F-1 1 d563678df1.htm F-1 F-1
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As filed with the Securities and Exchange Commission on October 17, 2013

Registration Statement No. 333-            

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Navigator Holdings Ltd.

(Exact Name of Registrant as Specified in Its Charter)

 

Republic of the Marshall Islands

  4412   Not Applicable

(State or Other Jurisdiction of

Incorporation or Organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification No.)

21 Palmer Street

London, SW1H 0AD, United Kingdom

+44 (0)20 7340 4850

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

CT Corporation System

111 Eighth Avenue, 13th Floor

New York, New York 10011

(212) 894-8940

(Name, Address, Including Zip Code and Telephone Number, Including Area Code, of Agent for Service)

Copies to:

 

Mike Rosenwasser

E. Ramey Layne

Vinson & Elkins L.L.P.

666 Fifth Avenue, 26th Floor

New York, New York 10103

Telephone: (212) 237-0000

Facsimile: (212) 237-0100

 

Marc D. Jaffe

Ian D. Schuman

Latham & Watkins LLP

885 Third Avenue Suite 1000

New York, New York 10022

Telephone: (212) 906-1200

Facsimile: (212) 751-4864

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”), check the following box. ¨

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. ¨

 

 

 

CALCULATION OF REGISTRATION FEE

 

 

TITLE OF EACH CLASS OF

SECURITIES TO BE REGISTERED

 

PROPOSED
MAXIMUM
AGGREGATE

OFFERING PRICE(1)(2)

 

AMOUNT OF

REGISTRATION FEE

Common Stock, par value $0.01 per share

  $200,000,000   $25,760

 

 

(1) Includes shares of common stock issuable upon exercise of the underwriters’ option to purchase additional shares of common stock.
(2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act.

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.


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The information in this preliminary prospectus is not complete and may be changed. Neither we nor the selling shareholders may sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED OCTOBER 17, 2013

 

PRELIMINARY PROSPECTUS

             Shares

 

LOGO

Navigator Holdings Ltd.

Common Stock

We are offering              shares of common stock and the selling shareholders identified in this prospectus are offering              shares of common stock. This is our initial public offering and no public market currently exists for our common stock. We expect the public offering price to be between $         and $         per share. We have applied to have our common stock approved for listing on the New York Stock Exchange under the symbol “NVGS.”

Investing in our common stock involves a high degree of risk. Please read “Risk Factors” beginning on page 16 of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

We are an “emerging growth company” under the U.S. federal securities laws and will be subject to reduced public company reporting requirements.

 

 

 

     PER SHARE      TOTAL  

Public Offering Price

   $                    $                

Underwriters’ Discounts and Commissions

   $         $     

Proceeds to Navigator Holdings Ltd. (Before Expenses)

   $         $     

Proceeds to the Selling Shareholders

   $         $     

 

 

Delivery of the common stock is expected to be on or about                     , 2013. We have granted the underwriters an option for a period of 30 days to purchase an additional             shares of common stock. If the underwriters exercise the option in full, the total underwriting discounts and commission payable by us will be $         and the total proceeds to us, before expenses, will be $        . We will not receive any proceeds from the sale of shares by the selling shareholders.

 

Jefferies   Morgan Stanley

 

Evercore   Fearnley Securities   Global Hunter Securities     Stifel   

Prospectus dated                     , 2013


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LOGO

 

LOGO

 

LOGO    LOGO
Navigator Neptune during cargo operations, U.S. Gulf    Navigator Aries under construction, South Korea
LOGO    LOGO
Navigator Pluto at the Centennial Bridge, Panama    Navigator Leo trading in ice, Baltic Sea

 

 


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You should rely only on the information contained in this prospectus and in any free writing prospectus prepared by or on behalf of us. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where an offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate as of the date on the front cover of this prospectus only. Our business, financial condition, operating results and prospects may have changed since that date.

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PROSPECTUS SUMMARY

     1   

RISK FACTORS

     16   

FORWARD-LOOKING STATEMENTS

     35   

DIVIDEND POLICY

     36   

USE OF PROCEEDS

     37   

CAPITALIZATION

     38   

DILUTION

     39   

SELECTED HISTORICAL FINANCIAL AND OPERATING DATA

     40   

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     43   

THE INTERNATIONAL LIQUEFIED GAS SHIPPING INDUSTRY

     63   

BUSINESS

     89   

MANAGEMENT

     112   

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     118   

PRINCIPAL AND SELLING SHAREHOLDERS

     119   

DESCRIPTION OF SHARE CAPITAL

     121   

SHARES ELIGIBLE FOR FUTURE SALE

     124   

CERTAIN MARSHALL ISLANDS COMPANY CONSIDERATIONS

     125   

MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS

     128   

NON-U.S. TAX CONSIDERATIONS

     134   

OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

     135   

UNDERWRITING

     136   

LEGAL MATTERS

     142   

EXPERTS

     143   

CHANGES IN ACCOUNTANTS

     144   

WHERE YOU CAN FIND ADDITIONAL INFORMATION

     145   

INDEX TO FINANCIAL STATEMENTS

     F-1   

APPENDIX A GLOSSARY OF TERMS

     A-1   

 

 

 

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Until                     , 2013 (25 days after the date of this prospectus), all dealers that buy, sell or trade our shares of common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

 

ENFORCEABILITY OF CIVIL LIABILITIES

We are a Marshall Islands corporation. Substantially all of our assets are located outside of the United States. A majority of our directors and officers and some of the experts identified in this prospectus reside outside the United States. In addition, a substantial portion of the assets of our directors, officers and experts are located outside of the United States. As a result, you may have difficulty serving legal process within the United States upon us or any of these persons. You may also have difficulty enforcing, both in and outside of the United States, judgments you may obtain in U.S. courts against us or these persons in any action, including actions based upon the civil liability provisions of U.S. federal or state securities laws. However, we have expressly submitted to the jurisdiction of the U.S. federal and New York state courts sitting in the City of New York for the purpose of any suit, action or proceeding arising under the securities laws of the United States or any state in the United States, and we have appointed CT Corporation System to accept service of process on our behalf in any such action.

Watson, Farley & Williams LLP, our counsel as to Republic of the Marshall Islands law, has advised us that there is substantial doubt that the courts of the Republic of the Marshall Islands would (1) enter judgments in original actions brought in those courts predicated on U.S. federal or state securities laws, or (2) recognize or enforce against us or any of our officers, directors or experts, judgments of courts of the United States predicated on U.S. federal or state securities laws.

CERTAIN DEFINITIONS

All references in this prospectus to “Navigator Holdings,” “our,” “we,” “us” and the “Company” refer to Navigator Holdings PLC, an Isle of Man corporation, with regard to all periods prior to its redomiciliation in the Republic of the Marshall Islands, and to Navigator Holdings Ltd., a Marshall Islands corporation, with regard to all periods after its redomiciliation in the Republic of the Marshall Islands. All references in this prospectus to our wholly-owned subsidiary “Navigator Gas L.L.C.” refer to Navigator Gas Transport PLC, an Isle of Man corporation, with regard to all periods prior to its redomiciliation in the Republic of the Marshall Islands, and to Navigator Gas L.L.C., a Marshall Islands limited liability company, with regard to all periods after its redomiciliation in the Republic of the Marshall Islands. As used in this prospectus, unless the context indicates or otherwise requires, references to “our fleet” or “our vessels” (A) include (i) 22 vessels we own as of the date of this prospectus, or “our owned vessels,” (ii) one secondhand vessel we have agreed to acquire for delivery in 2013 from affiliates of A.P. Møller Mærsk Group, or “A.P. Møller,” (iii) four newbuildings for delivery from Jiangnan Shipyard (Group) Co. Ltd. in China, or “Jiangnan,” between April and October of 2014, or the “2014 newbuildings,” and (iv) three newbuildings for delivery from Jiangnan between March and August of 2015, or the “2015 newbuildings”; and (B) exclude (i) the chartered-in vessel that we have chartered-in through December 2014 and (ii) two newbuildings subject to options with Jiangnan which, if exercised, would be delivered by early 2016, or the “option newbuldings.” As used in the prospectus, (i) “WLR” refers to WL Ross & Co. LLC and (ii) the “WLR Group” refers to WLR and certain of its affiliated investment funds owning shares of our common stock, collectively. We include a glossary of certain shipping and other terms used in this prospectus in Appendix A.

 

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INDUSTRY AND MARKET DATA

Drewry Shipping Consultants Ltd., or “Drewry,” has provided us statistical and graphical information contained in this prospectus and relating to the liquefied gas carrier industry. We do not have any knowledge that the information provided by Drewry is inaccurate in any material respect. Drewry has advised us that the statistical and graphical information contained herein is drawn from its database and other sources. In connection therewith, Drewry has advised that: (a) certain information in Drewry’s database is derived from estimates or subjective judgments; (b) the information in the databases of other maritime data collection agencies may differ from the information in Drewry’s database; and (c) while Drewry has taken care in the compilation of the statistical and graphical information and believes it to be accurate and correct, data compilation is subject to limited audit and validation procedures. We believe that, notwithstanding any such qualification by Drewry, the industry data provided by Drewry is accurate in all material respects.

TRADEMARKS AND TRADE NAMES

We own or have rights to various trademarks, service marks and trade names that we use in connection with the operation of our business. This prospectus may also contain trademarks, service marks and trade names of third parties, which are the property of their respective owners. Our use or display of third parties’ trademarks, service marks, trade names or products in this prospectus is not intended to, and does not imply a relationship with, or endorsement or sponsorship by us. Solely for convenience, the trademarks, service marks and trade names referred to in this prospectus may appear without the ®, TM or SM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks, service marks and trade names.

 

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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. You should read the entire prospectus carefully, including the historical financial statements and the notes to those financial statements. You should read “Risk Factors” for information about important factors that you should consider before buying our common stock. Unless otherwise indicated, all references to “dollars” and “$” in this prospectus are to, and amounts are presented in, U.S. Dollars.

Navigator Holdings

We are the owner and operator of the world’s largest fleet of handysize liquefied gas carriers. We provide international and regional seaborne transportation services of liquefied petroleum gas, or “LPG,” petrochemical gases and ammonia for energy companies, industrial users and commodity traders. These gases are transported in liquefied form, by applying cooling and/or pressure to reduce volume by up to 900 times depending on the cargo, making their transportation more efficient and economical. The demand for seaborne transportation of these liquefied gases will continue to grow due to evolving energy and petrochemical market dynamics, particularly as a result of increasing U.S. shale oil and gas development, as seaborne transportation is often the only, or the most cost effective, manner of transporting gases between major exporting and importing markets, according to Drewry.

Our fleet consists of 30 semi- or fully-refrigerated handysize liquefied gas carriers, which we define as liquefied gas carriers between 15,000 and 24,999 cbm, including one secondhand vessel that we have contracted to acquire for delivery in 2013 and seven newbuilding vessels scheduled for delivery by August 2015. In addition, we have options to build two further handysize newbuilding vessels for delivery by early 2016 and currently operate an additional semi-refrigerated handysize liquefied gas carrier under a time charter-in through December 2014. Vessels in our fleet are capable of loading, discharging and carrying cargoes across a range of temperatures from ambient to minus 104° Celsius and pressures from 1 bar to 6.4 bars. Our handysize liquefied gas carriers can accommodate medium- and long-haul routes that may be uneconomical for smaller vessels and can call at ports that are unable to support larger vessels due to limited onshore capacity, absence of fully-refrigerated loading infrastructure and/or vessel size restrictions. In addition, five of our vessels are the largest ethylene-capable vessels in the world, meaning vessels capable of transporting and distributing ethylene and ethane cargoes, and five of our seven newbuildings will be among the largest ethylene-capable vessels in the world. Finally, each of our newbuildings will be an Eco-design vessel incorporating advanced fuel efficiency and emission-reducing technologies, including the capability of conversion to the use of liquefied natural gas, or “LNG,” as fuel. We believe that owning fuel-efficient vessels enhances our returns as it allows us to meet charterers’ increasingly stringent environmental requirements and to fully capitalize on the fuel savings under our voyage charters and contracts of affreightment, or “COAs.”

We believe that the size and versatility of our fleet, which enable us to carry the broadest set of liquefied gases subject to seaborne transportation across a diverse range of conditions and geographies, together with our track record of operational excellence, position us as the partner of choice for many companies requiring handysize liquefied gas transportation and distribution solutions. In addition, we believe that the versatility of our fleet affords us with backhaul and triangulation opportunities not available to many of our competitors, thereby providing us with opportunities to increase utilization and profitability. We seek to enhance our returns through a flexible, customer-driven chartering strategy that combines a base of time charters and COAs, with more opportunistic, higher-rate voyage charters.

We carry LPG for major international energy companies, state-owned utilities and reputable commodities traders. LPG, which consists of propane and butane, is a relatively clean alternative energy source with more than 1,000 applications, including as a heating, cooking and transportation fuel and as a petrochemical and refinery feedstock. LPG is a by-product of oil refining and gas extraction, the availability of which has historically been limited by the flaring of natural gas at the wellhead. However, increasing restrictions across

 

 

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the globe against flaring natural gas have resulted in, and are anticipated to continue to result in, the increased transportation or storage of by-products such as LPG. The expanding development of U.S. shale oil and gas resources has resulted in an abundance of LPG that exceeds current U.S. domestic needs and, given the scarcity and cost of storage infrastructure, Drewry believes U.S. LPG will be increasingly exported. This LPG available for export from the United States, together with LPG associated with large LNG export projects in international oil and gas producing regions, is expected to create supply-driven growth of seaborne LPG transportation and to promote arbitrage opportunities due to regional price differentials, according to Drewry.

We also carry petrochemical gases for numerous industrial users. Petrochemical gases, including ethylene, propylene, butadiene and vinyl chloride monomer, are derived from the cracking of petroleum feedstocks such as ethane, LPG and naptha and are primarily used as raw materials in various industrial processes, like the manufacture of plastics and rubber, with a wide application of end uses. The demand for seaborne transportation of petrochemical gases will increase due to industrial users seeking alternative feedstocks given the rise in crude oil prices, expanding global manufacturing and cracking capacity, particularly in the Middle East and Asia, and shifting regional supply imbalances in certain petrochemicals, according to Drewry. Our vessels are also capable of carrying ammonia, which is mainly used in the agricultural industry as a fertilizer. The ability of our fleet to carry the broadest range of petrochemical cargoes among liquefied gas carrier fleets, as well as serve ports with vessel size restrictions and/or limited infrastructure, has allowed us to enhance our fleet utilization and profitability, including through greater backhaul and triangulation opportunities.

Our management team has significant experience growing leading energy, logistics and maritime companies. Since our management team joined our company in 2006, we have successfully grown our fleet from five to 22 vessels on-the-water as of the date of this prospectus, and we expect to grow to 30 vessels on-the-water by August 2015. The growth of our fleet and successful management of our operations have enabled us to establish a track record of growing revenues and improving profitability over recent years despite the volatility in the shipping industry and world economy. We intend to leverage the expertise of our management to further grow our company as we look to capitalize on existing and future opportunities in the liquefied gas transportation and complementary sectors. For the six months ended June 30, 2013, and the year ended December 31, 2012, we reported net income of $19.1 million and $30.5 million, respectively, EBITDA of $47.7 million and $63.9 million, respectively, and operating revenue of $102.8 million and $146.7 million, respectively, an increase over the comparable period in the previous year of 43.0%, 63.7%, 66.5%, 60.3%, 53.6% and 65.1%, respectively. Please see “—Summary Historical Financial and Operating Data” for a reconciliation of EBITDA to net income.

 

 

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Our Fleet

Our owned vessels had an average age of 6.4 years, as compared to an average age for the world handysize liquefied gas carrier fleet of 11.7 years as of June 30, 2013. We believe that owning a modern fleet reduces off-hire time and maintenance, operating and drydocking costs and helps ensure safety and environmental protection.

The following table sets forth our owned vessels:

 

 

 

OPERATING VESSEL (1)

   YEAR
BUILT
     VESSEL
SIZE
(CBM)
     ETHYLENE-CAPABLE      EMPLOYMENT
STATUS
   CHARTER
EXPIRATION

DATE

Semi-refrigerated

              

Navigator Mars

     2000         22,085       ü         Spot market   

Navigator Neptune

     2000         22,085       ü         Time charter    January 2014

Navigator Pluto

     2000         22,085       ü         Time charter    September 2015

Navigator Saturn

     2000         22,085       ü         Spot market   

Navigator Venus

     2000         22,085       ü         Time charter    March 2014

Navigator Magellan (2)

     1998         20,700          Time charter    March 2014

Navigator Aries

     2008         20,750          Time charter    September 2014

Navigator Capricorn (2)

     2008         20,750          Spot market   

Navigator Gemini

     2009         20,750          Time charter    December 2013

Navigator Pegasus

     2009         22,200          Time charter    March 2014

Navigator Phoenix

     2009         22,200          Time charter    May 2014

Navigator Scorpio (2)

     2009         20,750          Spot market   

Navigator Taurus

     2009         20,750          Spot market   

Navigator Leo (3)

     2011         20,600          Spot market   

Navigator Libra (3)

     2012         20,600          Spot market   

Navigator Virgo (2)

     2009         20,750          Spot market   

Navigator Mariner (2)

     2000         20,700          Time charter    February 2014

Fully-refrigerated

              

Navigator Grace (2)

     2010         22,500          Time charter    February 2014

Navigator Galaxy (2)

     2011         22,500          Time charter    September 2014

Navigator Genesis (2)

     2011         22,500          Spot market   

Navigator Global (2)

     2011         22,500          Time charter    October 2013

Navigator Gusto (2)

     2011         22,500          Time charter    October 2013

 

 

(1)  

Excludes the Maple 3, a semi-refrigerated vessel operated by us pursuant to a time charter-in from Maple 3 Inc. through December 2014.

(2)  

Vessel acquired in connection with the A.P. Møller acquisition described below.

(3)  

The Navigator Leo and Navigator Libra are under time charters through 2023 commencing in December 2013.

We are growing our fleet to capitalize on existing and anticipated opportunities in the liquefied gas transportation and distribution market. In November 2012, we entered into sales and purchase agreements with affiliates of A.P. Møller pursuant to which A.P. Møller agreed to sell to us its entire fleet of 11 handysize liquefied gas carriers, or the “A.P. Møller vessels.” We have acquired ten of the A.P. Møller vessels to date and anticipate acquiring the remaining vessel later this year. We have also entered into agreements with Jiangnan to build five 21,000 cbm semi-refrigerated ethylene-capable liquefied gas carriers and two 22,000 cbm semi-refrigerated liquefied gas carriers and have options to build two additional 22,000 cbm semi-refrigerated liquefied gas carriers. Our 2014 newbuildings are scheduled for delivery between April and October of 2014, our 2015 newbuildings are scheduled for delivery between March and August of 2015, and the two option newbuildings would be delivered between late 2015 and early 2016 if the options were exercised. We have fully financed the acquisition of the remaining A.P. Møller vessel and the construction of the 2014 newbuildings through a combination of debt and equity financings. We plan to use a portion of the net proceeds from this offering together with future credit facilities to fund the construction of the 2015 newbuildings and, if the options are exercised, the option newbuildings.

 

 

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The following table presents certain information concerning the remaining vessel to be delivered from A.P. Møller and our newbuildings, excluding the two option newbuildings.

 

 

 

ACQUIRED / NEWBUILDING VESSEL

   YEAR
BUILT
     VESSEL SIZE
(CBM)
     ETHYLENE-CAPABLE      ANTICIPATED DELIVERY

Semi-refrigerated

           

Navigator Atlas

     2014         21,000       ü         April 2014

Navigator Europa

     2014         21,000       ü         June 2014

Navigator Oberon

     2014         21,000       ü         August 2014

Navigator Triton

     2014         21,000       ü         October 2014

Navigator Umbrio

     2015         21,000       ü         March 2015

Hull 2555 (2)

     2015         22,000          June 2015

Hull 2556 (2)

     2015         22,000          August 2015

Fully-refrigerated

           

Maersk Glory (1)(3)

     2010         22,500          October 2013

 

 

(1)   

Vessel to be acquired in connection with the A.P. Møller acquisition described above.

(2)   

To be named upon delivery.

(3)   

The Maersk Glory is currently under time charter through October 2013.

Our team of experienced in-house personnel manages the commercial and operational functions of our fleet. We currently outsource the technical and crewing management of our vessels to Bernhard Schulte Shipmanagement, or “BSSM,” and Northern Marine Management Ltd., or “NMM,” an affiliate of Stena AB Gothenburg, both international maritime service companies that manage more than 650 and 70 ships, respectively. We refer to BSSM and NMM herein as our “technical managers.” We believe that outsourcing our technical and crewing management has historically been cost efficient and ensured a professional and safe environment for our seafarers and our vessels.

The Seaborne Liquefied Gas Transportation Market

The international seaborne liquefied gas transportation market is primarily driven by demand for, and supply of, liquefied gas carriers. Liquefied gas carriers transport three main types of cargo—LPG, petrochemical gases and ammonia.

The Market for LPG

LPG has historically been a supply-driven industry, as LPG is a by-product of gas processing, LNG production and crude oil refining. The expansion of LNG projects around the world driven by, among other things, a greater emphasis on monetizing gas resources and more stringent restrictions across the globe on the flaring and venting of natural gas has, and will continue to boost LPG production and trade. The Middle East is the largest exporter of LPG, and Asia is the largest destination for Middle Eastern exports. Japan, South Korea and China are the main importers in Asia, with India and Europe being the other major destinations for LPG.

From 2009 through 2012, U.S. seaborne exports of LPG grew at a CAGR of approximately 22.9%, primarily driven by increased LPG production, a direct consequence of the development of domestic shale gas reserves. As a result, the United States has been transformed from being a net importer to a net exporter of LPG. The growth of U.S. gas supplies as a result of domestic shale gas development has also forced down ethane and propane prices in the United States to the point that they are now highly competitive compared to prices offered by other major LPG exporters. These decreased prices have created trading arbitrage opportunities that increase the demand for liquefied gas carriers. Drewry anticipates that U.S. exports of LPG will further grow as additional export terminal infrastructure is developed and that U.S. propane export capacity will more than triple from December 31, 2012 to December 31, 2014 to 540,000 barrels per day.

 

 

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U.S. LPG Production

LOGO

Source: Drewry

  

LPG Prices

LOGO

Source: Drewry

The Market for Petrochemicals Gases

Petrochemical gases are derived from processing oil and gas products. The market for seaborne transportation of petrochemical gases is driven primarily by industrial and consumer demand for products derived from petrochemical gases, such as plastics, polymers, organic chemicals and rubber, as well as regional production imbalances and pricing differentials. Seaborne transportation of petrochemical gases has been increasing for much of the last decade in part due to refining and cracking capacity growth in the Middle East and Asia. Global feedstock price disparities, including for ethylene, have also increased, creating arbitrage opportunities. Generally, the growth of capacity ahead of downstream production has underpinned the growth in exports, creating additional demand for shipping capacity. The majority of this capacity has been in the handysize sector.

The Market for Ammonia

Ammonia is predominantly used in the agricultural industry as a fertilizer. In the last decade, international seaborne trade of ammonia has grown faster than production due to the growth in supply from regions with more competitively priced feedstock. As such, production of ammonia is gravitating to areas that have large supplies of low cost natural gas, such as the Middle East.

Versatility and Supply of Gas Carriers

Liquefied gas carriers range in size from 500 to 86,000 cbm and in technical capabilities from fully-pressurized to fully-refrigerated, depending on the mix of pressure and refrigeration applied to cargoes. In general, the operating flexibility of a liquefied gas carrier is restricted at the lower and upper ends of the vessel-size spectrum by a combination of technical and commercial features. The most flexible vessels are those in the handysize sector in which we operate due to their combination of pressure and refrigeration capabilities, which allows them to access each of the LPG, petrochemical gases and ammonia markets.

As of June 30, 2013, the orderbook for liquefied gas carriers was equivalent to 14.4% of the existing fleet in capacity terms, far below the 32% peak seen in late 2007 and early 2008. In contrast to oil tankers and drybulk carriers, the number of shipyards with liquefied gas carrier building experience is quite limited and, as such, a sudden influx of supply beyond what is already on order before 2015 is unlikely. In the handysize sector, there are 87 vessels in the world fleet and 10 vessels on order as of June 30, 2013. Almost 25% of the fleet capacity in the handysize sector is more than 20 years old.

Business Opportunities

We believe the following global trends create significant opportunities for us:

 

  n  

Emergence of the United States as a major LPG exporter. The recent growth in shale oil and gas production has transformed the United States from being a net importer to a net exporter of LPG. During 2012, the United States became the second largest exporter of seaborne LPG, only surpassed by Qatar, and in early 2013, U.S. monthly exports were more than double the long-term average for the period of 2002 through 2012. Natural gas liquids constitute on average approximately 40% of the gas stream in liquid-rich oil and gas fields such as the Utica and Marcellus shales. Natural gas liquids

 

 

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primarily consist of propane, butane and ethane and have higher market value compared to natural gas. The excess supply of these liquids in markets such as the United States has created arbitrage opportunities and heightened demand in international consuming markets through attractive pricing. For example, average propane prices in the U.S. Gulf Coast for the six months ended June 30, 2013, were approximately 40% and 45% less than the average propane price for such period in Algeria and Saudi Arabia, respectively, which we believe will create increased investment opportunities in growing LPG seaborne transportation on which we intend to capitalize.

 

  n  

Increasing supply of international LPG requiring transport. Over the last 18 months, the expansion of existing LNG facilities and the construction of major new LNG production facilities around the world have added to LPG production and trade volumes, following a period of project delays and stalled start-ups due to the global economic downturn. We expect recent expansions in international crude oil refining capacity to lead to increased production of LPG as a by-product. We also expect LPG production from natural gas processing to continue to increase as new, more stringent regulations restricting the flaring and venting of natural gas continue to be implemented across the globe. We believe that handysize vessels such as those in our fleet and smaller vessels will benefit from increased LPG production, particularly in the United States, the former Soviet Republics, North and West Coast Africa, the Caribbean and Latin America, and from growth in intra-regional and coastal trade to ports that larger vessels cannot easily access or that lack the fully-refrigerated loading and/or storage infrastructure that larger vessels require.

 

  n  

Growing demand for seaborne transportation of petrochemicals. We believe that growth in production at petrochemical facilities, demand for alternative feedstocks due to the rise in crude oil prices and regional supply imbalances create arbitrage opportunities that have a positive impact on trade flows from a ton-mile perspective. These arbitrage opportunities generate demand for seaborne liquefied gas carriers to transport petrochemical gas cargoes under voyage charters. Voyage charter rates for petrochemical gas cargoes are often higher than time charter rates for liquefied gas cargoes, with voyage charter rates for ethylene historically commanding an additional premium over the rates for other petrochemical gas cargoes. We believe that the balanced employment of our vessels and the fact that they are among the largest vessels in the world capable of carrying certain petrochemical gases, including ethylene, provide us with available and well-suited tonnage to benefit from these trends.

