BW LPG’s massive $1.05 billion deal shakes up the global LPG shipping industry

BW LPG Limited has announced a landmark acquisition of 12 Very Large Gas Carriers (VLGCs) from Avance Gas Holdings Ltd., marking a significant $1.05 billion investment that is set to reinforce its status as the world’s largest owner and operator of VLGCs. This strategic move comes as BW LPG aims to capitalize on the growing demand for liquefied petroleum gas (LPG) and the tapering off of new VLGC deliveries, which positions the company at a crucial juncture in the LPG market.

A Strategic Acquisition to Boost Market Dominance

The acquisition, which includes four state-of-the-art dual-fuel VLGCs built between 2022 and 2023, along with eight 2015-built VLGCs, six of which are scrubber-fitted, will see BW LPG’s fleet increase from 41 to 53 vessels. This fleet expansion is not just about numbers; it reflects a calculated effort by BW LPG to maintain its competitive edge in an industry where scale and efficiency are key drivers of profitability.

BW LPG acquires 12 Very Large Gas Carriers from Avance Gas in a $1.05 billion deal, solidifying its position as the world’s leading VLGC operator.

BW LPG is funding this purchase through a mix of new share issuance, cash, and debt novation. Specifically, the company will issue 19.282 million new shares to Avance Gas, granting the latter a 12.77% stake in BW LPG. The remaining funding includes $585.4 million in cash, of which $368 million will go towards repaying existing bank debt, with the rest financed by BW LPG’s available cash resources and a $350 million loan from BW Group, its largest shareholder.

Financial and Operational Implications

This acquisition will notably increase BW LPG’s net leverage ratio from 7% in the first quarter of FY24 to between 30% and 35%. Despite this increase, BW LPG maintains that it will continue to support shareholder distributions, underscoring its commitment to financial discipline even as it scales up operations.

For Avance Gas, the sale of these assets aligns with its strategy to capitalize on high second-hand vessel prices and optimize returns for shareholders. The deal is expected to generate a profit of approximately $315 million for Avance Gas, which has already benefitted from profitable VLGC sales earlier in the year. Post-transaction, Avance Gas will retain ownership of four medium-sized gas carriers (MGCs) and will hold a significant cash balance, setting the stage for future strategic decisions.

Market Impact and Future Outlook

The timing of this acquisition is particularly advantageous for BW LPG, as it coincides with a slowdown in new VLGC deliveries and continued growth in global LPG export volumes. This transaction not only cements BW LPG’s position as a market leader but also enhances its operational flexibility, allowing it to better serve its customers with a larger, more modern fleet.

Andreas Sohmen-Pao, Chairman of BW LPG, highlighted the strategic value of the acquisition, stating that it enhances the company’s ability to deliver superior shipping and product delivery options. Kristian Sørensen, CEO of BW LPG, added that the deal represents a milestone in the company’s history, reflecting its capacity to execute large-scale acquisitions while maintaining a robust financial framework.

With the global LPG market expected to remain strong in the coming years, BW LPG’s expanded fleet places the company in an enviable position to capitalize on future growth opportunities. The industry will be watching closely as BW LPG continues to assert its dominance in this critical sector.