Hoegh LNG Partners LP (HMLP) 2021 Q4 法說會逐字稿

Hello, and welcome to the Höegh LNG Partners Fourth Quarter 2021 Earnings Presentation (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Havard Furu, Interim Chief Executive Officer and Chief Financial Officer. Please go ahead.

Thank you, Andrew, and good morning, ladies and gentlemen, and welcome to Höegh LNG Partners' earnings call for the fourth quarter of 2021. My name is Havard Furu, and I am the Chief Financial Officer of the partnership; and also fill the role as Interim CEO. For your convenience, this webcast and presentation is available on our website.

Turning to Page 2 in today's presentation. We have an overview of the content of the presentation. I will start with some highlights from the fourth quarter and then cover the quarterly financials. Thereafter, I will give a market update before summarizing the presentation at the end. You will then also have the opportunity to ask questions at the end of the presentation.

Before we start, please take note of the forward-looking statements on Page 3 and the glossary on Page #4.

Then turning to Page 5 and the highlights. I'm pleased to report that the fleet had 99.9% availability in the quarter. This resulted in total revenues of $36.2 million and a segment EBITDA of $30.5 million in the quarter.

As of today, the partnership has not been materially impacted by the COVID-19 pandemic. The Höegh LNG Group has taken steps to mitigate the risk from COVID-19 and ensure the health and safety of our crews and staff, which is our highest priority. Thanks to the hard work of our people onboard vessels and onshore, the fleet is operating as expected despite the pandemic.

The Höegh Gallant commenced operation for New Fortress Energy in late November. During the quarter, the vessel was modified and prepared for performance under this contract and incurred expenditures of $4.9 million, of which, $3.5 million is recorded as operating expenses and $1.4 million is capitalized. 50% of the $4.9 million will be reimbursed by Höegh LNG by the end of February 2022.

The refinancing of the Neptune and the PGN FSRU Lampung was completed during the quarter. And in December, we also signed a new loan agreement for the Cape Ann. I will cover these in more detail on the next pages.

In December, the Board of the partnership received an unsolicited nonbinding buyout offer for all publicly held common units of the partnership in exchange for $4.25 in cash per common unit. Despite the pending arbitration with the charterer under the lease maintenance agreement for the PGN FSRU Lampung, both parties have continued to perform their respective obligations under the agreement.

Turning to Page 6. Here, we address to refinancing of the PGN FSRU Lampung. In December, the partnership closed a refinancing of the PGN FSRU Lampung debt facilities commercial tranche with an outstanding amount of $15.5 million in full. The refinanced commercial tranche will amortize with quarterly installments to 0 by June 2026, subject to a cash sweep mechanism. Until the pending arbitration with the charterer of the PGN FSRU Lampung has been terminated, canceled or favorably resolved, shareholder no loans may be serviced and no dividends may be paid to the partnership by the subsidiary that is borrowing under the Lampung debt facility, the PT HLNG.

Furthermore, each quarter, 50% of the PGN FSRU Lampung's generated cash flow, after debt service, must be pledged to repay outstanding loan amounts under the refinanced Lampung debt facility, applied pro rata across the commercial and export credit tranches. The remaining 50% will be retained by PT HLNG and pledged in favor of the lenders until the pending arbitration has been terminated, canceled or favorably 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, canceled on favorable results. This limitation does not prohibit the partnership from paying distributions to preferred and common unitholders.

The refinanced commercial tranche bears interest at a rate equal to 3 months LIBOR plus a margin of 3.75%, whereas the actual credit tranche continues to bear interest at a rate equal to 3 month LIBOR plus a margin of 2.3%.

Then turning to Page #7, where we address the refinancing of the Neptune and the Cape Ann. Starting with the Neptune facility. At the end of November, SRV Joint Gas Ltd, the owner of the Neptune, closed the refinancing of the Neptune debt facility. The new Neptune facility replaces the balloon amount of $169 million that was repaid under the previous debt facility secured by the Neptune.

The new Neptune facility has an initial loan amount of $154 million and is scheduled to be fully amortized with quarterly debt service over a period of 8 years based on an annuity repayment profile. The new Neptune facility bears interest at a rate equal to 3 months LIBOR plus a margin of 1.75%.