 

  n  

Evolving U.S. petrochemical market dynamics. The development of U.S. shale oil and gas resources has also created an abundance of ethane resulting in a decrease in average U.S. ethane spot price from approximately $526 per metric ton for the year ended December 31, 2008 to approximately $166 per metric ton for the six months ended June 30, 2013, providing the U.S. petrochemical industry with attractively priced domestic feedstock for the production of petrochemicals and ethylene. As a result, U.S. petrochemicals and ethylene are increasingly competitively priced in the global marketplace, and a number of new projects have been announced to expand U.S. ethylene cracking capacity. We expect these trends to lead to continued growth in U.S. exports of petrochemical and ethylene cargoes. We believe that we are well positioned to benefit from this export growth as our fleet currently consists of the five largest, and by March 2015 we expect that it will consist of ten of the largest, ethylene-capable liquefied gas carriers in the world.

 

  n  

Rising global demand for alternative fuels. The increase in global demand for LPG has also been supported by the substitution of alternative fuels as they become more attractive in light of concerns over the environmental impact of crude oil and the safety of nuclear power following the accident at the Fukushima, Japan nuclear power plants. We believe demand for LPG will also increase due to the introduction of various initiatives to encourage the use of cleaner fuels around the world. We believe the ability of our fleet to transport LPG to smaller ports around the world provides us with a competitive advantage as global demand for alternative fuels increases.

 

  n  

Increased ton-mile demand through backhaul and triangulation opportunities. The shale oil and gas development in the United States, the establishment of LNG and LPG production facilities in the Middle East and other oil and gas producing regions and the growth of petrochemical facilities in

 

 

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various countries around the globe have not only increased the supply of liquefied gases available for export but also changed the trade flows between regions. As one region develops as a major export hub for one type of liquefied gas, it is likely to also grow into a major importer of another. Drewry believes the increased distances between the projected major exporting and importing regions of liquefied gases and the evolution of trade patterns will result in additional backhaul and triangulation opportunities as well as growing ton-mile demand. We have in the past and will continue to benefit from these emerging longer-haul liquefied gas trading patterns, as the versatility of our fleet enables us to carry a wide range of liquefied gases across multiple markets while providing our partners and customers with economies of scale.

Our Competitive Strengths

Our competitive strengths include the following:

 

  n  

We own and operate the world’s largest handysize liquefied gas carrier fleet. With 22 owned vessels and an additional eight vessels to be delivered to us in the next 24 months, we are and expect to continue to be the owner and operator of the world’s largest handysize liquefied gas carrier fleet. Of these eight vessels to be delivered to us, five are fully financed and three are expected to be financed through the proceeds of this offering and borrowings under future credit facilities. See “Use of Proceeds.” Furthermore, we are also the owner and operator of the world’s largest fleets of both semi-refrigerated and ethylene-capable semi-refrigerated handysize vessels. We believe that our fleet’s cargo carriage flexibility and long-haul capabilities provide us with competitive advantages in pursuing emerging growth opportunities, particularly in petrochemical and ethylene transportation.

 

  n  

Our highly versatile fleet allows us to enhance utilization and profitability. Our fleet is capable of cost effectively transporting a wide range of liquefied gases including, in the case of five of our current vessels and five of our newbuildings, ethylene and ethane. We believe that the diversity of our fleet, consisting of semi-refrigerated, fully-refrigerated and ethylene-capable vessels, allows us to match appropriate tonnage to a customer’s particular need. In addition, our ability to transport the broadest set of liquefied gases subject to seaborne transportation affords us greater opportunities for backhaul and triangulation, thereby enhancing our utilization and profitability. Furthermore, we believe our vessels are highly versatile in terms of cargo breadth, ease and speed of loading and discharging cargoes and adaptability for route scheduling and available port infrastructure. During the economic downturn in 2008, when demand for seaborne LPG transportation was appreciably reduced, our vessels took advantage of their ability to carry a broad range of petrochemicals, and thereby maintained an average annual utilization rate across the total fleet of more than 96%.

 

  n  

We have a modern, fuel efficient fleet. Our owned vessels had an average age of 6.4 years, as compared to an average age for the world handysize liquefied gas carrier fleet of 11.7 years as of June 30, 2013. The average age, fuel efficiency and technical capabilities of our fleet will be further enhanced by the delivery of our seven newbuildings. We believe that owning a modern fleet reduces off-hire time and maintenance, operating and drydocking costs and helps to ensure safety and environmental protection. In addition, our seven newbuilding vessels have been designed to maximize their fuel efficiency by incorporating advanced Eco-design technological improvements to reduce fuel consumption, such as electronically controlled engines, more efficient hull forms, energy efficient propellers, decreased water resistance and the capability of converting the vessels to use LNG as fuel. We believe that owning fuel-efficient vessels assists us in capturing additional business opportunities and enhances our operating performance by reducing voyage costs and allowing us to adhere to increasingly stringent environmental standards required by certain customers and ports.

 

  n  

We have an experienced operating team. Our vessels are some of the more complex vessel types on the water today, carrying the full range of LPG, petrochemical and ammonia cargoes. These cargoes can be loaded at significantly differing temperatures and require experience to understand the technical complexities of the vessel’s cooling capacity and pressure limitations to ensure efficient and safe handling and transportation. We believe the experience of our operating team and the network of

 

 

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industry relationships we have established with charterers, traders, brokers, shipyards and other constituents of the liquefied gas industry are not easily replicable by potential new entries and provide us with a sustainable competitive advantage.

 

  n  

We have a track record of and visible built-in growth. Since joining our company, our management team has successfully grown our fleet from five operating vessels to the world’s largest handysize liquefied gas carrier fleet with 22 owned vessels as of the date of this prospectus. In addition, our fleet will continue to expand, as we have contracted to take delivery of eight additional vessels, including our seven newbuildings, over the next 24 months and have options to build two additional handysize newbuilding vessels for delivery by early 2016. The growth of our fleet was the primary contributor to our increasing revenues, net income and EBITDA by 65.1%, 63.7% and 60.3%, respectively, from 2011 to 2012. We expect our revenues and EBITDA to continue to grow as we take delivery of the additional vessels, and we believe that the expertise of our management team will allow us to capitalize on further growth opportunities in the future.

 

  n  

We have the financial flexibility to selectively pursue expansion opportunities. We believe that our liquidity and moderate leverage following this offering will give us the financial flexibility to pursue further newbuildings, including the 2015 newbuildings and, if the options are exercised, the option newbuildings, potential future acquisitions and complementary investment opportunities as we deem prudent based on prevailing market conditions. We have already fully financed through a combination of debt and equity the acquisition of the A.P. Møller vessel we have contracted to acquire by the end of 2013 and the construction of the 2014 newbuildings. As of June 30, 2013, after giving effect to this offering and the anticipated use of proceeds, we would have $         million of cash and $         million principal amount of outstanding indebtedness. See “Capitalization.”

Our Business Strategies

Our objective is to enhance shareholder value by executing the following business strategies:

 

  n  

Capitalize on the increasing demand for seaborne transportation of LPG and petrochemicals. We own and operate the world’s largest handysize liquefied gas carrier fleet, in both the number as well as capacity of semi-refrigerated vessels within the handysize segment. We intend to use our vessels to further pursue the anticipated increases in liquefied gas transportation opportunities globally, and in particular, those that we expect to result directly and indirectly from the growth in U.S. shale oil and gas and associated liquids. We believe we were the first liquefied gas carrier operator to export propane from the U.S. East Coast and presently have six vessels dedicated to transporting products derived from U.S. shale oil and gas, including the vessels operating under a COA with Sunoco Logistics through the first quarter of 2014. We believe that we are strongly positioned to increase our presence in this emerging market.

 

  n  

Maintain a flexible, customer-driven chartering strategy. We will seek to enhance our returns through a flexible vessel employment strategy that combines a base of time charters and COAs with more opportunistic, high-rate voyage charters. In addition, we will seek to further strengthen our relationships with existing customers and expand our client base by providing companies with liquefied gas transportation solutions in the form and duration they require. We believe that our customer-driven employment strategy and high-quality operations position us to be the transportation partner of choice for our customers. In addition, by employing a portion of our fleet in the spot market, we maintain a regular dialogue with charterers and brokers that help us identify higher rate opportunities as well as longer-term trends that may benefit us. We believe that this flexible chartering strategy will enable us to maintain a base of relatively stable and predictable revenues, position us to capitalize on favorable market opportunities and allow us to proactively respond to our customers’ needs.

 

 

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  n  

Capitalize on backhaul and triangulation opportunities in the petrochemical market. We believe that the versatility of our fleet, in particular our ethylene-capable and semi-refrigerated vessels, enhances our ability to pursue current and emerging backhaul and triangulation opportunities as new trade routes develop, thereby maximizing utilization and enhancing profitability. To further capitalize on such opportunities, we are seeking to expand our leading ethylene-capable liquefied gas carrier position through the acquisition of our seven semi-refrigerated newbuildings, five of which will be ethylene-capable. We intend to seek opportunities to improve our financial results and maximize the utilization of our vessels by transporting both LPG and petrochemicals during vessel repositioning voyages and between time charters.

 

  n  

Maintain reputation for operational excellence. We believe that we have established a track record in the industry of operational excellence based on our significant experience in the operation and ownership of high-specification liquefied gas carriers. We will endeavor to adhere to the highest standards with regard to reliability, safety and operational excellence as we execute our growth plans. We intend to continue outsourcing the technical and crewing management of our fleet in the near term to our technical managers. We believe outsourcing our technical and crewing management to our technical managers has historically allowed us to consistently maintain high-quality and skilled, professional crews while at the same time growing our substantive in-house expertise in these areas. As our fleet grows, we will regularly evaluate opportunities to enhance the quality and cost efficiency of managing our vessels.

 

  n  

Selectively grow and expand our operations. We intend to maintain our market position by growing our fleet through newbuildings and selective acquisitions of modern, high-quality vessels, as well as opportunistically to expand our business through the investment in complementary assets should such opportunities arise. In addition, we will seek to leverage the experience of our operating team to selectively tailor the capabilities of our existing and/or future vessels and related investments to provide our partners and customers with integrated liquefied gas transportation solutions in new and evolving markets. Furthermore, although we currently operate vessels in the handysize segment, we will opportunistically evaluate acquisitions of vessels in other capacity ranges.

 

  n  

Maintain a strong balance sheet with moderate leverage. We have a strong balance sheet and, after this offering, expect to have a debt to capitalization ratio of     % and ample liquidity with cash on hand of $         million. We will seek to maintain modest leverage in the future by prudently financing our growth with a balanced mix of cash from operations, debt financings and proceeds from future equity offerings. We believe that maintaining a strong balance sheet will continue to provide us with the flexibility to capitalize on vessel purchases and related investment opportunities. Notwithstanding the foregoing, based on prevailing conditions and our outlook for the liquefied gas carrier market, we might consider incurring further indebtedness in the future to enhance returns to our shareholders.

Risk Factors

We face a number of risks associated with our business and industry and must overcome a variety of challenges to utilize our strengths and implement our business strategy. These risks include, among others, the capital-intensive nature of our business; the cyclical nature of charter rates for liquefied gas carriers; partial dependence on spot charters; political, governmental and economic instability; expanding customer relationships; and the availability of financing on favorable terms, if at all.

This is not a comprehensive list of risks to which we are subject, and you should carefully consider all the information in this prospectus prior to investing in shares of our common stock. In particular, we urge you to carefully consider the risk factors set forth in the section of this prospectus entitled “Risk Factors” beginning on page 16.

 

 

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Implications of Being an Emerging Growth Company

We had less than $1.0 billion in revenue during our last fiscal year, which means that we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act, or the “JOBS Act.” An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:

 

  n  

the ability to present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations in the registration statement of its initial public offering;

 

  n  

exemption from the auditor attestation requirement in the assessment of the company’s internal control over financial reporting;

 

  n  

exemption from new or revised financial accounting standards applicable to public companies until such standards are also applicable to private companies; and

 

  n  

exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board, or the “PCAOB,” requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and financial statements.

We may take advantage of these provisions until the end of the fiscal year following the fifth anniversary of our initial public offering or such earlier time that we are no longer an emerging growth company. We will cease to be an emerging growth company if we have more than $1.0 billion in annual revenues, have more than $700 million in market value of our common stock held by non-affiliates, or issue more than $1.0 billion of non-convertible debt over a three-year period. We may choose to take advantage of some, but not all, of these reduced burdens. For as long as we take advantage of the reduced reporting obligations, the information that we provide shareholders may be different than information provided by other public companies. We have elected to “opt out” of the extended transition period relating to the exemption from new or revised financial accounting standards and, as a result, we will comply with new or revised financial accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised financial accounting standards is irrevocable.

Our Relationship with WL Ross & Co. LLC

Following the closing of this offering, over     % of our common stock will be owned by investment funds affiliated with WLR. WLR has restructured more than $300 billion of liabilities in North America and other parts of the world. The firm maintains offices in New York City and has become the sponsor of more than $9.0 billion of alternative investment partnerships on behalf of major U.S., European and Japanese institutional investors.

Corporate Information

We were formed in 1997 as an Isle of Man public limited company and subsequently redomiciled in 2008 in the Republic of the Marshall Islands. Our representative offices are located at 21 Palmer Street, London SW1H 0AD, United Kingdom, Tel +44 (0)20 7340 4850 and 399 Park Avenue, New York, NY 10022, United States, Tel +1 (212) 355-5893. Our website is located at http://www.navigatorgas.com.

We expect to make our periodic reports and other information filed with or furnished to the SEC available, free of charge, through our website as soon as reasonably practicable after those reports and other information are electronically filed with or furnished to the SEC. Information on our website or any other website is not incorporated by reference into this prospectus and does not constitute a part of this prospectus. Please read “Where You Can Find Additional Information” for an explanation of our reporting requirements as a foreign private issuer.

 

 

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THE OFFERING

 

Shares of common stock offered by us

             shares, or              shares if the underwriters exercise their option to purchase additional shares of common stock in full.

 

Shares of common stock offered by the selling shareholders

             shares.

 

Option to purchase additional shares

We have granted the underwriters an option for a period of 30 days to purchase up to              additional shares of common stock.

 

Shares of common stock to be outstanding after this offering

             shares, or              shares if the underwriters exercise their option to purchase additional shares of common stock in full.

 

Ownership after offering

Upon completion of this offering, the WLR Group, our executive officers, directors and affiliated entities will own approximately     % of our outstanding common stock, or     % if the underwriters exercise their option to purchase additional shares in full, and will as a result have significant control over our affairs.

 

Use of proceeds

We estimate that we will receive net proceeds from the sale of our common stock in this offering of $         million, or $             million if the underwriters exercise their option to purchase additional shares in full, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, assuming an initial public offering price of $         per share, the mid-point of the range set forth on the cover of this prospectus. We intend to use the net proceeds from this offering to fund the equity portion, or approximately $55 million, due under our purchase obligations for the 2015 newbuildings and the remainder for general corporate purposes, including if the newbuilding options are exercised, to fund $35 million of the approximately $88 million required to purchase the option newbuildings. We currently expect the remaining $82 million and $53 million of the purchase prices for the 2015 newbuildings and option newbuildings, respectively, to be financed under future credit facilities. The actual amount of the equity portion and debt portion under our purchase obligations could be impacted by the availability of debt financing on favorable terms.

 

  We will not receive any of the proceeds from the sale of our common stock by the selling shareholders. See “Use of Proceeds” and “Principal and Selling Shareholders.”

 

Dividends

We do not anticipate paying any cash dividends on our common stock in the near term. In addition, the agreements governing our indebtedness place certain restrictions on our ability to pay cash dividends. See “Dividend Policy.”

 

 

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Exchange listing

We have applied to list our common stock on the New York Stock Exchange, or “NYSE,” under the symbol “NVGS.”

 

Risk factors

Investment in our common stock involves substantial risks. You should read this prospectus carefully, including the section entitled “Risk Factors” and the consolidated financial statements and the related notes to those statements included elsewhere in this prospectus before investing in our common stock.

The number of shares of common stock to be outstanding after our initial public offering gives effect to a 3-for-1 stock split that will be effected immediately prior to the effectiveness of the Company’s registration statement related to its initial public offering and includes: (i) 46,296,762 shares of our common stock outstanding as of July 2, 2013, and (ii) the              shares of common stock offered by us in connection with this offering (assuming no exercise of the underwriters’ option to purchase additional shares), and excludes (on a post-stock split basis):

 

  n  

69,198 shares of restricted stock outstanding as of July 2, 2013 under our 2008 Restricted Stock Plan;

 

  n  

             shares of our common stock reserved for future issuance under our equity compensation plans, consisting of              shares of common stock reserved for issuance under our 2013 Long-Term Incentive Plan.

Unless expressly indicated or the context requires otherwise, all information in this prospectus assumes:

 

  n  

the consummation of the 3-for-1 stock split to be effected immediately prior to the effectiveness of the Company’s registration statement related to its initial public offering in the form of a share dividend;

 

  n  

no exercise by the underwriters of their option to purchase an additional              shares of common stock from us; and

 

  n  

the effectiveness of our second restated articles of incorporation in connection with the closing of our initial public offering.

 

 

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SUMMARY HISTORICAL FINANCIAL AND OPERATING DATA

The following table presents historical information as follows:

 

  n  

The summary historical financial data as of and for the years ended December 31, 2011 and 2012, have been derived from our audited consolidated financial statements included elsewhere in this prospectus, and should be read together with and qualified in its entirety by reference to such audited consolidated financial statements.

 

  n  

The summary historical financial data as of and for the six months ended June 30, 2012, and 2013, have been derived from our unaudited consolidated financial statements and the notes thereto and, in our opinion, except as described below, have been prepared on a basis consistent with the audited financial statements and include all adjustments consisting of normal recurring adjustments, necessary for a fair presentation of this information.

The following table should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The summary historical financial data reflects the earnings per share and dividends per share impact of our 3-for-1 stock split that we will effect immediately prior to the effectiveness of the Company’s registration statement related to its initial public offering.

 

 

 

                                                           
     NAVIGATOR HOLDINGS  
     YEAR ENDED DECEMBER 31,      SIX MONTHS ENDED
JUNE 30,
 
           2011                  2012                  2012                  2013        
                   (Unaudited)  
     (In thousands, except per share data, fleet data and average daily results)  

Income Statement Data:

           

Operating revenue

   $   88,875       $ 146,716       $   66,917       $ 102,816   

Operating expenses:

           

Address and brokerage commissions

     2,664         4,234         2,023         2,575   

Voyage expenses

     17,661         27,791         14,162         22,260   

Charter-in costs

     344         11,288         3,600         3,175   

Vessel operating expenses

     22,939         32,826         15,104         22,933   

Depreciation and amortization

     18,678         24,180         11,506         15,683   

General and administrative costs

     4,232         5,273         2,536         3,195   

Other corporate expenses

     1,166         1,402         850         999   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total operating expenses

     67,684         106,994         49,782         70,819   
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating income

   $ 21,191       $ 39,722       $ 17,135       $ 31,997   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net interest expense

     2,433         8,671         3,552         12,693   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income before income taxes

   $ 18,758       $ 31,051       $ 13,583       $ 19,304   

Income taxes

     108         515         246         224   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 18,650       $ 30,536       $ 13,338       $ 19,080   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings per share:

           

Basic and diluted

   $ 0.60       $ 0.82       $ 0.37       $ 0.43   

Dividends per share:

           

Basic and diluted

   $ 0.31       $ 0.06       $ 0.07       $   

EBITDA (1)

   $ 39,869       $ 63,902       $ 28,642       $ 47,680   

 

 

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     NAVIGATOR HOLDINGS  
     YEAR ENDED DECEMBER 31,     SIX MONTHS ENDED
JUNE 30,
 
           2011                 2012               2012             2013      
                 (Unaudited)  
     (In thousands, except per share data, fleet data and average daily results)  

Balance Sheet Data (at end of period):

        

Cash and cash equivalents

   $ 26,734      $ 140,870      $ 41,783      $ 86,913   

Total assets

     524,793        832,254        669,084        1,062,793   

Total liabilities

     152,765        384,431        238,928        520,616   

Total shareholders’ equity

     372,028        447,823        430,156        542,177   

Fleet Data:

        

Weighted average number of vessels (2)

     8.3        12.7        11.6        16.6   

Ownership days (3)

     3,033        4,663        2,114        3,016   

Available days (4)

     3,033        4,663        2,114        2,921   

Operating days (5)

     2,955        4,641        2,103        2,802   

Fleet utilization (6)

     97.4     99.5     99.5     95.9

Average Daily Results:

        

Time charter equivalent rate (7)

   $ 23,983      $ 26,305      $ 25,085      $ 28,750   

Daily vessel operating expenses (8)

   $ 7,632      $ 7,916      $ 7,819      $ 7,877   

 

 

(1)  

EBITDA represents net income before net interest expense, income taxes and depreciation and amortization. EBITDA does not represent and should not be considered as an alternative to consolidated net income or cash generated from operations, as determined by U.S. GAAP, and our calculation of EBITDA may not be comparable to that reported by other companies. EBITDA is not a recognized measurement under U.S. GAAP.

EBITDA is included herein because it is a basis upon which we assess our financial performance and because we believe that it presents useful information to investors regarding a company’s ability to service and/or incur indebtedness and it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry.

EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are:

 

  n  

EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

 

  n  

EBITDA does not recognize the interest expense or the cash requirements necessary to service interest or principal payments on our debt;

 

  n  

EBITDA ignores changes in, or cash requirements for, our working capital needs; and

 

  n  

other companies in our industry may calculate EBITDA differently than we do, limiting its usefulness as a comparative measure.

Because of these limitations, EBITDA should not be considered a measure of discretionary cash available to us to invest in the growth of our business.

The following table sets forth a reconciliation of net income to EBITDA (unaudited) for the periods presented:

 

 

 

     NAVIGATOR HOLDINGS  
     YEAR ENDED DECEMBER 31,      SIX MONTHS ENDED JUNE 30,  
         2011              2012              2012              2013      
     (In thousands)  

Net income

   $ 18,650       $ 30,536       $ 13,338       $ 19,080   

Net interest expense

     2,433         8,671         3,552         12,693   

Income taxes

     108         515         246         224   

Depreciation and amortization

     18,678         24,180         11,506         15,683   

EBITDA

   $ 39,869       $ 63,902       $ 28,642       $ 47,680   

 

 

 

 

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(2)  

We calculate the weighted average number of vessels during a period by dividing the number of total ownership days during that period by the number of calendar days during that period.

(3)  

We define ownership days as the aggregate number of days in a period that each vessel in our fleet has been owned by us. Ownership days are an indicator of the size of our fleet over a period and affect both the amount of revenue and the amount of expenses that we record during a period.

(4)  

We define available days as ownership days less aggregate off-hire days associated with scheduled maintenance, which includes major repairs, drydockings, vessel upgrades or special or intermediate surveys. We use available days to measure the aggregate number of days in a period that our vessels should be capable of generating revenues.

(5)  

We define operating days as available days less the aggregate number of days that our vessels are off-hire for any reason other than scheduled maintenance. We use operating days to measure the aggregate number of days in a period that our vessels actually generate revenues.

(6)   

We calculate fleet utilization by dividing the number of operating days during a period by the number of available days during that period. An increase in non-scheduled off-hire days would reduce our operating days, and therefore, our fleet utilization. We use fleet utilization to measure our ability to efficiently find suitable employment for our vessels.

(7)  

Time charter equivalent rate, or “TCE rate,” is a measure of the average daily revenue performance of a vessel. TCE rate is a shipping industry performance measure used primarily to compare period-to-period changes in a shipping company’s performance despite changes in the mix of charter types (i.e., time charters, voyage charters and COAs) under which the vessels may be employed between the periods. Our method of calculating TCE rate is to divide operating revenue (net of voyage expenses) by operating days for the relevant time period.

(8)  

Daily vessel operating expenses are calculated by dividing vessel operating expenses by ownership days (excluding ownership days for chartered-in vessels) for the relevant time period.

 

 

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RISK FACTORS

You should carefully consider the following risk factors together with all of the other information included in this prospectus in evaluating an investment in our common stock. If any of the following risks were actually to occur, our business, financial condition, results of operations and cash flows could be materially adversely affected. In that case, the trading price of our common stock could decline, and you could lose all or part of your investment.

Risks Related to Our Business

Charter rates for liquefied gas carriers are cyclical in nature.

The international liquefied gas carrier market is cyclical with attendant volatility in terms of profitability, charter rates and vessel values. The degree of charter rate volatility among different types of liquefied gas carriers has varied widely. Because many factors influencing the supply of, and demand for, vessel capacity are unpredictable, the timing, direction and degree of changes in the international liquefied gas carrier market are also unpredictable.

Future growth in the demand for our services will depend on changes in supply and demand, economic growth in the world economy and demand for liquefied gas product transportation relative to changes in worldwide fleet capacity. Adverse economic, political, social or other developments, including the return of the turmoil in the global financial system and economic crisis, could have a material adverse effect on world economic growth and thus on our business and results of operations.

The charter rates we receive will be dependent upon, among other things:

 

  n  

changes in the supply of vessel capacity for the seaborne transportation of liquefied gases, which is influenced by the following factors:

 

  n  

the number of newbuilding deliveries and the ability of shipyards to deliver newbuildings by contracted delivery dates and capacity levels of shipyards;

 

  n  

the scrapping rate of older vessels;

 

  n  

port and canal congestion; and

 

  n  

the number of vessels that are out of service, including due to vessel casualties.

 

  n  

changes in the level of demand for seaborne transportation of liquefied gases, which is influenced by the following factors:

 

  n  

the level of production of liquefied gases in net export regions such as Russia, North America, the Middle East and Africa;

 

  n  

the level of demand for liquefied gases in net import regions such as Asia, Europe, Latin America and India;

 

  n  

the level of internal demand for petrochemicals to supply integrated petrochemical facilities in net export regions;

 

  n  

a reduction in global or general industrial activity specifically in the plastics and chemical industry;

 

  n  

the prices of alternative fuels;

 

  n  

increases in the cost of petroleum and natural gas from which liquefied gases are derived;

 

  n  

prevailing global and regional economic conditions;

 

  n  

political changes and armed conflicts in the regions traveled by our vessels and the regions where the cargoes we carry are produced or consumed that interrupt production, trade routes or consumption of liquefied gases and the products made therefrom;

 

  n  

developments in international trade;

 

  n  

the distances between exporting and importing regions over which liquefied gases are to be moved by sea;

 

  n  

infrastructure to support seaborne liquefied gases, including pipelines, railways and terminals;

 

  n  

the availability of alternative transportation means;

 

  n  

changes in seaborne and other transportation patterns;

 

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  n  

changes in liquefied gas carrier prices; and

 

  n  

changes in environmental and other regulations that may limit the production or consumption of liquefied gases or the useful lives of vessels.

