Capital Product Partners (NASDAQ: CPLP), an owner of seven liquified natural gas carriers and 15 container ships, will pay $3.13 billion to buy 11 LNG carrier newbuildings from its private sponsor, Capital Maritime, controlled by Greek shipping magnate, politician and football-team owner Evangelos Marinakis, reports Freight Waves.
Another change for LNG shipping stocks
The transformed entity will be a leading player in the U.S.-listed LNG shipping space, which has undergone a major reshuffle in recent years as the Ukraine-Russia war lifted LNG shipping rates to record highs.
In the minus column for LNG shipping investors, Teekay LNG, GasLog LNG, and GasLog LNG Partners were taken private, as was floating regasification provider Hoegh LNG Partners, while the fleet of Golar LNG was sold. In the plus column, Flex LNG (NYSE: FLNG) is listed in 2019, and CoolCo (NYSE: CLCO) — which purchased the Golar fleet — is listed this March.
CPLP could see significant fleet growth beyond acquisitions announced Monday. It has the right of first refusal on any future LNG vessel sales by Capital Maritime, as well as on two ammonia carrier new buildings and two CO2 carrier new buildings ordered by Capital Maritime.
Following the “milestone transaction,” the company will grow into “one of the largest if not the largest LNG and energy transition gas company in the U.S. public markets,” said CEO Jerry Kalogiratos on a call with analysts.
Pure plays vs. diversified fleets
Capital Product Partners went public back in 2007 as an owner of product tankers, thus its name. But throughout its history, it used a diversified fleet model, also owning crude tankers, dry bulk carriers, container ships, and LNG carriers, including many bought-in related-party “drop-down” transactions from Marinakis. It has been building up its LNG fleet since 2021.
The debate continues on whether it’s best to diversify or not.
The pro-diversification argument is that it allows a company to manage through shipping cycles, as opposed to being a commoditized captive of a single sector’s cycle. The counterargument is that diversified shipping stocks are not attractive to investors.
The recent moves to diversify have been driven by the desire to offset exposure to the container shipping cycle and its fragile supply-demand fundamentals.
CPLP’s move into LNG two years ago coincided with a major diversification into dry bulk shipping by fellow container ship lessor Costamare (NYSE: CMRE). This year, container-ship lessor Danaos (NYSE: DAC) followed Costamare’s lead with its expansion into dry bulk.
The dry bulk strategy has yet to pay off for either Danaos or Costamare because the dry bulk market has slumped at the same time as container shipping.
Diversification hasn’t worked for CPLP either — which is why it’s now changing course.
According to Kalogiratos, the company’s common units “have been trading at a large discount to NAV [net asset value]. Despite value-creating transactions … this picture has not changed materially,” so the company is “moving away from the diversified model.”
CPLP unloaded its tanker fleet via a merger with Diamond S in 2019; the fleet of Diamond S was then sold to International Seaways (NYSE: INSW) in 2021. CPLP sold its last dry bulk carrier this year, delivering it to the buyer last month.
The entire container ship fleet is for sale
Its container shipping fleet consists of eight vessels with a capacity of 5,000-5,100 twenty-foot equivalent units, four 9,000- to 10,000-TEU ships, and three 13,312-TEU ships.
Nine are on charter to Germany’s Hapag-Lloyd, five to Korea’s HMM, and one to France’s CMA CGM. Nine of those charters expire in 2025, three in 2026, one in 2032, and two in 2033.
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Source: Freight Waves