Q2 2021 Hoegh LNG Partners LP Earnings Call
[music].
Good day and welcome to the whole go LNG partners second quarter 2000.
Q1 earnings conference call.
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I would now like to turn the conference over to Scott Stowell CEO. Please go ahead Sir.
Thank you Rocco and good morning, ladies and gentlemen, and welcome to Big LNG Partners earnings call for the second quarter.
'twenty 2021.
Well your convenience this webcast and presentation is available on.
Our website.
With me today I have Mr. <unk>, the CFO of the partnership.
Turning to page two in today's presentation.
I will take you through the quarter.
And then handover.
Mr <unk>, who will take you through the financials.
Then I will present and market updates and the summary.
You will have the opportunity to ask questions to both of US at the end of the presentation.
Before we start please take note of the forward looking statements are phase III.
And then lastly on page four.
Turning to page five and the highlights I would like to start with some comments relating to the COVID-19 pandemic.
As of today, the partnership has not been materially impacted by the pandemic.
Energy group has taken steps to mitigate risks from COVID-19.
Sure.
And safety of our crews and staff, which is our highest priority.
Thanks to the hard work of our people onboard the vessels and onshore the fleet is operating as.
As expected despite the pandemic.
All revenues have been collected in accordance with contractual terms.
I am definitely.
Happy to report that all units in the fleet.
100% availability in the quarter.
This resulted in total revenues of $34.7 million and the.
Segment EBITDA of <unk>.
$34.3 million in the quarter.
In the quarter the partnership has recorded.
A tax provision of $10.9 million.
Following a tax audit for 2019 conducted by tax authorities in Indonesia, We disagree with this and we will dispute the position taken by the tax authorities.
After the end of the quarter.
The charter of PGN <unk>.
Corded and boom.
Has served a notice.
Of arbitration.
To declare the lease and maintenance agreement.
L O N null and void and or terminate.
And or seek damages.
The partnership has served a reply refuting the claims.
As baseless and without legal merit.
Both parties continue to perform their respective obligations under the low end.
Turning to page six where we address the PGN Fsrus lampoon arbitration.
By letter dated July 13th.
As you look at 'twenty on the charterer under the low end raised certain issues with.
<unk> LNG lampoon, a subsidiary of the partnership.
In relation to the operations of the PGN <unk> <unk> and <unk>.
And by further letter dated July 27, 2021 stated that it would commence.
Penetration against PT.
<unk> LNG.
On August 2nd 2021, the charterer served a N.
The way to declare the null and void and or to terminate the low end and or to seek damages.
<unk> LNG has served a reply refuting the claims.
Hence our by the charter as baseless and without legal Merit and has also served a counterclaim against the charterer for multiple breaches of del Webb.
Peter you heard LNG will take all necessary steps and will vigorously defend against the charters claims in the legal process.
Both parties.
Continuing to perform their respective obligations.
The element.
Turning to page seven where we provide an update on the ongoing refinancing activities.
First PGN Fsrus lumping that facility.
The commercial tranche of the lumpy facility becomes due.
Our September 2021, and the export credit front and be called if the commercial tranche is not refinanced.
The ongoing refinancing of the PGN <unk> <unk> credit facility.
Which had been scheduled to close by the end of the second quarter of 2021 is not yet completed.
Due to the failure by the charterer.
The PGN <unk> <unk> to <unk> certain customary documents related to the new credit facility.
We have asked the existing lenders to approve a six months extension to the maturity date to allow for more time to complete a refinancing.
Commenced discussions with existing vendors and certain other potential lenders about this.
We expect that the terms of any alternative refinancing if we are successful in finalizing such refinancing.
Unlikely to be less favorable than the terms of the original agreed refinancing.
No assurance can be given at this time as to the outcome of the dispute with the charterer of PGN FSA.
Or the aforementioned discussions with lenders.
We are highly focused on securing a solution for this near term issue and we'll provide further information as and when such solution is finalized.
Yeah.
Neptune.
And debt facilities progress is being made in relation to the refinancing of the Neptune facility and the Cape and facility, which mature and become payable by our joint ventures in November 2021, and June 2022, respectively.
The vessels on charter to total and had more than eight years remaining on those.
Turning to page eight we are showing the overview of the partnerships fleet of modern assets.
