Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2017
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-36437
Dorian LPG Ltd.
(Exact name of registrant as specified in its charter)
Marshall Islands
(State or other jurisdiction of incorporation or organization)
27 Signal Road, Stamford, CT
(Address of principal executive offices)
66-0818228
(I.R.S. Employer Identification No.)
06902
(Zip Code)
Registrant’s telephone number, including area code: (203) 674-9900
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class
Common stock, par value $0.01 per share
Preferred stock purchase rights
Name of Each Exchange on Which Registered
New York Stock Exchange
New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ◻No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ◻No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒
No ◻
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes ☒ No ◻
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to
the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Accelerated filer ☒
Emerging growth company ☒
Large accelerated filer ◻
Smaller reporting company ◻
Non-accelerated filer ◻
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ◻No ☒
The aggregate market value of the registrant’s common stock held by non-affiliates, based upon the closing price of common stock as reported on the New York Stock
Exchange as of September 30, 2016, was approximately $186,179,478. For this purpose, all outstanding shares of common stock have been considered held by non-affiliates,
other than the shares beneficially owned by directors, officers and shareholders of 10% or more of the registrant outstanding common shares, without conceding that any of the
excluded parties are "affiliates" of the registrant for purposes of the federal securities laws. As of June 9, 2017, there were 54,974,526 shares of the registrant’s common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive proxy statement for its 2017 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission, or the
Commission, pursuant to Regulation 14A within 120 days after the end of the Registrant’s fiscal year covered by this Form 10-K are incorporated by reference into Part III of
this Form 10-K.
Table of Contents
TABLE OF CONTENTS
PART I.
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
PART II.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
PART III.
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
PART IV.
BUSINESS
RISK FACTORS
UNRESOLVED STAFF COMMENTS
PROPERTIES
LEGAL PROCEEDINGS
MINE SAFETY DISCLOSURES
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
SELECTED FINANCIAL DATA
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
CONTROLS AND PROCEDURES
OTHER INFORMATION
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDERS MATTERS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
1
23
46
46
46
46
47
49
52
70
71
71
71
72
73
73
73
73
73
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FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995, including analyses and other information based on forecasts of future results and estimates of amounts not yet determinable
and statements relating to our future prospects, developments and business strategies. Forward-looking statements are identified
by their use of terms and phrases such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,”
“predict,” “project,” “will” and similar terms and phrases, including references to assumptions.
The forward-looking statements in this report are based upon various assumptions, many of which are based, in turn,
upon further assumptions, including without limitation, management’s examination of historical operating trends, data contained
in our records and other data available from third parties. Although we believe that these assumptions were reasonable when
made, because these assumptions are inherently subject to significant uncertainties and contingencies that are difficult or
impossible to predict and are beyond our control, we cannot assure you that we will achieve or accomplish these expectations,
beliefs or projections.
In addition to important factors and matters discussed elsewhere in this report, and in the documents incorporated by
reference herein, important factors that, in our view, could cause our actual results to differ materially from those discussed in the
forward-looking statements include:
·
·
·
·
·
·
·
·
·
·
·
·
·
·
·
our future operating or financial results;
our acquisitions, business strategy and expected capital spending or operating expenses;
shipping trends, including changes in charter rates, scrapping rates and vessel and other asset values;
factors affecting supply of and demand for liquefied petroleum gas, or LPG, shipping;
changes in trading patterns that impact tonnage requirements;
general economic conditions and specific economic conditions in the oil and natural gas industry and the countries
and regions where LPG is produced and consumed;
the supply of and demand for LPG, which is affected by the production levels and price of oil, refined petroleum
products and natural gas, including production from United States shale fields;
completion of infrastructure projects to support marine transportation of LPG, including export terminals and
pipelines;
changes to the supply and demand for LPG vessels as a result of the expansion of the Panama Canal;
oversupply of or limited demand for LPG vessels comparable to ours or higher specification vessels ;
competition in the LPG shipping industry;
our ability to profitably employ our vessels, including vessels participating in the Helios Pool (defined below);
the failure of our or the Helios Pool’s (defined below) significant customers to perform their obligations to us or to
the Helios Pool;
the performance of the Helios Pool;
the loss or reduction in business from our or the Helios Pool’s significant customers;
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·
·
·
·
·
·
·
·
·
·
our financial condition and liquidity, including our ability to obtain financing in the future to fund capital
expenditures, acquisitions and other general corporate purposes, the terms of such financing and our ability to
comply with covenants set forth in our existing and future financing arrangements;
our costs, including crew wages, insurance, provisions, repairs and maintenance, and general and administrative
expenses;
our dependence on key personnel;
the availability of skilled workers and the related labor costs;
the effects of new products and new technology in our industry;
operating hazards in the maritime transportation industry, including piracy ;
the adequacy of our insurance coverage in the event of a catastrophic event;
compliance with and changes to governmental, tax, environmental and safety laws and regulations;
compliance with the United States Foreign Corrupt Practices Act of 1977, the United Kingdom Bribery Act 2010,
or other applicable regulations relating to bribery; and
the volatility of the price of our common shares.
Actual results could differ materially from expectations expressed in the forward-looking statements if one or more of
the underlying assumptions or expectations proves to be inaccurate or is not realized. You should thoroughly read this report with
the understanding that our actual future results may be materially different from and worse than what we expect. Other sections of
this report include additional factors that could adversely impact our business and financial performance. Moreover, we operate in
an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management
to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any
factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking
statements. We qualify all of the forward-looking statements by these cautionary statements.
We caution readers of this report not to place undue reliance on forward-looking statements. Any forward-looking
statements contained herein are made only as of the date of this report, and we undertake no obligation to update or revise any
forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Table of Contents
ITEM 1. BUSINES S
PART I
Unless
otherwise
indicated,
references
to
"Dorian,"
the
"Company,"
"we,"
"our,"
"us,"
or
similar
terms
refer
to
Dorian
LPG
Ltd.
and
its
subsidiaries
and
predecessors.
The
terms
"Predecessor"
and
"Predecessor
Business"
refer
to
the
owning
companies
of
the
four
vessels
that
comprised
our
initial
fleet
(hereinafter
referred
to
as
our
"Initial
Fleet"),
prior
to
their
acquisition
by
us.
We
use
the
term
"VLGC"
to
refer
to
very
large
gas
carriers
and
the
term
“PGC”
to
refer
to
pressurized
gas
carriers.
We
use
the
term
"LPG"
to
refer
to
liquefied
petroleum
gas
and
we
use
the
term
"cbm"
to
refer
to
cubic
meters
in
describing
the
carrying
capacity
of
our
vessels.
Unless
otherwise
indicated,
all
references
to
"U.S.
dollars,"
"USD,"
"dollars,"
and
"$"
in
this
report
are
to
the
lawful
currency
of
the
United
States
of
America
and
references
to
"Norwegian
Krone"
and
"NOK"
are
to
the
lawful
currency
of
Norway.
Unless
stated
otherwise,
the
information
below
gives
effect
to
a
one-for-five
reverse
stock
split
of
our
common
shares
effected
on
April
25,
2014.
Overview
We are a Marshall Islands corporation incorporated on July 1, 2013 and headquartered in the United States. We are
focused on owning and operating VLGCs in the LPG shipping industry. Our founding executives have managed vessels in the
LPG shipping market since 2002. We currently own and operate a fleet of twenty-two VLGCs, including nineteen new fuel-
efficient 84,000 cbm ECO-design VLGCs, or our ECO VLGCs, and three 82,000 cbm VLGCs. The twenty-two VLGCs in our
fleet have an aggregate carrying capacity of approximately 1.8 million cbm and an average age of 2.9 years as of June 9, 2017.
We provide in-house commercial and technical management services for all of our vessels, including our vessels deployed in the
Helios Pool, which may also receive commercial management services from Phoenix (defined below).
Sixteen of our ECO VLGCs were constructed at Hyundai Heavy Industries Co., Ltd., or Hyundai, and three of our ECO
VLGCs were constructed at Daewoo Shipping and Marine Engineering Ltd, or Daewoo. Our nineteen ECO VLGCs, which
incorporate fuel efficiency and emission-reducing technologies and certain custom features, were acquired by us for an aggregate
purchase price of $1.4 billion, which was financed with proceeds from a $758 million debt facility that we entered into in March
2015 with a group of banks and financial institutions, or the 2015 Debt Facility, proceeds from equity offerings, and cash
generated from operations. These nineteen ECO VLGCs were delivered to us between July 2014 and February 2016, seventeen of
which were delivered during calendar year 2015 or later.
On April 1, 2015, we and Phoenix Tankers Pte. Ltd., or Phoenix, a wholly-owned subsidiary of Mitsui OSK Lines
Ltd., an unaffiliated third party, began operation of Helios LPG Pool LLC, or the Helios Pool, a joint venture owned 50% by us
and 50% by Phoenix. We believe that the operation of certain of our VLGCs in this pool allows us to achieve better market
coverage and utilization. Vessels entered into the Helios Pool are commercially managed jointly by Dorian LPG (UK) Ltd., our
wholly-owned subsidiary, and Phoenix. The members of the Helios Pool share in the net pool revenues generated by the entire
group of vessels participating in the pool, weighted according to certain technical vessel characteristics, and net pool revenues are
distributed as variable rate time charter hire to each participant. The vessels entered into the Helios Pool may operate either in the
spot market, pursuant to contracts of affreightment, or COAs, or on time charters of two years' duration or less. We and Phoenix
have agreed that the Helios Pool will have a right of first refusal to operate each VLGC of our respective fleets not employed on a
time charter of more than two years' duration. In March 2016, the Helios Pool reached an agreement with Oriental Energy
Company Ltd., or Oriental Energy, one of the largest propane dehydrogenation plant operators and LPG importers in China to
operate up to eight VLGCs on its behalf. As of June 9, 2017, the Helios Pool operated twenty-seven VLGCs, including eighteen
of our vessels, four Phoenix vessels, and five Oriental Energy vessels. In addition, the Helios Pool has entered into a COA with
Oriental Energy covering Oriental Energy’s shipments from the United States Gulf, which gives us exposure to the growing
Chinese LPG market.
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Table of Contents
Our Fleet
The following table sets forth certain information regarding our fleet as of June 9, 2017:
Capacity
(Cbm)
Sister
Shipyard
Ships Year Built
ECO
Vessel
(1)
Employment
VLGCs
Captain
Markos
NL
Captain
John
NP
Captain
Nicholas
ML
Comet
Corsair
Corvette
Cougar
Concorde
Cobra
Continental
Constitution
Commodore
Cresques
Constellation
Cheyenne
Clermont
Cratis
Chaparral
Copernicus
Commander
Challenger
Caravelle
Total
82,000
82,000
82,000
84,000
84,000
84,000
84,000
84,000
84,000
84,000
84,000
84,000
84,000
84,000
84,000
84,000
84,000
84,000
84,000
84,000
84,000
84,000
1,842,000
Hyundai
Hyundai
Hyundai
Hyundai
Hyundai
Hyundai
Hyundai
Hyundai
Hyundai
Hyundai
Hyundai
Hyundai
Daewoo
Hyundai
Hyundai
Hyundai
Daewoo
Hyundai
Daewoo
Hyundai
Hyundai
Hyundai
A
A
A
B
B
B
B
B
B
B
B
B
C
B
B
B
C
B
C
B
B
B
2006
2007
2008
2014
2014
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2016
—
—
—
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
(3)
(6)
(7)
(8)
(4)
(4)
(4)
(4)
(4)
(4)
(4)
Time Charter
Pool
(5)
Pool-TCO
Time Charter
Time Charter
Pool
Pool
Pool
Pool
Pool
Pool
Pool
Pool
Pool
Pool
Pool
Pool-TCO
Pool
Pool
Time Charter
Pool
Pool
(4)
(4)
(4)
(4)
(5)
(4)
(4)
(4)
(4)
(4)
Charter
Expiration
(2)
Q4 2019
—
Q2 2018
Q3 2019
Q3 2018
—
—
—
—
—
—
—
—
—
—
—
Q3 2017
—
—
Q4 2020
—
—
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Represents vessels with very low revolutions per minute, long ‑
stroke, electronically controlled engines, larger
propellers, advanced hull design, and low friction paint.
Represents calendar year quarters.
Currently on time charter with an oil major that began in December 2014.
“Pool” indicates that the vessel operates in the Helios Pool on voyage charters with third parties and receives as charter
hire a portion of the net revenues of the pool calculated according to a formula based on the vessel’s pro rata
performance in the pool.
“Pool-TCO” indicates that the vessel is operated in the Helios Pool on a time charter out to a third party and receives as
charter hire a portion of the net revenues of the pool calculated according to a formula based on the vessel’s pro rata
performance in the pool.
Currently on time charter with an oil major that began in July 2014.
Currently on time charter with an oil major that began in July 2015.
Currently on time charter with a major oil company that began in November 2015.
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Table of Contents
The LPG Shipping Industry
International seaborne LPG transportation services are generally provided by two types of operators: LPG distributors
and traders and independent shipowners. Traditionally the main trading route in our industry has been the transport of LPG from
the Arabian Gulf to Asia. With the emergence of the United States as a major LPG export hub, the United States Gulf to Asia has
become an important trade route. Vessels are generally operated under time charters, bareboat charters, spot charters, or contracts
of affreightment. LPG distributors and traders use their fleets not only to transport their own LPG, but also to transport LPG for
third-party charterers in direct competition with independent owners and operators in the tanker charter market. We operate in
markets that are highly competitive and based primarily on supply and demand of available vessels. Generally, we compete for
charters based upon charter rate, customer relationships, operating expertise, professional reputation and vessel specifications
(size, age and condition). We also believe that our in-house technical and commercial management allows us to provide superior
customer service and reliability which enhances our relationships with our charterers. Our industry is subject to strict
environmental regulation, including emissions regulations, and we believe our modern, ECO-class fleet and our high level of
crew training and vessel maintenance make us a preferred provider of VLGC tonnage.
Our Customers
Our customers, either directly or through the Helios Pool, include or have included global energy companies such as
Exxon Mobil Corp., China International United Petroleum & Chemicals Co., Ltd., Royal Dutch Shell plc, Statoil ASA, and
Oriental Energy Company Ltd., commodity traders such as Itochu Corporation and the Vitol Group and importers such as E1
Corp., SK Gas Co. Ltd. and Indian Oil Corporation . See “Item 7. Management Discussion and Analysis—Overview” for a
discussion of our customers that accounted for more than 10% of our total revenues and “Item 1A. Risk Factors—We expect to be
dependent on a limited number of customers for a material part of our revenues, and failure of such customers to meet their
obligations could cause us to suffer losses or negatively impact our results of operations and cash flows.” For the years ended
March 31, 2017 and 2016, approximately 69.1% and 70.2% of our revenues, respectively, were generated through the Helios Pool
as net pool revenues—related parties. No revenues were generated through the Helios Pool for the year ended March 31, 2015 as
the Helios Pool began operation on April 1, 2015. See “Item 1A. Risk Factors—We and the Helios Pool operate exclusively in the
LPG shipping industry. Due to our lack of diversification and the lack of diversification of the Helios Pool, adverse developments
in the LPG shipping industry may adversely affect our business, financial condition and operating results.”
We intend to continue to pursue a balanced chartering strategy by employing our vessels on a mix of multi-year time
charters, some of which may include a profit-sharing component, shorter-term time charters, spot market voyages and contracts of
affreightment. Six of our vessels are currently on fixed time charters (including through the Helios Pool) and have an average
remaining term of 1.8 years as of June 9, 2017. See “Our Fleet” above for more information .
Further, each of our vessels serve the same type of customer, have similar operations and maintenance requirements,
operate in the same regulatory environment, and are subject to similar economic characteristics. Based on this, we have
determined that we operate in one reportable segment, the international transportation of liquid petroleum gas. Furthermore, when
we charter a vessel to a charterer, the charterer is free to trade the vessel worldwide and, as a result, the disclosure of geographic
information is impracticable.
Competition
LPG 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. According to industry sources, as of May 19, 2017, there were 1,430 LPG capable
carriers with an aggregate capacity of approximately 31.6 million cbm. As of such date, a further 87 LPG capable carriers with an
aggregate carrying capacity of roughly 4.0 million cbm were on order for delivery by the end of 2020, equivalent to 12.5% of the
existing fleet in capacity terms. In contrast to oil tankers and drybulk carriers, according to industry sources, the number of
shipyards with LPG carrier experience is quite limited. Due to an influx of newbuild tonnage since early 2015, it is considered
unlikely that significant vessel orders will be placed prior to the delivery of the contracted orderbook as of the time of writing. In
the VLGC sector in which we operate, as of May 19, 2017, there were
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247 vessels with an aggregate carrying capacity of 20.2 million cbm in the world fleet with 32 vessels on order for delivery by the
second half of 2020.
Our largest competitors for VLGC shipping services include BW LPG Limited, or BWLPG, Avance Gas Holding Ltd.,
or Avance, Petredec, and Astomos Energy Corporation. According to industry sources, there were approximately 60 owners in the
worldwide VLGC fleet as of May 19, 2017, with the top ten owners possessing 55% of the total fleet on a vessel count basis.