Adverse changes in any of the foregoing factors could have an adverse effect on our revenues, profitability, liquidity, cash flow and financial position.

We are partially dependent on voyage charters in the spot market, and any decrease in spot charter rates in the future may adversely affect our earnings.

We currently operate a fleet of 23 vessels, including one chartered-in vessel. Of those, eight vessels are employed in the spot market, exposing us to fluctuations in spot market charter rates.

We may employ additional vessels that we may acquire or charter-in the future in the spot market, including the remaining secondhand vessel that we have contracted to acquire for delivery in 2013 and the seven newbuildings to be acquired for delivery by August 2015. Although spot chartering is common in our industry, the spot market may fluctuate significantly. The successful operation of our vessels in the competitive spot market depends upon, among other things, obtaining profitable spot charters and minimizing, to the extent possible, time spent waiting for charters and time spent traveling in ballast and to pick up cargo. The spot market is very volatile, and there have been periods when spot rates have declined below the operating cost of vessels. If future spot charter rates decline, we may be unable to operate our vessels trading in the spot market profitably or meet our obligations, including payments on indebtedness. Furthermore, as charter rates for spot charters are fixed for a single voyage which may last up to several weeks, during periods in which spot charter rates are rising, we will generally experience delays in realizing the benefits from such increases.

We may be unable to charter our vessels at attractive rates, which would have an adverse impact on our business, financial condition and operating results.

Payments under our charters represent substantially all of our operating cash flow. Our time charters expire on a regular basis. Furthermore, we anticipate receiving at least eight new vessels by August 2015 as a result of our acquisition of the remaining A.P. Møller vessel and our newbuildings, none of which are currently subject to charters. If demand for liquefied gas carriers has declined at the time that our charters expire or vessels are received, we may not be able to charter our vessels at favorable rates or at all. In addition, while longer-term charters would become more attractive to us at a time when charter rates are declining, our customers may not want to enter into longer-term charters in such an environment. As a result, if our charters expire or vessels are received at a time when charter rates are declining, we may have to accept charters with lower rates or shorter terms than would be desirable. Furthermore, we may be unable to charter our vessels immediately after the expiration of their charters or after their receipt, resulting in periods of non-utilization for our vessels. Our inability to charter our vessels at favorable rates or terms or at all would adversely impact our business, financial condition and operating results. Please read “Business—Our Fleet.”

If the demand for liquefied gases and the seaborne transportation of liquefied gases does not continue to grow, our business, financial condition and operating results could be adversely affected.

Our growth depends on continued growth in world and regional demand for liquefied gases and the seaborne transportation of liquefied gases, each of which could be adversely affected by a number of factors, such as:

 

  n  

increases in the demand for industrial and residential natural gas in areas linked by pipelines to producing areas, or the conversion of existing non-gas pipelines to natural gas pipelines in those markets;

 

  n  

increases in demand for chemical feedstocks in net exporting regions;

 

  n  

decreases in the consumption of petrochemical gases;

 

  n  

decreases in the consumption of LPG due to increases in its price relative to other energy sources or other factors making consumption of liquefied gas less attractive;

 

  n  

the availability of competing, alternative energy sources, transportation fuels or propulsion systems;

 

  n  

decreases in demand for liquefied gases resulting from changes in feedstock capabilities of petrochemical plants in net importing regions;

 

  n  

changes in the relative values of hydrocarbon and liquefied gases;

 

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  n  

a reduction in global industrial activity, especially in the plastics and petrochemical industries, particularly in regions with high demand growth for liquefied gas, such as Asia;

 

  n  

adverse global or regional economic or political conditions, particularly in liquefied gas exporting or importing regions, which could reduce liquefied gas shipping or energy consumption;

 

  n  

changes in governmental regulations, such as the elimination of economic incentives or initiatives designed to encourage the use of liquefied gases over other fuel sources; or

 

  n  

decreases in the capacity of petrochemical plants and crude oil refineries worldwide or the failure of anticipated new capacity to come online.

Reduced demand for liquefied gases and the seaborne transportation of liquefied gases would have a material adverse effect on our future growth and could adversely affect our business, financial condition and operating results.

The expected growth in the supply of petrochemical gases, including ethylene, available for seaborne transport may not materialize, which would deprive us of the opportunity to obtain premium charters for petrochemical cargoes.

Charter rates for petrochemical gas cargoes are often higher than those for LPG, with charter rates for ethylene historically commanding an additional premium. While we believe that growth in production at petrochemical production facilities and regional supply and pricing imbalances will create opportunities for us to transport petrochemical gas cargoes, including ethylene, factors that are beyond our control may cause the supply of petrochemical gases available for seaborne transport to remain constant or even decline. For example, a significant portion of any increased production of petrochemicals in export regions may be used to supply local facilities that use petrochemicals as a feedstock rather than exported via seaborne trade. If the supply of petrochemical gases available for seaborne transport does not increase, we will not have the opportunity to obtain the premium charter rates associated with petrochemical gas cargoes, including ethylene, and our expectations regarding the growth of our business may not be met.

The market values of our vessels may fluctuate significantly. This could cause us to incur a loss, which could adversely affect our business, financial condition and operating results.

The market value of liquefied gas carriers fluctuates. While the market values of our vessels have increased since the recent economic slowdown, they still remain below the historic high levels prior to the economic slowdown. In addition, they are subject to the potential significant fluctuations depending on a number of factors including: general economic and market conditions affecting the shipping industry, prevailing charter rates, competition from other shipping companies, other modes of transportation, other types, sizes and age of vessels, applicable governmental regulations and the cost of newbuildings.

In addition, when vessel prices are considered to be low, companies not usually involved in shipping may make speculative vessel orders, thereby increasing the supply of vessel capacity, satisfying demand sooner and potentially suppressing charter rates.

Also, if the book value of a vessel is impaired due to unfavorable market conditions or a vessel is sold at a price below its book value, we would incur a loss that could have a material adverse effect on our business, financial condition and operating results. Please read “The International Liquefied Gas Shipping Industry” for information concerning historical prices of liquefied gas carriers.

Over the long term, we will be required to make substantial capital expenditures to preserve the operating capacity of, and to grow, our fleet.

We must make substantial capital expenditures over the long term to maintain the operating capacity and expansion of our fleet in order to preserve our capital base.

We estimate that drydocking expenditures can cost up to $2.0 million per vessel per drydocking, although these expenditures could vary significantly from quarter to quarter and year to year and could increase as a result of changes in:

 

  n  

the location and required repositioning of the vessel;

 

  n  

the cost of labor and materials;

 

  n  

customer requirements;

 

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  n  

the size of our fleet;

 

  n  

the cost of replacement vessels;

 

  n  

length of charters;

 

  n  

governmental regulations and maritime self-regulatory organization standards relating to safety, security or the environment; and

 

  n  

competitive standards.

Furthermore, we intend to make substantial capital expenditures to increase the size of our fleet. Pursuant to our purchase and sale agreements with A.P. Møller, we are required to remit payment of $38.7 million to A.P. Møller at the time of delivery of the remaining secondhand vessel we are to acquire during the fourth quarter of 2013. As of June 30, 2013, such remaining payment, together with payments to be remitted for three A.P. Møller vessels received prior to the date hereof but subsequent to June 30, 2013, totaled approximately $151.7 million. In addition, we have agreed to purchase the four 2014 newbuildings from Jiangnan for $50.0 million per vessel and the three 2015 newbuildings from Jiangnan for an average of $46.0 million per vessel, for an aggregate of $337.9 million. As of June 30, 2013, we have made aggregate payments to Jiangnan of $29.9 million. We also have options to build the two additional newbuildings for delivery from Jiangnan in late 2015 and early 2016 at $44.0 million per vessel.

We have fully financed the acquisition of the remaining A.P. Møller vessel and the construction of the 2014 newbuildings through a combination of debt and equity financings. We plan to use a portion of the net proceeds from this offering together with future credit facilities to fund the construction of the 2015 newbuildings and, if the options are exercised, the option newbuildings.

Our ability to obtain bank financing or to access the capital markets for future debt or equity offerings in order to finance the expansion of our fleet may be limited by our financial condition at the time of any such financing or offering as well as by adverse market conditions resulting from, among other things, general economic conditions and contingencies and uncertainties that are beyond our control. Our failure to obtain the funds for future capital expenditures could limit our ability to expand our fleet. Even if we are successful in obtaining necessary funds, the terms of such financings may significantly increase our interest expense and financial leverage and issuing additional equity securities may result in significant shareholder dilution. Please read “Management’s Discussion and Analysis of Financial Conditional Results of Operations—Liquidity and Capital Resources—Liquidity and Cash Needs.”

We may be unable to make, or realize the expected benefits from, acquisitions and the failure to successfully implement our growth strategy through acquisitions could adversely affect our business, financial condition and operating results.

Our growth strategy includes selectively acquiring existing liquefied gas carriers or newbuildings and investing in complimentary assets. Factors such as competition from other companies, many of which have significantly greater financial resources than we do, could reduce our acquisition and investment opportunities or cause us to pay higher prices.

Any existing vessel or newbuilding we acquire (including the A.P. Møller vessels, the 2014 newbuildings, the 2015 newbuildings and, if exercised, the option newbuildings) may not be profitable at or after the time of acquisition and may not generate cash flow sufficient to cover the cost of acquisition. Market conditions at the time of delivery of any newbuildings or vessels acquired free of charter may be such that charter rates are not favorable and the revenue generated by such vessels is not sufficient to cover their purchase prices.

In addition, our acquisition and investment growth strategy exposes us to risks that could adversely affect our business, financial condition and operating results, including risks that we may:

 

  n  

fail to realize anticipated benefits of acquisitions, such as new customer relationships, cost savings or increased cash flow;

 

  n  

not be able to obtain charters at favorable rates or at all;

 

  n  

be unable to hire, train or retain qualified shore and seafaring personnel to manage and operate our growing business and fleet or engage a third-party technical manager to do the same;

 

  n  

fail to integrate investments of complementary assets or vessels in capacity ranges outside our current operations in a profitable manner;

 

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  n  

not have adequate operating and financial systems in place as we implement our expansion plan;

 

  n  

decrease our liquidity through the use of a significant portion of available cash or borrowing capacity to finance acquisitions;

 

  n  

significantly increase our interest expense or financial leverage if we incur additional debt to finance acquisitions;

 

  n  

incur or assume unanticipated liabilities, losses or costs associated with the business or vessels acquired; or

 

  n  

incur other significant charges, such as impairment of goodwill or other intangible assets, asset devaluation or restructuring charges.

Unlike newbuildings, existing vessels typically do not carry warranties as to their condition. While we inspect existing vessels prior to purchase, such an inspection would normally not provide us with as much knowledge of a vessel’s condition as we would possess if it had been built for us and operated by us during its life. Repairs and maintenance costs for existing vessels are difficult to predict and may be substantially higher than for vessels we have operated since they were built. These costs could decrease our cash flow and reduce our liquidity.

Operations outside the United States expose us to political, governmental and economic instability, which could adversely affect our business, financial condition and operating results.

Because our operations are primarily conducted outside of the United States, we may be affected by economic, political and governmental conditions in the countries where we engage in business or where our vessels are registered. Any disruption caused by these conditions could adversely affect our business, financial condition and operating results. We derive some of our revenues from transporting gas cargoes from, to and within politically unstable regions. Conflicts in these regions have included attacks on ships and other efforts to disrupt shipping. In addition, vessels operating in some of these regions have been subject to piracy. Hostilities or other political instability in regions where we operate or may operate could have a material adverse effect on our business, financial condition and operating results. In addition, tariffs, trade embargoes and other economic sanctions by the United States or other countries against countries where we engage in business as a result of terrorist attacks, hostilities or other events may limit trading activities with those countries, which could also harm our business. Finally, a government could requisition one or more of our vessels, which is most likely during a war or national emergency. Any such requisition would cause a loss of the vessel and would harm our business, financial condition and operating results.

The geopolitical risks associated with chartering vessels to Indonesian and Venezuelan state-owned corporations are significant and could have an adverse impact on our business, financial condition and operating results.

PT Pertamina (Persero), or “Pertamina,” is a state-owned corporation of the Republic of Indonesia. Pertamina currently employs three of our vessels. Petróleos de Venezuela S.A., or “PDVSA,” is a state-owned corporation of the Bolivarian Republic of Venezuela. PDVSA currently employs two of our vessels. Collectively, our charters with Pertamina and PDVSA generated approximately 10.9% of our revenues for the year ended December 31, 2012. Our vessels that are chartered to Pertamina and PDVSA are subject to various risks, including (i) loss of revenue, property or equipment as a result of expropriation, nationalization, changes in laws, exchange controls, war, insurrection, civil unrest, strikes or other political risks, (ii) being subject to foreign laws and legal systems and the exclusive jurisdiction of Indonesian or Venezuelan courts or tribunals and (iii) the unilateral renegotiation of contracts and changes in laws and policies governing the operations of foreign companies in Indonesia or Venezuela. In addition, if a contract dispute arises it may be difficult for us to enforce our contractual rights against either Pertamina or PDVSA, as it may claim sovereign immunity against judgments from foreign courts. As a result, we are subject to significant economic uncertainty associated with doing business with state-owned corporations. We cannot predict how government policies may change under the current or any future Indonesian or Venezuelan administration, and future government policies could have a substantial adverse impact on our business, financial condition and operating results.

We depend to a significant degree upon third-party managers to provide technical management services for our fleet.

We subcontract the majority of the technical management of our fleet, including crewing, maintenance and repair, to third-party technical managers, BSSM and NMM. Our technical managers, in turn, contract with one or more manning agents for the provision of crews for our vessels. Although we have subcontracted the technical management of portions of our fleet to BSSM since 2001 and NMM since 2009, our agreements with them are subject to annual renewal and may be terminated by us or our technical managers with three months’ notice. The

 

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loss of services of one or both of our technical managers or a failure to perform their obligations could have an adverse effect on our business, financial condition and operating results. Although we may have rights against our technical managers if they were to default on their obligations, shareholders will have no recourse against our technical managers. In addition, if we were to lose the services of one or both of our technical managers, we may not be able to find replacement technical managers on terms as favorable as those currently in place.

The ability of our technical managers to continue providing services for our benefit will depend in part on their financial strength. Circumstances beyond our control could impair our technical managers’ financial strength. Because our technical managers are privately held, it is unlikely that information about their financial strength will be available. As a result, we might have little advance warning of problems that affect our technical managers, even though those problems could have a material adverse effect on us. Our inability to replace our technical managers or to successfully take over and perform the technical management of the vessels being managed by our technical managers would materially and adversely affect our business, financial condition and operating results.

An increase in fuel prices may adversely affect our charter rates for time charters and our cost structure for voyage charters and COAs.

The price and supply of bunker fuel are unpredictable and fluctuate based on events outside our control, including geopolitical developments, supply and demand for oil, actions by members of the Organization of the Petroleum Exporting Countries and other oil and gas producers, war and unrest in oil producing countries and regions, regional production patterns and environmental concerns and regulations. The price of bunker fuel has increased substantially, primarily as a result of increases in the price of crude oil and changing refinery industry dynamics. A significant portion of our revenues are generated by time charters, the terms of which require our customers to incur the cost of bunker fuel. However, our customers may be less willing to enter into charters under which they bear the full risk of bunker fuel price increases or may shorten the periods for which they are willing to make such commitments. Under voyage charters and COAs, we bear the cost of bunker fuel used to power our vessels. A substantial increase in bunker fuel prices would correspondingly increase our voyage expenses under any of our voyages charters or COAs, which may adversely affect our profitability. A substantial increase in the cost of bunker fuel may adversely affect our business, financial condition and operating results.

The required drydocking of our vessels could have a more significant adverse impact on our revenues than we anticipate, which would adversely affect our business, financial condition and operating results.

The drydocking of our vessels requires significant capital expenditures and results in loss of revenue while our vessels are off-hire. Any significant increase in the number of days of off-hire due to such drydocking or in the costs of any repairs could have a material adverse effect on our financial condition. Although we do not anticipate that more than one vessel will be out of service at any given time, we may underestimate the time required to drydock our vessels, or unanticipated problems may arise.

Our operating costs are likely to increase in the future as our vessels age, which would adversely affect our business, financial condition and operating results.

In general, the cost of maintaining a vessel in good operating condition increases with the age of the vessel. As our vessels age, we will incur increased costs. Older vessels are typically less fuel-efficient and more costly to maintain than newer vessels due to improvements in engine technology. Cargo insurance rates increase with the age of a vessel, making older vessels less desirable to charterers. Governmental regulations, including environmental, safety or other equipment standards related to the age of vessels may also require expenditures for alterations, or the addition of new equipment, to our vessels to comply. These laws or regulations may also restrict the type of activities in which our vessels may engage or limit their operation in certain geographic regions. We cannot assure you that, as our vessels age, market conditions will justify those expenditures or enable us to operate our vessels profitably during the remainder of their expected useful lives.

The loss or inability to operate any of our vessels would result in a significant loss of revenues and cash flow which would adversely affect our business, financial condition and operating results.

We do not carry loss of hire insurance. If, at any time, we cannot operate any of our vessels due to loss of the vessel, mechanical problems, lack of seafarers to crew a vessel, prolonged drydocking periods, loss of certification, the loss of any charter or otherwise, our business, financial condition and operating results will be materially adversely affected. In the worst case, we may not receive any revenues from any loss vessel, but we may be required to pay expenses necessary to maintain the vessel in proper operating condition.

 

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An economic downturn could have a material adverse effect on our business, financial condition and operating results.

Future adverse economic conditions may lead to a decline in our customers’ operations or ability to pay for our services, which could result in decreased demand for our vessels. There has historically been a strong link between the development of the world economy and demand for energy, including liquefied gases. The world economy is currently facing a number of challenges. As a result of the credit crisis in Europe, in particular in Greece, Italy, Ireland, Portugal and Spain, the European Commission created the European Financial Stability Facility, or the “EFSF,” and the European Financial Stability Mechanism, or the “EFSM,” to provide funding to Eurozone countries in financial difficulties that seek such support. In March 2011, the European Council agreed on the need for Eurozone countries to establish a permanent stability mechanism, the European Stability Mechanism, or the “ESM,” which will be activated by mutual agreement, to assume the role of the EFSF and the EFSM in providing external financial assistance to Eurozone countries after June 2013. Despite these measures, concerns persist regarding the debt burden of certain Eurozone countries and their ability to meet future financial obligations and the overall stability of the euro. An extended period of adverse development in the outlook for European countries could reduce the overall demand for liquefied gases and have a negative impact on our customers. These potential developments, or market perceptions concerning these and related issues, could affect our business, financial condition and operating results.

Furthermore, a future economic slowdown could have an impact on our customers and/or suppliers including, among other things, causing them to fail to meet their obligations to us. Similarly, a future economic slowdown could affect lenders participating in our secured term loan facilities, making them unable to fulfill their commitments and obligations to us. Any reductions in activity owing to such conditions or failure by our customers, suppliers or lenders to meet their contractual obligations to us could adversely affect our business, financial condition and operating results.

Due to our lack of diversification, adverse developments in the seaborne liquefied gas transportation business could adversely affect our business, financial condition and operating results.

We rely exclusively on the cash flow generated from vessels that operate in the seaborne liquefied gas transportation business. Unlike many other shipping companies, which have vessels that can carry drybulk, crude oil and oil products, we depend exclusively on the transport of LPG, petrochemicals and ammonia. Due to our lack of diversification, an adverse development in the international liquefied gas shipping industry would have a significantly greater impact on our business, financial condition and operating results than it would if we maintained more diverse assets or lines of business.

Maritime claimants could arrest our vessels, which could interrupt our cash flow.

Crew members, suppliers of goods and services to a vessel, shippers of cargo and other parties may be entitled to a maritime lien against that vessel for unsatisfied debts, claims or damages. In many jurisdictions, a maritime lienholder may enforce its lien by arresting a vessel through foreclosure proceedings. The arrest or attachment of one or more of our vessels could interrupt our cash flow and require us to pay large sums to have the arrest lifted.

In addition, in some jurisdictions, such as South Africa, under the “sister ship” theory of liability, a claimant may arrest both the vessel that is subject to the claimant’s maritime lien and any “associated” vessel, which is any vessel owned or controlled by the same owner. Claimants could try to assert “sister ship” liability against all of the vessels in our fleet for claims relating to only one of our ships. The arrest of any of our vessels would adversely affect our business, financial condition and operating results.

We may experience operational problems with vessels that reduce revenue and increase costs.

Liquefied gas carriers are complex vessels and their operation is technically challenging. Marine transportation operations are subject to mechanical risks and problems. Operational problems may lead to loss of revenue or higher than anticipated operating expenses or require additional capital expenditures. Any of these results could adversely affect our business, financial condition and operating results.

 

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A shortage of qualified officers makes it more difficult to crew our vessels and increases our operating costs. If a shortage were to develop, it could impair our ability to operate and have an adverse effect on our business, financial condition and operating results.

Our liquefied gas carriers require a technically skilled officer staff with specialized training. As the world liquefied gas carrier fleet and the LNG carrier fleet continue to grow, the demand for such technically skilled officers has increased and could lead to a shortage of such personnel. If our technical managers were to be unable to employ such technically skilled officers, they would not be able to adequately staff our vessels and effectively train crews. The development of a deficit in the supply of technically skilled officers or an inability of our technical managers to attract and retain such qualified officers could impair our ability to operate and increase the cost of crewing our vessels and, thus, materially adversely affect our business, financial condition and operating results. Please read “Business—Crewing and Staff.”

Compliance with safety and other vessel requirements imposed by classification societies may be very costly and could adversely affect our business, financial condition and operating results.

The hull and machinery of every commercial vessel must be classed by a classification society authorized by its country of registry. The classification society certifies that a vessel is safe and seaworthy in accordance with the applicable rules and regulations of the country of registry of the vessel and the Safety of Life at Sea Convention. Our vessels are currently enrolled with Germanischer Lloyd, Lloyd’s Register or Det Norske Veritas. All of our vessels have been awarded International Safety Management, or the “ISM Code,” certification.

As part of the certification process, a vessel must undergo annual surveys, intermediate surveys and special surveys. In lieu of a special survey, a vessel’s machinery may be on a continuous survey cycle, under which the machinery would be surveyed periodically over a five-year period. Twelve of the vessels in our existing fleet are on a planned maintenance system, or “PMS,” approval, and as such the classification society attends on-board once every year to verify that the maintenance of the on-board equipment is done correctly. The remaining ships are operating continuous management surveys. All of the vessels in our fleet have been qualified within its respective classification society for drydocking once every five years, subject to an intermediate underwater survey done using an approved diving company in the presence of a surveyor from the classification society. When gas carriers reach an age of 15 years, they must undergo hull / bottom surveys twice in each five-year cycle, with a maximum of 30 months between each underwater survey.

If any vessel does not maintain its class and/or fails any annual survey, intermediate survey or special survey, the vessel will be unable to trade between ports and will be unemployable. This would adversely affect our business, financial condition and operating results.

Our fleet includes sets of sister ships, which have identical specifications. As a result, any latent design or equipment defect discovered in one of our sister ships will likely affect all of the other vessels.

Our owned vessels consist of five sets of sister ships, ranging from two vessels to six vessels, and our newbuildings will be sister ships. The vessels in each set of sister ships were or will be built based on standard designs and are uniform in all material respects. Any latent design defects in one of the sister ships would likely affect all of its respective sister ships. We cannot assure you that latent defects will not be discovered in any of these vessels. In addition, all vessels that are sister ships have the same or similar equipment as all other such vessels. As a result, any equipment defect discovered in one vessel may affect one or all of the vessels that are sister ships with that vessel. Any disruptions in the operation of the vessels in our fleet, resulting from any such defects could adversely affect our business, financial condition and operating results.

Delays in deliveries of newbuildings or acquired vessels, or deliveries of vessels with significant defects, could harm our operating results and lead to the termination of any related charters that may be entered into prior to their delivery.

The delivery of any of the newbuildings we have ordered or may order or of any vessels we agree to acquire in the future could be delayed, which would delay our receipt of revenues under any future charters we enter into for the vessels. In addition, under some of the charters we may enter into for these newbuildings, if our delivery of a vessel to the customer is delayed, we may be required to pay liquidated damages in amounts equal to or, under some charters, almost double the hire rate during the delay. For prolonged delays, the customer may terminate the time charter, resulting in loss of revenues. The delivery of any newbuilding with substantial defects could have similar consequences.

 

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Our receipt of newbuildings could be delayed because of many factors, including:

 

  n  

quality or engineering problems;

 

  n  

changes in governmental regulations or maritime self-regulatory organization standards;

 

  n  

work stoppages or other labor disturbances at the shipyard;

 

  n  

bankruptcy or other financial crisis of the shipbuilder;

 

  n  

a backlog of orders at the shipyard;

 

  n  

political or economic disturbances in the locations where the vessels are being built;

 

  n  

weather interference or catastrophic event, such as a major earthquake or fire;

 

  n  

our requests for changes to the original vessel specifications;

 

  n  

shortages of, or delays in the receipt of necessary construction materials, such as steel;

 

  n  

our inability to finance the purchase of the vessels; or

 

  n  

our inability to obtain requisite permits or approvals.

We do not carry delay of delivery insurance to cover any losses that are not covered by delay penalties in our construction contracts. As a result, if delivery of a vessel is materially delayed, it could adversely affect our business, financial condition and operating results.

Our growth depends on our ability to expand relationships with existing customers and obtain new customers, for which we will face substantial competition.

The process of obtaining new charters is highly competitive, generally involves an intensive screening process and competitive bids, and often extends for several months. Contracts are awarded based upon a variety of factors, including:

 

  n  

the operator’s industry relationships, experience and reputation for customer service, quality operations and safety;

 

  n  

the quality, experience and technical capability of the crew;

 

  n  

the operator’s relationships with shipyards and the ability to get suitable berths;

 

  n  

the operator’s construction management experience, including the ability to obtain on-time delivery of new vessels according to customer specifications;

 

  n  

the operator’s willingness to accept operational risks pursuant to the charter, such as allowing termination of the charter for force majeure events; and

 

  n  

the competitiveness of the bid in terms of overall price.

Our ability to obtain new customers will depend upon a number of factors, including our ability to:

 

  n  

successfully manage our liquidity and obtain the necessary financing to fund our growth;

 

  n  

attract, hire, train and retain qualified personnel and ship management companies to manage and operate our fleet;

 

  n  

identify and consummate desirable acquisitions, joint ventures or strategic alliances; and

 

  n  

identify and capitalize on opportunities in new markets.