Interest rate swaps entered into under the previous Neptune 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 Neptune's facility's loan amount and amortization plan. The interest rate swaps are not reflected in the above mentioned interest rate for the new Neptune facility.

Now moving on to the Cape Ann facility. In mid-December, SRV Joint Gas Two Ltd, the owner of the Cape Ann, signed a new loan agreement to refinance the existing Cape Ann debt facility that matures on June 1, 2022. Subject to customary closing condition, the closing and the drawdown under the new facility are expected to occur on or about the maturity date of the existing facility. The terms and conditions for the new Cape Ann facility are largely identical to the new Neptune facility.

Then turning to Page 8, where we cover the buyout offer. In December, the partnership announced that the Board of Directors have received an unsolicited nonbinding proposal from Höegh LNG, pursuant to which, Höegh LNG would acquire, through a wholly owned subsidiary, all publicly held common units of the partnership in exchange for $4.25 in cash per common unit. Höegh LNG has proposed that the transaction would be effectuated through a merger between the partnership and the subsidiary of Höegh LNG. The HMLP Board has authorized the Conflicts Committee of the MLP board, comprised only of non-Höegh LNG affiliated directors to review and evaluate the offer.

The Conflicts Committee has retained advisers and discussions regarding the offer are ongoing. The proposed transaction is subject to a number of contingencies, including the approval of the Conflicts Committee, the HMLP Board and the Höegh LNG Board of Directors of any definitive agreement; and if a definitive agreement is reached, the approval by the holders of a majority of the outstanding common units in the partnership. The transaction would also be subject to customary closing conditions. They can be no assurance that definitive documentation will be executed or that any transaction will materialize.

Turning to Page 9. We are showing the overview of the partnership's fleet of modern assets. The partnership has about 9 years of average remaining contract length and full contract coverage until late 2026.

Turning to Page 11. We have the key figures for the quarter, showing an operating performance which was weaker than in the same quarter of 2020, with a segment EBITDA of $30.5 million in the quarter compared to $34.9 million in the fourth quarter of 2020. The decrease is mainly due to increased operating expenses on the Höegh Gallant as a result of preparing and relocating the vessel for performance under the new contract with New Fortress Energy. Limited partners' interest in the net result was $12.3 million in the quarter, down from $14.7 million in the same quarter of 2020.

Turning to Page 12. We are showing the development in key measures over time. And as you can see from the graph, the operating performance remains relatively stable. 2 quarters have marked negative deviations: Second quarter of 2019 and the second quarter of 2021. In the first instance, the deviation was primarily caused by the dry docking and maintenance of the Höegh Gallant in 2019. The deviation in the second quarter of 2021 was primarily caused by a tax provision for previous periods following the result of a tax audit which we disagreed to and have disputed.

Turning to Page 13. Here, we are showing the income statement in more detail. Total revenues of $36.2 million in the quarter was about $0.1 million more than in the same period in 2020. Vessel operating expenses of $10.6 million in the quarter were $3.8 million more than in the same period last year. The increase is mainly due to the increased operating expenses on the Höegh Gallant as already mentioned on Page 5 and 11.

Equity and earnings of joint ventures for the quarter was $5.4 million, an increase from $4.2 million for the same period in 2020. Unrealized gains from derivative instruments impacted the equity in earnings of joint ventures for the fourth quarter of 2021 and 2020, respectively. Excluding these dilutive items, the equity and earnings of joint ventures would have been $3.4 million this quarter, an increase from $3 million for the same period in 2020. Total financial expense of $5.8 million in the quarter equals an increase of $0.1 million from the same quarter of 2020. The income tax expense of $0.5 million in the quarter represents a decrease of $0.8 million from the same quarter of 2020.

Turning to Page 14. Here, we have the balance sheet. And as you can see, it has not changed much since the year-end 2020 with total liabilities and equities standing at $ $1 billion at the end of the quarter.

Moving on to Page #16 and the LNG market. Global LNG trade rose with 5.3% year-on-year in the fourth quarter, and Asia keeps being the region with the highest growth in LNG import volumes. China continues to increase its imports and shows a strong growth of 7.8% year-on-year.