But there are no changes as the previous quarter. The partnership still has more than eight years average remaining.
In fact like.
With that I would like to hand over the word to Mr. <unk>, who will take us through the financials.
Thank you Simon and good morning, everyone turning to page 10, we have the key figures for the quarter showing an operating performance, which was slightly weaker than in the same quarter of 2020 with a segment.
Today of $34.3 million in the quarter compared to $36 million in the same quarter of 2020.
The partnership expense significant financing costs in the quarter related to the refinancing on the non COVID-19 debt facility.
And also made a provision of $10.9 million for uncertain tax position.
EBIT sequence on tax audit in Indonesia.
The limited partners interest in the Neptune Salt was the loss of $1.2 million in the quarter down from a profit of $16 million in the same quarter of 2020.
Moving to page 11.
We are showing the development.
Asset quality measures over time and as you can see from the graph the operating performance remains relatively stable.
The only exception is the second quarter of 2019 interest impacted by the Drydocking and maintenance of the Hoegh gallant.
<unk> completed its periodic survey during the second quarter this year.
This was carried out a float.
And cannot caused significant downtime or off hire.
As opposed to the stable segment EBITDA you can see that our adjusted net income this quarter will significantly negatively impacted by the tax provision I mentioned a moment ago.
Moving to page 12.
Dave you are showing the income.
And debatement in more detail.
Total revenue so $34.7 million in the quarter was about <unk> 3 million more than in the same period in 2020.
Vessel operating expenses of $6.1 million in the quarter are up by <unk> 3 million from the same period last year.
Equity in earnings of joint ventures.
Income for the quarter was $3.3 million a decrease from $6.5 million in the same period in 2020.
Unrealized gains on derivative instruments impacted the equity and earnings from joint ventures for the second quarter of 4041, respectively.
Excluding these items the equity in earnings of joint.
Just what would have been $3.3 million this quarter a decrease from four for.
$4.2 million for the same period in 2020.
Total financial expense of $10.2 million in the quarter equals an increase of $3.6 million from the same quarter in 2020, mainly.
Mainly due to expensing debt issuance cost income.
<unk> for the long term refinancing.
This was partially offset with lower interest expense as debt is amortized.
Income tax expense of $11.2 million in the quarter represents an increase of $9.8 million from the same quarter of 2020, mainly due to the tax provision made in the quarter.
Turning to page 13.
The balance sheet has not changed much since year end 2020, with total liabilities and equity standing at just below $1 billion at the end of the quarter.
As already mentioned earlier in his presentation, the refinancing of the <unk> debt facility and the Neptune and Cape and depth facilities is ongoing.
I will now hand, it back to Mr. <unk> to take us through the remaining part of the presentation.
Thank you.
So for the market turning to page 15.
As you can see global LNG trade rose five 3% year on year in the first half of 2021.
In Asia.
Continues to be in the region with the highest growth in LNG import volumes.
We're also China recorded.
An all time high in LNG imports into second quarter with 26 million tons.
Turning to page 16.
We have two graphs illustrate.
Illustrating the projected development in the global LNG markets from now until 2025.
The graph on the left shows that projected growth in LNG imports globally.
As you can see global LNG demand growth is projected to remain robust.
And mainly driven by Asian region.
When including existing or potential markets for.
For FSIC info terminals.
Such as China, India.
Pakistan and Thailand.
On the supply side, the incremental volume is projected.
To come for the most part from Europe, and the Americas, which means.
More specifically, the United States and Russia.
From 2020 to 2025, the market growth is projected to be 22%.
With that I would like to turn to page 18 for the summary, where I would like to highlight the following.
No mater.
What sort of impact from COVID-19 pandemic to date.
100% availability of the fleet, resulting in stable operating performance and stable segment EBITDA.
A long term contract to support both our refinancing activities and our deleveraging.
And last but not least strong market fundamentals.
<unk>.
So with that we will now open up for questions from the audience.
Thank you we will now begin the question and answer session.
To your question in Europe, Our Star then one on your Touchtone phone.
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Today's first question comes from Chris Weatherby of Citi. Please go ahead.
Hey, Thanks for taking the question a couple here.
First just on the land parcel.