We expect substantial competition for providing transportation services from a number of experienced companies. As a result, we may be unable to expand our relationships with existing customers or to obtain new customers on a profitable basis, if at all, which would have a material adverse effect on our business, financial condition and operating results.

The marine transportation industry is subject to substantial environmental and other regulations, which may limit our operations and increase our expenses.

Our operations are affected by extensive and changing environmental protection laws and other regulations and international treaties and conventions, including those relating to equipping and operating vessels and vessel safety. These regulations include the U.S. Oil Pollution Act of 1990, or “OPA 90,” the U.S. Clean Water Act, the U.S. Maritime Transportation Security Act of 2002 and regulations of the IMO, including the International Convention on Civil Liability for Oil Pollution Damage of 1969, as from time to time amended and generally referred to as the CLC,

 

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the IMO International Convention for the Prevention of Pollution from Ships of 1975, as from time to time amended and generally referred to as MARPOL, the International Convention for the Prevention of Marine Pollution of 1973, the IMO International Convention for the Safety of Life at Sea of 1974, as from time to time amended and generally referred to as SOLAS, the IMO International Convention on Load Lines of 1966, as from time to time amended, and the International Management Code for the Safe Operation of Ships and for Pollution Prevention, or the “ISM Code.” We have incurred, and expect to continue to incur, substantial expenses in complying with these laws and regulations, including expenses for vessel modifications and changes in operating procedures. Additional laws and regulations may be adopted that could limit our ability to do business or further increase costs, which could harm our business. In addition, failure to comply with applicable laws and regulations may result in administrative and civil penalties, criminal sanctions or the suspension or termination of operations. We may become subject to additional laws and regulations if we enter into new markets or trades.

In addition, we believe that the heightened environmental, quality and security concerns of the public, regulators, insurance underwriters and charterers will generally lead to additional regulatory requirements, including enhanced risk assessment and security requirements, greater inspection and safety requirements on all vessels in the marine transportation markets and possibly restrictions on the emissions of greenhouse gases from the operation of vessels. These requirements are likely to add incremental costs to our operations and the failure to comply with these requirements may affect the ability of our vessels to obtain and, possibly, collect on insurance or to obtain the required certificates for entry into the different ports where we operate.

Please read “Business—Environmental and Other Regulations” for a more detailed discussion on these topics.

Climate change and greenhouse gas restrictions may adversely impact our operations and markets.

Due to concern over the risk of climate change, a number of countries and the IMO have adopted, or are considering the adoption of, regulatory frameworks to reduce greenhouse gas emission from vessel emissions. These regulatory measures may include, among others, adoption of cap and trade regimes, carbon taxes, increased efficiency standards and incentives or mandates for renewable energy. Additionally, a treaty may be adopted in the future that includes restrictions on shipping emissions. Compliance with changes in laws and regulations relating to climate change could increase our costs of operating and maintaining our vessels and could require us to make significant financial expenditures that we cannot predict with certainty at this time.

Adverse effects upon the oil and gas industry relating to climate change, including growing public concern about the environmental impact of climate change, may also have an effect on demand for our services. For example, increased regulation of greenhouse gases or other concerns relating to climate change may reduce the demand for oil and gas in the future or create greater incentives for use of alternative energy sources. Any long-term material adverse effect on the oil and gas industry could have a significant financial and operational adverse impact on our business that we cannot predict with certainty at this time.

Marine transportation is inherently risky. An incident involving significant loss of product or environmental contamination by any of our vessels could adversely affect our reputation, business, financial condition and operating results.

Our vessels and their cargoes and the LPG and petrochemical production and terminal facilities that we service are at risk of being damaged or lost because of events such as:

 

  n  

marine disasters;

 

  n  

bad weather;

 

  n  

mechanical failures;

 

  n  

grounding, capsizing, fire, explosions and collisions;

 

  n  

piracy;

 

  n  

human error; and

 

  n  

war and terrorism.

 

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An accident involving any of our vessels could result in any of the following:

 

  n  

death or injury to persons, loss of property or damage to the environment and natural resources;

 

  n  

delays in the delivery of cargo;

 

  n  

loss of revenues from time charters;

 

  n  

liabilities or costs to recover any spilled cargo and to restore the ecosystem where the spill occurred;

 

  n  

governmental fines, penalties or restrictions on conducting business;

 

  n  

higher insurance rates; and

 

  n  

damage to our reputation and customer relationships generally.

Any of these results could have a material adverse effect on our business, financial condition and operating results.

Our operating results are subject to seasonal fluctuations.

We operate our vessels in markets that have historically exhibited seasonal variations in demand and, as a result, in charter rates. The liquefied gas carrier market is typically stronger in the fall and winter months in anticipation of increased consumption of propane and butane for heating during the winter months in the Northern Hemisphere. In addition, unpredictable weather patterns in these months tend to disrupt vessel scheduling and supplies of certain commodities. While our time charters typically provide a uniform monthly fee over the term of the charter, to the extent any of our time charters expires during the relatively weaker fiscal quarters ending June 30 and September 30, we may have difficultly re-chartering those vessels at similar rates or at all.

Competition from more technologically advanced liquefied gas carriers could reduce our charter hire income and the value of our vessels.

The charter rates and the value and operational life of a vessel are determined by a number of factors including the vessel’s efficiency, operational flexibility and physical life. Efficiency includes fuel economy, speed and the ability to be loaded and unloaded quickly. Flexibility includes the ability to enter ports, utilize related docking facilities and pass through canals and straits. Physical life is related to the original design and construction, maintenance and the impact of the stress of operations. If new liquefied gas carriers are built that are more efficient or flexible or have longer physical lives than our vessels, competition from these more technologically advanced liquefied gas carriers could adversely affect the charter rates we receive for our vessels once their current charters are terminated and the resale value of our vessels. As a result, our business, financial condition and operating results could be adversely affected.

Acts of piracy on any of our vessels or on ocean going vessels could adversely affect our business, financial condition and results of operations.

Acts of piracy have historically affected ocean going vessels trading in regions of the world such as the South China Sea and the Gulf of Aden off the coast of Somalia. If such piracy attacks result in regions in which our vessels are deployed being named on the Joint War Committee Listed Areas, war-risk insurance premiums payable for such coverage could increase significantly and such insurance coverage might become more difficult to obtain. In addition, crew costs, including costs that may be incurred to the extent we employ on-board security guards, could increase in such circumstances. We may not be adequately insured to cover losses from these incidents, which could have a material adverse effect on us. In addition, hijacking as a result of an act of piracy against our vessels, or an increase in cost or unavailability of insurance for our vessels, could have a material adverse impact on our business, financial condition and results of operations.

Terrorist attacks, increased hostilities, piracy or war could lead to further economic instability, increased costs and disruption of business.

Terrorist attacks may adversely affect our business, operating results, financial condition, ability to raise capital and future growth. Continuing hostilities in the Middle East may lead to additional armed conflicts or to further acts of terrorism and civil disturbance in the United States or elsewhere, which may contribute further to economic instability and disruption of production and distribution of LPG, petrochemical gases and ammonia, which could result in reduced demand for our services.

Terrorist attacks on vessels, such as the October 2002 attack on the m.v. Limburg and the July 2010 attack allegedly by Al-Qaeda on the m. Star, both very large crude carriers not related to us, may in the future adversely

 

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affect our business, financial condition and results of operation. In addition, petrochemical production and terminal facilities and vessels that transport petrochemical products could be targets of future terrorist attacks. Any such attacks could lead to, among other things, bodily injury or loss of life, vessel or other property damage, increased vessel operational costs, including insurance costs, and the inability to transport gases to or from certain locations. Terrorist attacks, piracy, war or other events beyond our control that adversely affect the distribution, production or transportation of gases to be shipped by us could entitle customers to terminate our charters, which would harm our cash flow and business. In addition, the loss of a vessel as a result of terrorism or piracy would have a material adverse effect on our business, financial condition and operating results.

Our insurance may be insufficient to cover losses that may occur to our vessels or result from our operations.

The operation of liquefied gas carriers is inherently risky. We may not be able to adequately insure against all risks, and any particular claim may not be paid by insurance. None of our vessels are insured against loss of revenues resulting from vessel off-hire time. Any claims covered by insurance would be subject to deductibles, and since it is possible that a large number of claims may be brought, the aggregate amount of these deductibles could be material. Certain insurance coverage is maintained through mutual protection and indemnity associations, and as a member of such associations we may be required to make additional payments over and above budgeted premiums if the member claims exceed association reserves.

We may be unable to procure adequate insurance coverage at commercially reasonable rates in the future. For example, more stringent environmental regulations have led in the past to increased costs for, and in the future may result in the lack of availability of, insurance against risks of environmental damage or pollution. The costs arising from a catastrophic spill or marine disaster could exceed the insurance coverage. Changes in the insurance markets attributable to terrorist attacks or piracy may also make certain types of insurance more expensive or more difficult to obtain. In addition, the insurance may be voidable by the insurers as a result of certain actions, such as vessels failing to maintain certification with applicable maritime self-regulatory organizations. Any uninsured or underinsured loss could have a material adverse effect on our business, financial condition and operating results.

Restrictive covenants in our secured term loan facilities, and any future debt facilities will impose, financial and other restrictions on us.

The secured term loan facilities impose, and any future debt facility will impose, operating and financial restrictions on us. The restrictions in the existing secured term loan facilities may limit our ability to, among other things:

 

  n  

pay dividends out of operating revenues generated by the vessels securing indebtedness under the facility, redeem any shares or make any other payment to our equity holders, if there is a default any secured term loan facility;

 

  n  

incur additional indebtedness, including through the issuance of guarantees;

 

  n  

create liens on our assets;

 

  n  

sell our vessels;

 

  n  

merge or consolidate with, or transfer all or substantially all our assets to, another person;

 

  n  

change the flag, class or management of our vessels; and

 

  n  

enter into a new line of business.

The secured term loan facilities require us to maintain various financial ratios. These include requirements that we maintain specified maximum ratios of net debt to total capitalization, that we maintain specified minimum levels of cash and cash equivalents (including undrawn lines of credit with maturities greater than 12 months), that we maintain specified minimum ratios of consolidated earnings before interest, taxes, depreciation and amortization (consolidated EBITDA), to consolidated interest expense and that we maintain specified minimum levels of collateral coverage. If at any time the aggregate fair market value of (i) the vessels subject to a mortgage in favor of our lenders and (ii) the value of any additional collateral we grant to the lenders is less than 135% of the outstanding principal amount under the secured term loan facilities and any commitments to borrow additional funds, our lenders may require us to provide additional collateral. Upon notice from our lenders that additional collateral is required, we will have 30 days to either provide collateral that is acceptable to the lenders, cancel remaining commitments to lend and/or prepay outstanding debt in an amount to maintain the minimum collateral coverage ratio. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Secured Term Loan Facilities—Financial

 

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Covenants.” The failure to comply with such covenants would cause an event of default that could materially adversely affect our business, financial condition and operating results. We expect to be in compliance with these covenants after giving effect to the offering and the application of the proceeds thereof, although we cannot assure you that we will be.

Because of these covenants, we may need to seek permission from our lenders in order to engage in some corporate actions. Our lenders’ interests may be different from ours, and we may not be able to obtain our lenders’ permission when needed. This may limit our ability to finance our future operations and make acquisitions or pursue business opportunities. See “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Secured Term Loan Facilities.”

The secured term loan facilities are reducing facilities. The required repayments under the secured term loan facilities may adversely affect our business, financial condition and operating results.

Loans under the secured term loan facilities are subject to quarterly repayments beginning three months after the initial borrowing date or delivery dates of the newbuildings, as applicable. If at such time we have not made alternative financing arrangements or generate substantial cash flows, any such repayments and our declining borrowing availability could have a material adverse effect on our business, financial condition and operating results.

We may not be able to borrow further amounts under the secured term loan facilities, which we may need to fund the acquisition of the remaining newbuildings that we have agreed to purchase.

Our ability to borrow further amounts under the secured term loan facilities will be subject to satisfaction of certain customary conditions precedent and compliance with terms and conditions included in the loan documents. To the extent that we are not able to satisfy these requirements, including as a result of a decline in the value of our vessels, we may be required to repay a portion of our existing debt or provide additional collateral and we may not be able to borrow further amounts under the secured term loan facilities. If we are unable to borrow further amounts under the secured term loan facilities, we may be unable to fund the acquisition of the newbuildings or vessel acquisitions that we have agreed to purchase, which would adversely affect our business, financial condition and operating results.

The derivative contracts we may enter into to hedge our exposure to fluctuations in interest rates could result in higher than market interest rates and reductions in our shareholders’ equity, as well as charges against our income.

We may enter into interest rate swaps for purposes of managing our exposure to fluctuations in interest rates applicable to indebtedness under our secured term loan facilities which were advanced at floating rates based on LIBOR. Our hedging strategies, however, may not be effective and we may incur substantial losses if interest rates move materially differently from our expectations.

To the extent our future derivative contracts may not qualify for treatment as hedges for accounting purposes, we will recognize fluctuations in the fair value of such contracts in our statement of income. In addition, changes in the fair value of future derivative contracts, even those that qualify for treatment as hedges, will be recognized in “Other Comprehensive Income” on our balance sheet, and can affect compliance with the net worth covenant requirements in our secured term loan facilities. Our financial condition could also be materially adversely affected to the extent we do not hedge our exposure to interest rate fluctuations under our financing arrangements under which loans have been advanced at a floating rate based on LIBOR.

Any hedging activities we engage in may not effectively manage our interest rate exposure or have the desired impact on our financial conditions or results of operations.

Our business depends upon certain key employees.

Our future success depends to a significant extent upon our chairman, president and chief executive officer, David J. Butters, and certain members of our senior management. Mr. Butters has substantial experience in the shipping industry and he and others are crucial to the development of our business strategy and to the growth and development of our business. The loss of any of these individuals could adversely affect our business, financial condition and operating results.

 

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Our major shareholder may exert considerable influence on the outcome of matters on which our shareholders will be entitled to vote, and its interests may be different from yours.

After giving effect to this offering, the WLR Group, our principal shareholder, will own approximately     % of our common stock. The WLR Group may exert considerable influence on the outcome of matters on which our shareholders are entitled to vote, including the election of our directors to our board of directors and other significant corporate actions. The interests of the WLR Group may be different from your interests.

We are a holding company, and we depend on the ability of our subsidiaries to distribute funds to us in order to satisfy our financial obligations.

We are a holding company and our subsidiaries conduct all of our operations and own all of our operating assets. We have no significant assets other than the equity interests in our subsidiaries. As a result, our ability to satisfy our financial obligations depends on our subsidiaries and their ability to distribute funds to us. The ability of a subsidiary to make these distributions could be affected by a claim or other action by a third party, including a creditor, or by the Republic of the Marshall Islands law, which regulates the payment of dividends by companies. In addition, under the secured term loan facilities, Navigator Gas L.L.C., our wholly-owned subsidiary, and our vessel-owning subsidiaries that are parties to the secured term loan facilities may not make distributions to us out of operating revenues from vessels securing indebtedness thereunder, redeem any shares or make any other payment to our shareholders if an event of default has occurred and is continuing. Please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Secured Term Loan Facilities.” The inability of our subsidiaries to make distributions to us would have an adverse effect on our business, financial condition and operating results.

Risks Relating to Our Common Stock

You will experience immediate and substantial dilution of $         per share.

The assumed initial public offering price of $         per share (the mid-point of the price range set forth on the front cover of this prospectus) exceeds our pro forma net tangible book value of $         per share. Based on the assumed initial public offering price, you will incur immediate and substantial dilution of $         per share. Shareholders may experience additional dilution if we issue common stock in the future. As a result of this dilution, shareholders may receive significantly less than the full purchase price they paid for the shares in the event of a liquidation. Please read “Dilution.”

We may issue additional equity securities without your approval, which would dilute your ownership interests.

We may issue additional shares of common stock or other equity or equity-linked securities without the approval of our shareholders, subject to certain limited approval requirements of the NYSE. In particular, we may finance all or a portion of the acquisition price of future vessels, including newbuildings, that we agree to purchase through the issuance of additional shares of common stock. Our amended and restated articles of incorporation authorize us to issue 100,000,000 shares of common stock, of which             shares will be outstanding immediately after giving effect to this offering and the 3-for-1 stock split that we will effect immediately prior to the effectiveness of the Company’s registration statement related to its initial public offering. The issuance by us of additional shares of common stock or other equity or equity-linked securities of equal or senior rank will have the following effects:

 

  n  

our shareholders’ proportionate ownership interest in us will decrease;

 

  n  

the relative voting strength of each previously outstanding share may be diminished; and

 

  n  

the market price of the common stock may decline.

Future sales of our common stock could cause the market price of our common stock to decline.

Sales of a substantial number of our shares of common stock in the public market following this offering, or the perception that these sales could occur, may depress the market price for our common stock. These sales could also impair our ability to raise additional capital through the sale of our equity securities in the future. At the closing of this offering, the WLR Group, our principal shareholder, will own approximately     % of our common stock. In the future, the WLR Group may elect to sell large numbers of shares from time to time. The number of shares available for sale in the public market will be limited by restrictions applicable under securities laws and agreements that the WLR Group, we and our executive officers and directors have entered or will enter into with the underwriters of this offering. Subject to certain exceptions, these agreements generally restrict the WLR Group, us and our executive

 

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officers and directors from directly or indirectly offering, selling, pledging, hedging or otherwise disposing of our equity securities or any security that is convertible into or exercisable or exchangeable for our equity securities and from engaging in certain other transactions relating to such securities for a period of 180 days after the date of this prospectus, subject to extension, without the prior written consent of Jefferies LLC. However, Jefferies LLC may, in its sole discretion and at any time or from time to time before the expiration of the lock-up period, release all or any portion of the securities subject to these agreements.

There is no existing market for our common stock, and a trading market that will provide you with adequate liquidity may not develop. The price of our common stock may fluctuate significantly, and you could lose all or part of your investment.

Prior to this offering, there has been no public market for our common stock. While we understand that transactions in our securities have been reported in the pink sheets, we do not know the extent to which investor interest will lead to the development of a trading market in our common stock or how liquid that market might be. You may not be able to resell your shares of common stock at or above the initial public offering price. Additionally, the lack of liquidity may result in wide bid-ask spreads, contribute to significant fluctuations in the market price of our common stock and limit the number of investors who are able to buy our common stock.

We have no current plans to pay dividends on our common stock. Consequently, your only opportunity to achieve a return on your investment is if the price of our common stock appreciates.

We have no current plans to declare dividends on our common stock in the foreseeable future. Consequently, your only opportunity to achieve a return on your investment in us will be if you sell your shares of common stock at a price greater than you paid for it. There is no guarantee that the market price of our common stock will ever exceed the price that you pay in this offering.

We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” as described under “Prospectus Summary—Implications of Being an Emerging Growth Company.” We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

The obligations associated with being a public company will require significant resources and management attention.

As a public company in the United States, we will incur legal, accounting and other expenses that we did not previously incur. We will become subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the “Exchange Act,” and the Sarbanes-Oxley Act, the listing requirements of the NYSE and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources, particularly after we are no longer an “emerging growth company.” The Exchange Act requires that we file annual and current reports with respect to our business, financial condition and results of operations. The Sarbanes-Oxley Act requires, among other things, that we establish and maintain effective internal controls and procedures for financial reporting. Furthermore, the need to establish the corporate infrastructure demanded of a public company may divert management’s attention from implementing our growth strategy, which could prevent us from improving our business, financial condition and results of operations. We have made, and will continue to make, changes to our internal controls and procedures for financial reporting and accounting systems to meet our reporting obligations as a public company. However, the measures we take may not be sufficient to satisfy our obligations as a public company. In addition, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to incur substantial costs to maintain the same or similar coverage. These additional obligations could have a material adverse effect on our business, financial condition, results of operations and cash flow.

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some

 

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activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative costs and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business, financial condition, results of operations and cash flow could be adversely affected.

For as long as we are an “emerging growth company” under the recently enacted JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. We could be an emerging growth company for up to five years. See “Prospectus Summary—Implications of Being an Emerging Growth Company.” Furthermore, after the date we are no longer an emerging growth company, our independent registered public accounting firm will only be required to attest to the effectiveness of our internal control over financial reporting depending on our market capitalization. Even if our management concludes that our internal controls over financial reporting are effective, our independent registered public accounting firm may still decline to attest to our management’s assessment or may issue a report that is qualified if it is not satisfied with our controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, in connection with the implementation of the necessary procedures and practices related to internal control over financial reporting, we may identify deficiencies that we may not be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404. Failure to comply with Section 404 could subject us to regulatory scrutiny and sanctions, impair our ability to raise revenue, cause investors to lose confidence in the accuracy and completeness of our financial reports and negatively affect our share price.

We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.

We are a “foreign private issuer,” as such term is defined in Rule 405 under the Securities Act of 1933, or the “Securities Act,” and therefore, we are not required to comply with all the periodic disclosure and current reporting requirements of the Exchange Act and related rules and regulations. Under Rule 405, the determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter and, accordingly, the next determination will be made with respect to us on December 31, 2013.

In the future, we would lose our foreign private issuer status if a majority of our shareholders, directors or management are U.S. citizens or residents and we fail to meet additional requirements necessary to avoid loss of foreign private issuer status. The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly higher. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on U.S. domestic issuer forms with the U.S. Securities and Exchange Commission, or the “SEC,” which are more detailed and extensive than the forms available to a foreign private issuer. For example, the annual report on Form 10-K requires domestic issuers to disclose executive compensation information on an individual basis with specific disclosure regarding the domestic compensation philosophy, objectives, annual total compensation (base salary, bonus, equity compensation) and potential payments in connection with change in control, retirement, death or disability, while the annual report on Form 20-F permits foreign private issuers to disclose compensation information on an aggregate basis. We will also have to mandatorily comply with U.S. federal proxy requirements, and our officers, directors and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. We may also be required to modify certain of our policies to comply with good governance practices associated with U.S. domestic issuers. Such conversion and modifications will involve additional costs. In addition, we may lose our ability to rely upon exemptions from certain corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers.

 

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We are incorporated in the Republic of the Marshall Islands, which does not have a well-developed body of corporate law.

Our corporate affairs are governed by our articles of incorporation and bylaws and by the Marshall Islands Business Corporations Act, or the “BCA.” The provisions of the BCA resemble provisions of the corporation laws of a number of states in the United States. However, there have been few judicial cases in the Republic of the Marshall Islands interpreting the BCA. The rights and fiduciary responsibilities of directors under the Republic of the Marshall Islands law are not as clearly established as the rights and fiduciary responsibilities of directors under statutes or judicial precedent in existence in certain U.S. jurisdictions. Shareholder rights may differ as well. While the BCA does specifically incorporate the non-statutory law, or judicial case law, of the State of Delaware and other states with substantially similar legislative provisions, our public shareholders may have more difficulty in protecting their interests in the face of actions by the management, directors or controlling shareholders than would shareholders of a corporation incorporated in a U.S. jurisdiction.

Because we are a Marshall Islands corporation, it may be difficult to serve us with legal process or enforce judgments against us, our directors or our management.

We are a Marshall Islands corporation, and substantially all of our assets are located outside of the United States. A majority of our directors and officers are non-residents of the United States, and all or a substantial portion of the assets of these non-residents are located outside of the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States if you believe that your rights have been infringed under securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Republic of the Marshall Islands and of other jurisdictions may prevent or restrict you from enforcing a judgment against our assets or the assets of our directors and officers.

Watson, Farley & Williams LLP, our counsel as to the Republic of the Marshall Islands law, has advised us that there is substantial doubt that the courts of the Republic of the Marshall Islands would (1) enter judgments in original actions brought in those courts predicated on U.S. federal or state securities laws; or (2) recognize or enforce against us or any of our officers, directors or experts, judgments of courts of the United States predicated on U.S. federal or state securities laws. For more information regarding the relevant laws of the Republic of the Marshall Islands, please read “Enforceability of Civil Liabilities” immediately following the table of contents.

We are a Marshall Islands corporation, have limited operations in the United States and maintain limited assets in the United States. Consequently, in the event of any bankruptcy, insolvency, liquidation, dissolution, reorganization or similar proceeding involving us, bankruptcy laws other than those of the United States could apply. The Republic of the Marshall Islands does not have a bankruptcy statute or general statutory mechanism for insolvency proceedings. If we become a debtor under U.S. bankruptcy law, bankruptcy courts in the United States may seek to assert jurisdiction over all of our assets, wherever located, including property situated in other countries. There can be no assurance, however, that we would become a debtor in the United States, or that a U.S. bankruptcy court would be entitled to, or accept, jurisdiction over such a bankruptcy case, or that courts in other countries that have jurisdiction over us and our operations would recognize a U.S. bankruptcy court’s jurisdiction if any other bankruptcy court would determine it had jurisdiction. These factors may delay or prevent us from entering bankruptcy in the United States and may affect the ability of our shareholders to receive any recovery following our bankruptcy.

Provisions of our articles of incorporation and bylaws may have anti-takeover effects.

Several provisions of our articles of incorporation, which are summarized below, may have anti-takeover effects. These provisions are intended to avoid costly takeover battles, lessen our vulnerability to a hostile change of control and enhance the ability of our board of directors to maximize shareholder value in connection with any unsolicited offer to acquire our company. However, these anti-takeover provisions could also discourage, delay or prevent the merger or acquisition of our company by means of a tender offer, a proxy contest or otherwise that a shareholder may consider in its best interest and the removal of incumbent officers and directors.

Blank Check Preferred Stock. Under the terms of our articles of incorporation, our board of directors will have authority, without any further vote or action by our shareholders, to issue up to 10,000,000 shares of “blank check” preferred stock. Our board could authorize the issuance of preferred stock with voting or conversion rights that could dilute the voting power or rights of the holders of our common stock. The issuance of preferred stock, while providing

 

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flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in control of us or the removal of our management and may harm the market price of our common stock.

Election of Directors. Our articles of incorporation provide that directors will be elected at each annual meeting of shareholders to serve until the next annual meeting of shareholders and until his or her successor shall have been duly elected and qualified, except in the event of his or her death, resignation, removal or the earlier termination of his or her term of office. Our articles of incorporation do not provide for cumulative voting in the election of directors. Our bylaws require shareholders to provide advance written notice of nominations for the election of directors. These provisions may discourage, delay or prevent the removal of incumbent officers and directors.