Competition for the transportation of LPG depends on the price, location, size, age, condition and acceptability of the vessel to the
charterer. We believe we own and operate the youngest and second largest fleet in the VLGC size segment, which, in our view,
enhances our position relative to that of our competitors. But see “Item 1A. Risk Factors—We will face substantial competition in
trying to expand relationships with existing customers and obtain new customers.”
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 LPG shipping market is typically stronger in the spring and summer 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. Demand for our vessels
therefore may be stronger in our quarters ending June 30 and September 30 and relatively weaker during our quarters ending
December 31 and March 31, 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 December 31 and March 31, it may not be possible
to re-charter our vessels at similar rates. As a result, we may have to accept lower rates or experience off-hire time for our vessels,
which may adversely impact our business, financial condition and operating results.
Employees
As of March 31, 2017, we employed 69 persons in our offices in the United States, Greece and the United Kingdom. In
addition to our shore-based employees, we had approximately 517 seafaring staff serving on our owned vessels. Seafarers are
sourced from seafarer recruitment and placement service agencies and are employed with short-term employment contracts.
Classification, Inspection and Maintenance
Every large commercial seagoing vessel must be "classed" by a classification society. A classification society certifies
that a vessel is "in class," signifying that the vessel has been built and maintained in accordance with the rules of the classification
society and the vessel's country of registry and the international conventions of which that country is a member. In addition,
where surveys are required by international conventions and corresponding laws and ordinances of a flag state, the classification
society will undertake them on application or by official order, acting on behalf of the authorities concerned.
For maintenance of the class certificate, regular and special surveys of hull, machinery, including the electrical plant and
any special equipment classed, are required to be performed by the classification society, to ensure continuing compliance.
Vessels are drydocked at least once during a five ‑
year class cycle for inspection of the underwater parts and for repairs related
to inspections. Vessels under five years of age can waive drydocking provided the vessel is inspected underwater. If any defects
are found, the classification surveyor will issue a "recommendation" which must be rectified by the shipowner within prescribed
time limits. The classification society also undertakes on request of the flag state other surveys and checks that are required by the
regulations and requirements of that flag state. These surveys are subject to agreements made in each individual case and/or to the
regulations of the country concerned.
Most insurance underwriters make it a condition for insurance coverage that a vessel be certified as "in class" by a
classification society, which is a member of the International Association of Classification Societies, or the IACS. In December
2013, the IACS adopted harmonized Common Structure Rules that align with International Maritime Organization, or the IMO,
goal standards. Our VLGCs are currently classed with either Lloyd's Register, the American
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Bureau of Shipping, or ABS, or Det Norske Veritas, all members of the IACS. All of the vessels in our fleet have been awarded
International Safety Management, or ISM, certification and are currently "in class."
We also carry out inspections of the ships on a regular basis; both at sea and while the vessels are in port. The results of
these inspections are documented in a report containing recommendations for improvements to the overall condition of the vessel,
maintenance, safety and crew welfare. Based in part on these evaluations, we create and implement a program of continual
maintenance and improvement for our vessels and their systems.
Safety, Management of Ship Operations and Administration
Safety is our top operational priority. Our vessels are operated in a manner intended to protect the safety and health of
the crew, the general public and the environment. We actively manage the risks inherent in our business and are committed to
preventing incidents that threaten safety, such as groundings, fires and collisions. We are also committed to reducing emissions
and waste generation. We have established key performance indicators to facilitate regular monitoring of our operational
performance. We set targets on an annual basis to drive continuous improvement, and we review performance indicators every
three months to determine if remedial action is necessary to reach our targets. Our shore staff performs a full range of technical,
commercial and business development services for us. This staff also provides administrative support to our operations in finance,
accounting and human resources.
Risk of Loss and Insurance
The operation of any vessel, including LPG carriers, has inherent risks. These risks include mechanical failure, personal
injury, collision, property loss, vessel or cargo loss or damage and business interruption due to political circumstances in foreign
countries or hostilities. In addition, there is always an inherent possibility of marine disaster, including explosions, spills and other
environmental mishaps, and the liabilities arising from owning and operating vessels in international trade. We believe that our
present insurance coverage is adequate to protect us against the accident related risks involved in the conduct of our business and
that we maintain appropriate levels of environmental damage and pollution insurance coverage consistent with standard industry
practice. However, not all risks can be insured, and there can be no guarantee that any specific claim will be paid, or that we will
always be able to obtain adequate insurance coverage at reasonable rates.
We have obtained hull and machinery insurance on all our vessels against marine and war risks, which include the risks
of damage to our vessels, salvage or towing costs, and actual or constructive total loss. However, our insurance policies contain
deductible amounts for which we are responsible. We have also arranged additional total loss coverage for each vessel. This
coverage, which is called hull interest and freight interest coverage, provides us additional coverage in the event of the total loss
of a vessel.
We have also obtained loss of hire insurance to protect us against loss of income in the event one of our vessels cannot
be employed due to damage that is covered under the terms of our hull and machinery insurance (marine and war risks). Under
our loss of hire policies, our insurer will pay us an agreed daily rate in respect of each VLGC in excess of 14 days for marine risks
and zero days for war risks for the time that the vessel is out of service as a result of damage, for a maximum of 180 days.
We have also obtained protection and indemnity insurance, which covers our third party legal liabilities in connection
with our shipping activities, and is provided by mutual protection and indemnity associations, or P&I clubs. This insurance
includes third party liability and other expenses related to the injury or death of crew members, passengers and other third parties,
loss or damage to cargo, claims arising from collisions with other vessels or from contact with jetties or wharves and other
damage to other third party property, including pollution arising from oil or other substances, and other related costs, including
wreck removal. Subject to the capping discussed below, our coverage, except for pollution, is unlimited.
Our current protection and indemnity insurance coverage for pollution is $1 billion per vessel per incident. The thirteen
P&I clubs that compose the International Group of Protection and Indemnity Clubs, or the International Group, insure
approximately 90% of the world's commercial tonnage and have entered into a pooling agreement to reinsure each
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association's liabilities. Each P&I club has capped its exposure in this pooling agreement so that the maximum claim covered by
the pool and its reinsurance would be approximately $5.45 billion per accident or occurrence. We are a member of three P&I
Clubs: The Standard Club Ltd., The United Kingdom Mutual Steamship Assurance Association (Bermuda) Limited and The
London Steam ‑
Ship Owners' Mutual Insurance Association Limited. As a member of these P&I clubs, we are subject to a call
for additional premiums based on the clubs' claims record, as well as the claims record of all other members of the P&I clubs
comprising the International Group. However, our P&I clubs have reinsured the risk of additional premium calls to limit our
additional exposure. This reinsurance is subject to a cap, and there is the risk that the full amount of the additional call would not
be covered by this reinsurance.
Environmental and Other Regulation
General
Governmental and international agencies extensively regulate the carriage, handling, storage and regasification of LPG.
These regulations include international conventions and national, state and local laws and regulations in the countries where our
vessels now or, in the future, will operate or where our vessels are registered. We cannot predict the ultimate cost of complying
with these regulations, or the impact that these regulations will have on the resale value or useful lives of our vessels. Various
governmental and quasi-governmental agencies require us to obtain permits, licenses and certificates for the operation of our
vessels. For the years ending March 31, 2018 and 2019, we estimate that capital expenditures for reducing our environmental
emissions would total approximately $0.3 million on one of our VLGCs relating to performance enhancing devices to achieve
power savings resulting in lower fuel consumption.
Although we believe that we are substantially in compliance with applicable environmental laws and regulations and
have all permits, licenses and certificates required for our vessels, future non ‑
compliance or failure to maintain necessary
permits or approvals could require us to incur substantial costs or temporarily suspend operation of one or more of our vessels. A
variety of governmental and private entities inspect our vessels on both a scheduled and unscheduled basis. These entities, each of
which may have unique requirements and each of which conducts frequent inspections, include local port authorities, such as the
United States Coast Guard, or USCG, harbor master or equivalent, classification societies, flag state, or the administration of the
country of registry, charterers, terminal operators and LPG producers.
International Maritime Organization Regulation of LPG Vessels
The International Maritime Organization, or the IMO, is the United Nations' agency that provides international
regulations governing shipping and international maritime trade, including the International Convention on Civil Liability for Oil
Pollution Damage, the International Convention on Civil Liability for Bunker Oil Pollution Damage, and the International
Convention for the Prevention of Pollution from Ships of 1973, as modified by the protocol of 1978 relating thereto, and as
amended from time to time, or MARPOL, including the designation of Emission Control Areas, or ECAs, thereunder. The flag
state, as discussed in the United Nations Convention on Law of the Sea, has overall responsibility for the implementation and
enforcement of international maritime regulations for all ships granted the right to fly its flag. The "Shipping Industry Flag State
Performance" tables evaluate flag states based on factors such as ratification of international maritime treaties, implementation
and enforcement of international maritime regulations and participation at IMO meetings. Each of our vessels is flagged in the
Bahamas. The requirements contained in the International Management Code for the Safe Operation of Ships and Pollution
Prevention, or the ISM Code, promulgated by the IMO, govern our operations. Among other requirements, the ISM Code requires
shipowners, ship managers and bareboat charterers to develop and maintain an extensive safety management system that includes,
among other things, the adoption of policies for safety and environmental protection setting forth instructions and procedures for
operating its vessels safely and also describing procedures for responding to emergencies. We are compliant with the requirement
to hold a Document of Compliance under the ISM Code for LPG ships (Gas carriers).
Vessels that transport gas, including LPG carriers, are also subject to regulation under the IMO's International Code for
the Construction and Equipment of Ships Carrying Liquefied Gases in Bulk Gas Carrier Code, or the IGC Code. The IGC Code
and similar regulations in individual member states, address fire and explosion risk posed by the transport of liquefied gases.
Collectively these standards and regulations impose detailed requirements relating to the design and arrangement or cargo tanks,
vents, and pipes; construction materials and compatibility; cargo pressure; and temperature
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control. Compliance with the IGC Code must be evidenced by a Certificate of Fitness for the Carriage of Liquefied Gases of
Bulk. The completely revised and updated IGC Code entered into force on January 1, 2016, with an implementation/application
date of July 1, 2016. The amendments were developed following a comprehensive five-year review and are intended to take into
account the latest advances in science and technology. Each of our vessels is in compliance with the IGC Code. Non ‑
compliance with the IGC Code or other applicable IMO regulations may subject a shipowner or a bareboat charterer to increased
liability, may lead to decreases in available insurance coverage for affected vessels and may result in the denial of access to, or
detention in, some ports.
The IMO also periodically amends the International Convention for the Safety of Life at Sea 1974 and its protocol of
1988, otherwise known as SOLAS, and its implementing regulations. SOLAS includes construction, equipment, and procedure
requirements to assure the safe operation of commercial vessels. Among other things, SOLAS requires lifeboats and other life ‑
saving appliances be provided on vessels and mandates the use of the Global Maritime Distress and Safety System, an
international radio equipment and watchkeeping standard, afloat and at shore stations. The IMO has also adopted the International
Convention on Standards of Training, Certification and Watchkeeping for Seafarers, or STCW. New SOLAS safety requirements
relating to lifeboats and safe manning of vessels that were adopted in May 2012 came into effect on January 1, 2014. Flag states
that have ratified SOLAS and STCW generally employ the classification societies, which have incorporated SOLAS and STCW
requirements into their class rules, to undertake surveys to confirm compliance.
In the wake of increased worldwide security concerns, after the September 11, 2001 attack in the United States, the IMO
amended SOLAS and added the International Ship and Port Facilities Security Code, or ISPS, as a new chapter to that convention.
The objective of the ISPS, which came into effect on July 1, 2004, is to detect security threats and take preventive measures
against security incidents affecting ships or port facilities. Amendments to SOLAS Chapter VII, made mandatory in 2004, apply
to vessels transporting dangerous goods and require those vessels to be in compliance with the International Maritime Dangerous
Goods Code, or IMDG Code. We have developed Ship Security Plans, appointed and trained Ship and Office Security Officers
and all of our vessels have been certified to meet the ISPS Code requirements.
SOLAS and other IMO regulations concerning safety, including those relating to treaties on training of shipboard
personnel, lifesaving appliances, radio equipment and the global maritime distress and safety system, are applicable to our
operations. Non ‑
compliance with these IMO regulations may subject us to increased liability or penalties, may lead to
decreases in available insurance coverage for affected vessels and may result in the denial of access to or detention in some ports.
For example, the USCG and European Union, or EU, authorities have indicated that vessels not in compliance with the ISM Code
will be prohibited from trading in United States and EU ports.
MARPOL establishes environmental standards relating to oil leakage or spilling, garbage management, sewage, air
emissions, handling and disposal of noxious liquids and the handling of harmful substances carried in bulk, liquid or packaged
form.
The IMO amended Annex I to MARPOL by adding a new regulation relating to oil fuel tank protection that applies to
various ships delivered on or after August 1, 2010. It includes requirements for the protected location of the fuel tanks,
performance standards for accidental oil fuel outflow, a tank capacity limit and certain other maintenance, inspection and
engineering standards. IMO regulations also require owners and operators of vessels to adopt Ship Oil Pollution Emergency
Plans. Periodic training and drills for response personnel and for vessels and their crews are required.
In 2012, the IMO's Marine Environmental Protection Committee, or MEPC, adopted a resolution amending the
International Code for the Construction of Equipment of Ships Carrying Dangerous Chemicals in Bulk, or IBC Code. The
provisions of the IBC Code are mandatory under MARPOL and SOLAS. These amendments, which entered into force in June
2014, pertain to revised international certificates of fitness for the carriage of dangerous chemicals in bulk and identifying new
products that fall under the IBC Code. In May 2014, additional amendments to the IBC Code were adopted that became effective
in January 2016. These amendments pertain to the installation of stability instruments and cargo tank purging. Our ECO VLGCs
are equipped with stability instruments and cargo tank purging. We may need to make certain financial expenditures to comply
with these amendments for the remaining VLGCs.
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The IMO continues to review and introduce new regulations. It is impossible to predict what additional regulations, if
any, may be passed by the IMO and what effect, if any, such regulation may have on our operations.
Air Emissions
In September 1997, the IMO adopted MARPOL Annex VI "Regulations for the prevention of Air Pollution" to
MARPOL, or Annex VI, to address air pollution from ships. Annex VI came into force on May 19, 2005. It applies to all ships,
fixed and floating drilling rigs and other floating platforms, sets limits on sulfur oxide and nitrogen oxide emissions from ship
exhausts, and prohibits deliberate emissions of ozone depleting substances, such as chlorofluoro carbons. "Deliberate emissions"
are not limited to times when the ship is at sea; they can for example include discharges occurring in the course of the ship's repair
and maintenance. Shipboard incineration (from incinerators installed after January 1, 2000) of certain substances (such as
polychlorinated biphenyls, or PCBs) are also prohibited. Annex VI also includes a global cap on sulfur content of fuel oil and
allows for more stringent controls on sulfur emissions in special coastal areas known as Emission Control Areas, or ECAs,
designated by the MEPC. Ships weighing more than 400 gross tons and engaged in international voyages involving countries that
have ratified the conventions, or ships flying the flag of those countries, are required to have an International Air Pollution
Prevention Certificate, or an IAPP Certificate. Annex VI has been ratified by some but not all IMO member states. Annex VI
came into force in the United States on January 8, 2009. All the vessels in our operating fleet have been issued IAPP Certificates.
Amended Annex VI also establishes new tiers of stringent nitrogen oxide emissions standards for new marine engines,
depending on their date of installation. At MEPC’s 70th Session in October 2016, MEPC approved the North Sea and Baltic Sea
as ECAs for nitrogen oxide, effective January 1, 2021. It is expected that these areas will be formally designated after draft
amendments are presented at MEPC’s next session. The United States Environmental Protection Agency, or the EPA,
promulgated equivalent (and in some senses stricter) emissions standards in late 2009. As a result of these designations or similar
future designations, we may be required to incur additional operating or other costs.
On July 1, 2010, amendments to Annex VI that require progressively stricter limitations on sulfur emissions from ships
took effect. As of January 1, 2012, fuel used to power ships was not permitted to contain more than 3.50% sulfur. This cap will
then decrease progressively until it reaches 0.50% by January 1, 2020. On October 27, 2016, MPEC also announced its decision
concerning the implementation of regulations mandating a reduction in sulfur emissions from the current 3.50% to 0.50% as of
the beginning of 2020 rather than pushing the deadline back to 2025. By 2020, ships will now have to either remove sulfur from
emissions through the use of emission scrubbers or buy fuel with low sulfur content. We currently have two vessels in our fleet
with emission scrubbers and would have to either install additional emission scrubbers or replace the higher sulfur content fuel
with higher priced low sulfur content fuel. This increased demand for low sulfur fuel may also result in an increase in prices for
such fuel.
However, in ECAs such as the North America ECA fuels cannot contain more than 0.1% sulfur as of January 1, 2015.
