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We'll maintain autonomy from BW, says Epic Gas chief

Epic Gas won’t be swallowed up following BW’s acquisition of an 80%-plus stake just two weeks ago, but will instead seek the benefits of the new relationship, according to its chief executive

‘This is an investment that has been made by BW Group into Epic, in a similar way to which they have made investments in other businesses in the last few years. As such, it’s not a merger. We still have quite a few other shareholders in the business,’ says Charles Maltby

EPIC Gas will maintain autonomy from BW Group following the latter’s acquisition of an 80%-plus stake in the company, while simultaneously milking the benefits of the new relationship, according to chief executive Charles Maltby.

Speaking to Lloyd’s List after the announcement of a $60m fundraiser earlier this week, with the money earmarked for part payment on four secondhand Japanese-built liquefied petroleum gas carriers, Mr Maltby discussed his strategy to position Merkur-listed Epic — which presently controls a fleet of 39 fully pressurised gas carriers — to take advantage of the currently rosy prospects for operators of smaller gas carriers.

Epic decided to venture into the sale and purchase market because while the cost impact of the four additional units will be minimal, the potential benefits are considerable, he revealed.

BW is taking 82.58% of the fundraiser, in line with its existing stake, and underwriting the remaining portion. This has allowed Epic to sign a letter of intent to purchase the ships for $106.5m, with the remaining sum covered by debt finance.

“We looked at a number of ways we could have raised the capital towards doing that. What we are very conscious of is, you have to make it profitable,” Mr Maltby said. “When you look at different ways of costing capital, we decided that this would be the most cost-effective way and our shareholders were willing to support it.”

While welcoming BW on board as a new investor, Mr Maltby insisted that there are no plans to merge the businesses, with Epic continuing as an independent business in its own right.

“This is an investment that has been made by BW Group into Epic, in a similar way to which they have made investments in other businesses in the past few years,” he said. “As such, it’s not a merger. We still have quite a few other shareholders in the business.”

Nevertheless, Epic will obviously work closely with BW, to maximise the gains of coming under same parentage as an operator of more than 300 ships.

The two sides will combine their purchasing power, in order to negotiate better deals with supplies of everything from lubes to IT systems.

In the longer term, the back offices could even be amalgamated, although this is not going to be the order of the day in the immediate future.

“If you can do that and maintain a level of quality and independence, so that each business is delivering its best outcome for customers, there may be some room to look at that. But I wouldn’t say that is top of the list of priorities,” Mr Maltby said.

Meanwhile, the LPG market is improving markedly, including the smaller ship sector in which Epic is a player.

“We’ve already seen rates showing a fundamental pick-up and we expect that to continue over the next couple of years.

“On the demand side, LPG demand growth has been pretty robust for the past five to 10 years, and we’re seeing volumes seaborn LPG trade this year likely to pass 100m tonnes for the first time.”

Long-term growth

Indeed, demand has increased as much as 7% per annum in recent years, and that figure could go as high as 8% next year. Meanwhile, fleet growth was just 1% last year, and the orderbook is at more or less the same level both this year and next.

“We think it’s the smallest orderbook of any bulk shipping sector, and that’s before scrapping. Each year, typically 1-2% of the fleet gets scrapped, so it looks like we’ll see net negative fleet growth this year and next year,” Mr Maltby went on.

More substantial growth is likely on larger gas vessels, but given that Epic is essentially doing last-mile delivery, that may even work to its advantage, he believes

“From our point of view, we see that as a positive, because it will mean that plenty of LPG gets delivered cheaply all over the world for us to then tranship from bigger vessels into smaller ports.

“We’ve not noticed the bigger ships having a material impact on the rates we earn in the pressurised sector, with that evidenced by the fact that our rates are up 20% year on year.”

Certainly, the maths looks good for Epic. According to Mr Maltby, its operating expenditure is currently around $4,1000 per day, irrespective of whether a vessel is 3,000, 7,000 or 11,000 cu m; against that, earnings are $10,000 per day.

The acquisition of the four ships mentioned above will increase Epic Gas’ total carrying capacity from 267,400 cu m to 311,400 cu m, and will also reduce the average age of the company’s fleet from 8.9 years to 8.4 years.

Other than that, the game plan is to provide whatever customers want, and Mr Maltby professes indifference to whether that means voyage charters, contracts of affreightment or timecharters.

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