Yes, I guess, assuming that you can't reach a compromise on the existing charter how quickly can.
Can it be deployed in the market and maybe roughly speaking what do you think the financial impact would be on annual earnings.
Perfect.
Well, thanks for that Chris first of all we.
Good.
Expect that we that we will find a resolution to this dispute.
And.
That of course this is our base case.
We think that.
The issues that have been raised as we have explained.
Are without merit and that we think that.
There is room for a commercial arrangement.
Having said that obviously.
Our efforts are used are all.
Able to being redeployed.
From from where they operate.
That normally would take a relatively short period of time.
It all depends on.
Okay.
No.
When that decision is made and actually where it's going.
Okay. Okay, I appreciate that and then.
I don't know if this is possible or any any sense on maybe the timing of potential resolution, let's just say you can come to a successful resolution with this contract term.
Sort of a window that you can point us to that you.
We feel pretty good about in terms of executing that.
Well I wish I could be more concrete on that but.
Where we are today is that this process has just been started so it's very difficult to predict.
I apologize, but it would have to leave it with that.
Okay, now I completely understand.
And then.
Maybe a couple of quick other ones here, just on the Neptune and Cape Ann refinancing.
Any impact would you expect any impact to that process because of what's happening with the land Palmer does that operate completely walled off from what's going on there.
Although it would you like to answer yes. So.
I can answer that.
Or are those.
Those two assets are operated completely separate from from the non coal as you are aware.
They are owned in a joint venture with with other co owners together with us.
It's separate so we don't expect any.
Okay.
The implications on box refinancing costs.
Okay. Thank you just sort of bear with me one last one on tax I just want to make sure the tax issue that impacted the second quarter or is that something that we should expect to be ongoing or is that isolated to <unk> and then we wouldn't expect to see something similar to the $10 million for repeat again in <unk>.
We don't expect that.
The drop in the provision made covers.
The tax audits for 2019, but it also covers potential additional liability for the other open proxies that could be subject to audits in Indonesia.
So that's from 2016.
Until today.
Okay. Okay. That's very helpful. Thanks for the time I appreciate it.
Sure.
Ladies and gentlemen, as a reminder, if you'd like to ask a question. Please press Star then one at this time.
And our next question today comes from Ben Nolan at Stifel. Please go ahead.
Hey, good afternoon.
I My first question relates clearly to the long time I'm just curious if you could maybe give a little bit more color as to sort of what the concerns more or.
Sort of what the.
The.
The reason this has.
It's come up in the first place what are they what are they saying.
Was the.
Issue.
Well.
On that point.
Unfortunately.
These discussions and these processes are all confidential so I think the what's the upset.
Previously is that it relates certain things related to some operational matters.
And some of those certain things related to some contractual matters.
I'm afraid I cannot be.
Terrific and that's because I'm bound by confidentiality, so again I apologize for that but that's just the way it is.
Okay.
I understand and then as it relates to the credit facility from the sponsor.
Any color as to.
Why.
The sponsor is limiting your availability to draw down on our credit facility further and why they chose to.
Not.
Or sort of preemptively say that there is no intention of refinancing.
Beyond 2023.
Well I can start and then maybe <unk> can add in if necessary I think.
The first point is the facility.
Yeah.
Has a has a expiry date of the first of January of 2023.
And.
In order to.
Give the partnership time to.
Potentially make other arrangements of.
The holding company has given notice that it will not be extended.
And I think the point there is that.
<unk> from from that side.
The expectation.
Is that towards the future.
The partnership should.
Basically be able to live within its own cash flow and the range is on financing.
So that is the.
That is the main reason for for that decision by the holding company.
Okay.
With respect to not.
Having access to effectively draw more on what is currently available.
Well I think the.
What has been.
Sure.
Yeah.
<unk> said from the holding company is.
Is that.
Is that the holding company will have limited.
Possibility too.
Make available further financing under that facility.
And that's where it starts.
So.
The.
Again, I think the main point again is that the expectation is that the.
Partnerships should be able to.
Liberty within its own cash flow and financing China's its own activities standing on its own feet.
Okay sorry.
Could draw down on the unfunded portion.
Currently stated.
That said available still correct.
I can comment on that on nights.
Its available, but we cannot rule out that given the pending arbitration with <unk>.