The Annex VI amendments also establish new tiers of stringent nitrogen oxide emissions standards for new marine engines,
depending on their date of installation. Further, the European directive 2005/33/EU, which became effective on January 1, 2010,
bans the use of fuel oils containing more than 0.1% sulfur by mass by any merchant vessel while at berth in any EU country. Our
vessels have achieved compliance, where necessary, with both the applicable IMO and EU sulfur regulations, by burning
compliant fuels where required by such regulations.
Additionally, as discussed above, more stringent emission standards could apply in coastal areas designated as ECAs,
such as the United States and Canadian coastal areas designated by the MEPC. United States air emissions standards are now
equivalent to these amended Annex VI requirements, and once these amendments become effective, we may incur costs to
comply with these revised standards. Additional or new conventions, laws and regulations may be adopted that could require the
installation of expensive emission control systems.
Ballast Water Management Convention
The IMO adopted the International Convention for the Control and Management of Ships' Ballast Water and Sediments,
or the BWM Convention, in February 2004. The BWM Convention’s implementing regulations call for a phased introduction of
mandatory ballast water exchange requirements, to be replaced in time with mandatory
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concentration limits. All ships will also have to carry a ballast water record book and an International Ballast Water Management
Certificate. The BWM Convention enters into force 12 months after it has been adopted by 30 states, the combined merchant
fleets of which represent not less than 35% of the gross tonnage of the world's merchant shipping. On September 8, 2016, this
threshold was met (with 52 contracting parties making up 35.14%). Thus, the BWM Convention will enter into force on
September 8, 2017. Many of the implementation dates in the BWM Convention have already passed, so that once the BWM
Convention enters into force, the period of installation of mandatory ballast water exchange requirements would be extremely
short, with several thousand ships a year needing to install ballast water management systems, or BWMS. For this reason, on
December 4, 2013, the IMO Assembly passed a resolution revising the application dates of the BWM Convention so that they are
triggered by the entry into force date and not the dates originally in the BWM Convention. This, in effect, makes all vessels
constructed before the entry into force date “existing vessels” and allows for the installation of a BWMS on such vessels at the
first renewal survey following entry into force of the convention. On October 27, 2016, MEPC adopted updated “guidelines for
approval of ballast water managements systems (G8).” G8 updates previous guidelines concerning procedures to approve BWMS,
including mid-ocean ballast exchange or ballast water treatment requirements. However, many countries already regulate the
discharge of ballast water carried by vessels from country to country to prevent the introduction of invasive and harmful species
via such discharges. The United States, for example, requires vessels entering its waters from another country to conduct mid-
ocean ballast exchange, or undertake some alternate measure, and to comply with certain reporting requirements. Currently,
sixteen of our VLGCs are in compliance with the BWM Convention guidelines. BWMS are expected to be installed on the
remaining six VLGCs between July 2018 and March 2022 for approximately $0.8 million per vessel.
Bunkers Convention / Civil Liability Convention State Certificates
The International Convention on Civil Liability for Bunker Oil Pollution Damaged of 2001, or the Bunker Convention,
entered into force on November 21, 2008. The Bunker Convention provides a liability, compensation and compulsory insurance
system for the victims of oil pollution damage caused by spills of bunker oil. The Bunker Convention requires the ship owner
liable to pay compensation for pollution damage (including the cost of preventive measures) caused in the territory, including the
territorial sea of a State Party, as well as its economic zone or equivalent area. Registered owners of any sea going vessel and
seaborne craft over 1,000 gross tonnage, of any type whatsoever, and registered in a State Party, or entering or leaving a port in
the territory of a State Party, will be required to maintain insurance which meets the requirements of the Bunker Convention, an
amount equal to the limits of liability under the applicable national or international limitation regime (but not exceeding the
amount calculated in accordance with the Bunker Convention on Limitation of Liability for Maritime Claims of 1976, as
amended, or the LLMC) and to obtain a certificate issued by a State Party attesting that such insurance is in force. The State
issued certificate must be carried on board at all times. With respect to non-ratifying states, liability for spills or releases of
bunker fuel is determined by the national or other domestic laws in the jurisdiction where the events or damage occur.
Many countries have ratified and follow the liability plan adopted by the IMO and set out in the International
Convention on Civil Liability for Oil Pollution Damage of 1969, as amended in 2000, or CLC. Under this convention and
depending on whether the country in which the damage results is a party to the 1992 Protocol to the CLC, a vessel's registered
owner is strictly liable for pollution damage caused in the territorial waters of a contracting state by discharge of persistent oil,
subject to certain complete defenses. The limited liability protections are forfeited under the CLC where the spill is caused by the
owner's personal fault and under the 1992 Protocol where the spill is caused by the owner's personal act or omission or by
intentional or reckless conduct. Vessels trading to states that are parties to these conventions must provide evidence of insurance
covering the liability of the owner.
In jurisdictions, such as the United States where the CLC or the Bunkers Convention has not been adopted, various
legislative schemes or common law govern, and liability is imposed either on the basis of fault or on a strict-liability basis.
P&I Clubs in the International Group issue the required Bunkers Convention "Blue Cards" to enable signatory states to
issue certificates. All of our vessels are in possession of a CLC State ‑
issued certificate attesting that the required insurance
coverage is in force.
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Anti ‑
‑
Fouling Requirements
In 2001, the IMO adopted the International Convention on the Control of Harmful Anti ‑
fouling Systems on Ships, or
the Anti ‑
fouling Convention. The Anti ‑
fouling Convention, which entered into force on September 17, 2008, prohibits the
use of organotin compound coatings to prevent the attachment of mollusks and other sea life to the hulls of vessels. Vessels of
over 400 gross tons engaged in international voyages must obtain an International Anti ‑
fouling System Certificate, or AFS, and
undergo a survey before the vessel is put into service or when the antifouling systems are altered or replaced. We have obtained
AFSs for all of our vessels, which are subject to the Anti ‑
fouling Convention, and do not believe that maintaining such
certificates will have an adverse financial impact on the operation of our vessels.
United States Environmental Regulation of LPG Vessels
Our vessels operating in United States waters now, or in the future, are or will be subject to various federal, state and
local laws and regulations relating to protection of the environment. In some cases, these laws and regulations require us to obtain
governmental permits and authorizations before we may conduct certain activities. These environmental laws and regulations may
impose substantial penalties for noncompliance and substantial liabilities for pollution. Failure to comply with these laws and
regulations may result in substantial civil and criminal fines and penalties. As with the industry generally, our operations will
entail risks in these areas, and compliance with these laws and regulations, which may be subject to frequent revisions and
reinterpretation, increases our overall cost of business.
Oil Pollution Act and Comprehensive Environmental Response, Compensation, and Liability Act
The United States Oil Pollution Act of 1990, or OPA90, established an extensive regulatory and liability regime for
environmental protection and cleanup of oil spills. OPA90 affects all owners and operators whose vessels trade with the United
States or its territories or possessions, or whose vessels operate in the waters of the United States, which include the United States
territorial waters and the two hundred nautical mile exclusive economic zone of the United States. The Comprehensive
Environmental Response, Compensation, and Liability Act, or CERCLA, applies to the discharge of hazardous substances
whether on land or at sea. While OPA90 and CERCLA would not apply to the discharge of LPG, they may affect us because we
carry oil as fuel and lubricants for our engines, and the discharge of these substances could cause an environmental hazard. Under
OPA90, vessel operators, including vessel owners, managers and bareboat or "demise" charterers, are "responsible parties" who
are all liable regardless of fault, individually and as a group, for all containment and clean ‑
up costs and other damages arising
from oil spills from their vessels. These "responsible parties" would not be liable if the spill results solely from the act or
omission of a third party, an act of God or an act of war. The other damages aside from clean ‑
up and containment costs are
defined broadly to include:
·
·
·
·
·
·
natural resource damages and related assessment costs;
real and personal property damages;
net loss of taxes, royalties, rents, profits or earnings capacity;
lost profits or impairment of earning capacity due to injury, destruction or loss of real or personal property
or natural resources;
net cost of public services necessitated by a spill response, such as protection from fire, safety or health
hazards; and
loss of subsistence use of natural resources.
Effective December 21, 2015, the USCG adjusted the limits of OPA90 liability to the greater of $2,200 per gross ton or
$18,796,800 for tank vessels over 3,000 gross tons (subject to possible adjustment for inflation) other than single hull tank
vessels. These limits of liability do not apply, however, where the incident is caused by violation of applicable United States
federal safety, construction or operating regulations by a responsible party (or its agent, employee or a person
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acting pursuant to a contractual relationship), or a responsible party’s gross negligence or willful misconduct. These limits
likewise do not apply if the responsible party fails or refuses to report the incident or to cooperate and assist in connection with
the substance removal activities. These limits are subject to possible adjustment for inflation. OPA90 specifically permits
individual states to impose their own liability regimes with regard to oil pollution incidents occurring within their boundaries, and
some states have enacted legislation providing for unlimited liability for discharge of pollutants within their waters. In some
cases, states, which have enacted their own legislation, have not yet issued implementing regulations defining shipowners'
responsibilities under these laws.
CERCLA, which also applies to owners and operators of vessels, contains a similar liability regime and provides for
cleanup, removal and natural resource damages for releases of "hazardous substances." Liability under CERCLA is limited to the
greater of $300 per gross ton or $0.5 million for each release from vessels not carrying hazardous substances, cargo or residue,
and $300 per gross ton or $5 million for each release from vessels carrying hazardous substances, cargo or residue. As with
OPA90, these limits of liability do not apply where the incident is caused by violation of applicable United States federal safety,
construction or operating regulations, or by the responsible party's gross negligence or willful misconduct or if the responsible
party fails or refuses to report the incident or to cooperate and assist in connection with the substance removal activities. OPA90
and CERCLA each preserve the right to recover damages under existing law, including maritime tort law.
OPA90 requires owners and operators of vessels to establish and maintain with the USCG evidence of financial
responsibility sufficient to meet the limit of their potential strict liability under OPA90/CERCLA. Under the regulations, evidence
of financial responsibility may be demonstrated by insurance, surety bond, self ‑
insurance or guaranty. Under OPA90
regulations, an owner or operator of more than one vessel is required to demonstrate evidence of financial responsibility for the
entire fleet in an amount equal only to the financial responsibility requirement of the vessel having the greatest maximum liability
under OPA90/CERCLA. Each of our shipowning subsidiaries that has vessels trading in United States waters has applied for, and
obtained from the USCG National Pollution Funds Center, three ‑
year certificates of financial responsibility, supported by
guarantees which we purchased from an insurance based provider. We believe that we will be able to continue to obtain the
requisite guarantees and that we will continue to be granted certificates of financial responsibility from the USCG for each of our
vessels that is required to have one.
In response to the BP Deepwater Horizon oil spill, a number of bills that could potentially increase or even eliminate the
limits of liability under OPA90 have been introduced in the United States Congress. In April 2015, it was announced that new
regulations are expected to be imposed in the United States regarding offshore oil and gas drilling and the Bureau of Safety and
Environmental Enforcement, or the BSEE, announced a new well-control rule in April 2016. In December 2015, the BSEE
announced a new pilot inspection program for offshore facilities. Compliance with any new requirements of OPA90 may
substantially impact our cost of operations or require us to incur additional expenses to comply with any new regulatory
initiatives or statutes. Additional legislation, regulation, or other requirements applicable to the operation of our vessels that may
be implemented in the future as could adversely affect our business and ability to make distributions to our shareholders.
Clean Water Act
The United States Clean Water Act, or CWA, prohibits the discharge of oil or hazardous substances in United States
navigable waters unless authorized by a permit or exemption, and imposes strict liability in the form of penalties for unauthorized
discharges. The CWA also imposes substantial liability for the costs of removal, remediation and damages and complements the
remedies available under OPA90 and CERCLA. In addition, many states in the United States that border a navigable waterway
have enacted environmental pollution laws that impose strict liability on a person for removal costs and damages resulting from a
discharge of oil or a release of a hazardous substance. These laws may be more stringent than United States federal law. The EPA
recently proposed revisions to the CWA.
The EPA and the USCG have enacted rules relating to ballast water discharge, compliance with which requires the
installation of equipment on our vessels to treat ballast water before it is discharged in or the implementation of other port facility
disposal arrangements or procedures at potentially substantial costs, and/or otherwise restrict our vessels from entering United
States waters.
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The EPA requires a permit regulating ballast water discharges and other discharges incidental to the normal operation of
certain vessels within United States water under the Vessel General Permit for Discharges Incidental to the Normal Operation of
Vessels, or VGP. For a new vessel delivered to an owner or operator after September 19, 2009, to be covered by the VGP, the
owner must submit a Notice of Intent, or NOI, at least 30 days before the vessel operates in United States waters. On March 28,
2013, the EPA re-issued the VGP for another 5 years. This VGP took effect on December 19, 2013. The VGP focuses on
authorizing discharges incidental to operations of commercial vessels and the new VGP contains numeric ballast water discharge
limits for most vessels to reduce the risk of invasive species in United States waters, more stringent requirements for gas
scrubbers and the use of environmentally acceptable lubricants.
The USCG regulations adopted under the United States National Invasive Species Act, or NISA, also impose mandatory
ballast water management practices for all vessels equipped with ballast water tanks entering or operating in United States waters,
which require the installation of equipment to treat ballast water before it is discharged in United States waters or, in the
alternative, the implementation of other port facility disposal arrangements or procedures. Vessels not complying with these
regulations are restricted from entering United States waters. As of June 21, 2012, the USCG implemented revised regulations on
ballast water management by establishing standards on the allowable concentration of living organisms in ballast water
discharged from ships in United States waters. The USCG must approve any technology before it is placed on a vessel.
As of January 1, 2014, vessels are technically subject to the phasing-in of these standards. However, it was not until
December 2016 that the USCG first approved said technology. The USCG previously provided waivers to vessels which could
not install the as-yet unapproved technology and vessels now requiring a waiver will need to show why they cannot install the
approved technology. The EPA, on the other hand, has taken a different approach to enforcing ballast discharge standards under
the VGP. On December 27, 2013, the EPA issued an enforcement response policy in connection with the new VGP in which the
EPA indicated that it would take into account the reasons why vessels do not have the requisite technology installed, but will not
grant any waivers.
It should also be noted that in October 2015, the Second Circuit Court of Appeals issued a ruling that directed the EPA
to redraft the sections of the 2013 VGP that address ballast water. However, the Second Circuit stated that 2013 VGP will remains
in effect until the EPA issues a new VGP. In the fall of 2016, sources reported that the EPA indicated it was working on a new
VGP. It presently remains unclear how the ballast water requirements set forth by the EPA, the USCG, and IMO BWM
Convention, some of which are in effect and some which are pending, will co-exist.
Compliance with the VGP could require the installation of equipment on our vessel to treat ballast water before it is
discharged or the implementation of other disposal arrangements, and/or otherwise restrict our vessel from entering United States
waters. In addition, certain states have enacted more stringent discharge standards as conditions to their required certification of
the VGP. We submit NOIs for our vessel where required and do not believe that the costs associated with obtaining and
complying with the VGP have a material impact on our operations.
Clean Air Act
The United States Clean Air Act of 1970, as amended, or the CAA, requires the EPA to promulgate standards applicable
to emissions of volatile organic compounds and other air contaminants. Our vessels are subject to vapor control and recovery
requirements for certain cargoes when loading, unloading, ballasting, cleaning and conducting other operations in regulated port
areas and emission standards for so ‑
called "Category 3" marine diesel engines operating in United States waters. The marine
diesel engine emission standards are currently limited to new engines beginning with the 2004 model year. On April 30, 2010, the
EPA promulgated final emission standards for Category 3 marine diesel engines equivalent to those adopted in the amendments to
Annex VI. The emission standards apply in two stages: near ‑
term standards for newly ‑
built engines went into effect from
2011, and long ‑
term standards requiring an 80% reduction in nitrogen dioxides, or NOx, that went into effect on January 1,
2016. We have incurred costs to install control equipment on our vessels to comply with these standards.
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European Union
The EU has also adopted legislation that would: (1) ban manifestly sub ‑
standard vessels (defined as those over 15
years old that have been detained by port authorities at least twice in a six month period) from European waters and require port
states to inspect vessels posing a high risk to maritime safety or the marine environment; and (2) provide the EU with greater
authority and control over classification societies, including the ability to seek to suspend or revoke the authority of negligent
societies.
The EU has implemented regulations requiring vessels to use reduced sulfur content fuel for their main and auxiliary
engines. The EU Directive 2005/EC/33 (amending Directive 1999/32/EC) introduced requirements parallel to those in Annex VI
relating to the sulfur content of marine fuels. In addition, the EU imposed a 0.1% maximum sulfur requirement for fuel used by
ships at berth in EU ports, effective January 1, 2010.
In 2009, the EU amended a directive on ship ‑
source pollution imposing criminal sanctions for intentional, reckless or
seriously negligent illicit ship-source discharges of polluting substances by ships including minor discharges and the discharges,
individually or in the aggregate, result in deteriorations or the quality of water. Aiding and abetting the discharge of a polluting
substance may also lead to criminal penalties. The directive could result in criminal liability for pollution from vessels in waters
of European countries that adopt implementing legislation. Criminal liability for pollution may result in substantial penalties or
fines and increased civil liability claims. We cannot predict what regulations, if any, may be adopted by the EU or any other
country or authority.