Turning to Page 17. Here, we have 2 graphs illustrating the projected development in global LNG markets from now until 2027. The graph to the right shows the projected growth in LNG imports globally. As you can see, global LNG demand growth is projected to remain robust, mainly driven by the Asian region, including existing or potential markets for FSRU import terminals. Examples of this are China, India, Pakistan and Thailand. On the supply side, the incremental volume is projected for the most part to come from the USA, Russia and the Middle East.

With that, I turn to Page 19 for a short summary, where I would like to highlight the following: No material impact from the COVID-19 to date, 99.9% availability of the fleet during the quarter, segment EBITDA of $30.5 million in the quarter and we closed the refinancing of the Neptune debt facility and the PGN FSRU Lampung debt facility's commercial tranche in the quarter.

We will now open up for questions from the audience.

(Operator Instructions) The first question comes from Chris Wetherbee with Citi.

It's James on for Chris. Just wanted to ask about sort of the outlook in the pipeline. It seems like there's been a bit of a reversal over the previous 6 months. And frankly, I wanted to get a better understanding of the pipeline for projects that are coming up, RFPs. Is there anything that you're particularly constructive about that's on the horizon?

And just also wanted to sort of get your take on sort of how far we are into that trend of sort of a rebound and a more optimistic outlook.

Yes. Chris, just a clarification on the pipeline. Do you mean the [parent] sales and the projects that they are working on for employing these assets?

Correct.

Great. Okay. So as you've seen, the parent has also issued its quarterly report today, and they have made progress lately on a project in Australia. They have a Brazilian project that has been concluded lately. And right now, it looks like it's only 1 vessel that remains open that is being tendered for various projects, assuming that the Australian project becomes firm and hence finally signed off by the customer.

So it has happened quite a lot in the market lately, and we have had tailwinds with new projects. And we see a busy market right now from our point of view. So rate-wise, it hasn't really moved much, but at least we are looking at a market where units are now being firmed up and projects are coming together.

Got it. And then I also wanted to just touch on a bit of, I guess, you could call it more process-oriented question. But just around the merger, could you just sort of touch on what the key dates coming up are? And sort of where there would be opportunities to have a discussion around potentially changing the bid, given that like the possibility -- or sort of the outlook has shifted a little bit? Just more essentially a process question about what the key dates are, what steps remain and opportunities for maybe bid revision within the context of that process.

Yes. So this is now an ongoing process with discussions, as I already mentioned. And it's very hard to kind of give an exact time on this as this is now in the hands of the Conflicts Committee, and they are dealing with it on the whole process, together with their advisers. So we just have to wait and see how the process is developing and then get back to the market with more information in due course.

The next question comes from Ben Nolan with Stifel.

So maybe a similar question to the last one, but a little bit more around the Lampung. We're, I don't know, 6, 8 months into the process here. Just any update on sort of where things are with respect to the process? I know it's hard to maybe even say what the timing ultimately is going to be, or the outcome. But just where -- what has happened in the process? And what maybe is left to be done?

Yes. And thanks for the question. This is difficult to go into the details around because it's, first of all, subject to strict confidentiality clauses in an arbitration process like this. So we'll have to get back when something can be disclosed. It of course has a high priority on our side, to deal with the matter, and we will do that in a serious manner. So as we have already said, we believe this is something without merit, but it certainly has to be dealt with in the professional and diligent manner.

Okay. But it is -- to that end, there is a formal arbitration process, correct? Like under British law or something like that, that is governing how this goes. Is that right?

It is a formal arbitration process, yes.

Okay. And then with respect to the OpEx that you mentioned on the Gallant, is what we saw in this quarter a good run rate going forward, nothing that was especially unique that would be reversed in the future?

Yes, that is correct. So the $4.9 million is kind of special for the quarter because of the modifications. That is right.

Okay, okay. And then lastly, maybe similar to the first question. But you talked to the tax audit that is underway and under negotiation. Is it similar circumstance there, just in terms of not having really definitive color that you can share? Or is that something that you would hope to have a resolution on soon?

It's difficult to give a time line on that, obviously. This is up to the tax authorities in Indonesia. It may be a lengthy process, but we have certainly started on that, and we have disputed the outcome of the tax audit, and we'll continue to challenge it.

This concludes our question-and-answer session. I would like to turn the conference back over to Havard Furu for any closing remarks.

Yes. Thank you. So then I would like to thank everyone for dialing in and participating on the call. Thank you, and have a good rest of the day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.