Advance Notice Requirements for Shareholder Proposals and Director Nominations. Our bylaws provide that, with a few exceptions, shareholders seeking to nominate candidates for election as directors or to bring business before an annual meeting of shareholders must provide timely notice of their proposal in writing to the corporate secretary. Generally, to be timely, a shareholder’s notice must be received at our principal executive offices not less than 90 days or more than 120 days prior to the first anniversary date of the immediately preceding annual meeting of shareholders. Our bylaws also specify requirements as to the form and content of a shareholder’s notice. These provisions may impede a shareholder’s ability to bring matters before an annual meeting of shareholders or make nominations for directors at an annual meeting of shareholders.

Limited Actions by Shareholders. Our bylaws provide that only the board of directors may call special meetings of our shareholders and the business transacted at the special meeting is limited to the purposes stated in the notice.

Tax Risks

In addition to the following risk factors, please read “Business—Taxation of the Company,” “Material U.S. Federal Income Tax Considerations” and “Non-United States Tax Considerations” for a more complete discussion of the expected material U.S. federal and non-U.S. income tax considerations relating to us and the ownership and disposition of our common stock.

We will be subject to taxes.

We and our subsidiaries may be subject to tax in the jurisdictions in which we are organized or operate. In computing our tax obligation in these jurisdictions, we are required to take various tax accounting and reporting positions on matters that are not entirely free from doubt and for which we have not received rulings from the governing authorities. Upon review of these positions the applicable authorities may disagree with our positions. A successful challenge by a tax authority could result in additional tax imposed on us or our subsidiaries. In addition, changes in our operations or ownership could result in additional tax being imposed on us or our subsidiaries in jurisdictions in which operations are conducted.

U.S. tax authorities could treat us as a “passive foreign investment company,” which could have adverse U.S. federal income tax consequences to U.S. shareholders.

A non-U.S. entity treated as a corporation for U.S. federal income tax purposes will be treated as a “passive foreign investment company,” or PFIC, for U.S. federal income tax purposes if at least 75.0% of its gross income for any taxable year consists of “passive income” or at least 50.0% of the average value of its assets produce, or are held for the production of, “passive income.” For purposes of these tests, “passive income” includes dividends, interest, gains from the sale or exchange of investment property, and rents and royalties other than rents and royalties that are received from unrelated parties in connection with the active conduct of a trade or business. For purposes of these tests, income derived from the performance of services does not constitute “passive income.” U.S. shareholders of a PFIC are subject to a disadvantageous U.S. federal income tax regime with respect to the income derived by the PFIC, the distributions they receive from the PFIC, and the gain, if any, they derive from the sale or other disposition of their interests in the PFIC.

Based on our current and projected method of operation, and an opinion of our U.S. counsel, Vinson & Elkins L.L.P., we believe that we will not be a PFIC for our current taxable year, and we expect that we will not be treated as a PFIC for any future taxable year. We have received an opinion of our U.S. counsel in support of this position that concludes that the income our subsidiaries earn from our present time-chartering and voyage-chartering activities

 

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and COAs should not constitute passive income for purposes of determining whether we are a PFIC. In addition, we have represented to our U.S. counsel that we expect that more than 25.0% of our gross income for our current taxable year and each future year will arise from such activities or other income that our U.S. counsel has opined does not constitute passive income, and more than 50.0% of the average value of our assets for each such year will be held for the production of such non-passive income. Assuming the composition of our income and assets is consistent with these expectations, and assuming the accuracy of other representations we have made to our U.S. counsel for purposes of their opinion, our U.S. counsel is of the opinion that we should not be a PFIC for our current taxable year or any future year. This opinion is based and its accuracy is conditioned on representations, valuations and projections provided by us regarding our assets, income and charters to our U.S. counsel. While we believe these representations, valuations and projections to be accurate, the shipping market is volatile and no assurance can be given that they will continue to be accurate at any time in the future.

Moreover, there are legal uncertainties involved in determining whether the income derived from time-chartering activities constitutes rental income or income derived from the performance of services. In Tidewater Inc. v. United States, 565 F.3d 299 (5th Cir. 2009), the Fifth Circuit held that income derived from certain time-chartering activities should be treated as rental income rather than services income for purposes of a provision of the Code relating to foreign sales corporations. In that case, the Fifth Circuit did not address the definition of passive income or the PFIC rules; however, the reasoning of the case could have implications as to how the income from a time charter would be classified under such rules. If the reasoning of this case were extended to the PFIC context, the gross income we derive or are deemed to derive from our time-chartering activities may be treated as rental income, and we would likely be treated as a PFIC. In published guidance, the Internal Revenue Service, or IRS, stated that it disagreed with the holding in Tidewater, and specified that time charters similar to those at issue in the case should be treated as service contracts. We have not sought, and we do not expect to seek, an IRS ruling on the treatment of income generated from our time-chartering activities, and the opinion of our counsel is not binding on the IRS or any court. As a result, the IRS or a court could disagree with our position. No assurance can be given that this result will not occur. In addition, although we intend to conduct our affairs in a manner to avoid, to the extent possible, being classified as a PFIC with respect to any taxable year, we cannot assure you that the nature of our operations will not change in the future, or that we will not be a PFIC in the future. If the IRS were to find that we are or have been a PFIC for any taxable year (and regardless of whether we remain a PFIC for any subsequent taxable year), our U.S. shareholders would face adverse U.S. federal income tax consequences. Please read “Material U.S. Federal Income Tax Considerations—U.S. Federal Income Taxation of U.S. Holders—PFIC Status and Significant Tax Consequences” for a more detailed discussion of the U.S. federal income tax consequences to U.S. shareholders if we are treated as a PFIC.

 

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FORWARD-LOOKING STATEMENTS

Statements included in this prospectus concerning plans and objectives of management for future operations or economic performance, or assumptions related thereto, including our financial forecast, contain forward-looking statements. In addition, we and our representatives may from time to time make other oral or written statements that are also forward-looking statements. Such statements include, in particular, statements about our plans, strategies, business prospects, changes and trends in our business and the markets in which we operate as described in this prospectus. In some cases, you can identify the forward-looking statements by the use of words such as “may,” “could,” “should,” “would,” “expect,” “plan,” “anticipate,” “intend,” “forecast,” “believe,” “estimate,” “predict,” “propose,” “potential,” “continue,” or the negative of these terms or other comparable terminology. Forward-looking statements appear in a number of places in this prospectus. These risks and uncertainties include, but are not limited to:

 

  n  

future operating or financial results;

 

  n  

pending acquisitions, business strategy and expected capital spending;

 

  n  

operating expenses, availability of crew, number of off-hire days, drydocking requirements and insurance costs;

 

  n  

general market conditions and shipping market trends, including charter rates and factors affecting supply and demand;

 

  n  

our financial condition and liquidity, including our ability to obtain additional financing in the future to fund capital expenditures, acquisitions and other corporate activities;

 

  n  

estimated future capital expenditures needed to preserve our capital base;

 

  n  

our expectations about the receipt of the remaining A.P. Møller vessel, our seven newbuildings and, if exercised, our two option newbuildings, and the timing of the receipt thereof;

 

  n  

our expectations about the availability of vessels to purchase, the time that it may take to construct new vessels, or the useful lives of our vessels;

 

  n  

our continued ability to enter into long-term, fixed-rate time charters with our customers;

 

  n  

changes in governmental rules and regulations or actions taken by regulatory authorities;

 

  n  

potential liability from future litigation;

 

  n  

our expectations relating to the payment of dividends; and

 

  n  

other factors discussed in the section titled “Risk Factors.”

We expressly disclaim any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in our views or expectations, or otherwise. We make no prediction or statement about the performance of our common stock.

 

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DIVIDEND POLICY

We do not anticipate declaring or paying any cash dividends to holders of our common stock in the near term. We currently intend to retain future earnings, if any, to finance the growth of our business. We may, however, adopt in the future a policy to make cash dividends. Our future dividend policy is within the discretion of our board of directors. Any determination to pay or not pay cash dividends will depend upon then-existing conditions, including our results of operations, financial condition, capital requirements, investment opportunities, statutory and contractual restrictions on our ability to pay dividends and other factors our board of directors may deem relevant.

 

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USE OF PROCEEDS

We estimate that we will receive net proceeds from the sale of our common stock in this offering of $         million, or $         million if the underwriters exercise their option to purchase additional shares in full, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, assuming an initial public offering price of $         per share, the mid-point of the range set forth on the cover of this prospectus. We intend to use the net proceeds from this offering to fund the equity portion, or approximately $55 million, due under our purchase obligations for the 2015 newbuildings and the remainder for general corporate purposes, including if the newbuilding options are exercised, to fund $35 million of the approximately $88 million required to purchase the option newbuildings. We currently expect the remaining $82 million and $53 million of the purchase prices for the 2015 newbuildings and option newbuildings, respectively, to be financed under future credit facilities. The actual amount of the equity portion and debt portion under our purchase obligations could be impacted by the availability of debt financing on favorable terms.

We will not receive any proceeds from the sale of common stock by the selling shareholders. We have agreed to pay certain expenses incurred by the selling shareholders related to this offering, which we estimate to be approximately $        .

 

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CAPITALIZATION

The following table shows our cash and cash equivalents and our capitalization as of June 30, 2013, on an:

 

  n  

actual basis; and

 

  n  

as adjusted basis giving effect to this offering at an assumed initial public offering price of $                     per share, the mid-point of the range set forth on the cover page of this prospectus,

each giving effect to the 3-for-1 stock split that we will effect as a stock dividend immediately prior to the effectiveness of the Company’s registration statement related to its initial public offering.

This table is derived from, and should be read together with, the historical consolidated financial statements and the accompanying notes included elsewhere in this prospectus. You should also read this table in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

 

 

     AS OF JUNE 30, 2013  
     ACTUAL     AS ADJUSTED  
     (Dollars in thousands)  

Cash and cash equivalents

   $ 86,913      $              (1) 
  

 

 

   

 

 

 

Long-term debt:

    

Secured term loan facilities, current portion

     47,798     

Secured term loan facilities, net of current portion

     329,166     

9% Senior unsecured bond issue

     125,000     
  

 

 

   

 

 

 

Total debt

   $ 501,964      $     
  

 

 

   

 

 

 

Shareholders’ equity:

    

Common stock at $0.01 par value per share, actual—100,000,000 shares authorized, 46,296,762 shares issued and outstanding; as adjusted—100,000,000 shares authorized,              shares issued and outstanding

     463     

Additional paid-in capital

     427,673                     (1) 

Accumulated other comprehensive income

     (211  

Retained earnings

     114,252     
  

 

 

   

 

 

 

Total shareholders’ equity

   $ 542,177      $     
  

 

 

   

 

 

 

Total capitalization

   $ 1,044,141      $     
  

 

 

   

 

 

 

 

 

 

(1) 

Cash and cash equivalents and additional paid-in capital on an as adjusted basis reflect $             million of estimated expenses associated with this offering.

 

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DILUTION

After giving effect to the 3-for-1 stock split that we will effect as a stock dividend immediately prior to the effectiveness of the Company’s registration statement related to its initial public offering and the sale of              shares of common stock in this offering at an assumed offering price of $         per share, our pro forma net tangible book value at June 30, 2013, would have been $         million, or $         per share. This represents an immediate dilution of net tangible book value of $         per share to investors in this offering. The following table illustrates the pro forma as adjusted per share dilution to new investors who purchase common stock in this offering:

 

 

 

Initial public offering price per share

      $                

Pro forma net tangible book value per share at June 30, 2013

   $                    $                

Increase per share attributable to new investors

     
  

 

 

    

Pro forma as adjusted net tangible book value per share after this offering

     
     

 

 

 

Dilution per share to new investors

      $     
     

 

 

 

 

 

Net tangible book value per share is determined by dividing our tangible net worth, which consists of tangible assets less liabilities, by the number of shares outstanding. Dilution is determined by subtracting the net tangible book value per share after this offering from the assumed initial public offering price per share.

The following table summarizes, as of June 30, 2013, on the basis described above, the differences between the number of shares issued as a result of this offering, the total amount paid by existing shareholders and the average price per share to be paid by investors in this offering, based upon an assumed initial public offering price of $         per share.

 

 

 

     SHARES     TOTAL CONSIDERATION     AVERAGE
PRICE PER
SHARE
 
     NUMBER    PERCENT     AMOUNT      PERCENT    

Existing shareholders

                           $                

New investors

                           $                
  

 

  

 

 

   

 

 

    

 

 

   

Total

        100   $                    $ 100   $                
  

 

  

 

 

   

 

 

    

 

 

   

 

 

A $1.00 increase (decrease) in the assumed initial public offering price of $         per share would not affect our net tangible book value, would increase (decrease) the pro forma net tangible book value per share as adjusted by $         per share and would decrease (increase) the dilution per share to new investors in this offering by $         per share, assuming no exercise of the underwriters’ option to purchase              additional shares of our common stock and no other change to the number of shares offered by us as set forth on the cover page of this prospectus.

 

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SELECTED HISTORICAL FINANCIAL AND OPERATING DATA

The following table presents historical information as follows:

 

  n  

The selected historical financial data for the years ended December 31, 2011 and 2012, have been derived from our audited consolidated financial statements included elsewhere in this prospectus, and should be read together with and qualified in its entirety by reference to such audited consolidated financial statements.

 

  n  

The selected historical financial data as of and for the six months ended June 30, 2012 and 2013, have been derived from our unaudited consolidated financial statements and the notes thereto and, in our opinion, except as described below, have been prepared on a basis consistent with the audited financial statements and include all adjustments consisting of normal recurring adjustments, necessary for a fair presentation of this information.

The following table should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The selected historical financial data reflects the earnings per share and dividends per share impact of our 3-for-1 stock split that we will effect in the form of a stock dividend immediately prior to the effectiveness of the Company’s registration statement related to its initial public offering.

 

 

 

     NAVIGATOR HOLDINGS  
     YEAR ENDED
DECEMBER 31,
     SIX MONTHS ENDED
JUNE 30,
 
           2011                  2012                  2012                  2013        
                   (Unaudited)  
     (In thousands, except per share data, fleet data and
average daily results)
 

Income Statement Data:

           

Operating revenue

   $   88,875       $ 146,716       $   66,917       $ 102,816   

Operating expenses:

           

Address and brokerage commissions

     2,664         4,234         2,023         2,575   

Voyage expenses

     17,661         27,791         14,162         22,260   

Charter-in costs

     344         11,288         3,600         3,175   

Vessel operating expenses

     22,939         32,826         15,104         22,933   

Depreciation and amortization

     18,678         24,180         11,506         15,683   

General and administrative costs

     4,232         5,273         2,536         3,195   

Other corporate expenses

     1,166         1,402         850         999   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total operating expenses

     67,684         106,994         49,782         70,819   
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating income

   $ 21,191       $ 39,722       $ 17,135       $ 31,997   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net interest expense

     2,433         8,671         3,552         12,693   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income before income taxes

   $ 18,758       $ 31,051       $ 13,583       $ 19,304   

Income taxes

     108         515         246         224   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 18,650       $ 30,536       $ 13,338       $ 19,080   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings per share:

           

Basic and diluted

   $ 0.60       $ 0.82       $ 0.37         0.43   

Dividends per share:

           

Basic and diluted

   $ 0.31       $ 0.06       $ 0.07       $   

EBITDA (1)

   $ 39,869       $ 63,902       $ 28,642       $ 47,680   

 

 

 

 

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     NAVIGATOR HOLDINGS  
     YEAR ENDED
DECEMBER 31,
    SIX MONTHS ENDED
JUNE 30,
 
     2011     2012     2012     2013  
                 (Unaudited)  
     (In thousands, except per share data, fleet data and average
daily results)
 

Balance Sheet Data (at end of period):

        

Cash and cash equivalents

   $ 26,734      $ 140,870      $ 41,783      $ 86,913   

Total assets

     524,793        832,254        669,084        1,062,793   

Total liabilities

     152,765        384,431        238,928        520,616   

Total shareholders’ equity

     372,028        447,823        430,156        542,177   

Fleet Data:

        

Weighted average number of vessels (2)

     8.3        12.7        11.6        16.6   

Ownership days (3)

     3,033        4,663        2,114        3,016   

Available days (4)

     3,033        4,663        2,114        2,921   

Operating days (5)

     2,955        4,641        2,103        2,802   

Fleet utilization (6)

     97.4     99.5     99.5     95.9

Average Daily Results:

        

Time charter equivalent rate (7)

   $ 23,983      $ 26,305      $ 25,085      $ 28,750   

Daily vessel operating expenses (8)

   $ 7,632      $ 7,916      $ 7,819      $ 7,877   

 

 

(1)   

EBITDA represents net income before net interest expense, income taxes and depreciation and amortization. EBITDA does not represent and should not be considered as an alternative to consolidated net income or cash generated from operations, as determined by U.S. GAAP, and our calculation of EBITDA may not be comparable to that reported by other companies. EBITDA is not a recognized measurement under U.S. GAAP.

EBITDA is included herein because it is a basis upon which we assess our financial performance and because we believe that it presents useful information to investors regarding a company’s ability to service and/or incur indebtedness and it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry.

EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are:

 

  n  

EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

 

  n  

EBITDA does not recognize the interest expense or the cash requirements necessary to service interest or principal payments on our debt;

 

  n  

EBITDA ignores changes in, or cash requirements for, our working capital needs; and

 

  n  

other companies in our industry may calculate EBITDA differently than we do, limiting its usefulness as a comparative measure.

Because of these limitations, EBITDA should not be considered a measure of discretionary cash available to us to invest in the growth of our business.

The following table sets forth a reconciliation of net income to EBITDA (unaudited) for the periods presented:

 

 

 

     NAVIGATOR HOLDINGS  
     YEAR ENDED
DECEMBER 31,
     SIX MONTHS ENDED
JUNE 30,
 
     2011      2012      2012      2013  
     (In thousands)  

Net income

   $ 18,650       $ 30,536       $ 13,338       $ 19,080   

Net interest expense

     2,433         8,671         3,552         12,693   

Income taxes

     108         515         246         224   

Depreciation and amortization

     18,678         24,180         11,506         15,683   

EBITDA

   $ 39,869       $ 63,902       $ 28,642       $ 47,680   

 

 

 

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(2)   

We calculate the weighted average number of vessels during a period by dividing the number of total ownership days during that period by the number of calendar days during that period.

(3)   

We define ownership days as the aggregate number of days in a period that each vessel in our fleet has been owned by us. Ownership days are an indicator of the size of our fleet over a period and affect both the amount of revenue and the amount of expenses that we record during a period.

(4)   

We define available days as ownership days less aggregate off-hire days associated with scheduled maintenance, which includes major repairs, drydockings, vessel upgrades or special or intermediate surveys. We use available days to measure the aggregate number of days in a period that our vessels should be capable of generating revenues.

(5)   

We define operating days as available days less the aggregate number of days that our vessels are off-hire for any reason other than scheduled maintenance. We use operating days to measure the aggregate number of days in a period that our vessels actually generate revenues.

(6)   

We calculate fleet utilization by dividing the number of operating days during a period by the number of available days during that period. An increase in non-scheduled off-hire days would reduce our operating days, and therefore, our fleet utilization. We use fleet utilization to measure our ability to efficiently find suitable employment for our vessels.

(7)   

TCE rate is a measure of the average daily revenue performance of a vessel. TCE rate is a shipping industry performance measure used primarily to compare period-to-period changes in a shipping company’s performance despite changes in the mix of charter types (i.e., time charters, voyage charters and COAs) under which the vessels may be employed between the periods. Our method of calculating TCE rate is to divide operating revenue (net of voyage expenses) by operating days for the relevant time period.

(8)   

Daily vessel operating expenses are calculated by dividing vessel operating expenses by ownership days (excluding ownership days for chartered-in vessels) for the relevant time period.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our financial condition and results of operations in conjunction with our audited and unaudited consolidated financial statements and related notes included elsewhere in this prospectus. Among other things, those financial statements include more detailed information regarding the basis of presentation for the following information. The financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or “U.S. GAAP,” and are presented in U.S. Dollars unless otherwise indicated. Any amounts converted from another non-U.S. currency to U.S. Dollars in this prospectus were converted at the rate applicable at the relevant date, or the average rate during the applicable period.

Overview

We are the owner and operator of the world’s largest fleet of handysize liquefied gas carriers. We provide international and regional seaborne transportation services of liquefied petroleum gas, or “LPG,” petrochemical gases and ammonia for energy companies, industrial users and commodity traders. These gases are transported in liquefied form, by applying cooling and/or pressure, to reduce volume by up to 900 times depending on the cargo, making their transportation more efficient and economical.

We employ our vessels through a combination of time charters, voyage charters and contracts of affreightment, or “COAs.” Our fleet consists of 30 semi- or fully-refrigerated handysize liquefied gas carriers, which we define as liquefied gas carriers between 15,000 and 24,999 cbm, including one secondhand vessel that we have contracted to acquire for delivery in 2013 and seven newbuilding vessels scheduled for delivery by August 2015. In addition, we have options to build two further handysize newbuilding vessels for delivery by early 2016 and currently operate an additional semi-refrigerated handysize liquefied gas carrier under a time charter-in through December 2014. As of June 30, 2013, we operated 20 vessels, including our chartered-in vessel, of which 11 were employed under time charters and nine were employed in the spot market. We have since taken delivery of an additional three vessels, two of which we have employed in the spot market and one of which is under time charter, and entered into time charters for two vessels previously operating in the spot market. Our operated vessels earned an average time charter equivalent rate of approximately $874,500 per vessel per calendar month ($28,750 per day) during the six months ended June 30, 2013, compared to approximately $800,000 per vessel per calendar month ($26,305 per day) for the year ended December 31, 2012.

Our largest customers by revenue for the year ended December 31, 2012, include three companies that currently time charter a total of six of our 23 operated vessels: PT Pertamina (Persero), the Indonesian state-owned producer of hydrocarbons; Tomza Group, a Mexican LPG distribution company that distributes LPG to the Mexican and Central American markets; and Petróleos de Venezuela S.A., the Venezuelan state-owned integrated oil and petrochemical company. For the year ended December 31, 2012, these customers accounted for approximately 36.6% of our revenue in the aggregate. In the past, we have chartered vessels to a range of trading, shipping and other customers on both time charter and voyage charter bases, including Kolmar Group AG, a petroleum and petrochemicals trading company; Trafigura Limited, an international commodities trading and logistics company; the Vitol Group, an independent energy trading company; Marubeni Corporation, an international general trading company; Mitsubishi Corporation, a leading global chemical company; and Petredec Ltd., a leading LPG trading company.

The trends and changing dynamics in global supply and trade of LPG and certain petrochemicals described in “The International Liquified Gas Shipping Industry” have resulted in an increase in demand for our transportation services. This increase in demand is among the primary motivating factors for the significant increase in our fleet size and resulting increase in total revenue. We expect additional changes in global supply and trade of LPG and certain petrochemicals will continue to increase the demand for our transportation services. For example, the increase in LPG produced in the United States, particularly from shale gas, has resulted in increased seaborne LPG transportation from the United States. We currently have nine vessels transporting U.S. LPG, compared to none two years ago. We expect continued worldwide LPG production growth and market developments, including continuing changes in seaborne trade routes, to support increased growth of our fleet and increased revenue. Similarly, regional imbalances in petrochemical supply and consumption have resulted in our increased petrochemical voyages. We

 

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expect these regional imbalances will increase and change as producers react to changing supply of feedstock. For example, we expect increased ethylene production in the U.S. Gulf Coast in response to relatively inexpensive ethane prices driven by U.S. shale gas to result in increased demand for ethylene export to other regions.

We expect our largest shareholder, the WLR Group, will own         % of our outstanding shares of common stock after the completion of this offering. Based on the WLR Group’s significant ownership interest in us it may be able to exert considerable influence on the outcome of matters on which our shareholders are entitled to vote, including the election of directors to our board of directors and other significant corporate actions.

Vessel Contracts

We generate revenue by providing seaborne transportation services to customers pursuant to the following three types of contractual relationships:

Time Charters. A time charter is a contract under which a vessel is chartered for a defined period of time at a fixed daily or monthly rate. Under time charters, we are responsible for providing crewing and other vessel operating services, the cost of which is intended to be covered by the fixed rate, while the customer is responsible for substantially all of the voyage expenses, including any bunker fuel consumption, port expenses and canal tolls. LPG is typically transported under a time charter arrangement, generally with a term of twelve months. However, four of our 13 current time charters were for terms exceeding twelve months, with two having initial terms of five years and two having initial terms of ten years. For the year ended December 31, 2012, approximately 61.4% of our revenue was generated pursuant to time charters.

Voyage Charters. A voyage charter is a contract, typically for shorter intervals, for transportation of a specified cargo between two or more designated ports. This type of charter is priced on a current or “spot” market rate, typically on a price per ton of product carried rather than a daily or monthly rate. Under voyage charters, we are responsible for all of the voyage expenses in addition to providing the crewing and other vessel operating services. Petrochemical gases have typically been transported pursuant to voyage charters, as the seaborne transportation requirements of petrochemical product traders have historically resulted from a particular product arbitrage at a point in time. For the year ended December 31, 2012, approximately 16.1% of our revenue was generated pursuant to voyage charters.

Contracts of Affreightment. A contract of affreightment, or “COA,” is a contract to carry specified quantities of cargo, usually over prescribed shipping routes, at a fixed price per ton basis (often subject to fuel price or other adjustments) over a defined period of time. As such, a COA essentially consists of a number of voyage charters to carry a specified amount of cargo over a specified time period (i.e., the term of the COA), which can span for months to potentially years. Similar to a voyage charter, we are typically responsible for all voyage expenses in addition to providing all crewing and other vessel operating services when trading under a COA. For the year ended December 31, 2012, approximately 22.5% of our revenue was generated pursuant to COAs.

Vessels operating on time charters and longer-term COAs provide more predictable cash flows, but can potentially yield lower profit margins than vessels operating in the spot charter market during periods of favorable market conditions. Accordingly, as a result of a portion of our fleet being committed on time charters and COAs, we will be unable to take full advantage of improving charter rates to the same extent as we would if our liquefied gas carriers were employed only on spot charters. Conversely, vessels operating in the spot charter market generate revenue that is less predictable, but they may enable us to capture increased profit margins during periods of improving charter rates. However, operating in the spot charter market exposes us to the risks of declining liquefied gas carrier charter rates and relatively lower utilization rates as compared to time charters and certain COAs, which may have a materially adverse impact on our financial performance. Notwithstanding these risks, we believe that providing liquefied gas transportation services in the spot charter market is important to us, as it provides us with greater insight into market trends and opportunities.

We believe that the size and versatility of our fleet, which enables us to carry the broadest set of liquefied gases subject to seaborne transportation across a diverse range of conditions and geographies, together with our track record of operational excellence, positions us as the partner of choice for many companies requiring handysize

 

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liquefied gas transportation and distribution solutions. In addition, we believe that the versatility of our fleet affords us with backhaul and triangulation opportunities not available to many of our competitors, thereby providing us with opportunities to increase utilization and profitability. We seek to enhance our returns through a flexible, customer-driven chartering strategy that combines a base of time charters and COAs with more opportunistic, higher-rate voyage charters.