Regulation of Greenhouse Gas Emissions
In February 2005, the Kyoto Protocol entered into force. Pursuant to the Kyoto Protocol, adopting countries are required
to implement national programs to reduce emissions of certain gases, generally referred to as greenhouse gases, which are
suspected of contributing to global warming. Currently, the emissions of greenhouse gases from ships involved in international
transport are not subject to the Kyoto Protocol. In December 2009, more than 27 nations, including the United States and China,
signed the Copenhagen Accord, which includes a non ‑
binding commitment to reduce greenhouse gas emissions. In addition, in
December 2011, the Conference of the Parties to the United Nations Convention on Climate Change adopted the Durban Platform
which calls for a process to develop binding emissions limitations on both developed and developing countries under the United
Nations Framework Convention on Climate Change applicable to all Parties. The 2015 United Nations Climate Change
Conference in Paris resulted in the Paris Agreement, which entered into force on November 4, 2016. The Paris Agreement does
not directly limit greenhouse gas emissions from ships. On June 1, 2017, the President of the United States announced that it is
withdrawing from the Paris Agreement. The timing and effect of such action has yet to be determined.
In April 2015, the European Parliament approved EU draft rules, which will require annual carbon dioxide emission
monitoring and reporting from ship owners who use EU ports. These rules are expected to be effective in 2018 and apply to ships
over 5,000gt. For 2020, the EU made a unilateral commitment to reduce overall greenhouse gas emissions from its member states
by 20% of 1990 levels. The EU also committed to reduce its emissions by 20% under the Kyoto Protocol's second period, from
2013 to 2020.
As of January 1, 2013, all ships must comply with mandatory requirements adopted by MEPC in July 2011 in part to
address greenhouse gas emissions. By 2025, all new ships built will be 30% more energy efficient than those built in 2014. The
amendments to Annex VI Regulations for the prevention of air pollution from ships add a new Chapter 4 to Annex VI on
Regulations on energy efficiency requiring new ships to meet the Energy Efficiency Design Index, or EEDI, and all ships to
develop and implement a Ship Energy Efficiency Management Plan, or SEEMP. Other amendments to Annex VI add new
definitions and requirements for survey and certification, including the format for the International Energy Efficiency Certificate.
The regulations apply to all ships of 400 gross tonnage and above. These new rules will likely affect the operations of vessels that
are registered in countries that are signatories to Annex VI or vessels that call upon ports located within such countries. The
implementation of the EEDI and SEEMP standards could cause us to incur additional compliance costs. MEPC is also
considering market ‑
based mechanisms to reduce greenhouse gas emissions from ships. It is impossible to predict the likelihood
that such a standard might be adopted or its potential impact on our operations at this time.
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In the United States, the EPA has issued a final finding that greenhouse gases threaten public health and safety, and has
promulgated regulations that regulate the emission of greenhouse gases from certain mobile sources and has proposed regulations
to limit greenhouse gases from large stationary sources. The EPA enforces both the CAA and the international standards found in
Annex VI concerning marine diesel emissions and the sulfur content found in marine fuel. Moreover, in the United States,
individual states can also enact environmental regulations. For example, California has introduced caps for greenhouse gas
emissions and, in the end of 2016, signaled it may take additional action regarding climate change. Any climate control legislation
or other regulatory initiatives adopted by the IMO, the EU, the United States, or other countries where we operate, or any treaty
adopted at the international level to succeed the Kyoto Protocol or the Paris Agreement, that restrict emissions of greenhouse
gases could require us to make significant financial expenditures, including capital expenditures or operational changes to
upgrade our vessels, that we cannot predict with certainty at this time. In addition, even without such regulation, our business may
be indirectly affected to the extent that climate change results in sea level changes or more intense weather events.
Vessel Security Regulations
Since the terrorist attacks of September 11, 2001, there have been a variety of initiatives intended to enhance vessel
security. On November 25, 2002, the Maritime Transportation Act of 2002, or MTSA, came into effect. To implement certain
portions of the MTSA, in July 2003, the USCG issued regulations requiring the implementation of certain security requirements
aboard vessels operating in waters subject to the jurisdiction of the United States. The regulations also impose requirements on
certain ports and facilities, some of which are regulated by the EPA. Similarly, in December 2002, amendments to SOLAS
created a new chapter of the convention dealing specifically with maritime security. The new chapter XI-2 became effective in
July 2004 and imposes various detailed security obligations on vessels and port authorities, most of which are contained in the
ISPS Code. The ISPS Code is designed to protect ports and international shipping against terrorism. After July 1, 2004, to trade
internationally, a vessel must attain an International Ship Security Certificate, or ISSC, from a recognized security organization
approved by the vessel's flag state. The following are among the various requirements, some of which are found in SOLAS:
·
·
·
·
·
·
on ‑
board installation of automatic identification systems to provide a means for the automatic
transmission of safety ‑
related information from among similarly equipped ships and shore stations,
including information on a ship's identity, position, course, speed and navigational status;
on ‑
board installation of ship security alert systems, which do not sound on the vessel but only alert the
authorities on shore;
the development of vessel security plans;
ship identification number to be permanently marked on a vessel's hull;
a continuous synopsis record kept onboard showing a vessel's history including, the name of the ship and
of the state whose flag the ship is entitled to fly, the date on which the ship was registered with that state,
the ship's identification number, the port at which the ship is registered and the name of the registered
owner(s) and their registered address; and
compliance with flag state security certification requirements.
The USCG regulations, intended to align with international maritime security standards, exempt non ‑
United States
vessels from obtaining USCG ‑
approved MTSA vessel security plans provided such vessels have on board an ISSC that attests
to the vessel's compliance with SOLAS security requirements and the ISPS Code.
We have developed security plans, appointed and trained Ship and Company Security Officers and each of our vessels in
our fleet complies with the requirements of the ISPS Code, SOLAS and the MTSA.
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Other Regulation
In 1996, the International Convention on Liability and Compensation for Damages in Connection with the Carriage of
Hazardous and Noxious Substances by Sea, or HNS, was adopted and subsequently amended by the 2010 Protocol, or the 2010
HNS Convention. Our LPG vessels may also become subject to the HNS Convention, if it is entered into force. The HNS
Convention creates a regime of liability and compensation for damage from HNS, including liquefied gases. The HNS
Convention introduces strict liability for the shipowner and covers pollution damage as well as the risks of fire and explosion,
including loss of life or personal injury and damage to property. The 2010 HNS Convention sets up a two ‑
tier system of
compensation composed of compulsory insurance taken out by shipowners and an HNS Fund which comes into play when the
insurance is insufficient to satisfy a claim or does not cover the incident. Under the 2010 HNS Convention, if damage is caused
by bulk HNS, claims for compensation will first be sought from the shipowner up to a maximum of 100 million Special Drawing
Rights, or SDR. If the damage is caused by packaged HNS or by both bulk and packaged HNS, the maximum liability is 115
million SDR. Once the limit is reached, compensation will be paid from the HNS Fund up to a maximum of 250 million SDR.
The 2010 HNS Convention has not come into effect. It will come into force eighteen months after the date on which certain
consent and administrative requirements are satisfied. While a majority of the necessary number of states has indicated their
consent to be bound by the 2010 HNS Convention, the required minimum has not been met. We cannot estimate the costs that
may be needed to comply with any such requirements that may be adopted with any certainty at this time.
Taxation
The following is a discussion of the material Marshall Islands and United States federal income tax considerations
relevant to an investment decision by a United States Holder and a Non ‑
United States Holder, each as defined below, with
respect to the common shares. This discussion does not purport to deal with the tax consequences of owning our common shares
to all categories of investors, some of which, such as financial institutions, regulated investment companies, real estate investment
trusts, tax ‑
exempt organizations, insurance companies, persons holding our common stock as part of a hedging, integrated,
conversion or constructive sale transaction or a straddle, traders in securities that have elected the mark ‑
to ‑
market method of
accounting for their securities, persons liable for alternative minimum tax, persons who are investors in partnerships or other pass
‑
through entities for United States federal income tax purposes, dealers in securities or currencies, United States Holders whose
functional currency is not the United States dollar and investors that own, actually or under applicable constructive ownership
rules, 10% or more of our shares of common stock, may be subject to special rules. This discussion deals only with holders who
purchase and hold the common shares as a capital asset. You are encouraged to consult your own tax advisors concerning the
overall tax consequences arising in your own particular situation under United States federal, state, local or non ‑
United States
law of the ownership of common shares.
Marshall Islands Tax Considerations
In the opinion of Seward & Kissel LLP, the following are the material Marshall Islands tax consequences of our
activities to us and of our common shares to our shareholders. We are incorporated in the Marshall Islands. Under current
Marshall Islands law, we are not subject to tax on income or capital gains, and no Marshall Islands withholding tax will be
imposed upon payments of dividends by us to our shareholders as there is no reciprocal tax treaty between the Marshall Islands
and the United States.
United States Federal Income Tax Considerations
In the opinion of Seward & Kissel LLP, the following are the material United States federal income tax consequences to
us of our activities and to United States Holders and Non ‑
United States Holders, each as defined below, of the common shares.
The following discussion of United States federal income tax matters is based on the United States Internal Revenue Code of
1986, or the Code, judicial decisions, administrative pronouncements, and existing and proposed regulations issued by the United
States Department of the Treasury, or the Treasury Regulations, all of which are subject to change, possibly with retroactive
effect. The discussion below is based, in part, on the description of our business as described in this report and assumes that we
conduct our business as described herein.
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United States Federal Income Taxation of Operating Income: In General
We anticipate that we will earn substantially all our income from the hiring of vessels for use on a time or spot charter
basis, including through the Helios Pool, and from the performance of services directly related to those uses, all of which we refer
to as "shipping income."
Unless we qualify for an exemption from United States federal income taxation under the rules of Section 883 of the
Code, or Section 883, as discussed below, a foreign corporation such as the Company will be subject to United States federal
income taxation on its "shipping income" that is treated as derived from sources within the United States, to which we refer as
"United States source shipping income." For United States federal income tax purposes, "United States source shipping income"
includes 50% of shipping income that is attributable to transportation that begins or ends, but that does not both begin and end, in
the United States.
Shipping income attributable to transportation exclusively between non ‑
United States ports will be considered to be
100% derived from sources entirely outside the United States. Shipping income derived from sources outside the United States
will not be subject to any United States federal income tax.
Shipping income attributable to transportation exclusively between United States ports is considered to be 100% derived
from United States sources. However, we are not permitted by United States law to engage in the transportation of cargoes that
produces 100% United States source shipping income.
Unless we qualify for the exemption from tax under Section 883, our gross United States source shipping income would
be subject to a 4% tax imposed without allowance for deductions as described below.
Exemption
of
Operating
Income
from
United
States
Federal
Income
Taxation
Under Section 883 and the Treasury Regulations thereunder, a foreign corporation will be exempt from United States
federal income taxation of its United States source shipping income if:
1)
2)
it is organized in a "qualified foreign country" which is one that grants an "equivalent exemption" from tax to
corporations organized in the United States in respect of each category of shipping income for which exemption
is being claimed under Section 883; and
one of the following tests is met:
A)
B)
more than 50% of the value of its shares is beneficially owned, directly or indirectly, by "qualified
shareholders," which as defined includes individuals who are "residents" of a qualified foreign
country, to which we refer as the "50% Ownership Test"; or
its shares are "primarily and regularly traded on an established securities market" in a qualified foreign
country or in the United States, to which we refer as the "Publicly ‑
Traded Test."
The Republic of The Marshall Islands, the jurisdiction where we and our ship ‑
owning subsidiaries are incorporated,
has been officially recognized by the United States Internal Revenue Service, or the IRS, as a qualified foreign country that grants
the requisite "equivalent exemption" from tax in respect of each category of shipping income we earn and currently expect to earn
in the future. Therefore, we will be exempt from United States federal income taxation with respect to our United States source
shipping income if we satisfy either the 50% Ownership Test or the Publicly ‑
Traded Test.
We believe that we satisfy the Publicly ‑
Traded Test, a factual determination made on an annual basis, with respect to
our taxable year ended March 31, 2017, and we expect to continue to do so for our subsequent taxable years, and we intend to
take this position for United States federal income tax reporting purposes. We do not currently anticipate circumstances under
which we would be able to satisfy the 50% Ownership Test.
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Publicly
‑
Traded
Test
The Treasury Regulations under Section 883 provide, in pertinent part, that shares of a foreign corporation will be
considered to be "primarily traded" on an established securities market in a country if the number of shares of each class of stock
that are traded during any taxable year on all established securities markets in that country exceeds the number of shares in each
such class that are traded during that year on established securities markets in any other single country. The Company's common
shares, which constitute its sole class of issued and outstanding stock is "primarily traded" on the New York Stock Exchange, or
the NYSE, an established securities market for these purposes.
Under the Treasury Regulations, our common shares will be considered to be "regularly traded" on an established
securities market if one or more classes of our shares representing more than 50% of our outstanding stock, by both total
combined voting power of all classes of stock entitled to vote and total value, are listed on such market, to which we refer as the
"listing threshold." Since all of our common shares are listed on the NYSE, we expect to satisfy the listing threshold.
The Treasury Regulations also require that with respect to each class of stock relied upon to meet the listing threshold,
(i) such class of stock traded on the market, other than in minimal quantities, on at least 60 days during the taxable year or one ‑
sixth of the days in a short taxable year, which we refer to as the "trading frequency test"; and (ii) the aggregate number of shares
of such class of stock traded on such market during the taxable year must be at least 10% of the average number of shares of such
class of stock outstanding during such year or as appropriately adjusted in the case of a short taxable year, which we refer to as
the "trading volume" test. We anticipate that we will satisfy the trading frequency and trading volume tests. Even if this were not
the case, the Treasury Regulations provide that the trading frequency and trading volume tests will be deemed satisfied if, as is
expected to be the case with our common shares, such class of stock is traded on an established securities market in the United
States and such shares are regularly quoted by dealers making a market in such shares.
Notwithstanding the foregoing, the Treasury Regulations provide, in pertinent part, that a class of shares will not be
considered to be "regularly traded" on an established securities market for any taxable year in which 50% or more of the vote and
value of the outstanding shares of such class are owned on more than half the days during the taxable year by persons who each
own 5% or more of the vote and value of such class of outstanding stock, to which we refer as the "5% Override Rule."
For purposes of being able to determine the persons who actually or constructively own 5% or more of the vote and
value of our common shares, or "5% Shareholders," the Treasury Regulations permit us to rely on those persons that are identified
on Schedule 13G and Schedule 13D filings with the Commission, as owning 5% or more of our common shares. The Treasury
Regulations further provide that an investment company which is registered under the Investment Company Act of 1940, as
amended, will not be treated as a 5% Shareholder for such purposes.
In the event the 5% Override Rule is triggered, the Treasury Regulations provide that the 5% Override Rule will
nevertheless not apply if we can establish that within the group of 5% Shareholders, qualified shareholders (as defined for
purposes of Section 883) own sufficient number of shares to preclude non ‑
qualified shareholders in such group from owning
50% or more of our common shares for more than half the number of days during the taxable year.
We believe that we satisfy the Publicly ‑
Traded Test and will not be subject to the 5% Override Rule for taxable year
ending March 31, 2017 and we also expect to continue to do so for our subsequent taxable years. However, there are factual
circumstances beyond our control that could cause us to lose the benefit of the Section 883 exemption. For example, we may no
longer qualify for Section 883 exemption for a particular taxable year if 5% Shareholders were to own, in the aggregate, 50% or
more of our outstanding common shares on more than half the days of the taxable year, unless we could establish that within the
group of 5% Shareholders, qualified shareholders own sufficient number of our shares to preclude the non-qualified shareholders
in such group from owning 50% or more of our common shares for more than half the number of days during the taxable year.
Under the Treasury Regulations, we would have to satisfy certain substantiation requirements regarding the identity of our
shareholders. These requirements are onerous and there is no assurance that we would be able to satisfy them. Given the factual
nature of the issues involved, we can give no assurances in regards of our or our subsidiaries' qualification for the Section 883
exemption.
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Taxation
in
Absence
of
Section
883
Exemption
If the benefits of Section 883 are unavailable, our United States source shipping income would be subject to a 4% tax
imposed by Section 887 of the Code on a gross basis, without the benefit of deductions, or the "4% gross basis tax regime," to the
extent that such income is not considered to be "effectively connected" with the conduct of a United States trade or business, as
described below. Since under the sourcing rules described above, no more than 50% of our shipping income would be treated as
being United States source shipping income, the maximum effective rate of United States federal income tax on our shipping
income would never exceed 2% under the 4% gross basis tax regime.
