Citi upgrades GasLog on dropdown hopes

Improving LNG market and disciplined orderbook are macro-landscape to upgrade

GasLog Ltd, LNG shipowner and parent of the publicly traded partnership, saw an upgrade from Citi today as dropdowns from the parent look more promising.

Shipping research analyst Chris Wetherbee bumped up production forecasts for global LNG production to 194 million tonnes per annum (mtpa) by 2022, compared to an earlier forecast of 153 mtpa.

Along with increasing cargoes, ship supply appears manageable, with some 119 newbuildings expected to be deliveried. More of those newbuildings are likewise seeing slippage to "be better aligned with the expected liquefaction ramp."

The "LNG carrier (market) is beginning to turn the corner from 2016's trough." Wetherbee said.

At the owner level, Wetherbee upgraded Peter Livanos-led GasLog to 'buy' with a $19 target. Improving fundamentals for LNG rates should create more opportunities to drop down some of the 23 on-the-water ships or five newbuildings to the partnership.

With investor appetite for marine partnerships returning, GasLog Partners may be able to raise new capital for those dropdowns. In turn, GasLog will be able to reduce its $2.6bn in debt and enjoy higher distributions from the partnership.

"The equity markets have reopened for GasLog's (partnership), allowing for dropdowns from GasLog to the (partnership) to resume," Wetherbee said. "with associated distribution increases and equity releases up from the partnership to GasLog Ltd."