Important Financial and Operational Terms and Concepts

We use a variety of financial and operational terms and concepts in the evaluation of our business and operations. These include the following:

Operating Revenue. Our operating revenue includes revenue from time charters, voyage charters and COAs. Operating revenue is affected by charter rates and the number of days a vessel operates. Rates for voyage charters are more volatile as they are typically tied to prevailing market rates at the time of the voyage. Historically, voyage charters have usually represented a minority of our annual operating revenue, which is consistent with our vessel employment strategy for the near future.

Address and Brokerage Commissions. Address and brokerage commissions are costs remitted to either the shipping brokers or charterers for placing business with our vessels and are calculated as a percentage of chartering income.

Voyage Expenses. Voyage expenses are all expenses unique to a particular voyage, including any bunker fuel consumption, port expenses and canal tolls. Voyage expenses are typically paid by the shipowner under voyage charters and COAs and by the charterer under time charters. Accordingly, we generally only incur voyage expenses when performing voyage charters and COAs or during repositioning voyages between time charters for which no cargo is available. The gross revenue received by the shipowner under voyage charters and COAs are generally higher than those received under comparable time charters so as to compensate the shipowner for bearing all voyage expenses. As a result, our operating revenue and voyage expenses may vary significantly depending on our mix of time charters, voyage charters and COAs.

Charter-in Costs. Charter-in costs represent charter hire costs incurred by us for non-owned vessels that we charter into our fleet. While it is not a focus of our operational strategy, we may opportunistically charter-in vessels if we either have a need for a vessel to perform a specific undertaking or consider the charter rate requested by a vessel owner to be sufficiently attractive.

Vessel Operating Expenses. Vessel operating expenses are expenses that are not unique to a specific voyage. Vessel operating expenses are typically paid by the shipowner under each of our charter types. Vessel operating expenses include crew wages and related costs, the cost of insurance, expenses relating to repairs and maintenance, the cost of spares and consumable stores, tonnage taxes and other miscellaneous expenses. Our vessel operating expenses will increase with the expansion of our fleet. Other factors that are beyond our control may also cause these expenses to increase, including developments relating to market prices for insurance and crewing costs.

In connection with providing us with technical management for our fleet, NMM and BSSM currently receive crewing and technical management fees of approximately $200,000 per vessel per year in the aggregate, which fees are considered to be vessel operating expenses. Our technical and crew management agreements have terms through December 31, 2013, and thereafter continue until terminated on at least three months’ notice by either party, subject to certain exceptions. See “Business—Technical Management of Fleet.”

Depreciation and Amortization. Depreciation and amortization expense consists of:

 

  n  

charges related to the depreciation of the historical cost of our fleet (or the revalued amount), less the estimated residual value of our vessels, calculated on a straight-line basis over their useful life, which is estimated to be 30 years; and

 

  n  

charges related to the amortization of capitalized drydocking expenditures relating to our fleet over the period between drydockings.

 

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General Administration Costs. General administration costs principally consist of the costs incurred in operating our London representative office, which manages our chartering, operations, accounting and administrative functions and oversees the technical management of our vessels; our New York representative office; and certain costs and expenses attributable to our board of directors. Please read “Business—Commercial Management of the Fleet.” Following this offering, we will incur additional expenses as a result of being a publicly-traded corporation, including costs associated with annual reports to shareholders and SEC filings, investor relations and NYSE annual listing fees. We may also grant equity compensation that would result in an expense to us, which may result in an increase in expenses. Please read “Management—2013 Long-Term Incentive Plan.”

Other Corporation Expenses. Other corporation expenses consist of our advisors’ services, including ongoing audit, taxation, legal and corporate services.

Drydocking. We must periodically drydock each of our vessels for any major repairs and maintenance, for inspection of the underwater parts of the vessel, that cannot be performed while the vessels are operating and for any modifications to comply with industry certification or governmental requirements. We are required to drydock a vessel once every five years until it reaches 15 years of age, after which we are required to drydock the applicable vessel every two and one-half to three years.

We capitalize costs associated with the drydockings as “built in overhauls” in accordance with U.S. GAAP and amortize these costs on a straight-line basis over the period between drydockings. Costs incurred during the drydocking period which relate to routine repairs and maintenance are expensed as incurred. The number of drydockings undertaken in a given period and the nature of the work performed determine the level of drydocking expenditures.

Ownership Days. We define ownership days as the aggregate number of days in a period that each vessel in our fleet has been owned by us. Ownership days include the number of days in a period in which we have possession of a chartered-in vessel. Ownership days are an indicator of the size of our fleet over a period and affect both the amount of revenue and the amount of expenses that we record during a period.

Available Days. We define available days as ownership days less aggregate off-hire days associated with major scheduled maintenance, which principally include drydockings, special or intermediate surveys, vessel upgrades or major repairs. We use available days to measure the number of days in a period that our operated vessels should be capable of generating revenues.

Operating Days. We define operating days as available days less the aggregate number of days that our operated vessels are not generating revenue, which include idle days and off-hire days for any reason other than major scheduled maintenance. We use operating days to measure the aggregate number of days in a period that our operated vessels actually generate revenues.

Fleet Utilization. We define fleet utilization as the total number of operating days in a period divided by the total number of available days during that period.

Time Charter Equivalent Rate. Time charter equivalent rate, or “TCE rate,” is a measure which converts voyage charter and COA revenues to a time charter comparable, by deducting voyage expenses (which are incurred by the charterer in the case of time charters) from voyage revenue. TCE rate is a standard shipping industry performance measure used primarily to compare the performance of different charter types (i.e., time charters, voyage charters and COAs) and to enable a period-to-period comparison in performance despite changes in the mix of charter types under which the vessels may be employed between the periods. Our method of calculating TCE rate is to divide operating revenue for a voyage charter or COA (net of voyage expenses) by the relevant time period of that charter.

Daily Vessel Operating Expenses. Daily vessel operating expenses are calculated by dividing vessel operating expenses by ownership days (excluding ownership days attributable to chartered-in vessels) for the relevant time period.

 

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Results of Operations

Factors Affecting Comparability

You should consider the following factors when evaluating our historical financial performance and assessing our future prospects:

 

  n  

We have been and are significantly increasing our fleet size. Our historical financial performance and future prospects have been and will be significantly impacted by the increasing size of our fleet.

 

  n  

Historical Fleet Size. Our historical financial statements for the year ended December 31, 2011, reflect the results of operations of a weighted average fleet size of 8.3 vessels, with nine vessels owned at year end. During 2012, we took delivery of Navigator Libra, Navigator Pegasus and Navigator Phoenix and chartered-in two additional vessels, the Maple 3 and the Artic Gas (a chartered-in vessel from July 2012 through January 2013), bringing our total fleet size to 14 by year end and resulting in a weighted average fleet size of 12.7 vessels for the year. In addition, in November 2012, we entered into sales and purchase agreements with affiliates of A.P. Møller pursuant to which it agreed to sell to us its entire fleet of 11 handysize liquefied gas carriers. We took delivery of seven of the A.P. Møller vessels in the first six months of 2013.

 

  n  

Future Fleet Size. We have taken delivery of 10 of the A.P. Møller vessels as of the date hereof and anticipate taking delivery of the remaining vessel later this year. In addition, we have entered into agreements to acquire seven newbuilding handysize liquefied gas carriers, with four to be delivered in 2014 and three in 2015, and have options for two handysize newbuilding vessels. Furthermore, the time charter relating to our chartered-in vessel currently terminates in December 2014, after which such vessel will no longer contribute to our results of operations unless we extend the charter-in relationship.

Given the variability in operating vessels in our fleet, our historical financial statements reflect, and in the future will reflect, significantly different levels of ownership and operating days as well as different levels of voyage expenses, vessel operating expenses, interest expense and other related costs.

 

  n  

We will incur additional general administration costs and other corporation expenses. We will incur additional costs as a result of being a publicly-traded corporation, including costs associated with annual reports to shareholders and SEC filings, investor relations and NYSE annual listing fees. We may also grant equity compensation that would result in an expense to us, which may result in an increase in expenses. Please read “Management—2013 Long-Term Incentive Plan.”

 

  n  

We will have different financing arrangements. We have entered into secured term loan facilities and issued senior unsecured notes to finance the acquisitions of vessels and the construction of newbuildings. Please read “—Secured Term Loan Facilities” and “—Senior Unsecured Bond Offering.”

 

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Six Months Ended June 30, 2013 Compared to Six Months Ended June 30, 2012

The following table compares our operating results for the six months ended June 30, 2012 and 2013:

 

 

 

     SIX MONTHS
ENDED JUNE 30,
2012
    SIX MONTHS
ENDED JUNE 30,
2013
    PERCENTAGE
CHANGE
 
     (In thousands, except percentages)  

Operating revenue

   $ 66,917      $ 102,816        53.6

Operating expenses:

      

Address and brokerage commissions

     2,023        2,575        27.3

Voyage expenses

     14,162        22,260        57.2

Charter-in costs

     3,600        3,175        (11.8 )% 

Vessel operating expenses

     15,104        22,933        51.8

Depreciation and amortization

     11,506        15,683        36.3

General administration costs

     2,536        3,195        26.0

Other corporate expenses

     850        999        17.5
  

 

 

   

 

 

   

Total operating expenses

   $ 49,782      $ 70,819        42.3
  

 

 

   

 

 

   

Operating income

   $ 17,135      $ 33,997        98.4

Interest expense

     (3,561     (12,739     257.7

Interest income

     9        46        411.1
  

 

 

   

 

 

   

Income before income taxes

   $ 13,583      $ 19,304        42.1

Income taxes

     (246     (224     (8.9 )% 
  

 

 

   

 

 

   

Net income

   $ 13,338      $ 19,080        43.0
  

 

 

   

 

 

   

 

 

Operating Revenue. Operating revenue increased by 53.6% to $102.8 million for the six months ended June 30, 2013, from $66.9 million for the six months ended June 30, 2012. This increase was primarily due to:

 

  n  

an increase in operating revenue of approximately $20.1 million attributable to an increase in the weighted average number of vessels by 5.0, or 43.1%, and a corresponding increase in vessel ownership days by 902 days, or 42.7%, for the six months ended June 30, 2013, as compared to the six months ended June 30, 2012;

 

  n  

an increase in operating revenue of approximately $10.3 million attributable to an improved monthly charter rate, which rose to an average of approximately $874,500 per vessel per calendar month ($28,750 per day) for the six months ended June 30, 2013, as compared to an average of approximately $763,000 per vessel per calendar month ($25,085 per day) for the six months ended June 30, 2012;

 

  n  

a decrease in operating revenue of approximately $2.6 million attributable to a reduction in fleet utilization from 99.5% during the first six months of 2012 to 95.9% during the first six months of 2013 primarily as a result of repositioning the additional vessels entering our fleet in the six months ended June 30, 2013; and

 

  n  

an increase in operating revenue of approximately $8.1 million relating to a relative increase in the proportion of voyage charters to time charters during an increasing spot market rate environment.

 

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The following table presents selected operating data for the six months ended June 30, 2013, and 2012, which we believe are useful in understanding our operating revenue:

 

 

 

     SIX MONTHS ENDED
JUNE 30, 2012
    SIX MONTHS ENDED
JUNE 30, 2013
 

Fleet Data:

    

Weighted average number of vessels

     11.6        16.6   

Ownership days

     2,114        3,016   

Available days

     2,114        2,921   

Operating days

     2,103        2,802   

Fleet utilization

     99.5     95.9

Average daily time charter equivalent rate

   $ 25,085      $ 28,750   

 

 

As a result of acquisitions between June 30, 2012 and June 30, 2013, we increased our weighted average number of vessels from 11.6 to 16.6 during the six months ended June 30, 2013, as compared to the comparable period in 2012. As a result, during the six months ended June 30, 2013, we had 2,802 operating days, an increase of 699 days when compared to the six months ended June 30, 2012. Our fleet utilization for the six months ended June 30, 2013, decreased by 3.6% to 95.9% from our fleet utilization of 99.5% for the six months ended June 30, 2012, primarily as a result of repositioning the additional vessels entering our fleet in the six months ended June 30, 2013.

The average TCE rate for the six months ended June 30, 2013, was approximately $874,500 per vessel per calendar month or $28,750 per vessel per day, $3,665 per vessel per day higher than the average TCE rate of $25,085 per vessel per day ($763,000 per vessel per calendar month) in the six months ended June 30, 2012. This was primarily due to higher demand for the handysize vessels during the six months ended June 30, 2013, as compared to the six months ended June 30, 2012.

Address and Brokerage Commissions. Address and brokerage commissions were $2.6 million for the six months ended June 30, 2013, compared to $2.0 million for the six months ended June 30, 2012.

Voyage Expenses. Voyage expenses increased by 57.2% to $22.3 million for the six months ended June 30, 2013, from $14.2 million for the six months ended June 30, 2012. This increase was primarily due to the increase in our fleet size and a relative increase in the proportion of voyage charters to time charters.

Charter-in Costs. Charter-in costs decreased by 11.8% to $3.2 million for the six months ended June 30, 2013, from $3.6 million for the six months ended June 30, 2012. This decrease is primarily related to the drydocking of the chartered-in vessel in 2013 by its owner, during which time we do not incur charter-in costs.

Vessel Operating Expenses. Vessel operating expenses increased by 51.8% to $22.9 million for the six months ended June 30, 2013, from $15.1 million for the six months ended June 30, 2012. Vessel operating expenses increased by $55 per day, or 0.7%, to $7,877 per vessel per day for the six months ended June 30, 2013, compared to $7,819 per vessel per day for the six months ended June 30, 2012. These increases were primarily due to our increased fleet size and minor inflationary increases.

Depreciation and Amortization. Depreciation and amortization expense increased by 36.3% to $15.7 million for the six months ended June 30, 2013, from $11.5 million for the six months ended June 30, 2012. This increase was primarily due to an increase in our fleet size. Depreciation and amortization expense included amortization of capitalized drydocking costs of $1.4 million for the six months ended June 30, 2013, and $1.0 million for the six months ended June 30, 2012.

Other Operating Results

General and Administration Costs. General and administration costs increased by 26.0% to $3.2 million for the six months ended June 30, 2013, from $2.5 million for the six months ended June 30, 2012, primarily due to additional costs attributable to enlarged operations associated with fleet expansion.

 

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Interest Expense. Interest expense increased to $12.7 million for the six months ended June 30, 2013, from $3.6 million for the six months ended June 30, 2012. This increase was primarily due to:

 

  n  

$8.5 million of increased interest expense attributable to our issuance of $125.0 million of 9.0% senior unsecured bonds in December 2012 and our entry into additional secured term loan facilities in April 2012 and February 2013; and

 

  n  

$0.6 million of increased interest expense attributable to refinancing a previous revolving credit facility at an increased interest rate.

Interest Income. Interest income increased to $46,179 for the six months ended June 30, 2013, from $9,192 for the six months ended June 30, 2012. The increase in interest income for the six months ended June 30, 2013, was primarily due to interest generated on unapplied proceeds of our senior unsecured bond issuance, maintaining an increased working capital cash balance associated with a larger fleet size and as required to comply with minimum liquidity covenants under our debt instruments.

Income Taxes. Income tax relates to taxes on our subsidiaries incorporated in the United Kingdom and Singapore. Our United Kingdom subsidiary earns management and other fees from fellow subsidiary companies, and our Singaporean subsidiary earned interest payments from Indonesia, where the main corporate tax rates are 24% and 17%, respectively. For the six months ended June 30, 2013, we incurred taxes of $223,918 as compared to taxes for the six months ended June 30, 2012 of $245,611.

Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

The following table compares our operating results for the years ended December 31, 2011 and 2012:

 

 

 

     YEAR ENDED
DECEMBER 31,
2011
    YEAR ENDED
DECEMBER 31,
2012
    PERCENTAGE
CHANGE
 
     (In thousands, except percents)  

Operating revenue

   $ 88,875      $ 146,716        65.1

Operating expenses:

      

Address and brokerage commissions

     2,664        4,234        58.9

Voyage expenses

     17,661        27,791        57.4

Charter-in costs

     344        11,288        3181.4

Vessel operating expenses

     22,939        32,826        43.1

Depreciation and amortization

     18,678        24,180        29.5

General and administrative costs

     4,232        5,273        24.6

Other corporate expenses

     1,166        1,402        20.2
  

 

 

   

 

 

   

Total operating expenses

   $ 67,684      $ 106,994        58.1
  

 

 

   

 

 

   

Operating income

   $ 21,191      $ 39,722        87.4

Interest expense

     (2,442     (8,736     257.7

Interest income

     9        65        622.2
  

 

 

   

 

 

   

Income before income taxes

   $ 18,758      $ 31,051        65.5

Income taxes

     108        515        376.9
  

 

 

   

 

 

   

Net income

   $ 18,650      $ 30,536        63.7
  

 

 

   

 

 

   

 

 

Operating Revenue. Operating revenue increased by 65.1% to $146.7 million for the year ended December 31, 2012 from $88.9 million for the year ended December 31, 2011, primarily due to:

 

  n  

an increase in operating revenue of approximately $38.1 million attributable to an increase in the weighted average number of vessels by 4.4, or 53.0%, and a corresponding increase in ownership days by 1,630 days, or 53.7%, for the year ended December 31, 2012, as compared to the year ended December 31, 2011;

 

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  n  

an increase in operating revenue of approximately $6.9 million attributable to an improved monthly charter rate, which rose to a weighted average of approximately $800,000 per vessel per calendar month ($26,305 per day) for the year ended December 31, 2012, as compared to an average of approximately $730,000 per vessel per calendar month ($23,983 per day) for the year ended December 31, 2011;

 

  n  

an increase in operating revenue of approximately $2.7 million attributable to an increase in the fleet utilization from 97.4% during 2011, to 99.5% during 2012; and

 

  n  

an increase in operating revenue of approximately $10.1 million relating to a relative increase in the proportion of voyage charters to time charters during an increasing spot market rate environment.

The following table presents selected operating data for the years ended December 31, 2011 and 2012, which we believe are useful in understanding our operating revenue:

 

 

 

     YEAR ENDED
DECEMBER 31,
2011
    YEAR ENDED
DECEMBER 31,
2012
 

Fleet Data:

    

Weighted average number of vessels

     8.3        12.7   

Ownership days

     3,033        4,663   

Available days

     3,033        4,663   

Operating days

     2,955        4,641   

Fleet utilization

     97.4     99.5

Average daily time charter equivalent rate

   $ 23,983      $ 26,305   

 

 

As a result of vessel acquisitions, newbuilding deliveries and chartered-in vessels, we increased our weighted average number of vessels from 8.3 to 12.7 during the years ended December 31, 2012, as compared to 2011. During the year ended December 31, 2012, we had 4,663 available days, an increase of 1,630 days when compared to the year ended December 31, 2011. This was due to the additional vessels joining the fleet, both throughout 2012 and the second half of 2011. Our fleet utilization for the year ended December 31, 2012, increased by 2.1% to 99.5% from our fleet utilization of 97.4% for the year ended December 31, 2011.

The average TCE rate for the year ended December 31, 2012, was approximately $800,000 per vessel per calendar month ($26,305 per vessel per day), $2,322 per vessel per day higher than the average TCE rate of approximately $680,000 per vessel per calendar month ($23,983 per vessel per day) achieved in the year ended December 31, 2011. This was primarily due to an increased demand for the transportation of LPG, particularly due to the continued development of U.S. shale gas.

Address and Brokerage Commissions. Address and brokerage commissions were $4.2 million for the year ended December 31, 2012, compared to $2.6 million for the year ended December 31, 2011. Commission costs increased as a result of increased charter revenue due to the increased size of our fleet.

Voyage Expenses. Voyage expenses increased by 57.4% to $27.8 million for the year ended December 31, 2012, from $17.7 million for the year ended December 31, 2011. This increase was primarily due to the increase in our fleet size and a relative increase in the proportion of voyage charters to time charters.

Charter-in Costs. Charter-in costs increased to $11.3 million for the year ended December 31, 2012, as compared to approximately $0.3 million for the year ended December 31, 2011, as a result of our entry into our charter-in arrangements in December 2011 and July 2012.

Vessel Operating Expenses. Vessel operating expenses increased by 43.1% to $32.8 million for the year ended December 31, 2012, from $22.9 million for the year ended December 31, 2011. Vessel operating expenses increased by $284 per day, or 3.7%, to $7,916 per day for the year ended December 31, 2012, compared to $7,632 per day for the year ended December 31, 2011. These increases were primarily due to our increased fleet size and rising costs for crew, as well as greater costs for repair and maintenance due to the increased age of certain of our vessels.

 

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Depreciation and Amortization. Depreciation and amortization expense increased 29.5% to $24.2 million for the year ended December 31, 2012, from $18.7 million for the year ended December 31, 2011. This increase was primarily due to an increase in our fleet size. Depreciation and amortization expense included amortization of capitalized drydocking costs of $2.1 million for the year ended December 31, 2012, and $1.8 million for the year ended December 31, 2011.

Other Operating Results

General and Administration Costs. General and administration costs increased by 24.6% to $5.3 million for the year ended December 31, 2012, from $4.2 million for the year ended December 31, 2011, primarily due to increasing the operational capacity of our representative office in London necessitated by fleet expansion.

Interest Expense. Interest expense increased to $8.7 million for the year ended December 31, 2012, from $2.4 million for the year ended December 31, 2011. This increase was primarily due to:

 

  n  

$7.5 million of increased interest expense attributable to additional debt incurred to finance our newbuildings and secondhand vessel purchases; and

 

  n  

$1.2 million of increased interest expense attributable to the refinancing of $90 million of a previous revolving credit facility that had an interest cost of U.S. LIBOR plus 3.25%.

Interest Income. Interest income increased to $64,590 for the year ended December 31, 2012, from $8,978 for the year ended December 31, 2011. The increase in interest income for the year ended December 31, 2012, was primarily due to maintaining an increased working capital cash balance associated with a larger fleet size and to comply with minimum liquidity covenants under our debt instruments.

Income Taxes. Income tax relates to taxes on our subsidiaries incorporated in the United Kingdom and Singapore and withholding tax from charter hire in Indonesia. Our United Kingdom subsidiary earns management and other fees from fellow subsidiary companies, and our Singapore subsidiary receives interest payments from Indonesia, where the main corporate tax rates are 24% and 17%, respectively. For the year ended December 31, 2012, we incurred taxes of $515,123 as compared to taxes for the year ended December 31, 2011 of $107,501.

Liquidity and Capital Resources

Liquidity and Cash Needs

Our primary uses of funds have been capital expenditures for the acquisition and construction of vessels, voyage expenses, vessel operating expenses, general and administrative costs, expenditures incurred in connection with ensuring that our vessels comply with international and regulatory standards, financing expenses and repayments of bank loans. Our primary sources of funds have been cash from operations, equity investments from existing shareholders, bank borrowings and a bond placement. We are required to maintain certain minimum liquidity amounts in order to comply with our various debt instruments. Please see “—Secured Term Loan Facilities.”

In addition to operating expenses, our medium-term and long-term liquidity needs primarily relate to potential future acquisitions. Pursuant to our purchase and sale agreements with A.P. Møller, in addition to the 10% deposit that we put into escrow at the signing of the purchase and sale agreements, we are required to remit payment to A.P. Møller at the time of delivery of each of the 11 vessels we are to acquire by the fourth quarter of 2013, resulting in an aggregate payment of $470 million. As of June 30, 2013, we had made payments to A.P. Møller in an aggregate amount of $359.3 million. In addition, we have agreed to purchase the four 2014 newbuildings from Jiangnan for $50.0 million per vessel and the three 2015 newbuildings from Jiangnan for an average of $46.0 million per vessel, for an aggregate of $337.3 million. As of June 30, 2013, we had made additional payments to Jiangnan of $29.9 million. We also have options to build the option newbuildings from Jiangnan in late 2015 and early 2016 for $44.0 million per vessel.

We expect to finance the remaining purchase prices of the A.P. Møller vessels and 2014 newbuildings through previously issued equity and borrowings under our current senior term loan facilities. We expect to finance the purchase price of the 2015 newbuildings, option newbuildings and any additional future acquisitions either through the net proceeds from this offering, internally generated funds, debt financings, the issuance of additional equity securities or a combination of these forms of financing. We anticipate that our primary sources of funds for our long-

 

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term liquidity needs will be from cash from operations and/or debt or equity financings. We believe that these sources of funds will be sufficient to meet our liquidity needs for the foreseeable future.

Ongoing Capital Expenditures. Liquefied gas transportation is a capital-intensive business, requiring significant investment to maintain an efficient fleet and to stay in regulatory compliance.

We are required to drydock a vessel once every five years until it reaches 15 years of age, after which we are required to drydock the applicable vessel every two and one-half to three years. Drydocking each vessel takes approximately 20-30 days. Drydocking days generally include approximately 5-10 days of travel time to and from the drydocking shipyard and approximately 15-20 days of actual drydocking time.

We spend significant amounts for scheduled drydocking (including the cost of classification society surveys) of each of our vessels. As our vessels age and our fleet expands, our drydocking expenses will increase. We estimate the current cost of the five-year drydocking of one of our vessels is approximately $650,000, the ten-year drydocking cost is approximately $1.2 million and the 15-year drydocking cost is approximately $1.5 million. Ongoing costs for compliance with environmental regulations are primarily included as part of our drydocking and classification society survey costs, with a balance included as a component of our operating expenses. We are not aware of any regulatory changes or environmental liabilities that we expect to have a material impact on our current or future results of operations. Please see “Risk Factors—Risks Related to Our Business—Over the long term, we will be required to make substantial capital expenditures to preserve the operating capacity and expansion of our fleet.”

Cash Flows

The following table summarizes our cash and cash equivalents provided by (used in) operating, financing and investing activities for the periods presented:

 

 

 

     YEAR ENDED
DECEMBER 31,
    SIX MONTHS ENDED
JUNE 30,
 
     2011     2012     2012     2013  

Net cash provided by operating activities

   $ 44,989      $ 54,962      $ 26,437      $ 29,098   

Net cash used in investing activities

     (85,584     (202,789     (135,422     (285,069

Net cash provided by financing activities

     51,086        261,963        124,033        202,014   

Net increase (decrease) in cash and cash equivalents

     10,491        114,136        15,048        53,957   

 

 

Operating Cash Flows. Net cash provided by operating activities for the year ended December 31, 2012, increased to $55.0 million from $45.0 million for the year ended December 31, 2011, an increase of 22.2%. This $10.0 million increase in net cash provided by operating activities for the year ended December 31, 2012, was primarily due to increased net revenue as a result of fleet growth, offset by adverse movements in working capital.