To the extent our United States source shipping income is considered to be "effectively connected" with the conduct of a
United States trade or business, as described below, any such "effectively connected" United States source shipping income, net
of applicable deductions, would be subject to United States federal income tax, currently imposed at rates of up to 35%. In
addition, we would generally be subject to the 30% "branch profits" tax on earnings effectively connected with the conduct of
such trade or business, as determined after allowance for certain adjustments, and on certain interest paid or deemed paid
attributable to the conduct of our United States trade or business.
Our United States source shipping income would be considered "effectively connected" with the conduct of a United
States trade or business only if:
· we have, or are considered to have, a fixed place of business in the United States involved in the earning of United
States source shipping income; and
·
substantially all of our United States source shipping income is attributable to regularly scheduled transportation,
such as the operation of a vessel that follows a published schedule with repeated sailings at regular intervals
between the same points for voyages that begin or end in the United States.
We do not intend to have, or permit circumstances that would result in having, any vessel sailing to or from the United
States on a regularly scheduled basis. Based on the foregoing and on the expected mode of our shipping operations and other
activities, it is anticipated that none of our United States source shipping income will be "effectively connected" with the conduct
of a United States trade or business.
United States Taxation of Gain on Sale of Vessels
Regardless of whether we qualify for exemption under Section 883, we will not be subject to United States federal
income tax with respect to gain realized on a sale of a vessel, provided the sale is considered to occur outside of the United States
under United States federal income tax principles. In general, a sale of a vessel will be considered to occur outside of the United
States for this purpose if title to the vessel, and risk of loss with respect to the vessel, pass to the buyer outside of the United
States. It is expected that any sale of a vessel by us will be considered to occur outside of the United States.
United States Federal Income Taxation of United States Holders
As used herein, the term "United States Holder" means a holder that for United States federal income tax purposes is a
beneficial owner of common shares and is an individual United States citizen or resident, a United States corporation or other
United States entity taxable as a corporation, an estate the income of which is subject to United States federal income taxation
regardless of its source, or a trust if a court within the United States is able to exercise primary jurisdiction over the administration
of the trust and one or more United States persons have the authority to control all substantial decisions of the trust.
If a partnership holds the common shares, the tax treatment of a partner will generally depend upon the status of the
partner and upon the activities of the partnership. If you are a partner in a partnership holding the common shares, you are
encouraged to consult your tax advisor.
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Distributions
Subject to the discussion of passive foreign investment companies below, any distributions made by us with respect to
our common shares to a United States Holder will generally constitute dividends to the extent of our current or accumulated
earnings and profits, as determined under United States federal income tax principles. Distributions in excess of such earnings and
profits will be treated first as a nontaxable return of capital to the extent of the United States Holder's tax basis in its common
shares and thereafter as capital gain. Because we are not a United States corporation, United States Holders that are corporations
will not be entitled to claim a dividends received deduction with respect to any distributions they receive from us. Dividends paid
with respect to our common shares will generally be treated as foreign source dividend income and will generally constitute
"passive category income" for purposes of computing allowable foreign tax credits for United States foreign tax credit purposes.
Dividends paid on our common shares to certain non ‑
corporate United States Holders will generally be treated as
"qualified dividend income" that is taxable to such United States Holders at preferential tax rates provided that (1) the common
shares are readily tradable on an established securities market in the United States (such as the NYSE, on which our common
shares will be traded), (2) the shareholder has owned the common stock for more than 60 days in the 121 ‑
day period beginning
60 days before the date on which the common stock becomes ex ‑
dividend, and (3) we are not a passive foreign investment
company for the taxable year during which the dividend is paid or the immediately preceding taxable year.
There is no assurance that any dividends paid on our common shares will be eligible for these preferential rates in the
hands of such non ‑
corporate United States Holders, although, as described above, we expect such dividends to be so eligible
provided an eligible non ‑
corporate United States Holder meets all applicable requirements and we are not a passive foreign
passive investment company in the taxable year during which the dividend is paid or the immediately preceding taxable year. Any
dividends paid by us which are not eligible for these preferential rates will be taxed as ordinary income to a non ‑
corporate
United States Holder.
Special rules may apply to any "extraordinary dividend"—generally, a dividend in an amount which is equal to or in
excess of 10% of a shareholder's adjusted tax basis in a common share—paid by us. If we pay an "extraordinary dividend" on our
common shares that is treated as "qualified dividend income," then any loss derived by certain non ‑
corporate United States
Holders from the sale or exchange of such common shares will be treated as long-term capital loss to the extent of such dividend.
Sale,
Exchange
or
Other
Disposition
of
Common
Shares
Assuming we do not constitute a passive foreign investment company for any taxable year, a United States Holder
generally will recognize taxable gain or loss upon a sale, exchange or other disposition of our common shares in an amount equal
to the difference between the amount realized by the United States Holder from such sale, exchange or other disposition and the
United States Holder's tax basis in such shares. Such gain or loss will be treated as long ‑
term capital gain or loss if the United
States Holder's holding period is greater than one year at the time of the sale, exchange or other disposition. Such capital gain or
loss will generally be treated as United States source income or loss, as applicable, for United States foreign tax credit purposes.
Long ‑
term capital gains of certain non ‑
corporate United States Holders are currently eligible for reduced rates of taxation. A
United States Holder's ability to deduct capital losses is subject to certain limitations.
Passive Foreign Investment Company Status and Significant Tax Consequences
Special United States federal income tax rules apply to a United States Holder that holds shares in a foreign corporation
classified as a "passive foreign investment company," or a PFIC, for United States federal income tax purposes.
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In general, we will be treated as a PFIC with respect to a United States Holder if, for any taxable year in which such holder holds
our common shares, either
·
·
at least 75% of our gross income for such taxable year consists of passive income (e.g., dividends, interest, capital
gains and rents derived other than in the active conduct of a rental business); or
at least 50% of the average value of our assets during such taxable year produce, or are held for the production of,
passive income.
For purposes of determining whether we are a PFIC, we will be treated as earning and owning our proportionate share of
the income and assets, respectively, of any of our ship ‑
owning subsidiaries in which we own at least 25% of the value of the
subsidiary's stock. Income earned, or deemed earned, by us in connection with the performance of services would not constitute
passive income. By contrast, rental income would generally constitute "passive income" unless we were treated under specific
rules as deriving our rental income in the active conduct of a trade or business.
We believe that income we earn from the voyage charters, and also from time charters, for the reasons discussed below,
will be treated as active income for PFIC purposes and as a result, we intend to take the position that we satisfy the 75% income
test for our taxable year ended March 31, 2017.
As of the date of this Annual Report, we have taken delivery of all of the vessels under our newbuilding contracts.
Accordingly, based on our current and anticipated operations, we do not believe that we will be treated as a PFIC for our taxable
year ended March 31, 2017, or subsequent taxable years, and we intend to take such position for our United States federal income
tax reporting purposes. Our belief is based principally on the position that the gross income we derive from our voyage or time
chartering activities should constitute services income, rather than rental income. Accordingly, such income should not constitute
passive income, and the assets that we own and operate in connection with the production of such income, in particular, the
vessels, should not constitute passive assets for purposes of determining whether we are a PFIC. There is substantial legal
authority supporting this position consisting of case law and IRS pronouncements concerning the characterization of income
derived from time charters as services income for other tax purposes. However, there is also authority which characterizes time
charter income as rental income rather than services income for other tax purposes. Accordingly, no assurance can be given that
the IRS or a court of law will accept this position, and there is a risk that the IRS or a court of law could determine that we are a
PFIC. In addition, although we intend to conduct our affairs in a manner to avoid 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.
As discussed more fully below, for any taxable year in which we are, or were to be treated as, a PFIC, a United States
Holder would be subject to different taxation rules depending on whether the United States Holder makes an election to treat us as
a "Qualified Electing Fund," which election we refer to as a "QEF election." As an alternative to making a QEF election, a United
States Holder should be able to make a "mark ‑
to ‑
market" election with respect to our common shares, as discussed below. A
United States holder of shares in a PFIC will be required to file an annual information return containing information regarding the
PFIC as required by applicable Treasury Regulations. We intend to promptly notify our shareholders if we determine we are a
PFIC for any taxable year.
Taxation
of
United
States
Holders
Making
a
Timely
QEF
Election
If a United States Holder makes a timely QEF election, which United States Holder we refer to as an "Electing Holder,"
the Electing Holder must report for United States federal income tax purposes its pro rata share of our ordinary earnings and net
capital gain, if any, for each of our taxable years during which we are a PFIC that ends with or within the taxable year of the
Electing Holder, regardless of whether distributions were received from us by the Electing Holder. No portion of any such
inclusions of ordinary earnings will be treated as "qualified dividend income." Net capital gain inclusions of certain non ‑
corporate United States Holders would be eligible for preferential capital gains tax rates. The Electing Holder's adjusted tax basis
in the common shares will be increased to reflect any income included under the QEF election. Distributions of previously taxed
income will not be subject to tax upon distribution but will decrease the Electing Holder's tax basis in the common shares. An
Electing Holder would not, however, be entitled to a deduction for its pro rata share of any losses that we incur with respect to
any taxable year. An Electing Holder would generally recognize
20
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capital gain or loss on the sale, exchange or other disposition of our common shares. A United States Holder would make a timely
QEF election for our common shares by filing one copy of IRS Form 8621 with his United States federal income tax return for the
first year in which he held such shares when we were a PFIC. If we take the position that we are not a PFIC for any taxable year,
and it is later determined that we were a PFIC for such taxable year, it may be possible for a United States Holder to make a
retroactive QEF election effective for such year. If we determine that we are a PFIC for any taxable year, we will provide each
United States Holder with all necessary information required for the United States Holder to make the QEF election and to report
its pro rata share of our ordinary earnings and net capital gain, if any, for each of our taxable years during which we are a PFIC
that ends with or within the taxable year of the Electing Holder as described above.
Taxation
of
United
States
Holders
Making
a
"Mark
‑
to
‑
Market"
Election
Alternatively, for any taxable year in which we determine that we are a PFIC, and, assuming as we anticipate will be the
case, our shares are treated as "marketable stock," a United States Holder would be allowed to make a "mark ‑
to ‑
market"
election with respect to our common shares, provided the United States Holder completes and files IRS Form 8621 in accordance
with the relevant instructions and related Treasury Regulations. If that election is made, the United States Holder generally would
include as ordinary income in each taxable year the excess, if any, of the fair market value of the common shares at the end of the
taxable year over such Holder's adjusted tax basis in the common shares. The United States Holder would also be permitted an
ordinary loss in respect of the excess, if any, of the United States Holder's adjusted tax basis in the common shares over its fair
market value at the end of the taxable year, but only to the extent of the net amount previously included in income as a result of
the mark ‑
to ‑
market election. A United States Holder's tax basis in his common shares would be adjusted to reflect any such
income or loss amount recognized. In a year when we are a PFIC, any gain realized on the sale, exchange or other disposition of
our common shares would be treated as ordinary income, and any loss realized on the sale, exchange or other disposition of the
common shares would be treated as ordinary loss to the extent that such loss does not exceed the net mark ‑
to ‑
market gains
previously included by the United States Holder.
Taxation
of
United
States
Holders
Not
Making
a
Timely
QEF
or
Mark
‑
to
‑
Market
Election
For any taxable year in which we determine that we are a PFIC, a United States Holder who does not make either a QEF
election or a "mark ‑
to ‑
market" election for that year, whom we refer to as a "Non ‑
Electing Holder," would be subject to
special rules with respect to (i) any excess distribution (i.e., the portion of any distributions received by the Non ‑
Electing
Holder on the common shares in a taxable year in excess of 125% of the average annual distributions received by the Non ‑
Electing Holder in the three preceding taxable years, or, if shorter, the Non ‑
Electing Holder's holding period for the common
shares), and (ii) any gain realized on the sale, exchange or other disposition of our common shares. Under these special rules:
·
·
·
the excess distribution or gain would be allocated ratably over the Non ‑
Electing Holder's aggregate holding period for
the common shares;
the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a
PFIC, would be taxed as ordinary income and would not be "qualified dividend income"; and
the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the
applicable class of taxpayer for that year, and an interest charge for the deemed tax deferral benefit would be imposed
with respect to the resulting tax attributable to each such other taxable year.
United States Federal Income Taxation of "Non ‑
‑
United States Holders"
As used herein, the term "Non ‑
United States Holder" means a holder that, for United States federal income tax
purposes, is a beneficial owner of common shares (other than a partnership) that is not a United States Holder.
21
Table of Contents
If a partnership holds our common shares, the tax treatment of a partner will generally depend upon the status of the
partner and upon the activities of the partnership. If you are a partner in a partnership holding our common shares, you are
encouraged to consult your tax advisor.
Dividends
on
Common
Shares
A Non ‑
United States Holder generally will not be subject to United States federal income or withholding tax on
dividends received from us with respect to our common shares, unless:
·
·
the dividend income is effectively connected with the Non ‑
United States Holder's conduct of a trade or business in the
United States; or
the Non ‑
United States Holder is an individual who is present in the United States for 183 days or more during the
taxable year of receipt of the dividend income and other conditions are met.
Sale, Exchange or Other Disposition of Common Shares
A Non ‑
United States Holder generally will not be subject to United States federal income or withholding tax on any
gain realized upon the sale, exchange or other disposition of our common shares, unless:
·
·
the gain is effectively connected with the Non ‑
United States Holder's conduct of a trade or business in the United
States; or
the Non ‑
United States Holder is an individual who is present in the United States for 183 days or more during the
taxable year of disposition and other conditions are met.
Income or Gains Effectively Connected with a United States Trade or Business
If the Non ‑
United States Holder is engaged in a United States trade or business for United States federal income tax
purposes, dividends on our common shares and gain from the sale, exchange or other disposition of our common shares, that are
effectively connected with the conduct of that trade or business (and, if required by an applicable income tax treaty, is attributable
to a United States permanent establishment), will generally be subject to regular United States federal income tax in the same
manner as discussed in the previous section relating to the taxation of United States Holders. In addition, in the case of a
corporate Non ‑
United States Holder, its earnings and profits that are attributable to the effectively connected income, which are
subject to certain adjustments, may be subject to an additional branch profits tax at a rate of 30%, or at a lower rate as may be
specified by an applicable United States income tax treaty.
Backup Withholding and Information Reporting
In general, dividend payments, or other taxable distributions, and the payment of the gross proceeds on a sale of our
common shares, made within the United States to a non ‑
corporate United States Holder will be subject to information
reporting. Such payments or distributions may also be subject to backup withholding if the non ‑
corporate United States Holder:
·
·
·
fails to provide an accurate taxpayer identification number;
is notified by the IRS that it has have failed to report all interest or dividends required to be shown on its federal income
tax returns; or
in certain circumstances, fails to comply with applicable certification requirements.
Non ‑
United States Holders may be required to establish their exemption from information reporting and backup
withholding with respect to dividends payments or other taxable distribution on our common shares by certifying their
22
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status on an appropriate IRS Form W ‑
8. If a Non ‑
United States Holder sells our common shares to or through a United States
office of a broker, the payment of the proceeds is subject to both United States backup withholding and information reporting
unless the Non ‑
United States Holder certifies that it is a non ‑
United States person, under penalties of perjury, or it otherwise
establish an exemption. If a Non ‑
United States Holder sells our common shares through a Non ‑
United States office of a Non
‑
United States broker and the sales proceeds are paid outside the United States, then information reporting and backup
withholding generally will not apply to that payment. However, United States information reporting requirements, but not backup
withholding, will apply to a payment of sales proceeds, even if that payment is made outside the United States, if a Non ‑
United
States Holder sells our common shares through a Non ‑
United States office of a broker that is a United States person or has
some other contacts with the United States. Such information reporting requirements will not apply, however, if the broker has
documentary evidence in its records that the Non ‑
United States Holder is not a United States person and certain other
conditions are met, or the Non ‑
United States Holder otherwise establishes an exemption.
Backup withholding is not an additional tax. Rather, a refund may generally be obtained of any amounts withheld under
backup withholding rules that exceed the taxpayer's United States federal income tax liability by filing a timely refund claim with
the IRS.
Individuals who are United States Holders (and to the extent specified in applicable Treasury regulations, Non ‑
United
States Holders and certain United States entities) who hold "specified foreign financial assets" (as defined in Section 6038D of the
Code) are required to file IRS Form 8938 with information relating to the asset for each taxable year in which the aggregate value
of all such assets exceeds $75,000 at any time during the taxable year or $50,000 on the last day of the taxable year (or such
higher dollar amount as prescribed by applicable Treasury Regulations). Specified foreign financial assets would include, among
other assets, our common shares, unless the common shares are held in an account maintained with a United States financial
institution. Substantial penalties apply to any failure to timely file IRS Form 8938, unless the failure is shown to be due to
reasonable cause and not due to willful neglect. Additionally, in the event an individual United States Holder (and to the extent
specified in applicable Treasury Regulations, a Non ‑
United States Holder or a United States entity) that is required to file IRS
Form 8938 does not file such form, the statute of limitations on the assessment and collection of United States federal income
taxes of such holder for the related tax year may not close until three years after the date that the required information is filed.
