Highlights for the quarter ended 31 December 2021
•EBITDA1 of USD 56.5 million
•Net profit after taxes of USD 3.6 million
•Höegh Gallant commenced the new 10-year contract with a subsidiary of New Fortress Energy
•A new unconditional 10-year FSRU contract signed with a subsidiary of Compass Gãs & Energia
•The FSRU contract with AIE was signed, but is still conditional on final investment decision by AIE
•Refinancing of the PGN FSRU Lampung debt facility and the Neptune debt facility completed by Höegh LNG Partners LP
•Höegh LNG Holdings Ltd. raised USD 30 million in new equity from its shareholder
•Höegh LNG Holdings Ltd. launched a non-binding buyout offer for Höegh LNG Partners LP’s common units
Subsequent events
•Klaipėdos Nafta, the charterer of Independence, has publicly announced that it intends to exercise its purchase option to acquire Independence at the end of the existing charter, which runs until the fourth quarter of 2024
Gallant from its previous charter. The EBITDA was USD 56.5 million compared to USD 56.1 million for the third quarter. The slight increase reflects the higher income as described above, offset mainly by non- recurring costs to prepare Höegh Gallant for operations in Jamaica and the cost to charter in the above- mentioned replacement vessel.
The group recorded a net profit after tax of USD 3.6 million for the fourth quarter of 2021, up from a loss of USD 3.1 million in the preceding quarter. This increase is mainly caused by certain one-off financing costs in the third quarter and lower provision for taxes in fourth quarter compared to third quarter.
Operating cash flows increased in the fourth quarter by USD 13.8 million to USD 60.8 million. The net decrease was driven mainly by changes in working capital, predominantly caused by temporary timing effects. Other sources of cash during the quarter comprised USD 30 million in new equity from the shareholders. Spending during the quarter mainly comprised USD 35.9 million in repayment of borrowings and lease payments, dividends paid to non-controlling interests in Höegh LNG Partners (HMLP) and interest payments. The net increase in cash and cash equivalents during the fourth quarter was USD 24 million.
At 31 December 2021, Höegh LNG held USD 134 million in current unrestricted cash (USD 110 million). Net interest-bearing debt, including lease liabilities, decreased during the fourth quarter by USD 62 million to USD 1 440 million (USD 1 502 million). Total assets and book equity at 31 December 2021, after adjusting for the mark-to-market of interest rate swaps, were USD 2 473 million (USD 2 466 million) and USD 744 million (USD 714 million) respectively, equivalent to an adjusted book equity ratio of 30% (29%).
For the full year ended 31 December 2021, Höegh LNG reported a total income of USD 351.8 million and an EBITDA of USD 217.2 million, which compares with USD 335.1 million and USD 225.4 million for the previous year. Although revenues increased, the group also incurred higher expenses in 2021, with increased opex primarily related to maintenance conducted to prepare two vessels for operations in FSRU mode, class renewals and increased SG&A. Höegh LNG reported a net loss of USD 21.2 million for 2021, which compares with a USD 0.1 million profit for 2020. The decrease is, in addition to the decrease in EBITDA, mainly due to a tax provision recorded for uncertain tax position following a tax audit in Indonesia in 2021.
Business review
Business development
Höegh LNG completed and signed all documentation for an unconditional 10-year FSRU-charter with TSRP, a subsidiary of Compass Gãs & Energia, Brazil’s largest gas distributor in December 2021. The Höegh Gannet is assigned to the charter and operations are expected to start late 2022 or early 2023.
During the quarter, Höegh LNG also signed a conditional 15-year FSRU contract with AIE in Australia. The Höegh Galleon is assigned to the charter.
Höegh LNG continues to develop its pipeline of FSRU projects, to ensure that Höegh Esperanza, as the remaining FSRU in the fleet, will also be assigned to a long-term FSRU charter.
Operations
The fleet delivered a stable operating performance in the fourth quarter. Höegh Gallant was out of service for about one month to prepare the vessel for its operations under the new 10-year contract with a subsidiary of New Fortress Energy which commenced late November 2021.
