IPO Report: Hoegh LNG Partners LP (HMLP)

Hoegh LNG Partners LP (HMLP) is a carve-out from Höegh LNG Holdings Ltd. (Oslo Børs symbol: HLNG), a leading floating LNG service provider. It is headquartered in Hamilton, HM 11, Bermuda,

Five other new companies are scheduled to IPO for the week of Aug. 4, 2014.  The full IPO calendar is available at IPOpremium.

The manager and co-managers areCitigroup, BofA Merrill Lynch, Morgan Stanley, Barclays, UBS.  The joint managers are DNB Markets, Credit Agricole CIB, RS Platou Markets.

HMLP scheduled a $192 million IPO with a market capitalization of $263 million at a price range midpoint of $20 for Thursday, August 7, 2014 on the NYSE.  SEC filings

Overview of HMLP IPO

Carve-out from Höegh LNG Holdings Ltd. (Oslo Børs symbol: HLNG), a leading floating LNG service provider.

HMLP Valuation

Glossary

Pre-IPO grade-score summary
 

Conclusion of HMLP

Neutral to barely plus, C, 6.5

6.75% yield may not be enough

compared to GLMP & TGP

HMLP's Business

HMLP is a growth-oriented limited partnership formed by Höegh LNG Holdings Ltd. (Oslo Børs symbol: HLNG), a leading floating LNG service provider, to own, operate and acquire floating storage and regasification units (“FSRUs”), LNG carriers and other LNG infrastructure assets under long-term charters, which HMLP defines as charters of five or more years.

At the closing of this offering, interests in HMLP’s initial fleet of FSRUs will be contributed to HMLP by Höegh LNG.

Initial Fleet

HMLP’s initial fleet will consist of modern FSRUs that will operate under long-term charters with major energy companies or utilities. HMLP intends to grow its business in the FSRU, LNG carrier and LNG infrastructure market through acquisitions from Höegh LNG and third parties. HMLP also believes it can grow organically by continuing to provide reliable service to its customers and leveraging Höegh LNG’s relationships, expertise and reputation.

Upon the closing of this offering, HMLP’s initial fleet will consist of interests in the following vessels:

— a 50% interest in the GDF Suez Neptune, an FSRU built in 2009 that is currently operating under a time charter with GDF Suez, a subsidiary of GDF Suez S.A., a French publicly listed, government-backed, electric utility company, and the leading LNG importer in Europe in 2012, that expires in 2029, with an option to extend for up to two additional periods of five years each;                   

— a 50% interest in the GDF Suez Cape Ann, an FSRU built in 2010 that is currently operating under a time charter with GDF Suez that expires in 2030, with an option to extend for up to two additional periods of five years each; and     

— a 100% economic interest in the PGN FSRU Lampung, an FSRU built in 2014 that commenced operations in July 2014 under a time charter with PGN, a subsidiary of an Indonesian publicly listed, government-controlled, gas and energy company that constructs gas pipelines and infrastructure and distributes and transmits natural gas to industrial, commercial and household users, that expires in 2034, with options to extend either for an additional 10 years or for up to two additional periods of five years each.

Relationship with Hoegh LNG

HMLP intends to leverage its relationship with Höegh LNG to make accretive acquisitions, which would be expected to increase its per unit cash available for distribution, of FSRUs, LNG carriers and other LNG infrastructure assets with long-term charters from Höegh LNG and third parties.

According to the omnibus agreement HMLP will enter into with Höegh LNG, its general partner, and its operating company at the closing of this offering, HMLP will have a right to purchase from Höegh LNG any FSRU or LNG carrier operating under a charter of five or more years.

Also according to the omnibus agreement, HMLP will have the right to purchase from Höegh LNG all or a portion of its interests in the FSRU, the Independence.

In addition, HMLP expects that Höegh LNG will secure a charter of five or more years for two additional newbuilding FSRUs, the Höegh Gallant and Hull no. 2551, at which point HMLP will have the right to purchase them from Höegh LNG pursuant to the omnibus agreement.

HMLP cannot assure you that HMLP will make any particular acquisition or that as a consequence HMLP will successfully grow the amount of its per unit distributions. Among other things, HMLP’s ability to acquire additional FSRUs, LNG carriers and other LNG infrastructure assets will be dependent upon its ability to raise additional equity and debt financing.

HMLP's Dividend Policy

Under the SRV Joint Gas shareholders’ agreement, the board of directors of an SRV Joint Gas joint venture is responsible for determining the amount of profits to be distributed each financial year. Distributions must first be used to repay the principal of the shareholder loans. Subsequent distributions are permitted but are subject to (i) preexisting financial agreements between such SRV Joint Gas joint venture and its lenders and (ii) prudent maintenance of reserve accounts.

Competition for HMLP

The FSRU and LNG carrier industries are capital-intensive and operational expertise is critical, which create high barriers to entry.

These industries are viewed as an integral part of the LNG industry. A company with a solid track record, knowledge of the market and an experienced, well-trained crew is preferred to a new entrant since the cost and impact of vessel downtime is significant for the customer.

HMLP’s competitors in the FSRU and LNG carrier industries include BW Maritime Pte. Ltd., Dynagas LNG Partners LP, Excelerate Energy L.P., Exmar NV, GasLog Ltd., GasLog Partners LP, Golar LNG Limited, Golar LNG Partners LP, MOL and Teekay LNG Partners L.P.

Stockholders

Carve-out

HMLP is a growth-oriented limited partnership formed by Höegh LNG Holdings Ltd. (Oslo Børs symbol: HLNG), a leading floating LNG service provider, to own, operate and acquire floating storage and regasification units (“FSRUs”),                         

Use of Proceeds

HMLP intends to use the $176 million in proceeds from its IPO as follows:

up to $140 million to make a loan to Höegh LNG in exchange for a note bearing interest at a rate of 5.88% per annum, which is repayable on demand or which HMLP can elect to utilize as part of the purchase consideration in the event HMLP purchases all or a portion of Höegh LNG’s interests in the Independence, (ii) $20 million for general partnership purposes and (iii) the remainder to make a cash distribution to Höegh LNG as partial consideration for the interests in the entities that own the vessels in HMLP’s initial fleet.