United States Holders (including United States entities) and Non ‑
United States Holders are encouraged consult their own tax
advisors regarding their reporting obligations in respect of our common shares.
Available Information
Our website is located at www.dorianlpg.com. Information on our website does not constitute a part of this annual
report. Our goal is to maintain our website as a portal through which investors can easily find or navigate to pertinent information
about us, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy
statements, and any other reports, after we file them with the Commission. The public may obtain a copy of our filings, free of
charge, through our corporate internet website as soon as reasonably practicable after we have electronically filed such material
with, or furnished it to, the Commission. Additionally, these materials, including this annual report and the accompanying
exhibits, may be inspected and copied at the public reference facilities maintained by the Commission at 100 F Street, N.E.
Washington, D.C. 20549, or from the Commission’s website http://www.sec.gov.
ITEM 1A. RISK FACTORS
The
following
risks
relate
principally
to
us
and
our
business
and
the
industry
in
which
we
operate.
Other
risks
relate
principally
to
the
securities
markets
and
ownership
of
our
common
shares.
Any
of
the
risk
factors
described
below
could
significantly
and
negatively
affect
our
business,
financial
condition
and
results
of
operations
and
our
ability
to
pay
dividends,
and
lower
the
trading
price
of
our
common
shares.
23
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Risks Relating to Our Company
We and the Helios Pool operate exclusively in the LPG shipping industry. Due to our lack of diversification and the lack of
diversification of the Helios Pool, adverse developments in the LPG shipping industry may adversely affect our business,
financial condition and operating results.
We currently rely exclusively on the cash flow generated from the vessels in our fleet, all of which are VLGCs operating
in the LPG shipping industry (including through the Helios Pool). Unlike some other shipping companies, which have vessels of
varying sizes that can carry different cargoes, such as containers, dry bulk, crude oil and oil products, we depend and expect to
continue to depend exclusively on VLGCs transporting LPG. Similarly, the Helios Pool also depends exclusively on the cash flow
generated from VLGCs operating in the LPG shipping industry. Our lack of diversification and the lack of diversification of the
Helios Pool make us vulnerable to adverse developments in the LPG shipping industry, which would have a significantly greater
impact on our business, financial condition and operating results than it would if we or the Helios Pool owned and operated more
diverse assets or engaged in more diverse lines of business.
The recent downturn in spot market charter rates has had and may continue to have a negative effect on our results of
operations and cash flows, including as a result of seasonal fluctuations, which may adversely affect our earnings.
As of the date of this annual report, sixteen of our twenty-two vessels operate in the spot market or under COAs through
the Helios Pool. This exposes us to fluctuations in spot market charter rates. We also employ six of our VLGCs (including
through the Helios Pool) on time charters. As these time charters expire, we may employ these vessels in the spot market.
Generally, the VLGC spot market rates are highly seasonal, with typical strength in the second and third calendar
quarters as suppliers build inventory for high consumption during the northern hemisphere winter. The successful operation of our
vessels in the competitive and highly volatile spot charter market depends on, among other things, obtaining profitable spot
charters, which depends greatly on vessel supply and demand, and minimizing, to the extent possible, time spent waiting for
charters and time spent traveling unladen to pick up cargo.
Recently, there have been periods when spot charter rates have declined below the operating costs of vessels. For
example, the Baltic Exchange Liquid Petroleum Gas Index, an index published daily by the Baltic Exchange for the spot market
rate for the benchmark Ras Tanura‑Chiba route (expressed as U.S. dollars per metric ton), has fallen 81% from a peak of
$143.250 in July 2014 to $26.964 as of June 9, 2017. If future spot charter rates decline, or remain depressed, then we may not
profitably operate our vessels trading in the spot market or those participating in the Helios Pool, meet our obligations, including
payments on indebtedness, or pay dividends.
Further, although our six fixed time charters generally provide reliable revenues, they also limit the portion of our fleet
available for spot market voyages during an upswing in the market when spot market voyages might be more profitable.
Conversely, when the current charters for the six vessels in our fleet on fixed time charter expire (or are terminated early), it may
not be possible to re-charter these vessels at similar or higher rates, or at all. As a result, we may have to accept lower rates or
experience off hire time for our vessels, which would adversely impact our revenues, results of operations and financial condition.
We and/or our pool managers may not be able to successfully secure employment for our vessels or vessels in the Helios Pool,
which could adversely affect our financial condition and results of operations.
As of June 9, 2017, including through the Helios Pool, sixteen of our vessels are operating in the spot market or under
COAs and six of our vessels are on fixed time charters that expire between the third calendar quarter of 2017 and the fourth
calendar quarter of 2020. We cannot assure you that we will be successful in finding employment for our vessels in the spot
market, on time charters or otherwise, or that any employment will be at profitable rates. Moreover, as vessels entered into the
Helios Pool are commercially managed by our wholly-owned subsidiary and Phoenix, we also cannot assure you that we or they
will be successful in finding employment for the vessels in the Helios Pool or that any employment will be profitable. An inability
to locate suitable employment for our vessels or the vessels in the Helios Pool could affect our general financial condition, results
of operation and cash flow as well as the availability of financing.
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Furthermore, the Helios Pool currently time charters-in three VLGCs from Oriental Energy at a fixed time charter hire
rate, which is due regardless of whether we and Phoenix are able to locate suitable employment for the vessels in the Helios Pool.
In addition, the Helios Pool has entered into a COA with Oriental Energy covering Oriental Energy’s shipments from the United
States Gulf. As a result of these fixed expenses, there is an increased risk that an inability to locate suitable employment for these
vessels in the Helios Pool could affect our general financial condition, results of operation and cash flow.
We will face substantial competition in trying to expand relationships with existing customers and obtain new customers.
The process of obtaining new charter agreements is highly competitive and generally involves an intensive screening
process and competitive bidding process, which, in certain cases, extends for several months. Contracts are awarded based upon a
variety of factors, including:
·
·
·
·
·
·
·
·
the location, size, age, and condition of a vessel;
the operator's industry relationships, experience and reputation for customer service, quality operations and
safety;
the quality, experience and technical capability of the crew;
the experience of the crew with the operator and type of vessel;
the operator's relationships with shipyards and the ability to get suitable berths;
the operator's construction management experience, including the ability to obtain on ‑
time delivery of new
vessels according to customer specifications;
the operator's willingness to accept operational risks pursuant to the charter, such as allowing termination of the
charter for force majeure events; and
the competitiveness of the bid in terms of overall price.
Our vessels, and the vessels operating in the Helios Pool, operate in a highly competitive market and we expect
substantial competition for providing transportation services from a number of companies (both LPG vessel owners and
operators). We anticipate that an increasing number of maritime transport companies, including many with strong reputations and
extensive resources and experience, have or will enter the LPG shipping market. Our existing and potential competitors may have
significantly greater financial resources than us. In addition, competitors with greater resources may have larger fleets, or could
operate larger fleets through consolidations, acquisitions, newbuildings or pooling of their vessels with other companies, and,
therefore, may be able to offer a more competitive service than us or the Helios Pool, including better charter rates. We expect
competition from a number of experienced companies providing contracts for gas transportation services to potential LPG
customers, including state-sponsored entities and major energy companies affiliated with the projects requiring shipping services.
As a result, we (including the Helios Pool) 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.
We and the Helios Pool are subject to risks with respect to counterparties, and failure of such counterparties to meet their
obligations could cause us to suffer losses or negatively impact our results of operations and cash flows.
We have entered into, and expect to enter into in the future, various contracts, including charter agreements, and
contracts of affreightment, shipbuilding contracts and credit facilities that subject us to counterparty risks. Similarly, the Helios
Pool has entered into, and expects to enter into in the future, various contracts, including charters and contracts of affreightment,
that subject it to counterparty risks. The ability and willingness of our and the Helios Pool’s counterparties to perform their
obligations under any contract will depend on a number of factors that are beyond our control and may include, among other
things, general economic conditions, the condition of the maritime and LPG industries, the overall
25
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financial condition of the counterparty, charter rates for specific types of vessels, and various expenses. For example, a reduction
of cash flow resulting from declines in world trade or the lack of availability of debt or equity financing may result in a significant
reduction in the ability of our charterers or the Helios Pool’s charterers to make required charter payments. In addition, in
depressed market conditions, charterers and customers may no longer need a vessel that is then under charter or contract or may
be able to obtain a comparable vessel at lower rates. As a result, charterers and customers may seek to renegotiate the terms of
their existing charter agreements or avoid their obligations under those contracts. Should a counterparty fail to honor its
obligations under agreements with us or the Helios Pool, we could sustain significant losses and a significant reduction in the
charter hire we earn from the Helios Pool, which could have a material adverse effect on our business, financial condition, results
of operations and cash flows.
We expect to be dependent on a limited number of customers for a material part of our revenues, and failure of such
customers to meet their obligations could cause us to suffer losses or negatively impact our results of operations and cash
flows.
For the year ended March 31, 2017, the Helios Pool and two other individual charterers accounted for 69%, 13%, and
10% of our total revenues, respectively. Within the Helios Pool, two charterers represented 26% and 13% of net pool revenues—
related party for the year ended March 31, 2017. We expect that a material portion of our revenues will continue to be derived
from these customers. The ability of each of our customers to perform its obligations under a contract with us will depend on a
number of factors that are beyond our control. Should the aforementioned customers fail to honor their obligations under
agreements with us or the Helios Pool, we could sustain material losses that could have a material adverse effect on our business,
financial condition, results of operations and cash flows.
The expansion of the Panama Canal may have an adverse effect on our results of operations.
In June 2016, the expansion of the Panama Canal, or the Canal, was completed. The new locks allow the Canal to
accommodate significantly larger vessels, including VLGCs, which we operate. Transit from the United States Gulf to Asia, an
important trade route for our customers, can now be shortened by approximately 15 days compared to transiting via the Cape of
Good Hope. The decrease in voyage time may increase the number of VLGCs available for cargo lifting and thereby increase
industry capacity, which may have an adverse effect on time charter equivalent rates.
Our indebtedness may adversely affect our operational flexibility and financial condition.
As of March 31, 2017, we had outstanding indebtedness of $770.1 million. On May 31, 2017, we entered into an
agreement to amend the 2015 Debt Facility, or the Amendment, that included a release of $26.8 million of restricted cash, of
which $24.8 million was applied to the next two debt principal payments. For further details, see Note 24 to our consolidated
financial statements included herein. On June 8, 2017, we entered into a $97.0 million bridge loan agreement with DNB Capital
LLC, or the 2017 Bridge Loan. The proceeds of the 2017 Bridge Loan were used to repay in full the RBS Loan Facility (defined
below) at 96% of the then outstanding principal amount . The remaining proceeds were used to pay legal and advisory fees related
to the 2017 Bridge Loan and to provide cash for use in operations. For further details, see Note 24 to our consolidated financial
statements included herein. Amounts owed under our current credit facilities and any future credit facilities will require us to
dedicate a part of our cash flow from operations to paying interest and principal payments. These payments will limit funds
available for working capital, capital expenditures, acquisitions, dividends, and other purposes and may also limit our ability to
undertake further equity or debt financing in the future. Our indebtedness also increases our vulnerability to general adverse
economic and industry conditions, limits our flexibility in planning for and reacting to changes in the industry, and places us at a
disadvantage to other, less leveraged, competitors.
Our credit facilities bear interest at variable rates and we anticipate that any future credit facilities will also bear interest
at variable rates. Increases in prevailing rates could increase the amounts that we would have to pay to our lenders or financing
counterparties, even though the outstanding principal amount remains the same, and our net income and available cash flows
would decrease as a result.
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We expect our earnings and cash flow to vary from year to year due to the cyclical nature of the LPG shipping industry.
If we do not generate or reserve enough cash flow from operations to satisfy our financing obligations, we may have to undertake
alternative financing plans, such as:
·
seeking to raise additional capital;
·
refinancing or restructuring our debt or financing obligations;
·
selling LPG tankers; and/or
·
reducing or delaying capital investments.
However, these alternative financing plans, if necessary, may not be sufficient to allow us to meet our debt obligations.
If we are unable to meet our debt obligations and we default on our obligations under our debt agreements, our lenders could elect
to declare our outstanding borrowings and certain other or amounts owed, together with accrued interest and fees, to be
immediately due and payable and foreclose on the vessels securing that debt.
Our existing and future debt agreements contain and are expected to contain restrictive covenants that may limit our liquidity
and corporate activities, which could have an adverse effect on our financial condition and results of operations.
Our debt agreements contain, and any future financing arrangements are expected to contain, customary covenants and
event of default clauses, including cross ‑
default provisions and restrictive covenants and performance requirements, which may
affect operational and financial flexibility. Such restrictions could affect, and in many respects limit or prohibit, among other
things, our ability to pay dividends, incur additional indebtedness, create liens, sell assets, or engage in mergers or acquisitions.
These restrictions could limit our ability to plan for or react to market conditions or meet extraordinary capital needs or otherwise
restrict corporate activities. There can be no assurance that such restrictions will not adversely affect our ability to finance our
future operations or capital needs.
Our agreements relating to the 2015 Debt Facility , which is secured by, among other things, eighteen of our VLGCs,
and the 2017 Bridge Loan (see Note 24 to our consolidated financial statements included herein), which is secured by, among
other things, four of our VLGCs, require us to maintain specified financial ratios and satisfy financial covenants.
In addition, under the 2015 Debt Facility and the 2017 Bridge Loan (see Note 24 to our consolidated financial statements
included herein), our payment of dividends to shareholders as well as payment of dividends by our subsidiaries to us is generally
subject to no event of default. Further, under the Amendment to the 2015 Debt Facility, we are temporarily restricted from paying
dividends and repurchasing shares of our common stock until the earlier of (i) when we complete a common stock offering with
net proceeds of at least $50.0 million and (ii) May 31, 2019.
We entered into the 2017 Bridge Loan and repaid in full the term loans with the Royal Bank of Scotland, or the RBS
Loan Facility, at 96% of the then outstanding principal amount in June 2017. See Note 24 to our consolidated financial statements
included herein for further details on the 2017 Bridge Loan and the repayment of the RBS Loan Facility. We were in compliance
with the financial covenants for the 2015 Debt Facility as of March 31, 2017, which was amended in May 2017. See Note 24 to
our consolidated financial statements included herein for further details on the Amendment.
As a result of the restrictions in our debt agreements, or similar restrictions in our future financing arrangements, we
may need to seek permission from our lenders in order to engage in certain corporate actions. Our lenders' interests may be
different from ours and we may not be able to obtain their permission when needed or at all. This may prevent us from taking
actions that we believe are in our best interest, which may adversely impact our revenues, results of operations and financial
condition.
A failure by us to meet our payment and other obligations, including our financial and value to loan covenants, could
lead to defaults under our secured loan agreements. In addition, a default under one of our credit facilities could
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result in the cross-acceleration of our other indebtedness. Our lenders could then accelerate our indebtedness and foreclose on our
fleet.
The market values of our vessels may decrease, which could cause us to breach covenants in our loan agreements or record an
impairment or loss, or negatively impact our ability to enter into future financing arrangements, and as a result could have a
material adverse effect on our business, financial condition and results of operations.
Our existing debt agreements, which are secured by, among other things, liens on the vessels in our fleet contain various
financial covenants, including requirements that relate to our financial condition, operating performance and liquidity. For
example, we are required to maintain a minimum debt to adjusted equity ratio that is based, in part, upon the market value of the
vessels securing the applicable loan, as well as a minimum ratio of the market value of the vessels securing a loan to the principal
amount outstanding under such loan. The market value of LPG carriers is sensitive to, among other things, changes in the LPG
carrier charter markets, with vessel values deteriorating in times when LPG carrier charter rates are falling and improving when
charter rates are anticipated to rise. While the market values of LPG carriers generally have increased since the economic
slowdown in 2008-2009, they still remain below the historic high levels achieved prior to the economic slowdown. LPG vessel
values remain subject to significant fluctuation. A decline in the fair market values of our vessels could result in our not being in
compliance with these loan covenants. Furthermore, if the value of our vessels deteriorates and our estimated future cash flows
decrease, we may have to record an impairment adjustment in our financial statements or we may be unable to enter into future
financing arrangements acceptable to us or at all, which would adversely affect our financial results and further hinder our ability
to raise capital.
If we are unable to comply with any of the restrictions and covenants in our debt agreements, or in current or future debt
financing agreements, and we are unable to obtain a waiver or amendment from our lenders for such noncompliance, a default
could occur under the terms of those agreements. Our ability to comply with these restrictions and covenants, including meeting
financial ratios and tests, is dependent on our future performance and may be affected by events beyond our control. If a default
occurs under these agreements, lenders could terminate their commitments to lend or in some circumstances accelerate the
outstanding loans and declare all amounts borrowed due and payable. Our vessels serve as security under our debt agreements. If
our lenders were to foreclose their liens on our vessels in the event of a default, this may impair our ability to continue our
operations. In addition, our debt agreements contain cross-default provisions, meaning that if we are in default under one of our
debt agreements, amounts outstanding under our other debt agreements may also be in default, accelerated and become due and
payable. If any of these events occur, we cannot guarantee that our assets will be sufficient to repay in full all of our outstanding
indebtedness, and we may be unable to find alternative financing. Even if we could obtain alternative financing, that financing
might not be on terms that are favorable or acceptable to us. In addition, if we find it necessary to sell our vessels at a time when
vessel prices are low, we will recognize losses and a reduction in our earnings, which could affect our ability to raise additional
capital necessary for us to comply with our debt agreements.
