NYSE-listed Scorpio Tankers has sold all of its remaining shares in Dorian LPG, a move viewed as a positive by analysts.
Scorpio disclosed on 24 July that it will sell 3,392,083 Dorian shares to Sino Energy Holdings for USD16.16/share. On 19 July Scorpio confirmed it was selling 6 million shares to a BW Group subsidiary for USD15.34/share.
The combined proceeds from both transactions total USD146.9 million. Scorpio had obtained its Dorian shares in 4Q13 in return for 11 Very Large Gas Carrier (VLGC) newbuilding contracts. At the time the shares-for-newbuilding contracts deal was finalised, Scorpio had paid USD83.1 million in yard instalments.
According to Evercore IS analyst Jon Chappell, “Following the sale of the [Dorian] shares, Scorpio has unlocked another large slug of liquidity that strengthens its balance sheet, can enable it to more swiftly ramp up its dividend payments, improves its negotiating position with banks as it seeks to refinance current facilities at more favourable terms, and perhaps most importantly, it should remove a perceived overhang regarding future equity issuances.”
Scorpio’s management “has a reputation of being frequent equity issues and its track recover over the last four years certainly renders that reputation well-deserved”, explained Chappell. Because future equity issuances would negatively impact pricing for existing shares, Scorpio’s stock faced a perceptual issue that created downward pressure on its current pricing.
“By selling the Dorian stake, we believes these proceeds should remove the perceived overhang from ‘the next potential equity offering’ and enable investors to focus on the record cash flows being generated,” said Chappell, explaining that the Dorian sale “shifts the perception away from what could happen to the reality of what is happening”.