Net cash provided by operating activities for the six months ended June 30, 2013, increased to $29.1 million, from $26.4 million for the six months ended June 30, 2012, an increase of 10.1%. This $2.7 million increase in net cash provided by operating activities for the six months ended June 30, 2013, was primarily due to increases in net revenue referred to above, partially offset by movements in working capital.

Net cash flow from operating activities depends upon the timing and amount of drydocking expenditures, repairs and maintenance activity, acquisitions and dispositions, foreign currency rates, changes in interest rates, fluctuations in working capital balances and spot market charter rates.

Investing Cash Flows. Net cash used in investing activities of $(202.8) million for the year ended December 31, 2012, primarily consists of $100.5 million for the acquisition of Navigator Pegasus and Navigator Phoenix, $24.9 million for the final installment payments on Navigator Libra, $47.0 million as a deposit to A.P. Møller for the acquisition of their 11 handysize vessels, $20 million installment payment for the four 2014 newbuildings and the placement of $10.0 million on a six-month deposit with a large financial institution in order to generate interest on cash withheld from operations to comply with the minimum liquidity requirements under our debt instruments. Net cash used in investing activities of $(85.6) million for the year ended December 31, 2011, primarily consists of payments to the shipyard relating to the construction of Navigator Leo, which was delivered in September 2011, and Navigator Libra, which was delivered in February 2012.

 

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Net cash used in investing activities of $(285.1) million for the six months ended June 30, 2013, primarily represents $273.1 million for the acquisition of seven of the 11 A.P. Møller vessels, a further $10.6 million installment payment on two of the four 2014 newbuildings and $1.4 million for the cost of drydocking Navigator Aries and Navigator Pluto. Net cash used in investing activities of $(135.4) million for the six months ended June 30, 2012, primarily consists of $100.5 million for the acquisition of Navigator Pegasus and Navigator Phoenix, $24.7 million for the final installment payments on Navigator Libra and $10.0 million initial installment payments for two of the four 2014 newbuildings.

Financing Cash Flows. Net cash provided by financing activities was $262.0 million for the year ended December 31, 2012, consisting of $206.5 million in proceeds from secured term loan facilities, $125.0 million from proceeds of a bond placement and $46.9 million from the issuance of common stock to the WLR Group, offset by $107.6 million in loan repayments, financing costs of $6.4 million and a dividend payment of $2.4 million. Net cash provided by financing activities was $51.1 million for the year ended December 31, 2011, consisting of $52.6 million of borrowings under a secured term loan facility and $15.3 million from the issuance of common stock, partially offset by $7.1 million in loan repayments and a dividend payment of $9.6 million.

Net cash provided by financing activities was $202.0 million for the six months ended June 30, 2013, consisting of $147.2 million from the acquisition secured loan facility, $75.0 million from the issuance of common stock to the WLR Group, partially offset by $13.4 million in loan repayments and $6.7 million in costs associated with the acquisition and newbuilding secured loan facilities. Net cash provided by financing activities was $124.0 million for the six months ended June 30, 2012, consisting of $46.9 million from the issuance of common stock and $176.5 million in proceeds from secured term loan facilities, partially offset by $94.2 million in loan refinancing and repayments and a dividend payment of $2.4 million.

Secured Term Loan Facilities

General. Navigator Gas L.L.C., our wholly-owned subsidiary, and certain of our vessel-owning subsidiaries have entered into a series of secured term loan facilities beginning in April 2011, or the “April 2011 secured term loan facility,” in April 2012, or the “April 2012 secured term loan facility,” in February 2013, or the “February 2013 secured term loan facility,” and in April 2013, or the “April 2013 secured term loan facility.” Collectively, we refer to the debt thereunder as our “secured term loan facilities.” Proceeds of the loans under our secured term loan facilities may be used to finance newbuildings, acquisitions and for general corporate purposes. The full commitment amounts have been drawn under both the April 2011 secured term loan facility and the April 2012 secured term loan facility. As of June 30, 2013, we had available a total of $122.9 million to be drawn under the February 2013 secured term loan facility. The full $120 million remained available under the April 2013 secured term loan facility is available to be drawn and fund the 2014 newbuilding vessels. We are the guarantor under each of the secured term loan facilities.

Fees and Interest. We paid arrangement and agency fees at the time of the closing of our secured term loan facilities. Agency fees are due annually. Interest on amounts drawn is payable at a rate of U.S. LIBOR plus a bank margin, for interest periods of one, three or six months or longer if agreed by all lenders.

Term and Facility Limits

April 2011 Secured Term Loan Facility. The April 2011 secured term loan facility has a term of six years with a maximum principal amount of $80.0 million. The April 2011 secured term loan facility is a delayed draw facility with an availability period that ended December 27, 2012. The aggregate fair market value of the collateral vessels must be no less than 130% of the aggregate outstanding borrowings under the facility. Interest on amounts drawn is payable at a rate of U.S. LIBOR plus 300 basis points per annum.

April 2012 Secured Term Loan Facility. The April 2012 secured term loan facility has a term of five years with a maximum principal amount of up to $180.0 million. The April 2012 secured term loan facility is a delayed draw facility with an availability period that ended December 31, 2012. The aggregate fair market value of the collateral vessels must be no less than 135% of the aggregate outstanding borrowings under the facility. Interest on amounts drawn is payable at a rate of U.S. LIBOR plus 337.5 basis points per annum.

February 2013 Secured Term Loan Facility. The February 2013 secured term loan facility has a term of five years with a maximum principal amount of up to the lesser of (i) $270.0 million and (ii) 60% of the fair market value of

 

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the collateral vessels. The February 2013 secured term loan facility is a delayed draw facility with an availability period ending December 31, 2013. Advances under the February 2013 secured term loan facility are upon the delivery of the A.P. Møller vessels, provided that no advance may occur after the end of the availability period. The aggregate fair market value of the collateral vessels must be no less than 135% of the aggregate outstanding borrowings under the facility. Interest on amounts drawn is payable at a rate of U.S. LIBOR plus 350 basis points per annum.

April 2013 Secured Term Loan Facility. The April 2013 secured term loan facility has a term of six years from the loan drawdown date with a maximum principal amount of up to $120.0 million. The April 2013 secured term loan facility is a delayed draw facility with the last availability period ending June 8, 2015. Proceeds of the loans under the April 2013 secured term loan facility will be used to finance our four newbuilding vessels, scheduled for delivery in 2014. The aggregate fair market value of the collateral vessels must be no less than 135% of the aggregate outstanding borrowings under the facility. Interest on amounts drawn is payable at a rate of U.S. LIBOR plus 350 basis points per annum.

Prepayments/Repayments. The borrowers may voluntarily prepay indebtedness under our secured term loan facilities at any time, without premium or penalty, in whole or in part upon prior written notice to the facility agent, subject to customary compensation for LIBOR breakage costs. The borrowers may not reborrow any amount that has been so prepaid.

The loans will be subject to quarterly amortization repayments beginning three months after the initial borrowing date or delivery dates of the newbuildings, as applicable. Any remaining outstanding principal amount must be repaid on the expiration date of the facilities.

The borrowers are also required to deliver semi-annual compliance certificates, which include valuations of the vessels securing the applicable facility from an independent ship broker. Upon delivery of the valuation, if the market value of the collateral vessels is less than 130% of the outstanding indebtedness under the April 2011 facility or 135% of the outstanding indebtedness under the other facilities, the borrowers must either provide additional collateral or repay any amount in excess of 130% or 135% of the market value of the collateral vessels.

Financial Covenants. The secured term loan facilities contain financial covenants requiring the borrowers, among other things, to ensure that:

 

  n  

the ratio of Net Debt to Total Capitalization (each as defined in the applicable secured term loan facility) is no greater than 0.60 to 1.00;

 

  n  

the borrowers have liquidity (including undrawn available lines of credit with a maturity exceeding 12 months) of no less than (i) between $10.0 million and $25 million, as applicable, or (ii) 5% of Net Debt or total debt, as applicable, whichever is greater;

 

  n  

the ratio of EBITDA to Interest Expense (each as defined in the applicable secured term loan facility), on a trailing four quarter basis, is no less than 3.00 to 1.00;

 

  n  

the borrower must maintain a minimum ratio of shareholder equity to total assets of 30%; and

 

  n  

the current assets of the borrower must exceed the current liabilities (excluding current liabilities attributable to the senior unsecured bonds or the senior term loans) at all times.

Restrictive Covenants. The secured term loan facilities provide that the borrowers may not pay dividends to us out of operating revenues generated by the vessels securing the indebtedness if an event of default has occurred or is continuing. The secured term loan facilities also limit the borrowers from, among other things, incurring indebtedness or entering into mergers and divestitures. The secured term loan facilities also contain general covenants that will require the borrowers to maintain adequate insurance coverage and to maintain their vessels. In addition, the secured term loan facilities include customary events of default, including those relating to a failure to pay principal or interest, a breach of covenant, representation and warranty, a cross-default to other indebtedness and non-compliance with security documents.

As of December 31, 2012 and June 30, 2013, we were in compliance with all covenants under the secured term loan facilities, including with respect to the aggregate fair market value of our collateral vessels.

 

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Senior Unsecured Bonds

General. On December 18, 2012, we issued senior unsecured bonds in an aggregate principal amount of $125.0 million with Norsk Tillitsmann ASA as the bond trustee. The proceeds of the senior unsecured bonds were used (i) in part to finance the acquisition of the A.P. Møller vessels and (ii) for general corporate purposes. The senior unsecured bonds are governed by Norwegian law and listed on the Nordic ABM which is operated and organized by Oslo Børs ASA.

Interest. Interest on the senior unsecured bonds is payable at a fixed rate of 9.0% per annum, calculated on a 360-day year basis. Interest is payable semi-annually on June 18 and December 18 of each year.

Maturity. The senior unsecured bonds mature in full on December 18, 2017.

Optional Redemption. We may redeem the senior unsecured bonds, in whole or in part, beginning December 18, 2015. Senior unsecured bonds redeemed from December 18, 2015 to December 17, 2016, shall be redeemed at 104% of par, senior unsecured bonds redeemed from December 18, 2016 to June 17, 2017, shall be redeemed at 102% of par and senior unsecured bonds redeemed from June 18, 2017, to the day prior to the maturity date, shall be redeemed at 101% of par.

Additionally, upon the occurrence of a “Change of Control Event” (as defined in the senior unsecured bond agreement), the holders of senior unsecured bonds have an option to force the issuer to repay such holder’s outstanding bonds at 101% of par.

Financial Covenants. The senior unsecured bond agreement contains financial covenants requiring us, among other things, to ensure that:

 

  n  

we and our subsidiaries maintain a minimum liquidity of no less than the greater of (i) $12.5 million and (ii) 5% of Total Interest-Bearing Debt (as defined in the senior unsecured bond agreement);

 

  n  

we and our subsidiaries maintain a positive working capital amount;

 

  n  

we and our subsidiaries maintain an Interest Coverage Ratio (as defined in the senior unsecured bond agreement) of not less than 3.0;

 

  n  

we and our subsidiaries maintain an Equity Ratio (as defined in the senior unsecured bond agreement) of at least 30%; and

 

  n  

on and after June 30, 2013, we and our subsidiaries ensure that the sum of the market value of (i) our vessels plus (ii) any amounts in any escrow account in favor of the bond trustee are at least 120% of the Total Interest-Bearing Debt.

Our compliance with the covenants listed above is measured as of the end of each fiscal quarter, except for the final ratio, which is measured semi-annually beginning on June 30, 2013.

Restrictive Covenants. The senior unsecured bond agreement provides that we may not declare any dividends or other distributions to our equity holders until after December 31, 2013, except for payments in respect of services rendered or transactions in the ordinary course in an amount not to exceed $2.0 million. Following December 31, 2013, we may declare dividends so long as such dividends do not exceed 50% of our consolidated net profits after taxes and we have an Equity Ratio of 35% after giving pro forma effect to such distribution. The senior unsecured bond agreement also limits us and our subsidiaries from, among other things, incurring additional indebtedness, entering into mergers and divestitures, engaging in transactions with affiliates or incurring any additional liens. In addition, the senior unsecured bond agreement includes customary events of default, including those relating to a failure to pay principal or interest, a breach of covenant, false representation and warranty, a cross-default to other indebtedness, the occurrence of a material adverse effect, or our insolvency or dissolution.

As of June 30, 2013, we were in compliance with all covenants under our senior unsecured bond agreement.

 

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Contractual Obligations and Contingencies

The contractual obligations schedule set forth below summarizes our contractual obligations as of December 31, 2012.

 

 

 

    2013     2014     2015     2016     THEREAFTER     TOTAL  
    (In thousands)  

Vessels to be acquired from A.P. Møller

  $ 423,000   (1)    $      $      $      $      $ 423,000   (1) 

Vessels under construction

    33,726        173,306        110,288                      317,320   

Charter-in vessels

    7,200        8,400                             15,600   

Secured term loan facilities and 9% senior unsecured bond issue

    26,843        26,843        26,843        26,843        260,864        368,236   

Office leases

    747        747        747        747        2,820        5,808   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total contractual obligations

  $ 491,516      $ 209,296      $ 137,878      $ 27,590      $ 263,684      $ 1,129,964   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

(1)   

As of June 30, 2013, remaining payments owed to A.P. Møller were $110.7 million.

As part of our growth strategy, we will continue to consider strategic opportunities, including the acquisition of additional vessels. We may choose to pursue such opportunities through internal growth or joint ventures or business acquisitions. We intend to finance any future acquisitions through various sources of capital, including credit facilities, debt borrowings and the issuance of additional shares of common stock.

Off-Balance Sheet Arrangements

We currently do not have any off-balance sheet arrangements.

Critical Accounting Estimates

We prepare our consolidated financial statements in accordance with U.S. GAAP, which requires us to make estimates in the application of our accounting policies based on our best assumptions, judgments and opinions. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. Accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding of our financial statements because they inherently involve significant judgments and uncertainties. For a further description of our material accounting policies, please read Note 2 (Summary of Significant Accounting Policies) to the audited historical consolidated financial statements included elsewhere in this prospectus.

Revenue Recognition. We employ our vessels under time charters, voyage charters or COAs. With time charters, we receive a fixed charter rate per on-hire day and revenue is recognized on an accrual basis and is recorded over the term of the charter as service is provided. In the case of voyage charters, the vessel is contracted for a voyage between two or several ports, and we are paid for the cargo transported. Revenue from COAs is recognized on the same basis as revenue from voyage charters, as they are essentially a series of consecutive voyage charters.

On April 1, 2013, we changed our method of accounting for revenue recognition on voyage charters. Previously, we determined that a voyage commenced with loading and completed at the point of discharge. We now recognize revenue on a discharge-to-discharge basis in determining percentage of completion for all voyage charters, but do not begin recognizing revenue until a charter has been agreed to by the customer and us, even if the vessel has discharged its cargo and is sailing to the anticipated load port for its next voyage.

We adopted this new policy as we consider the decision to undertake a specific voyage is highly dependent on the vessel’s prior discharge port and the part of the voyage to the load port is a necessary part of the overall profitability of that voyage. We believe that given the significant increase in the number of vessels in operation and consequently the number of voyage charters undertaken, our results could be materially distorted by excluding the proportion of the revenue in sailing to the next load port.

 

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Vessels in Operation. The cost of our vessels (excluding the estimated initial built-in overhaul cost) less their estimated residual value is depreciated on a straight-line basis over the vessels’ estimated useful lives. We estimate the useful life of each of our vessels to be 30 years from the date the vessel was originally delivered from the shipyard. The actual life of a vessel, however, may be different, with a life less than 30 years resulting in an increase in the quarterly depreciation and potentially resulting in an impairment loss. The estimated residual value is based on the steel value of the tonnage for each vessel.

Impairment of Vessels. We review our vessels for impairment when events or circumstances indicate the carrying amount of the vessel may not be recoverable. We may recognize an impairment loss when the sum of the expected future cash flows (undiscounted and without interest) of a vessel over its estimated remaining useful life is less than its carrying amount. If we determine that a vessel’s undiscounted cash flows are less than its carrying value, we record an impairment loss equal to the amount by which its carrying amount exceeds its fair value. The new lower cost basis would result in a lower annual depreciation than before the impairment.

Considerations in making such an impairment evaluation include comparison of current carrying value to anticipated future operating cash flows, expectations with respect to future operations and other relevant factors. The estimates and assumptions regarding expected cash flows require considerable judgment and are based upon historical experience, financial forecasts and industry trends and conditions. We are not aware of any indicators of impairment nor any regulatory changes or environmental liabilities that we anticipate will have a material impact on our current or future operations.

As of December 31, 2012, the aggregate carrying value of our 12 vessels in operation at that date was $587 million. We determined the aggregate undiscounted cash flows of our 12 vessels in operation as of December 31, 2012, to be $1,611 million. The undiscounted future cash flows used to establish value were determined by applying various assumptions regarding future revenues, operating expenses and scrap values. These assumptions are based on historical trends as well as future expectations. Specifically, in estimating future charter rates, management took into consideration estimated daily TCE rates for each vessel class over the estimated remaining lives of each of the vessels. The estimated daily TCE rates used were based on the trailing 10-year historical average one-year time charter rates. Recognizing that rates tend to be cyclical, and subject to significant volatility based on factors beyond our control, management believes the use of estimates based on the 10-year historical average rates calculated as of the reporting date to be reasonable. Estimated outflows for operating expenses are based on historical costs. Estimates of a residual value are consistent with scrap rates used in management’s evaluation of scrap value.

Although management believes that the assumptions used to evaluate potential impairment are reasonable and appropriate at the time they were made, such assumptions are highly subjective and likely to change, possibly materially, in the future. A 10% reduction in the estimated vessel TCE rate used in connection with our calculations would result in a $218 million decrease in the aggregate undiscounted cash flows of our 12 vessels in operation as of December 31, 2012. The realized rates applicable to our vessels for the period ended December 31, 2012 and the six months ended June 30, 2013 exceeded the estimated vessel TCE rate by 8.9% and 19.0%, respectively. A 10% increase in estimated vessel operating expenses used in connection with our calculations would result in $60 million decrease in the aggregate undiscounted cash flows of our 12 vessels in operation as of December 31, 2012.

Vessel Market Values. In “—Impairment of Vessels,” we discuss our policy for assessing impairment of the carrying values of our vessels. The charter-free market value (i.e., disregarding the charter contracts attached to each of the vessels) of certain vessels in many segments of the worldwide oceangoing vessel fleet have experienced volatility over the past several years. Therefore, there is a risk that the sale value of certain of our vessels could decline below those vessels’ carrying value, even though we would not impair those vessels’ carrying value under our accounting impairment policy, due to our belief that future undiscounted cash flows expected to be earned by such vessels over their operating lives would exceed such vessels’ carrying amounts.

However, with respect to the class of vessels we own, we believe that relative to the worldwide oceangoing vessel fleet, the market for the sale of our vessels is particularly illiquid, difficult to observe and, therefore, speculative, given the extremely limited secondary sales data. We obtain shipbroker appraisals of our vessels principally for the purposes of covenant compliance (e.g., loan to value ratio). These appraisals are generally performed without examination of the vessel and without an attempt to market a vessel, and no consideration is given to whether a

 

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group of vessels could be sold for higher valuation than on an individual basis. Given the lack of secondary sales data available for our vessels, these appraisals have been used by us as an approximation of our vessels’ market values. However, because these appraisals are primarily prepared for the purposes of valuing collateral and the lack of comparable market transactions, they are prepared on a charter-free basis predominantly based on depreciated replacement cost, which, we believe significantly discounts the value of our vessels. As a result, we believe that the ultimate value that could be obtained from the sale of any one of our vessels to a willing third party would likely, and in many cases meaningfully, exceed the vessel’s appraised value, especially if we were given adequate time to market the vessel.

In order to provide an illustration of the estimated charter-free market values of our vessels relative to their respective carrying values, the table set forth below indicates whether the estimated market value (based on the most recent broker appraisals we had received relating to such vessels) of each of our owned vessel, as of June 30, 2013, was above or below its carrying value.

 

 

 

OPERATING VESSEL

   YEAR
BUILT
     VESSEL
SIZE
(cbm)
     CARRYING
VALUE

(in millions)
     APPRAISED VALUE
RELATIVE TO
CARRYING VALUE
 

Navigator Mars

     2000         22,085       $ 42.6         Below   

Navigator Neptune

     2000         22,085             42.7         Below   

Navigator Pluto

     2000         22,085         43.2         Below   

Navigator Saturn

     2000         22,085         42.7         Below   

Navigator Venus

     2000         22,085         42.6         Below   

Navigator Magellan

     1998         20,700         29.1         Below   

Navigator Aries

     2008         20,750         53.7         Below   

Navigator Gemini

     2009         20,750         53.0         Below   

Navigator Pegasus

     2009         22,200         48.0         Below   

Navigator Phoenix

     2009         22,200         48.2         Below   

Navigator Scorpio

     2009         20,750         47.6         Below   

Navigator Taurus

     2009         20,750         54.1         Below   

Navigator Leo

     2011         20,600         52.1         Below   

Navigator Libra

     2012         20,600         52.5         Below   

Navigator Grace

     2010         22,500         42.9         Above   

Navigator Galaxy

     2011         22,500         45.1         Above   

Navigator Genesis

     2011         22,500         45.2         Above   

Navigator Global

     2011         22,500         45.4         Above   

Navigator Gusto

     2011         22,500         45.2         Above   

 

 

The appraised value of our 14 vessels for which appraised value was below carrying value as of June 30, 2013 was $572.0 million and the aggregate carrying value of those 14 vessels was $651.9 million, resulting in those vessels having an aggregate appraised value of $79.9 million below their aggregate carrying value. We did not impair any vessels as of June 30, 2013 due to U.S. GAAP impairment accounting standards as future undiscounted cash flows expected to be earned by such vessels over their operating lives would exceed these vessels’ carrying amounts.

Drydocking Costs and Vessel Damage. Each of our vessels is required to be drydocked every five years until it reaches 15 years of age, after which each vessel is required to be drydocked every two and one-half to three years for any major repairs and maintenance and for inspection of the underwater parts of the vessel, which cannot be performed while the vessel is operating. We capitalize costs associated with the drydockings as “built in overhauls” in accordance with U.S. GAAP and amortize these costs on a straight-line basis over the period between drydockings.

We expense estimated costs to repair vessel damage that exists at the balance sheet date.

Amortization of capitalized drydocking expenditures requires us to estimate the period until the next drydocking. While we typically drydock each vessel every two and one-half to five years, we may drydock the vessels on a more

 

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frequent basis. If we change our estimate of the next drydock date, we will adjust our annual amortization of drydocking expenditures. Amortization of drydockings is included in our depreciation and amortization expense.

Share-based Compensation. Certain employees receive grants of our restricted stock in accordance with the 2008 Restricted Stock Plan (see Note 11 for more details regarding the plan and amounts of grants awarded). The fair value of our restricted stock is calculated by multiplying the number of shares by the fair value per share at the grant date.

The valuations of our common stock were determined in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. An independent valuation firm was consulted to determine an appropriate methodology for valuing the Company’s restricted stock at the plan’s inception in 2008. Prior to the March 2013 and April 2013 grants described below, the Company exclusively used this established methodology and monitored its appropriateness at each grant date. This methodology calculated the fair value of the restricted stock, by utilizing a weighted average combination of an income approach, a market approach and a cost approach, by using assumptions which were based on our management’s significant judgment.

Significant assumptions made during the valuation processes of grants prior to March 2013 were the illiquidity discounts applied in our cost and income approaches and the EBITDA multiples used in our income approach. Our cost method also utilized the estimated value of our fleet, which was determined by external broker assessments at or close to the restricted stock valuation date. Although there is a very low volume of transactions of our shares on the over-the-counter market, our market approach took into account actual then-recent trades of our shares in the open market. The valuations were prepared by us on a contemporaneous basis.

In February 2013, we issued 7,500,000 shares on a post-split basis to affiliates of WL Ross & Co. LLC and others in a negotiated transaction for $10.00 per share on a post-split basis. Given the growth of our Company between 2008 and March 2013 and the contemporaneous nature of the transaction with WL Ross & Co. LLC and others, we believe it is appropriate that the price per share at which grants were made in March 2013 and April 2013 should equal the negotiated price per share with WL Ross & Co. LLC. Due to the existence of this transaction, we did not believe it to be necessary or cost effective to engage an independent valuation specialist to provide a valuation in connection with such grants.

We have granted restricted shares at the following grant date fair values since June 30, 2012:

 

 

 

GRANT DATE

   NUMBER OF
RESTRICTED
SHARES
GRANTED
     FAIR VALUE PER
SHARE AT
GRANT DATE
     AGGREGATE
FAIR VALUE
OF SHARES
GRANTED
 

March 2013

     60,000       $ 10.00       $ 600,000   

April 2013

     42,117       $ 10.00       $ 421,170   

 

 

Although we believe that the price used in the contemporaneous issuance to WL Ross & Co. LLC and others of $10.00 per share was the best evidence to support the $10.00 per share values of our March 2013 and April 2013 restricted share grants, in order to support this determination at the time of grant, we also applied our 2008 valuation methodology. In using such methodology, we applied an illiquidity discount of 20.0% and an EBITDA multiple of 8.5x, which resulted in a fair value per share of $10.01 on a post-split basis. If we had applied an illiquidity discount of 15% in using such methodology, the resulting fair value per share would have been approximately $10.63 on a post-split basis. Because the number of restricted shares granted in March and April 2013 was in the aggregate less than 0.25% of the shares outstanding prior to such grants, if we underestimated the fair market value per share by $0.63, the added compensation expense would be less than $65,000. The effect on compensation expense for each $1.00 of hypothetical estimation of fair market value would be approximately $100,000.

The difference between the fair values of the March 2013 and April 2013 grants (each of which vest in 2016) and the assumed initial public offering price per share (based on the midpoint of the range set forth on the cover of this

 

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prospectus) is primarily attributable to three factors: (i) the absence of any plan to proceed with an initial public offering at the time of the March 2013 and April 2013 grants, (ii) the changes in the financial condition, results of operation and prospects of our company resulting in large part from the financing and successful operational implementation of the A.P. Møller transaction and (iii) favorable changes in the condition of the equity capital markets.

