power plants or energy related/long term contract business) through our unique fast-track, low capex Small Scale LNG (SSLNG) concepts. IMS is, in this connection, in the process of launching its “Proof of Concept SSLNG project” as was announced earlier this year, and as updated throughout the year. IMS is also in advanced discussions on another potential fast-track SSLNG project that may materialize in the near term, where we are now engaged in exclusive talks to finalize terms.
Summary of IMS refinancing update
IMS has been working on a new overall refinancing plan for its debt facilities maturing in April 2018. The new plan will need to replace the previous refinancing plan, which aimed at paying all creditors in full. As advised in the recent announcements and explained further below, paying all creditors of the group in full is less likely now due to the unilateral terminations received by a subsidiary of IMS in mid-November 2017 of six long term bareboat charters.
The new plan will need to entail a potential recapitalizing of the group, and in cooperation with a mandated arranger to be appointed. Such a recapitalizing will need to involve all layers of the capital structure. The plan will seek to strengthen the groups equity and liquidity base, and aims at protecting value for all the IMS stakeholders.
In conjunction with the aforesaid business transformation and new refinancing plan, IMS has been working hard to execute on the previously communicated refinancing plan, a plan which was prepared for IMS to be able to pursue these SSLNG business opportunities for the benefit of all IMS stakeholders. The intention of this refinancing plan has been to make all the financial lenders and operational leaseholders (7 vessels) whole over time, by securing a financing structure with maturity to match the expected future cashflow of the group. This, we believe, was achievable when these SSLNG projects were operational. We had secured consent from most stakeholders to this plan, which envisions that all entities will receive the funds they are owed.
The agreements with the secured creditors and the bondholders were successfully signed on 19 May 2017 and 23 May 2017 with all conditions completed by 8th June 2017. The refinancing extended the debt maturity until 6 April 2018 (certain conditions related to the agreements with the secured lenders have been waived on a shorter-term basis due to delayed startup of the LNG project), and enabled the group to engage in the next steps of the refinancing plan – namely a rearrangement of the group’s operational leaseholders (7 vessels). These are vessels that were on lease to a single purpose company, used by the group to operate all the vessels that support the group’s business.
In order to achieve an optimal structure, IMS has been in extensive discussions with the vessel owners or the lease counterparties, with the aim of securing a long-term rearrangement of these relationships for our Singapore based subsidiary. The counterparties of these leases have in this period been paid on a “pay as you earn” rates with a deferment of the unpaid bareboat hire. The arrangement was contemplated to endure until the SSLNG contract was operational. In the third quarter, IMS managed to agree on a consensual termination and redelivery with Gasmar AS for an 8,556 cbm LPG/Ethylene carrier that was on in-charter or lease. The agreement was reached with standard and customary subjects and the vessel was redelivered to Gasmar AS following completion of its current voyage in the early part of December 2017. IMS has also agreed to cover cost of a part of an upcoming drydocking of the vessel to redeliver the vessel as per our contract. This agreement fits our ambitions as per the announced refinancing plan as it allows for a consensual solution where the vessel owner can redeploy the vessel as desired and with the risk/ reward profile that fits the vessel owner.
IMS further tried to reach similar consensual agreements with Teekay LNG Partners L.P (“TGP” or “TK”), who, through six Marshall Island SPVs, are the owners of 6 vessels on charter to a 100% owned subsidiary of IMS. Five of these vessels were on long term in-charter and one vessel was on a shorter term in-charter. Since their delivery, the IMS subsidiary has incurred losses of more than USD 100 mill on the five vessels leased on long term basis from TGP. The one vessel on shorter term in-charter is guaranteed by the parent company IMS. Until recently the discussions with TGP were constructive in terms of trying to find a consensual solution, in line with our refinancing plan and thus also to benefit of all our stakeholders, including TK. Our aim was to pay TK in full as part of the overall intention of making all creditors whole. We believe that, given time to successfully implement the SSLNG projects, this was feasible and to the advantage of TK.
However, surprisingly to IMS, our subsidiary received unilateral termination notices concerning these 6 TK vessels on 16th November 2017. IMS was further informed by media releases the same day that TGP had already established its own competing LPG/Petchem and SSLNG pool intended to operate these vessels and other Norgas pool vessels on their own, instead of through the Norgas Carriers pool. Following the termination notices, IMS and Norgas have been in the process of ensuring that the redelivery of these 6 TGP vessels, under the in-charters to our subsidiary, are done in accordance with the underlying agreements/arrangements and without creating damage to the clients of Norgas. To date, 6 vessels on in-charter have been redelivered. The redeliveries have been performed by our team of professionals without any material disruption to the Norgas Pool operations and/or its clients.
IMS regrets this development with TK, but respect the fact that TK may want to operate these, for us loss-making vessels, on their own rather than on an operational lease to the relevant IMS subsidiary. The LPG / Petchem transportation business is currently very challenging and scale is probably needed on the back of a much-needed consolidation for that business to again perform. By establishing a new pool TK is, according to the media release referred to above, hopeful they alone can achieve such a consolidation. The company’s two wholly owned LNG capable vessels are not affected by the changes in the Norgas pool and the Norgas pool will consist of seven ships after the above-mentioned withdrawals have been accomplished and four of these are SSLNG capable.
The overall IMS refinancing plan will need to be reworked as the relevant IMS subsidiary has now reduced ability to make any of its counterparties whole because of the unilateral lease terminations by TGP. The subsidiary is thus unable to play a role to support the IMS group’s ability to do the same. The IMS group will from now have reduced on- and off-balance sheet commitments and fewer ships on commercial management on its books. In isolation, this is a positive given the upcoming changes to the accounting treatment of operational leases (IFRS 16), which entails revised balance sheet treatment of operational leases. These changes should enable IMS to further narrow its focus on the Small-Scale LNG business with the expected upcoming launch of our “proof of SSLNG concept”.
If you have any questions, please contact:
Bente Flø, Chief Financial Officer, on telephone +47 23 12 03 00 /+47 91 64 56 08 or by e mail:firstname.lastname@example.org.
I.M. Skaugen SE is a Norway based Marine Transportation Service Company, with a focus on Innovative Maritime Solutions. Our core business activity is to provide logistics solutions for seaborne regional distribution of liquefied gases such as LNG, petrochemical gases, ethane as well as LPG.
The Skaugen Group currently operates a fleet of 7 advanced gas carriers. In our fleet we have 4 innovative and unique vessels with the capacity to transport LNG in addition to petrochemical gases and LPG. We have pioneered the Small Scale LNG distribution business with this unique development project. We recruit, train and employ our own team of seafarers. We manage and operate our global activities and service our clients from our offices in Singapore and Oslo.