The charter of the noncore.
Nonperforming assets are you not the banks would have to actually accrued prior to drawdown.
Okay.
Alright, that's it from me thank you.
Thank you.
And our next question today comes from Liam Burke of B Riley FBR. Please go ahead.
Thank you and good afternoon.
Could you step us through again.
Your discussion on the interest expense for the quarter.
There was something involved in the lamp pong and or could you just give me a little clarification on that.
Yes sure.
So normally.
When we arranged.
Refinancings of financings there are upfront fees to be paid on the <unk> piece that we paid to the lenders.
Pay a commission fee from signing the final documents until you make the drawdown.
Those fees normally be capitalized.
<unk> over the.
10 out of the facility.
This time around there is so much uncertainty around that.
<unk> dot fee.
Took a write down of the costs involved with arranging the financing. So that is all charged to the second quarter results.
If I remember correctly.
The amount is around $4 million.
In charges total for the quarter, including legal costs.
Right Okay.
And.
<unk> is obviously a complicated situation both on the contrary on the charter side and on the lending side.
And do you seem comfortable that there are enough lenders involved even understanding that you are in dispute on the current charter that they are willing to move forward on the refinancing.
Sure.
I think.
That's a good question I think what we've said.
And also in the release is.
We've asked for a six month extension.
And.
That is not in place but.
That is our.
Main objective right now.
And assuming that the.
That is approved by the current lending group then we believe we will have enough.
Time to to find a resolution to.
To the to the refinancing of the loan pool facility.
Great. Thank you very much.
Sure.
And our next question today comes from Ted <unk> with Cooperative holding Corporation. Please go ahead.
Good morning, gentlemen.
First of all let me be a little bit more outspoken in some of the other questioners.
I think that the announcement that you made on July 27, with no follow up for a month.
Adam improper.
Improper as far as reporting to shareholders. This is a major hit for almost anybody who participated in the ownership.
But this company and to wait a month to get a very vague explanation as to what's happening to me is uncomfortable.
Im saying it is frankly to say Ken My question to you has to do with what happens.
Unable to refinance the chalk.
Slightly yes.
Exactly what will be the results of the company.
If the charter cannot be refinanced.
But I mean.
Let me start.
The.
First of all.
Our view is that we will be able to refinance debt. So.
That is not really an option that we look at.
And I think also.
All parties involved there in particular the banks will.
Strong interest that we do find.
Resolution to refinance this.
So.
And the key here is to give to get ourselves some more time.
And.
We believe that we will get an extension and therefore, our view is that we will find a resolution with the existing banking group.
After having some further discussions with them.
With respect to the arbitration.
I understand the confidentiality agreements represent.
But is there a reason why something which is which should be in the public domain as to what is being what it is being accused by the charterer is not discuss we have no way of knowing whether or not what the merits of their claim is in the total absence of any information is very distressing.
Well I can only.
Sympathize with that and I understand that.
That is obviously not not.
What you would like to see but again the agreements we have in place puts a very strong confidentiality umbrella over these discussions and the whole arbitration process.
Process. So this is a legal process and I am not at Liberty to.
Because I'm bound to the confidentiality to give any details around the process itself I apologize for that but that's just the way it is alright my.
And my last question is can you give us any idea of what is the status of your arbitration as of today what is the timing.
For any type of a decision to resolution.
The status is that the arbitration process, formerly has just started.
And that both parties have.
Filed a claim and contract claims that's where we are today.
So you have no sense of timing.
It would be a week a month or a year.
I mean I would.
Hesitate to give any firm timing on that its just started out.
Aye.
I'd like to say that.
These type of processes normally you.
Have a legal process and then you have a commercial process going in parallel and the expectation is that that would be the case also here. So hopefully we will have a resolution of this.
Okay.
Sometime in the future, but I cannot give you any specific timeline, it's too early for that.
Oh.
Another final question final statement.
Major disappointment and a major financial loss stood awful lot of people and I certainly hope that this charter is way off track in that you really do have it.
Defenses because otherwise this company is a disaster and then my conversation.
Okay understood.
And ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over for closing remarks.
Yes.
Thanks for that thanks, everybody for taking the time to participate.
We appreciate that.
Have a nice day everybody.
Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.