In March and April of 2013, we were not planning to pursue in the near term an initial public offering. The lack of such a plan was in part based on the fact that we were in the midst of implementing what we perceived would be, and what has been, a transformative event in our history, namely the A.P. Møller transaction. By nearly doubling the number of vessels in our fleet, the A.P. Møller transaction has provided us with enhanced fleet diversity, economies of scale and greater optionality. As of March and April 2013, only three and four of the A.P. Møller vessels, respectively, had been received by us and deployed under charter. Since April 2013, an additional seven A.P. Møller vessels have been received and deployed under charter by us. Accordingly, in March and April 2013, our ability to integrate the A.P. Møller vessels into our operations and realize the benefits we expected from the transaction had not been established. We expect to continue to benefit from the A.P. Møller transaction as we receive the remaining vessel and have results of operations reflecting the full period of A.P. Møller vessel results.

Foreign Currency Transactions. Substantially all of our cash receipts are in U.S. Dollars. Our disbursements, however, are in the currency invoiced by the supplier. We remit funds in the various currencies invoiced. We convert the non-U.S. Dollar invoices received and their subsequent payments into U.S. Dollars when the transactions occur. The movement in exchange rates between these two dates is transferred to an exchange difference account and is expensed each month.

Our payments due to our technical managers pursuant to our crewing management agreements are denominated in U.S. Dollars, subject to adjustment based on the U.S. Dollar/Euro exchange rate. A significant portion of the payments we make to our technical managers are used by them to pay the officers on-board our vessels.

Compliance with New Accounting Standards

We have elected to “opt out” of the extended transition period relating to the exemption from new or revised financial accounting standards under the JOBS Act and, as a result, we will comply with new or revised financial accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised financial accounting standards is irrevocable.

Recent Accounting Pronouncements

In December 2011, the Financial Accounting Standards Board, or “FASB,” issued Accounting Standards Update, or “ASU,” No. 2013-02 Comprehensive Income (Topic 220)—Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (February 2013). The amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements. These amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition the entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross reference to other disclosures required under U.S. GAAP that provide additional details about those amounts.

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if currently adopted, would have a material impact on our consolidated financial statements.

Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk from changes in interest rates and foreign currency fluctuations, as well as inflation. We may in the future use interest rate swaps to manage interest rate risks, but will not use these financial instruments for trading or speculative purposes.

 

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Interest Rate Risk

Historically, we have been subject to limited market risks relating to changes in interest rates because we did not have significant amounts of floating rate debt outstanding. Navigator Gas L.L.C., our wholly-owned subsidiary, and certain of our vessel-owning subsidiaries are parties to secured term loan facilities that bear interest at an interest rate of LIBOR plus 300 to 350 basis points. A variation in LIBOR of 100 basis points would result in a variation of $10,000 in annual interest paid on each $1.0 million of indebtedness outstanding under the secured term loan facilities. See “—Secured Term Loan Facilities.”

We invest our cash and marketable securities in financial instruments with original maturities of no more than six months within the parameters of our investment policy and guidelines.

We do not currently use interest rate swaps to manage the impact of interest rate changes on earnings and cash flows, but we may elect to do so in the future.

Foreign Currency Exchange Rate Risk

Our primary economic environment is the international shipping market. This market utilizes the U.S. Dollar as its functional currency. Consequently, virtually all of our revenues are in U.S. Dollars. Our expenses, however, are in the currency invoiced by each supplier, and we remit funds in the various currencies invoiced. We incur some vessel operating expenses and general and administrative costs in foreign currencies. During the fiscal years ended December 31, 2011 and 2012, approximately $2.9 million, or 12%, and $4.4 million, or 13%, respectively, of vessel operating costs and general and administrative costs were denominated in non-U.S. Dollar currency, principally the British Pound Sterling and the Euro. A hypothetical 10% decrease in the value of the U.S. Dollar relative to the values of the British Pound Sterling and the Euro realized during the year ended December 31, 2012, would have increased our vessel operating costs during the fiscal year ended December 31, 2012, by approximately $0.4 million, and our general and administrative costs by $0.3 million. We have not entered into any hedging transactions to mitigate our exposure to foreign currency exchange rate risk.

Inflation

Certain of our operating expenses, including crewing, insurance and drydocking costs, are subject to fluctuations as a result of market forces. Crewing costs in particular have risen over the past number of years as a result of a shortage of trained crews. Please read “Risk Factors—A shortage of qualified officers makes it more difficult to crew our vessels and is increasing our operating costs. If this shortage were to continue or worsen, it may impair out ability to operate and could have an adverse effect on our business, financial condition and operating results” and “Business—Crewing and Staff.” Inflationary pressures on bunker (fuel and oil) costs could have a material effect on our future operations if the number of vessel employment contracts for voyage charters or COAs increases. In the case of the 12 of our 21 vessels that are time-chartered to third parties, it is the charterers who pay for the fuel. If our vessels are employed under voyage charters or COAs, freight rates are generally sensitive to the price of fuel. However, a sharp rise in bunker prices may have a temporary negative effect on our results since freight rates generally adjust only after prices settle at a higher level. Please read “Risk Factors—Rising bunker fuel prices may adversely affect our business, financial condition and operating results to the extent that we enter into voyage charters and COAs.”

Seasonality

Liquefied gases are primarily used for industrial and domestic heating, as a chemical and refinery feedstock, as a transportation fuel and in agriculture. The liquefied gas carrier market is typically stronger in the fall and winter months in anticipation of increased consumption of propane and butane for heating during the winter months. In addition, unpredictable weather patterns in these months tend to disrupt vessel scheduling and the supply of certain commodities. As a result, demand for our vessels may be stronger in our fiscal quarters ending December 31 and March 31 and relatively weaker during our fiscal quarters ending June 30 and September 30, although 12-month time charter rates tend to smooth these short-term fluctuations. To the extent any of our time charters expire during the relatively weaker fiscal quarters ending June 30 and September 30, it may not be possible to re-charter our vessels at similar rates. As a result, we may have to accept lesser rates or experience off-hire time for our vessels, which may adversely impact our business, financial condition and operating results. Please read “Business—Our Fleet.”

 

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THE INTERNATIONAL LIQUEFIED GAS SHIPPING INDUSTRY

All the information and data presented in this section, including the analysis of the various sectors of the international liquefied gas shipping industry has been provided by Drewry. Drewry has advised that the statistical and graphical information contained herein is drawn from its database and other sources. In connection therewith, Drewry has advised that: (a) certain information in Drewry’s database is derived from estimates or subjective judgments; (b) the information in the databases of other maritime data collection agencies may differ from the information in Drewry’s database; (c) while Drewry has taken care in the compilation of the statistical and graphical information and believes it to be accurate and correct, data compilation is subject to limited audit and validation procedures. We believe that, notwithstanding any such qualification by Drewry, the industry data provided by Drewry is accurate in all material respects.

Summary

A liquefied gas carrier is a generic term used to describe a vessel that can carry:

 

  n  

LPG, such as propane and butane;

 

  n  

petrochemical gases, such as ethylene, propylene, butadiene and vinyl chloride monomer, or VCM; or

 

  n  

ammonia.

LPG is a clean and efficient source of energy and is a viable alternative to other less environmentally friendly carbon fuels. Petrochemical gases are a building block for a large range of plastic-based products, while ammonia is an important part of the fertilizer chain, which supports agricultural development and sustains world population growth.

In normal ambient temperatures, LPG, petrochemical gases and ammonia are in a gaseous state. These gases are transported in liquefied form, under cooling temperatures and/or pressure, which can reduce volume by up to 900 times depending on the cargo, making transportation more efficient and economical.

In 2012, approximately 63 million tons of LPG, 18 million tons of petrochemical gases and 18 million tons of ammonia were transported by sea. Seaborne transportation of LPG and petrochemicals, the two product classes principally transported by Navigator Holdings, has increased at compound annual growth rates, or CAGRs, of 2.9% and 4.4%, respectively, from 2002 through 2012, and 7.3% and 3.3% from 2009 through 2012. The recent growth in seaborne LPG transportation has resulted primarily from the advent of shale gas in the United States. The demand for seaborne transportation of these liquefied gases is expected to continue to grow due to evolving energy and petrochemical market dynamics, particularly as a result of increasing U.S. shale oil and gas development, as seaborne transportation is often the only, or the most cost effective, way to transport liquefied gases between major exporting and importing markets. Over the last 18 months, the expansion of existing LNG facilities and the construction of new LNG production facilities around the world have added to LPG production and trade volumes, following a period of project delays and stalled start-ups due to the global economic downturn.

LPG has historically been a supply-driven industry, as LPG is a by-product of gas processing, LNG production and crude oil refining. From 2002 through 2012, worldwide production of LPG increased at a CAGR of 2.6%. Over this same period seaborne trade in LPG increased at a CAGR of 2.9%, with the slightly higher growth rate relative to total production growth being the result of geographical shifts in the location of production and strong demand among key importers.

Petrochemical gases are derived from the cracking of petroleum feedstocks, such as ethane, LPG or naphtha or their derivatives. The major petrochemical gases transported by sea are ethylene, butadiene, propylene and VCM. These products are key building blocks for a wide range of materials used in industrial and consumer applications. Ammonia is an inorganic chemical, and up to 90% of all production is currently used in the manufacture of fertilizers. The supply and consumption of ammonia are influenced by production costs and pricing levels of both feedstocks and finished products.

The dynamics of global supply and trade of LPG and certain petrochemicals such as ethylene are being altered by the advent of shale gas in the United States. Rapid exploitation of U.S. shale gas reserves has boosted LPG production, which, in conjunction with competitive gas prices, has paved the way for increased U.S. LPG and

 

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petrochemical exports and rising demand for shipping capacity. For example, in 2012, the United States became a net exporter of LPG, and in early 2013 total exports were nearly 10 million barrels a month, more than double the average from 2002 through 2012.

Charter rates and vessel values are influenced by the supply and demand for seaborne gas cargo carrying capacity and are consequently volatile. The supply of gas carrier capacity is primarily a function of the size of the existing world fleet, the number of newbuildings being delivered and the scrapping of older vessels. As of June 30, 2013, there were 1,259 liquefied gas carriers with an aggregate capacity of 20.6 million cbm. An additional 32 and 60 carriers of 0.8 million cbm and 2.2 million cbm, respectively, are on order for delivery by the end of 2013 and between 2014 and 2016, respectively. The orderbook for liquefied gas carriers as of June 2013 was equivalent to 14.4% of the existing fleet in capacity terms, which is well below its 32% peak seen in late 2007 and early 2008. In contrast to oil tankers and drybulk carriers, the number of shipyards with liquefied gas carrier experience is quite limited, and as such, a sudden influx of supply beyond what is already on order before 2015 is unlikely. In the 15,000–24,999 cbm size range in which Navigator Holdings currently operates, known as the handysize sector, as of June 2013, there were 87 vessels in the world fleet and 10 vessels on order for delivery by 2015. As of June 2013, almost 25% of the fleet capacity in the handysize sector was more than 20 years old.

There are three basic types of liquefied gas carriers, though only a subset of ships can carry each of LPG, petrochemical gases and ammonia. In general, the operating flexibility of a liquefied gas carrier is restricted at the lower and upper ends of the vessel-size spectrum by a combination of technical and commercial features. The most flexible ships are those in the handysize sector. Ships of this type have access to all three markets—LPG, petrochemical gases and ammonia—and hence possess the greatest trading versatility.

Liquefied gas carriers operate under time charters, contracts of affreightment and on the spot market. Time charter rates for most sizes of liquefied gas carriers peaked during the period from 2006 through 2008 and then declined from 2009 through 2011. Since 2011, there has been a gradual and sustained recovery in charter rates, as rising vessel demand has led to a much tighter market balance. In June 2013, one-year time charter rates for Very Large Liquefied Gas carriers averaged approximately $1,035,000 per month, while rates for handysize semi-refrigerated ships averaged approximately $905,000 per month.

Secondhand values for modern, semi-refrigerated ships have held up well, even when the market was at its weakest from 2009 through 2011, in part because newbuilding prices have been steady since 2010 and freight rates have improved. While there is limited liquidity in the secondhand market, modern semi-refrigerated ships have attracted a premium due to their trading flexibility.

Products and Uses

LPG. LPG cargoes are typically propane and butane (including n-Butane and i-Butane). The primary uses of LPG are in residential and commercial heating and cooking applications, as a feedstock for the production of petrochemicals, industrial use and as fuel for transportation. Global production of LPG in 2012 was 275 million tons, of which 63 million tons was transported by sea in liquefied gas carriers.

 

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Main Uses of LPG (1)

 

LOGO

 

(1)  

Based on 2011 consumption data

Petrochemical Gases. Ethylene, propylene and butadiene are significant members of the olefins family used in the manufacture of a large number of intermediate chemicals and finished products. Ethylene is polymerised into high density polyethylene, or HDPE, low density polyethylene, or LDPE, and linear density polyethylene, or LLDPE, which in turn are used to make plastic packaging, bottles, containers and household hardware. Ethylene can also be turned into ethylene glycol for use in anti-freeze. Ethylene is also used with benzene in the manufacturing of polystyrene. Propylene is polymerised into polypropylene used in the manufacturing of moulded components for cars and domestic appliances, carpet fibers, cable sheathing, piping, coatings and containers. Butadiene is combined with styrene to produce styrene butadiene rubber, or SBR, used in tire manufacturing. It is also used in making acrylonitrile-butadiene-styrene, or ABS, resin, which has applications in car fittings, packaging and sports equipment. VCM is a chlorinated gas, which is used principally in the manufacturing of plastics. VCM is used to produce polyvinyl chloride, or PVC, which is formed into a wide variety of plastic products. Global production of petrochemical gases was approximately 300 million tons in 2012, of which 18 million tons were moved by sea.

Ammonia. Ammonia is produced by the synthesis of gas and a hydrocarbon. Production is heavily influenced by the availability of natural gas, and up to 90% of ammonia is currently used in fertilizer production, with the principal end products being ammonium sulphate, ammonium nitrate, urea (dry) and ammonium nitrate solution. It can also be used for nitric acid, explosives, nylon fibre, acrylic and urethane plastics. Demand for ammonia is driven by population growth and food consumption. Global production was approximately 170 million tons in 2012, of which approximately 18 million tons were moved by sea.

The Liquefied Gas Industry

LPG is found naturally in oil and gas fields and is extracted from wells and shale deposits along with other hydrocarbon products. It is extracted from crude oil at oil refineries and from natural gas at gas processing facilities. Approximately two-thirds of global LPG supply comes from crude oil and natural gas streams (including the production of LNG) with the balance coming from the refining of crude oil. Once produced, LPG must be consumed locally, exported, flared or vented, although flaring has been reduced globally by a number of government initiatives designed to reduce greenhouse gas emissions.

 

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The LPG and Petrochemical Gas Supply Chain

 

LOGO

Petrochemicals such as ethylene and propylene are by-products of the cracking of petroleum feedstocks such as ethane, LPG or naphtha and their derivatives. Typical yields for cracker feedstocks are shown below.

Indicative Yields of Cracker Feedstocks

 

 

 

     H2 & FUEL GAS     ETHYLENE     PROPYLENE     BUTADIENE     BENZENE     TOLUENE     OTHERS  

Ethane

     17     78     3     2                   1

Propane

     32     40     26     1                   1

Normal Butane

     22     40     34     2                   2

Natural Gasoline

     20     32     24     4     4     4     13

Heavy Naphtha

     18     24     20     4     2     2     31

 

 

The LPG Industry

LPG Production. Worldwide production of LPG grew at a CAGR of 2.6% from 2002 through 2012, increasing from 217 million tons in 2002 to 280 million tons in 2012. Historically, the Middle East has been the dominant global supplier of LPG. Production in the Middle East has increased over the last decade, primarily as result of the development of the Qatari North Gas Field. In 2012, total Middle Eastern LPG production amounted to just over 65 million tons, equivalent to 23% of global output.

 

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World LPG Production

(Million Tons)

 

 

 

    2002     2003     2004     2005     2006     2007     2008     2009     2010     2011     2012*     CAGR
02-12
    CAGR
09-12
 

North America

    64.6        62.8        64.5        61.4        61.8        62.9        63.0        58.1        59.7        61.5        64.6        0.0     3.6

South America

    22.8        23.2        24.0        24.7        24.3        23.9        23.9        23.2        23.2        24.6        24.8        0.8     2.2

Europe (Including FSU)

    36.7        40.0        40.3        41.0        40.5        40.5        42.9        42.5        46.1        44.2        45.1        2.1     2.0

Middle East

    36.0        37.0        38.3        39.7        45.0        44.1        49.5        45.9        55.4        63.8        65.4        6.2     12.5

Africa

    15.4        15.1        15.1        15.6        15.7        16.4        16.1        17.0        17.2        18.6        19.1        2.2     4.0

Asia Pacific

    41.8        43.5        45.2        48.2        50.7        53.7        52.9        53.3        58.3        58.9        60.7        3.8     4.4
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    217.3        221.6        227.4        230.6        238.0        241.5        248.3        240.0        260.0        271.5        279.8        2.6     5.2

 

 

*Provisional

However, the supremacy of the Middle East is now being challenged by the United States, where development of shale gas deposits has led to a steady increase in natural gas production and LPG supplies. U.S. production of LPG has recovered from a recent market low in 2009 of 41.9 million tons to a provisional 48.2 million tons in 2012, an increase of 15%.

Principal LPG Producers

(Million Tons)

 

 

 

    2002     2003     2004     2005     2006     2007     2008     2009     2010     2011     2012*     CAGR
02-12
    CAGR
09-12
 

China

    11.6        12.6        14.0        15.3        17.5        19.4        18.6        19.1        20.2        21.8        22.0        6.6     4.8

Qatar

    1.6        1.8        1.9        2.2        2.9        3.2        5.7        6.0        6.6        13.6        14.3        24.7     33.7

Russia

    7.0        8.6        8.8        9.4        10.4        10.9        10.9        11.7        12.0        12.8        13.3        6.7     4.5

Saudi Arabia

    17.6        17.9        18.6        19.0        21.9        21.0        23.3        24.6        26.4        27.2        27.9        4.7     4.2

USA

    46.8        44.5        45.9        43.7        43.9        45.6        46.8        41.9        43.4        44.9        48.2        0.3     4.8

Others

    132.7        136.2        138.2        141.1        141.6        141.5        143.1        136.7        151.4        151.2        154.0        1.5     4.1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    217.3        221.6        227.4        230.6        238.0        241.5        248.3        240.0        260.0        271.5        279.8        2.6     5.2

 

 

*Provisional

LPG is a by-product of oil and gas extraction, the availability of which has historically been limited by the flaring of natural gas at the wellhead. However, increasing restrictions across the globe on flaring natural gas have resulted in, and are anticipated to continue to result in, the increased transportation or storage of by-products such as LPG. The expanding development of U.S. shale oil and gas resources has resulted in an abundance of LPG that exceeds current U.S. domestic needs and, given the scarcity and cost of storage infrastructure, is expected to be increasingly exported. This LPG available for export from the United States, together with LPG associated with large LNG export projects in international oil and gas producing regions, is expected to create supply-driven growth of LPG seaborne transportation and arbitrage opportunities due to regional price differentials.

LPG Consumption. Historically, consumption of LPG has been largely supply-driven. However, LPG, which produces virtually no sulphur emissions, is a relatively clean source of energy when compared with other carbon fuels. As such, demand side variables are beginning to have a positive impact on the market, leading to increased consumption of LPG in residential and commercial applications, especially in regions such as Asia.

 

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World LPG Consumption

(Million Tons)

 

 

 

    2002     2003     2004     2005     2006     2007     2008     2009     2010     2011     2012*     CAGR
02-12
    CAGR
09-12
 

North America

    57.4        56.1        58.2        56.9        58.4        59.6        61.8        61.2        54.1        57.6        58.7        0.2     -1.4

South America

    20.5        20.6        21.5        21.3        21.9        22.0        21.7        21.5        29.5        28.8        29.6        3.8     11.3

Europe (Including FSU)

    37.7        38.9        39.8        41.7        41.6        43.6        43.6        43.2        41.8        43.2        44.5        1.7     1.0

Middle East

    30.0        30.3        30.1        31.3        30.4        31.7        31.8        32.0        29.5        28.8        29.6        -0.1     -2.5

Africa

    14.3        13.6        14.0        14.5        15.0        15.6        16.3        16.4        14.8        14.4        14.9        0.4     -3.1

Asia Pacific

    59.5        58.2        60.3        59.0        60.5        61.6        63.9        64.2        83.7        86.3        89.8        4.2     11.8
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    208.9        210.0        216.8        220.4        228.0        234.3        240.4        238.4        253.4        259.0        267.1        2.5     3.9

 

 

*Provisional

Asian countries (especially emerging economies) represent the fastest growing market for LPG, in part because the penetration of LPG use in a large number of these countries remains relatively low. Indian consumption of LPG grew at a CAGR of 6.7% from 2002 through 2012, while Chinese consumption over the same period grew at a CAGR of 3.9%. An expanding domestic consumer base and rising commercial use are the main factors driving demand in these markets. In some Asian markets, such as Indonesia, government initiatives to encourage the use of LPG has increased consumption. In contrast to natural gas, LPG requires little or no permanent infrastructure for distribution and this is one of the reasons why it is attractive for many developing markets.

In contrast, LPG consumption in developed economies such as the United States and Japan has contracted over the last decade. Increased domestic use of natural gas in the United States and Japan and in particular shale gas in the United States has decreased local consumption of LPG. In the industrial and petrochemical markets, demand remains sensitive to price, although rising crude oil prices relative to other feedstocks helped to underpin increased demand for LPG from the petrochemical sector.

Principal LPG Consumers

(Million Tons)

 

 

 

    2002     2003     2004     2005     2006     2007     2008     2009     2010     2011     2012*     CAGR
02-12
    CAGR
09-12
 

China

    16.4        18.0        20.2        21.0        21.6        21.8        21.5        23.2        22.4        24.0        24.0        3.9     1.2

India

    8.2        9.0        9.9        10.0        10.5        11.3        11.8        12.7        14.0        15.1        15.6        6.7     7.0

Japan

    18.5        18.2        17.7        18.6        18.2        18.2        17.7        16.4        16.1        16.8        16.9        -0.9     1.0

Saudi Arabia

    15.8        14.9        6.2        5.9        8.5        9.2        11.1        12.1        17.5        19.6        20.0        2.4     18.4

USA

    52.3        50.8        52.7        51.3        52.2        53.5        55.6        54.1        50.2        49.5        50.0        -0.4     -2.6

Others

    97.7        99.1        110.1        113.7        117.0        120.3        122.7        119.9        133.1        134.0        140.7        3.7     5.5
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    208.9        210.0        216.8        220.4        228.0        234.3        240.4        238.4        253.4        259.0        267.1        2.5     3.9

 

 

*Provisional

Petrochemicals

Trends in the production and consumption of petrochemical gases are driven by changes in world GDP and industrial production and patterns of consumer spending. Petrochemical gas production is also affected by the cost of feedstocks and the location of new refinery and cracking capacity. In 2012, total worldwide consumption of petrochemical gases amounted to 240 million tons, of which 18 million tons, or 7.5%, was transported by sea. From 2002 through 2012, worldwide consumption of petrochemical gases increased at a CAGR of 2.5%.

 

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World Consumption of Petrochemical Gases

(Million Tons)

 

LOGO

*Provisional

Seaborne trade volumes in petrochemical gases have increased for much of the last decade in part because of the growth in refining and cracking capacity in the Middle East and Asia. Generally, the growth of capacity ahead of downstream production has underpinned the growth in exports, creating additional demand for shipping capacity. The majority of this capacity has been in the handysize sector.

In the United States, the growth in gas and liquids from shale has not only increased the availability of feedstocks, but also made U.S. domestic feedstocks more competitively priced. As a result, U.S. production of petrochemical gases has increased, idle capacity has been reactivated and development plans for new capacity have emerged. As with LPG, price differentials between the United States and other markets have opened up the possibility of arbitrage trades.

The demand for seaborne transportation of petrochemical gases is expected to increase due to industrial users seeking alternative feedstocks given the rise in crude oil prices, expanding global manufacturing and cracking capacity, particularly in the Middle East and Asia, and shifting regional supply imbalances in certain petrochemicals.

Ammonia

Worldwide production of ammonia in 2012 is provisionally estimated at close to 165 million tons, with seaborne trade at just over 18 million tons, equivalent to 11% of production. In the last decade, international seaborne trade in ammonia has grown faster than production due to the growth in supply from regions with more competitively priced feedstock. Production of ammonia is gravitating to areas that have large supplies of low cost natural gas such as the Middle East.

 

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Table of Contents

Shale Gas and the LPG Market

Shale gas is natural gas extracted from shale formations which are found in various locations throughout the world. When extracted it consists of on average approximately 60% dry natural gas and 40% natural gas liquids.

U.S. Shale Gas Composition

 

LOGO

In the United States, shale plays have become an increasingly important source of natural gas and have led to significant increases in domestic gas production. In 2005, U.S. gas production was equivalent to 511 billion cbm, but by 2012 it had risen to 717 billion cbm, an increase of 40%.

U.S. Daily Oil and Annual Gas Production

 

LOGO

Rising domestic production of natural gas has also resulted in increased supplies of LPG and ethane. U.S. natural gas production is now approximately 2.5 million barrels per day as compared to approximately 1.5 million barrels per day in 2005.

 

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Table of Contents

U.S. Natural Gas Plant Field Production

(Thousands of Barrels per Day)

 

LOGO

U.S. LPG production has been on an upward trend since 2008. In early 2013, the United States was producing approximately 2.7 million barrels of LPG per day as compared to approximately 2.0 million barrels per day in 2008.

U.S. LPG Production

(Thousands of Barrels per Day)

 

LOGO

This production growth has resulted in U.S. LPG import volumes decreasing and export volumes increasing. As a result, the United States has transitioned from being a net importer to a net exporter of LPG, something which has arisen directly as a consequence of the development of domestic shale gas reserves.

 

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Table of Contents

U.S. LPG Exports and Imports

(Thousands of Barrels)

 

LOGO

Incremental U.S. production of LPG and other natural gas liquids from shale gas have the potential to push U.S. exports of LPG higher, in part because competitive pricing opens up the potential for arbitrage trades. Future export potential is also being supported by the growth of domestic terminal capacity and based on current development activities shown in the next two tables, U.S. LPG export terminal capacity will more than triple between 2012-2014.

U.S. LPG Export Terminal Projects

 

 

 

LOCATION

 

OWNER

  PROJECT DESCRIPTION   TIMING   EXPORT CAPACITY
        CURRENT
CAPACITY
(BPD)
    EXPECTED
CAPACITY
BY 2014

(BPD)

Marcus Hook, Pennsylvania

 

MarkWest/

Sunoco Logistics

  Capacity to export ethane
and propane
  Operational in
2014
    70,000

Houston Ship Channel, Texas

  Enterprise   Propane export terminal   4Q12     115,000      240,000

Houston Ship Channel, Texas

 

Targa

  Additional capacity to
ship in refrigerated
vessels and increase
propane export capacity
  3Q13, expanded
by 2014