Amazing that shipping stocks may have become the Texas hedge for China dispute. Longer China and US fight, maybe longer Cosco stays in penalty box and the longer the supply of usable ships is limited and thus rates stay higher. If China US gets a deal done and Cosco gets blessed somehow with a stupid fine for their transgressions, shipping rates will likely collapse. Curveball.My highly speculative scenarios for TGP:
#1. Best case for TK/TGP is a waiver for Yamal JV so TGP can still participate in those cash flows. #2. Next best case is Cosco selling a small stake to get under the 50% barrier. Ships sail, debt gets paid, all good. #3. Next best case is the ships continuing to sail in spite of sanctions so debt continues to get paid. Hopefully the US Treasury lets TGP sell their stake so they can get out at at least cost. Still, the higher rates for TGP in the rest of their business would make the sting of losing that massive backlog many years from now a little less painful. #4. Next best case (getting kind of bad) would be ships sail and TGP restricted from selling out, but then TGP would run the risk of penalties if they don’t do something like drop the JV into a trust or something to insulate the rest of their biz. Note that the trustee would maybe even be the US Treasury, so their 204m investment would very likely have a problem, however the debt would continue to get paid, so TGP survives and really ok given higher rates flowing through to the rest of their business. The debt from the JV would be getting paid, so maybe they keep the option of the asset being returned to TGP someday. #5. Worst case is the ships don’t sail. Then, the debt becomes a problem for TGP, and TGP might even lose their equity as the lender takes over. Ironically, this would result in Cosco no longer being affiliated with the entity and the ships could then sail. The period between event of default (non payment of debt) and foreclosure on the assets would have a lot of twists and turns in between. Maybe even Cosco getting pressured by other JV partners and lender to sell. Then we are right back to #2. Of all the scenarios, which has the highest probability? Lowest?
Personally, I think #3 is highest, then #4, then #5, then #2, then #1. US has no incentive to give the waiver which would hurt Cheniere/US exporters. Also, China does not want to cave to US demands in anything right now. I think they are going to fight this thing for a long time. Which brings me back to the appeal of shipping stocks as a hedge to the extension of,this fight. Note that TK management is not being coy or stupid with respect to their lack of communication. They simply don’t know which of these scenarios will play out, and they are negotiating right now with US Treasury for waivers, with Cosco to get them to adjust their ownership percentage and with lenders to get them to be willing to transfer debt guarantees, etc. Discussing this before agreements are made would be dumb.