Covid-19
Höegh LNG is experiencing limited operational impacts from Covid-19 and no contractual effects. Ensuring the health and safety of its personnel continues to be the group’s highest priority. The board of directors recognises the challenges for all employees and in particular for the seafarers during these challenging times and is grateful for the extraordinary efforts. Per 4 February 2022, close to 93% of maritime personnel has received their second dose of vaccine and some has also received a booster dose.
The Covid-19 situation is dynamic and could change quickly – in particular with regards to maritime personnel and vessel operational logistics, including repairs and maintenance. Although Höegh LNG’s operations are not directly affected by the Covid-19 pandemic at present, the group has been taking and will continue to take necessary measures to mitigate risks to employees and its operations. The group is continuously monitoring the Covid-19 situation and undertaking scenario analysis and other evaluations to address any changes related to the health, safety and wellbeing of personnel, or to the LNG and FSRU markets, government restrictions, and other aspects potentially affecting operations and the business.
The main effect of the Covid-19 situation continues to be delays to scheduled crew changes, and Höegh LNG is working continuously to ensure the welfare of its maritime personnel by making these delays as short and as few in number as possible. While the group has been able to conduct full or partial crew changes on all the vessels in the fleet, the situation remains challenging for the maritime industry as a whole owing to travel restrictions and quarantine regulations. Nevertheless, all FSRUs and LNGCs are fully operational and crewed in accordance with relevant safety and regulatory requirements, all charter parties remain unchanged and in force, and revenues are being collected in accordance with contractual terms.
Fleet overview and contract coverage
The group’s fleet consists of 10 modern FSRUs and two LNG carriers. Five of the FSRUs are in Höegh LNG Partners’ fleet, and the remaining in Höegh LNG Holdings’ fleet. For 2022, the fleet has a high contract coverage. However, three FSRUs currently trading in LNG carrier mode will potentially roll of existing charters in the second quarter of 2022. For two of them, the existing charterers have an option to extend the charters.
Environment, social and governance (ESG)
Technical availability and LTI statistics
Safe and reliable operation of its fleet is a key focus for the group, especially in the current circumstances, and the results demonstrate a strong record of performance. Technical availability was 99.6% by the end of the fourth quarter, and there was one LTI recorded in 2021.
Corporate/other activities
Buyout offer launched for Höegh LNG Partners LP’s common units
In December, Höegh LNG launched a non-binding buyout offer for Höegh LNG Partners LP’s common units, pursuant to which Höegh LNG would acquire through a wholly owned subsidiary all publicly held common units of the Partnership in exchange for USD 4.25 in cash per common unit. If approved, the transaction would be effected through a merger of the Partnership with a wholly owned subsidiary of Höegh LNG.
The proposed transaction is subject to the negotiation and approval of mutually satisfactory definitive documentation by the parties thereto. If a definitive agreement is reached, the transaction will also require approval by a majority of the holders of outstanding common units in the Partnership. The transaction would be subject to customary closing conditions. There can be no assurance that definitive documentation will be executed or that any transaction will materialize.
New equity
During the fourth quarter, Höegh LNG Holdings Ltd. raised USD 30 million in new equity from its shareholder. The capital increase was settled in cash and is categorised as Contributed Surplus in the consolidated statement of changes in equity.
Refinancing
During the fourth quarter, Höegh LNG Partners completed the refinancing of the PGN FSRU Lampung debt facility and the Neptune debt facility. It also signed the loan agreement for a refinancing of the Cape Ann debt facility, which is planned to be completed in the second quarter of 2022. Also, HLNG agreed certain changes to an unsecured bank debt facility entered into earlier in 2021.