We are exposed to volatility in the London Interbank Offered Rate, or LIBOR, and we have and we intend to selectively enter
into derivative contracts, which can result in higher than market interest rates and charges against our income .
The amounts outstanding under our existing credit facilities have been advanced at a floating rate based on LIBOR and
changes in LIBOR could affect the amount of interest payable on our debt, and, in turn, could have an adverse effect on our
earnings and cash flow. In recent years, LIBOR has been at relatively low levels, but it may rise in the future. Our financial
condition could be materially adversely affected if LIBOR rises, as $219.6 million of our floating rate borrowings are unhedged
as of June 9, 2017.
We have entered into and may selectively in the future enter into derivative contracts to hedge our overall exposure to
interest rate risk exposure related to our credit facilities. Entering into swaps and derivatives transactions is inherently risky and
presents various possibilities for incurring significant expenses. The derivatives strategies that we employ currently and in the
future may not be successful or effective, and we could, as a result, incur substantial additional interest costs or losses.
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Investments in derivative instruments, such as forward freight agreements, could result in losses.
From time to time, we may take hedging or speculative positions in derivative instruments, including freight forward
agreements, or FFAs. Upon settlement, if an FFA contracted charter rate is less than the average of the rates, as reported by an
identified index, for the specified route and period, the seller of the FFA is required to pay the buyer an amount equal to the
difference between the contracted rate and the settlement rate, multiplied by the number of days in the specified period.
Conversely, if the contracted rate is greater than the settlement rate, the buyer is required to pay the seller the settlement sum. If
we take positions in FFAs or other derivative instruments and do not correctly anticipate charter rate movements over the
specified route and time period, we could suffer losses in the settling or termination of the FFA. This could adversely affect our
results of operations and cash flows.
Because we generate all of our revenues in U.S. dollars but incur a portion of our expenses in other currencies, exchange rate
fluctuations could adversely affect our results of operations.
We generate all of our revenues in U.S. dollars and the majority of our expenses are also in U.S. dollars. However, a
portion of our overall expenses is incurred in other currencies, particularly the Euro, British Pound Sterling, the Japanese Yen,
Norwegian Krone and the Singapore Dollar. Changes in the value of the U.S. dollar relative to the other currencies, in particular
the Euro, or the amount of expenses we incur in other currencies could cause fluctuations in our net income. See “Item 7A.
Quantitative and Qualitative Disclosures About Market Risk—Foreign Currency Exchange Rate Risk.”
If we fail to manage our growth properly, we may not be able to successfully expand our fleet and may incur significant
expenses and losses.
As and when market conditions permit, we intend to continue to prudently grow our fleet over the long term, in addition
to the nineteen ECO VLGCs that were delivered between July 2014 and February 2016. Acquisition opportunities may arise from
time to time, and any such acquisition could be significant. Successfully consummating and integrating acquisitions will depend
on:
·
·
·
·
·
·
locating and acquiring suitable vessels at a suitable price;
identifying and completing acquisitions or joint ventures;
integrating any acquired LPG carriers or businesses successfully with our existing operations;
hiring, training and retaining qualified personnel and crew to manage and operate our growing business and fleet;
expanding our customer base; and
obtaining required financing.
Certain acquisition and investment opportunities may not result in the consummation of a transaction. Any acquisition
could involve the payment by us of a substantial amount of cash, the incurrence of a substantial amount of debt or the issuance of
a substantial amount of equity. In addition, we may not be able to obtain acceptable terms for the required financing for any such
acquisition or investment that arises.
Growing a business by acquisition presents numerous risks such as undisclosed liabilities and obligations, difficulty in
obtaining additional qualified personnel, managing relationships with customers and suppliers and integrating newly acquired
vessels into existing infrastructures. Moreover, acquiring any business is subject to risks related to incorrect assumptions
regarding the future results of acquired operations or assets or expected cost reductions or other synergies expected to be realized
as a result of acquiring operations or assets.
Additionally, the expansion of our fleet may impose significant additional responsibilities on our management and staff,
including the management and staff of our in-house commercial and technical managers, and may necessitate that we increase the
number of personnel. Further, there is the risk that we may fail to successfully and timely integrate
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the operations or management of any acquired businesses or assets and the risk of diverting management's attention from existing
operations or other priorities. If we fail to consummate and integrate our acquisitions in a timely and cost ‑
effective manner, our
financial condition, results of operations and ability to pay dividends, if any, to our shareholders could be adversely affected.
Moreover, we cannot predict the effect, if any, that any announcement or consummation of an acquisition would have on the
trading price of our common shares.
An inability to effectively time investments in and divestments of vessels could prevent the implementation of our business
strategy and negatively impact our results of operations and financial condition.
Our strategy is to own and operate a fleet large enough to provide global coverage, but not larger than what the demand
for our services can support over a longer period by both contracting newbuildings and through acquisitions and divestitures in
the second-hand market. Our business is greatly influenced by the timing of investments and/or divestments and contracting of
newbuildings. If we are unable able to identify the optimal timing of such investments, divestments or contracting of
newbuildings in relation to the shipping value cycle due to capital restraints, this could have a material adverse effect on our
competitive position, future performance, results of operations, cash flows and financial position.
As our fleet grows in size, we may need to improve our operations and financial systems and recruit additional staff and crew;
if we cannot improve these systems or recruit suitable employees, our business and results of operations may be adversely
affected.
As and when market conditions permit, we intend to continue to prudently grow our fleet over the long term, and as a
consequence of this, we may have to invest in upgrading our operating and financial systems. In addition, we may have to recruit
well ‑
qualified seafarers and shoreside administrative and management personnel. We may not be able to hire suitable
employees to the extent we continue to expand our fleet. Our vessels require technically skilled staff with specialized training. If
our crewing agents are unable to employ such technically skilled staff, they may not be able to adequately staff our vessels. If we
are unable to operate our financial and operations systems effectively or we are unable to recruit suitable employees as we expand
our fleet, our results of operation and our ability to expand our fleet may be adversely affected.
We may be unable to attract and retain key management personnel and other employees in the shipping industry without
incurring substantial expense as a result of rising crew costs, which may negatively affect the effectiveness of our
management and our results of operations.
The successful development and performance of our business depends on our ability to attract and retain skilled
professionals with appropriate experience and expertise. Any loss of the services of any of the senior management or key
personnel could have a material adverse effect on our business and operations.
Additionally, obtaining voyage and time charters with leading industry participants depends on a number of factors,
including the ability to man vessels with suitably experienced, high-quality masters, officers and crew. In recent years, the limited
supply of and increased demand for well-qualified crew has created upward pressure on crewing costs, which we generally bear
under our time and spot charters. Increases in crew costs may adversely affect our profitability. In addition, if we cannot retain
sufficient numbers of quality on-board seafaring personnel, our fleet utilization will decrease, which could have a material
adverse effect on our business, results of operations, cash flows and financial condition.
Our directors and officers may in the future hold direct or indirect interests in companies that compete with us.
Our directors and officers have a history of involvement in the shipping industry and some of them currently, and some
of them may in the future, directly or indirectly, hold investments in companies that compete with us. In that case, they may face
conflicts between their own interests and their obligations to us.
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We cannot provide assurance that our directors and officers will not be influenced by their interests in or affiliation with
other shipping companies, or our competitors, and seek to cause us to take courses of action that might involve risks to our other
shareholders or adversely affect us or our shareholders.
Our business and operations involve inherent operating risks, and our insurance and indemnities from our customers may not
be adequate to cover potential losses from our operations.
Our vessels are subject to a variety of operational risks caused by adverse weather conditions, mechanical failures,
human error, war, terrorism, piracy, or other circumstances or events. We procure hull and machinery insurance, protection and
indemnity insurance, which includes environmental damage and pollution insurance coverage, and war risk insurance for our
fleet. While we endeavor to be adequately insured against all known risks related to the operation of our ships, there remains the
possibility that a liability may not be adequately covered and we may not be able to obtain adequate insurance coverage for our
fleet in the future. The insurers may also not pay particular claims. Even if our insurance coverage is adequate, we may not be
able to timely obtain a replacement vessel in the event of a loss. There can be no assurance that such insurance coverage will
remain available at economic rates. Furthermore, such insurance coverage will contain deductibles, limitations and exclusions,
which are standard in the shipping industry and may increase our costs or lower our revenue if applied in respect of any claim.
We may be unable to procure adequate insurance coverage at commercially reasonable rates in the future.
We may not be able to obtain adequate insurance coverage at reasonable rates in the future during adverse insurance
market conditions. 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. A marine disaster
could exceed our insurance coverage, which could harm our business, financial condition and operating results. Any uninsured or
underinsured loss could harm our business and financial condition. In addition, our insurance may be voidable by the insurers as a
result of certain of our actions, such as our vessels failing to maintain certification with applicable maritime self-regulatory
organizations.
Changes in the insurance markets attributable to terrorist attacks may also make certain types of insurance more difficult
for us to obtain. In addition, upon renewal or expiration of our current policies, the insurance that may be available to us may be
significantly more expensive than our existing coverage.
Because we will obtain some of our insurance through protection and indemnity associations, we may be required to make
additional premium payments.
Although we believe we carry protection and indemnity insurance consistent with industry standards, all risks may not
be adequately insured against, and any particular claim may not be paid. 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 of our 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, or calls, over and above budgeted premiums if
member claims exceed association reserves. These calls will be in amounts based on our claim records, as well as the claim
records of other members of the protection and indemnity associations through which we receive insurance coverage for tort
liability, including pollution-related liability. In addition, our protection and indemnity associations may not have enough
resources to cover claims made against them. Our payment of these calls could result in significant expense to us, which could
have a material adverse effect on our business, results of operations, cash flows, financial condition, and ability to pay dividends.
We may incur substantial costs for the drydocking, maintenance or replacement of our vessels as they age, and, as our vessels
age, the risks associated with older vessels could adversely affect our ability to obtain profitable charters.
The drydocking of our vessels requires significant capital expenditures and 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 business, results of operations, cash flows and financial condition. Although
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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.
In addition, although all of our vessels were built within the past eleven years, we estimate that our vessels have a useful
life of 25 years. In general, the costs to maintain a vessel in good operating condition increases with the age of the vessel. Older
vessels are typically less fuel-efficient than more recently constructed vessels due to improvements in engine technology. Cargo
insurance rates increase with the age of a vessel, making older vessels less desirable to charterers.
As our vessels become older, we may have to replace such vessels upon the expiration of their useful lives. Unless we
maintain reserves or are able to borrow or raise funds for vessel replacement, we will be unable to replace such older vessels. The
inability to replace the vessels in our fleet upon the expiration of their useful lives could have a material adverse effect on our
business, results of operations, cash flows and financial condition. Any reserves set aside for vessel replacement will not be
available for the payment of dividends to shareholders.
If we purchase secondhand vessels, we will be exposed to increased costs which could adversely affect our earnings.
We may acquire secondhand vessels in the future, and while we typically inspect secondhand vessels prior to purchase,
this does not provide us with the same knowledge about their condition that we would have had if these vessels had been built for
and operated exclusively by us. A secondhand vessel may have conditions or defects that we were not aware of when we bought
the vessel and which may require us to incur costly repairs to the vessel. These repairs may require us to put a vessel into drydock
which would reduce our fleet utilization and increase our operating costs.
SeaDor Holdings, Kensico Capital Management, HNA Group Co. Ltd., John C. Hadjipateras, BW Group, Ltd. and Wellington
Management Group LLP each have a substantial ownership stake in us, and their interests could conflict with the interests of
our other shareholders.
According to information contained in public filings, our principal shareholders include SeaDor Holdings, an affiliate of
SEACOR Holdings, Inc. (NYSE:CKH), Kensico Capital Management; Sino Energy Holdings LLC and HNA Logistics LP,
affiliates of HNA Group Co., Ltd.; John C. Hadjipateras, our Chief Executive Officer, President and Chairman of the Board of
Directors; BW Euroholdings Ltd., an affiliate of BW Group Ltd.; and Wellington Management Group LLP, or our Principal
Shareholders, and as of June 9, 2017, they own, or may be deemed to beneficially own, 16.7%, 14.6%, 11.7%, 11.5%, 10.9% and
9.9%, respectively, of our total shares outstanding. SeaDor Holdings, Kensico Capital Management, and John C. Hadjipateras are
represented on our Board of Directors. As a result of this substantial ownership interest and, as applicable, their participation on
the Board of Directors, our Principal Shareholders currently have the ability to influence certain actions requiring shareholders'
approval , including increasing or decreasing the authorized share capital, the election of directors, declaration of dividends, the
appointment of management, and other policy decisions. While any future transaction with our Principal Shareholders c ould
benefit us, their interests could at times conflict with the interests of our other shareholders. Conflicts of interest may arise
between us and our Principal Shareholders or their affiliates, which may result in the conclusion of transactions on terms not
determined by market forces. Any such conflicts of interest could adversely affect our business, financial condition and results of
operations, and the trading price of our common shares. Moreover, the concentration of ownership may delay, deter or prevent
acts that would be favored by our other shareholders or deprive shareholders of an opportunity to receive a premium for their
shares as part of a sale of our business. Similarly, this concentration of share ownership may adversely affect the trading price of
our shares because investors may perceive disadvantages in owning shares in a company with concentrated ownership .
United States tax authorities could treat us as a "passive foreign investment company," which could have adverse United
States federal income tax consequences to United States holders.
A foreign corporation will be treated as a PFIC for United States federal income tax purposes if either (1) at least 75% of
its gross income for any taxable year consists of "passive income" or (2) at least 50% of the average value of the corporation's
assets produce or are held for the production of "passive income." For purposes of these tests, "passive income" generally
includes dividends, interest, and gains from the sale or exchange of investment property and rents and royalties other than rents
and royalties which 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 generally does not
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constitute "passive income." United States shareholders of a PFIC are subject to an adverse United States 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 shares in the PFIC.
Whether we will be treated as a PFIC for our taxable year 2017 and subsequent taxable years will depend upon the
nature and extent of our operations. In this regard, we intend to treat the gross income we derive from our voyage and time
chartering activities as services income, rather than rental income. Accordingly, such income should not constitute passive
income, and the assets that we own and operate in connection with the production of such income, in particular, our vessels,
should not constitute passive assets for purposes of determining whether we are a PFIC. There is substantial legal authority
supporting this position consisting of case law and the United States Internal Revenue Service, or the IRS, pronouncements
concerning the characterization of income derived from time charters as services income for other tax purposes. However, there is
also authority which characterizes time charter income as rental income rather than services income for other tax purposes.
Accordingly, no assurance can be given that the IRS or a court of law will accept this position, and there is a risk that the IRS or a
court of law could determine that we are a PFIC. In addition, although we intend to conduct our affairs in a manner to avoid 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.
For any taxable year in which we are, or were to be treated as, a PFIC, United States shareholders would face adverse
United States federal income tax consequences. Under the PFIC rules, unless a shareholder makes an election available under the
United States Internal Revenue Code of 1986, as amended, or the Code, (which election could itself have adverse consequences
for such shareholders, as discussed below under "Item 1. Taxation—United States Federal Income Tax Considerations—United
States Federal Income Taxation of United States Holders"), excess distributions and any gain from the disposition of such
shareholder's common shares would be allocated ratably over the shareholder's holding period of the common shares and the
amounts allocated to the taxable year of the excess distribution or sale or other disposition and to any year before we became a
PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest
rate in effect for individuals or corporations, as appropriate, for that taxable year, and an interest charge would be imposed with
respect to such tax. See "Item 1. Taxation—United States Federal Income Tax Considerations—United States Federal Income
Taxation of United States Holders" for a more comprehensive discussion of the United States federal income tax consequences to
United States shareholders if we are treated as a PFIC.
We may have to pay tax on United States source shipping income, which would reduce our earnings.
Under the Code, 50% of the gross shipping income of a corporation that owns or charters vessels, as we and our
subsidiaries do, that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States
may be subject to a 4%, or an effective 2%, United States federal income tax without allowance for deduction, unless that
corporation qualifies for exemption from tax under Section 883 of the Code and the applicable Treasury Regulations promulgated
thereunder.
We believe that we qualify , and we expect to qualify, for exemption under Section 883 for our taxable year ended
March 31, 2017 and our subsequent taxable years and we intend to take this position for United States federal income tax return
reporting purposes. However, there are factual circumstances beyond our control that could cause us to lose the benefit of this tax
exemption and thereby become subject to United States federal income tax on our United States source shipping income. For
example, we would no longer qualify for exemption under Section 883 of the Code for a particular taxable year if certain "non ‑
qualified" shareholders with a 5% or greater interest in our common shares owned, in the aggregate, 50% or more of our
outstanding common shares for more than half the days during the taxable year. Due to the factual nature of the issues involved,
there can be no assurances on that we or any of our subsidiaries will qualify for exemption under Section 883 of the Code.
