Avance Gas Holding Ltd (Avance Gas) (OSE: AGAS) announced on Friday (Dec08) that it has agreed to sell its two remaining 91,000 cbm dual fuel newbuildings scheduled for delivery next year. The buyer has agreed to pay $240 million en bloc for the two newbuildings when they are delivered from the yard i.e., ex-yard delivery. The newbuildings, Hull number 2367 and 2368 with intended name Avance Castor and Avance Pollux, were originally scheduled for delivery in the third and fourth quarter of 2023 but has been delayed with expected delivery now scheduled for March and May 2024, respectively.
The newbuildings were contracted in April 2021 at price of approximately $78 million each. They have since been upgraded with capex of about $3 million each for the ships to be able to load ammonia cargoes as well as being ready to run on ammonia as fuel when this feature becomes commercially available. Hence, Avance Gas expect to book a profit of about $73 million from the sale, net of all delivery and transaction costs. The cash release from the sale is expected to be $120 million as we have already paid about $47 million in milestone payments to the yard in accordance with the Ship Building Contract.
Furthermore, since these two ships have been financed with a $135 million Sale-and-Leaseback agreed in August 2022, Avance Gas has agreed with the financier to swap the lease from the two newbuildings to the sister ships Avance Polaris and Avance Capella (built 2022) which are currently financed under a bank loan maturing in 2027. Such refinancing of Avance Polaris and Avance Capella is expected to be carried out during first quarter of 2024 and this will further increase our cash by approximately $41 million. The refinancing will also extend the maturity of the financing of Avance Polaris and Avance Capella from 2027 to 2034. Following this refinancing, Avance Gas will have no loans maturing prior 2028 given the recent announced $43 million refinancing of the VLGC Pampero.
As such, the cash release from the sale of the ships and swap of the sale-and-leaseback agreement is expected to be in total $160 million, or slightly above $2 per share. The parties have signed and executed a Memorandum of Agreement in relation to the sale of the ships. The sale is therefore only subject to certain closing conditions, in line with industry standards.
Øystein Kalleklev, CEO of Avance Gas, commented: “We are pleased to announce the $240 million sale of our two remaining VLGC newbuilds which will generate both a very attractive book profit of about $73 million and a cash release of approximately $160 million. While we were looking forward to expanding and renewing our fleet with these two high spec newbuildings, our focus is maximizing shareholder value. While maximizing shareholder value might seem less in vogue these days than in the past, it remains our number one priority and is our license to operate as prudent stewards of our shareholders’ capital. The transaction announced today highlights the sharp positive shift in outlook for the VLGC market and this has enabled us to pocket a sizeable profit and thus take some money of the table in an improved market.
Once the transaction has been completed which is expected to occur during second quarter of 2024, Avance Gas will evaluate returning a substantial part of the cash proceeds to its shareholders. We raised $65 million in an equity issue in April 2021 to finance the acquisition of these two newbuildings of which $49 million has been utilized as pre-delivery capex. Given the fact that we already hold a substantial cash position, we will therefore consider reducing our paid-in capital to make such return of capital to our shareholders more tax efficient than through ordinary dividends.”