•PGN FSRU Lampung debt facility: The commercial tranche of the debt facility of USD 15.5 million was refinanced with an equal amount and will amortize with equal quarterly instalments to zero by 2026. The export credit tranche of the debt facility remains unchanged. Across both tranches, the debt facility is subject to certain restrictions on the use of cash generated by PGN FSRU Lampung as well as a cash sweep mechanism. Until the pending arbitration with the charterer of PGN FSRU Lampung has been terminated, cancelled or favourably resolved, no shareholder loans may be serviced and no dividends may be paid to the Partnership by the subsidiary borrowing under the Lampung Facility, PT Hoegh LNG Lampung. Furthermore, each quarter, 50% of the PGN FSRU Lampung’s generated cash flow after debt service must be applied to pre-pay outstanding loan amounts under the refinanced Lampung Facility, applied pro rata across the commercial and export credit tranches. The remaining 50% will be retained by PT Hoegh LNG Lampung and pledged in favour of the lenders until the pending arbitration with the charterer of PGN FSRU Lampung has been terminated, cancelled or favourably resolved. As a consequence, no cash flow from the PGN FSRU Lampung will be available for the Partnership until the pending arbitration has been terminated, cancelled or favourably resolved. This limitation does not prohibit the Partnership from paying distributions to preferred and common unitholders.
•Neptune and Cape Ann debt facilities: The new Neptune facility, which closed in November 2021, has an initial loan amount of USD 154 million, which is scheduled to be fully amortised with quarterly debt service over a period of 8 years based on an annuity repayment profile. The new facility was used to repay the existing balloon amount of USD 169 million, with the difference being mainly financed by cash held by the vessel owning entity and subordinated loans from the shareholders (of which USD 3 million from HMLP). The interest rate swaps entered into under the previous debt facility have a remaining tenor of 8 years and have been novated from the previous group of swap providers to the new lenders and restructured to match the new facility’s loan amount and amortisation plan.
The existing Cape Ann debt facility matures on 1 June 2022, and the documentation for the refinancing is ongoing. In December 2021, the new loan agreement was signed and subject to customary closing conditions, the closing and drawdown under the new facility is expected to occur on or about the maturity of the existing facility in the second quarter of 2022. The term and conditions for the new Cape Ann facility are largely identical to the new Neptune facility.
Pending arbitration with the charterer of PGN FSRU Lampung
The charterer under the lease and maintenance agreement for the PGN FSRU Lampung (“LOM”) served a notice of arbitration (“NOA”) on 2 August 2021 to declare the LOM null and void, and/or to terminate the LOM, and/or seek damages. PT Höegh LNG Lampung (“PT HLNG”) has served a reply refuting the claims as baseless and without legal merit and has also served a counterclaim against the charterer for multiple breaches of the LOM. PT HLNG will take all necessary steps and will vigorously defend against the charterer’s claims in the legal process. Notwithstanding the NOA, both parties have continued to perform their respective obligations under the LOM. No assurance can be given at this time as to the outcome of the dispute with the charterer of PGN FSRU Lampung. In the event the outcome of the dispute is unfavorable to the PT HLNG, it could have a material adverse impact on HMLP’s business, financial condition, results of operations and ability to make distributions to unitholders.
Pending Class Action Lawsuit relating to Höegh LNG Partners LP
On 27 October 2021 and 3 November 2021, two purported unit holders filed a class action securities fraud lawsuit in the United States District Court for the District of New Jersey against Höegh LNG Partners LP and certain of its current and former officers, alleging violations of the Securities Exchange Act of 1934. Höegh LNG Partners LP believes the allegations are without merit and intends to vigorously defend against them.
Market
Global LNG trade rose by 5% year-on-year in 2021, reaching 380 million tonnes.
LNG carrier rates increased further in the quarter building on a strong end to the third quarter. Following the end of the quarter, the carrier market has eased off and rates have been falling with stocks in Asia adequate to cover the winter period and shorter shipping distances to Europe.
Currently, 40 FSRUs are on the water (excluding two KARMOL vessels with significantly lower send-out and small-scale barges). Of these, 32 are committed on FSRU contracts and 8 are available and/or trading as LNGCs. The orderbook comprises one FSRU newbuilding.
Outlook
Höegh LNG’s main commercial focus is to deliver the FSRU projects that have been secured, ensure the contract with AIE becomes a firm contract, and conclude long-term FSRU employment for Höegh Esperanza, which currently is the remaining FSRU in the fleet which is not assigned to a specific project. The business development activity was high in the fourth quarter of 2021 and this is expected to continue into 2022.
HMLP’s main focus is the dispute with the charterer of PGN FSRU Lampung. No assurance can be given at this time as to the outcome of the dispute.
Source: Hellenic Shipping News