If we or our subsidiaries were not entitled to exemption under Section 883 of the Code for any taxable year based on our
failure to satisfy the publicly ‑
traded test, we or our subsidiaries would be subject for such year to an effective 2% United States
federal income tax on the gross shipping income we or our subsidiaries derive during the year that is attributable to the transport
of cargoes to or from the United States. The imposition of this taxation would have a negative effect on our business and would
decrease our earnings available for distribution to our shareholders.
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Risks Relating to our Industry
The cyclical nature of the demand for LPG transportation may lead to significant changes in charter rates, vessel utilization
and vessel values, which may adversely affect our revenues, profitability and financial condition.
Historically, the LPG shipping market has been cyclical with attendant volatility in profitability, charter rates and vessel
values. The degree of charter rate volatility among different types of 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
LPG shipping market are also not predictable. If charter rates decline, our earnings may decrease, particularly with respect to our
vessels deployed in the spot market, including through the Helios Pool, but also with respect to our other vessels when their
charters expire, as they may not be rechartered on favorable terms when compared to the terms of the expiring charters.
Accordingly, a decline in charter rates would have an adverse effect on our revenues, profitability, liquidity, cash flow and
financial position.
Future growth in the demand for LPG carriers and charter rates will depend on economic growth in the world economy
and demand for LPG product transportation that exceeds the capacity of the growing worldwide LPG carrier fleet. We believe
that the future growth in demand for LPG carriers and the charter rate levels for LPG carriers will depend primarily upon the
supply and demand for LPG, particularly in the economies of China, India, Japan, Southeast Asia, the Middle East and the United
States and upon seasonal and regional changes in demand and changes to the capacity of the world fleet. The capacity of the
world LPG shipping fleet appears likely to increase in the near term. Economic growth may be limited in the near term, and
possibly for an extended period, as a result of the current global economic conditions, which could have an adverse effect on our
business and results of operations.
The factors affecting the supply of and demand for LPG carriers are outside of our control, and the nature, timing and
degree of changes in industry conditions are unpredictable.
The factors that influence demand for our vessels include:
·
·
·
·
·
·
·
·
global or regional economic or political conditions, particularly in LPG consuming regions;
changes in global or general industrial activity specifically in the plastics and chemical industries;
changes in the cost of oil and natural gas from which LPG is derived;
changes in the consumption of LPG or natural gas due to availability of new, alternative energy sources or changes
in the price of LPG or natural gas relative to other energy sources or other factors making consumption of LPG or
natural gas less attractive;
supply of and demand for LPG products;
the development and location of production facilities for LPG products;
regional imbalances in production and demand of LPG products;
the distance LPG and LPG products are to be moved by sea;
· worldwide production of natural gas;
·
availability of competing LPG vessels;
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·
·
·
·
·
·
·
availability of alternative transportation means, including pipelines for LPG, which are currently few in number,
linking production areas and industrial and residential areas consuming LPG, or the conversion of existing non ‑
petroleum gas pipelines to petroleum gas pipelines in those markets;
changes in seaborne and other transportation patterns;
development and exploitation of alternative fuels and non - conventional hydrocarbon production;
governmental regulations, including environmental or restrictions on offshore transportation of natural gas;
local and international political, economic and weather conditions;
domestic and foreign tax policies; and
accidents, severe weather, natural disasters and other similar incidents relating to the natural gas industry.
The factors that influence the supply of vessel capacity include:
·
·
·
·
·
·
·
the number of newbuilding deliveries (including the equivalent of 13% of the capacity of the existing LPG capable
carrier fleet expected to be delivered by the end of calendar 2020);
the scrapping rate of older vessels;
LPG vessel prices , including financing costs and the price of steel, other raw materials and vessel equipment ;
the availability of shipyards to build LPG vessels when demand is high;
changes in environmental and other regulations that may limit the useful lives of vessels;
technological advances in LPG vessel design and capacity; and
the number of vessels that are out of service.
A significant decline in demand for the seaborne transport of LPG or a significant increase in the supply of LPG vessel
capacity without a corresponding growth in LPG vessel demand could cause a significant decline in prevailing charter rates,
which could materially adversely affect our financial condition and operating results and cash flow.
A shift in consumer demand from LPG towards other energy sources or changes to trade patterns may have a material adverse
effect on our business.
Substantially all of our earnings are related to the LPG industry. A shift in the consumer demand from LPG towards
other energy resources such as oil, wind energy, solar energy, or water energy will affect the demand for our LPG carriers. This
could have a material adverse effect on our future performance, results of operations, cash flows and financial position.
Seaborne trading and distribution patterns are primarily influenced by the relative advantage of the various sources of
production, locations of consumption, pricing differentials and seasonality. Changes to the trade patterns of LPG may have a
significant negative or positive impact on the demand for our vessels. This could have a material adverse effect on our future
performance, results of operations, cash flows and financial position.
The market values of our vessels may fluctuate significantly. When the market values of our vessels are low, we may incur a
loss on sale of a vessel or record an impairment charge, which may adversely affect our earnings and possibly lead to defaults
under our loan agreements or under future loan agreements we may enter into.
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Vessel values are both cyclical and volatile, and may fluctuate due to a number of different factors, including general
economic and market conditions affecting the shipping industry; sophistication and condition of the vessels; types and sizes of
vessels; competition from other shipping companies; the availability of other modes of transportation; increases in the supply of
vessel capacity; charter rates; the cost and delivery of newbuildings; governmental or other regulations; supply of and demand for
LPG products; prevailing freight rates; and the need to upgrade secondhand and previously owned vessels as a result of charterer
requirements, technological advances in vessel design or equipment or otherwise. In addition, as vessels grow older, they
generally decline in value.
Due to the cyclical nature of the market, if for any reason we sell any of our owned vessels at a time when prices are
depressed and before we have recorded an impairment adjustment to our financial statements, the sale may be for less than the
vessel's carrying value in our financial statements, resulting in a loss and reduction in earnings. Furthermore, if vessel values
experience significant declines and our estimated future cash flows decrease, we may have to record an impairment adjustment in
our financial statements, which could adversely affect our financial results. If the market value of our fleet declines, we may not
be in compliance with certain provisions of our loan agreements and we may not be able to refinance our debt or obtain additional
financing or pay dividends, if any. If we are unable to pledge additional collateral, our lenders could accelerate our debt and
foreclose on our vessels.
Our revenues, operations and future growth could be adversely affected by a decrease in the supply of or demand for LPG or
natural gas.
In recent years, there has been a strong supply of natural gas and an increase in the construction of plants and projects
involving natural gas, of which LPG is a byproduct. Several of these projects, however, have experienced delays in their
completion for various reasons and thus the expected increase in the supply of LPG from these projects may be delayed
significantly. If the supply of natural gas decreases, we may see a concurrent reduction in the production of LPG and resulting
lesser demand and lower charter rates for our vessels and the vessels in the Helios Pool, which could ultimately have a material
adverse impact on our revenues, operations and future growth. Additionally, changes in environmental or other legislation
establishing additional regulation or restrictions on LPG production and transportation, including the adoption of climate change
legislation or regulations, or legislation in the United States placing additional regulation or restrictions on LPG production from
shale gas could result in reduced demand for LPG shipping.
General economic conditions could materially adversely affect our business, financial position and results of operations, as
well as our future prospects.
The global economy and the volume of world trade have remained relatively weak since the severe decline in the latter
part of 2008 and in 2009. Recovery of the global economy is proceeding at varying speeds across regions but remains subject to
downside risks, including substantial sovereign debt burdens in countries throughout the world, the United Kingdom’s pending
exit from the EU, continuing turmoil and hostilities in the Middle East, Afghanistan and other geographic areas and the refugee
crisis in Europe and the Middle East. There has historically been a strong link between the development of the world economy
and demand for LPG shipping. Accordingly, an extended negative outlook for the world economy could reduce the overall
demand for our services. More specifically, some LPG products we carry are used in cyclical businesses, such as the
manufacturing of plastics and in the chemical industry, that were adversely affected by the economic downturn and, accordingly,
continued weakness and any further reduction in demand in those industries could adversely affect the LPG shipping industry. In
particular, an adverse change in economic conditions affecting China, India, Japan or Southeast Asia generally could have a
negative effect on the demand for LPG products, thereby adversely affecting our business, financial position and results of
operations, as well as our future prospects.
In addition, as a result of the ongoing economic turmoil in Greece resulting from the sovereign debt crisis and the related
austerity measures implemented by the Greek government, our operations in Greece may be subjected to new regulations that
may require us to incur new or additional compliance or other administrative costs and may require that we pay to the Greek
government new taxes or other fees. We also face the risk that strikes, work stoppages, civil unrest and violence within Greece
may disrupt our shoreside operations located in Greece.
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The state of global financial markets and current economic conditions may adversely impact our ability to obtain financing or
refinance our credit facilities on acceptable terms, which may hinder or prevent us from operating or expanding our business.
Global financial markets, including credit markets and debt and equity capital markets, remain relatively weak since the
severe decline in the latter part of 2008 and 2009. These issues, along with the re-pricing of credit risk and the difficulties
experienced by financial institutions, have made, and will likely continue to make, it difficult to obtain financing. As a result of
the disruptions in the credit markets and higher capital requirements, many lenders have increased margins on lending rates,
enacted tighter lending standards, required more restrictive terms (including higher collateral ratios for advances, shorter
maturities and smaller loan amounts), or refused to refinance existing debt on terms similar to current debt or at all. Furthermore,
certain banks that have historically been significant lenders to the shipping industry reduced or ceased lending activities in the
shipping industry. New banking regulations, including tightening of capital requirements and the resulting policies adopted by
lenders, could further reduce lending activities. We may experience difficulties obtaining financing commitments or be unable to
fully draw on the capacity under our credit facilities committed in the future or refinance our credit facilities when our facilities
mature if our lenders are unwilling to extend financing to us or unable to meet their funding obligations due to their own liquidity,
capital or solvency issues. We cannot be certain that financing will be available when needed on acceptable terms or at all. In the
absence of available financing, we may be unable to satisfy our obligations, take advantage of business opportunities or respond
to competitive pressures.
Our operating results are subject to seasonal fluctuations, which could affect our operating results and the amount of
available cash with which we can pay dividends.
We operate our LPG carriers in markets that have historically exhibited seasonal variations in demand and, as a result, in
charter hire rates. The LPG shipping market is typically stronger in the spring and summer 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 supplies of certain commodities. As a result, our revenues may be stronger in fiscal
quarters ended June 30 and September 30, and conversely, our revenues may be weaker during the fiscal quarters ended
December 31 and March 31. This seasonality could materially affect our quarterly operating results.
Future technological innovation could reduce our charter hire income and the value of our vessels.
The charter hire 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 speed, fuel economy and the ability to load and
discharge cargo quickly. Flexibility includes the ability to enter harbors, utilize related docking facilities and pass through canals
and straits. The length of a vessel's physical life is related to its original design and construction, its maintenance and the impact
of the stress of operations. We believe that our fleet is among the youngest and most eco ‑
friendly fleet of all our competitors.
However, if new LPG carriers are built that are more efficient or more flexible or have longer physical lives than our vessels,
competition from these more technologically advanced vessels could adversely affect the amount of charter hire payments we
receive for our vessels and the resale value of our vessels could significantly decrease. Similarly, if the vessels of the other
participants in the Helios Pool fleet become outdated, the amount of charter hire payments to the Helios Pool may be adversely
effected. As a result of the foregoing, our results of operations and financial condition could be adversely affected.
Changes in fuel, or bunker, prices may adversely affect profits.
While we do not bear the cost of fuel, or bunkers, under time and bareboat charters, including for our vessels employed
on time charters through the Helios Pool, fuel is a significant expense in our shipping operations when vessels are off-hire or
deployed under spot charters. Changes in the price of fuel may adversely affect our profitability. The price and supply of fuel is
unpredictable and fluctuates based on events outside our control, including geopolitical developments, supply and demand for oil
and gas, actions by the Organization of Petroleum Exporting Countries, or OPEC, and other oil and gas producers, war and unrest
in oil producing countries and regions, regional production patterns and environmental concerns. Further, fuel may become much
more expensive in the future, which may reduce profitability.
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We are subject to regulation and liability, including environmental laws, which could require significant expenditures and
adversely affect our financial conditions and results of operations.
Our business and the operation of our vessels are subject to complex laws and regulations and materially affected by
government regulation, including environmental regulations in the form of international conventions and national, state and local
laws and regulations in force in the jurisdictions in which the vessels operate, as well as in the country or countries in which the
vessels operate, as well as in the country or countries of their registration.
These regulations include, but are not limited to OPA90 that establishes an extensive regulatory and liability regime for
the protection and cleanup of the environment from oil spills and applies to any discharges of oil from a vessel, including
discharges of fuel oil and lubricants, the CAA, the CWA, and requirements of the USCG and the EPA, and the MTSA, and
regulations of the IMO, including MARPOL, CLC, the Bunker Convention, the IMO International Convention of Load Lines of
1966, as from time to time amended, and SOLAS. To comply with these and other regulations we may be required to incur
additional costs to modify our vessels, meet new operating maintenance and inspection requirements, develop contingency plans
for potential spills, and obtain insurance coverage. We are also required by various governmental and quasi-governmental
agencies to obtain permits, licenses, certificates and financial assurances with respect to our operations. These permits, licenses,
certificates and financial assurances may be issued or renewed with terms that could materially and adversely affect our
operations. Because these laws and regulations are often revised, we cannot predict the ultimate cost of complying with them or
the impact they may have on the resale prices or useful lives of our vessels. However, a failure to comply with applicable laws
and regulations may result in administrative and civil penalties, criminal sanctions or the suspension or termination of our
operations. Additional laws and regulations may be adopted which could limit our ability to do business or increase the cost of
our doing business and which could materially adversely affect our operations. For example, a future serious incident, such as the
April 2010 Deepwater Horizon oil spill in the Gulf of Mexico may result in new regulatory initiatives.
The operation of our vessels is affected by the requirements set forth in the ISM Code. The ISM Code requires ship
owners and bareboat charterers to develop and maintain an extensive "Safety Management System" that includes, among other
things, the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation
and describing procedures for dealing with emergencies. The failure of a ship owner or bareboat charterer to comply with the ISM
Code may subject the owner or charterer to increased liability, may decrease available insurance coverage for the affected vessels,
or may result in a denial of access to, or detention in, certain ports. In our case, noncompliance with the ISM Code may result in
breach of our loan covenants. Currently, each of the vessels in our fleet is ISM Code certified. Because these certifications are
critical to our business, we place a high priority on maintaining them. Nonetheless, there is the possibility that such certifications
may not be renewed.
We currently maintain, for each of our vessels, pollution liability insurance coverage in the amount of $1.0 billion per
incident. In addition, we carry hull and machinery and protection and indemnity insurance to cover the risks of fire and explosion.
Under certain circumstances, fire and explosion could result in a catastrophic loss. We believe that our present insurance coverage
is adequate, but not all risks can be insured, and there is the possibility that any specific claim may not be paid, or that we will not
always be able to obtain adequate insurance coverage at reasonable rates. If the damages from a catastrophic spill exceeded our
insurance coverage, the effect on our business would be severe and could possibly result in our insolvency.
Recent action by the IMO’s Maritime Safety Committee and United States agencies indicate that cybersecurity
regulations for the maritime industry are likely to be further developed in the near future in an attempt to combat cybersecurity
threats. This might cause companies to cultivate additional procedures for monitoring cybersecurity, which could require
additional expenses and/or capital expenditures. However, the impact of such regulations is hard to predict at this time.
We believe that regulation of the shipping industry will continue to become more stringent and compliance with such
new regulations will be more expensive for us and our competitors. Substantial violations of applicable requirements or a
catastrophic release from one of our vessels could have a material adverse impact on our financial condition and results of
operations.
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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 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.
In addition, although the emissions of greenhouse gases from international shipping currently are not subject to the Kyoto
Protocol to the United Nations Framework Convention on Climate Change, which required adopting countries to implement
national programs to reduce emissions of certain gases, a new treaty may be adopted in the future that includes restrictions on
shipping emissions. The 2015 United Nations Climate Change Conference in Paris resulted in the Paris Agreement, which entered
into force on November 4, 2016. The Paris Agreement does not directly limit greenhouse gas emissions from ships. Compliance
with changes in laws, regulations and obligations relating to climate change could increase our costs related to operating and
maintaining our vessels and require us to install new emission controls, acquire allowances or pay taxes related to our greenhouse
gas emissions, or administer and manage a greenhouse gas emissions program. Revenue generation and strategic growth
opportunities could also be adversely affected by compliance with such changes.
Our vessels may call on ports located in countries that are subject to sanctions and embargoes imposed by the United States or
other governments, which could adversely affect our reputation and the market for our common shares.
Since January 1, 2010, none of our vessels has called on ports located in countries subject to sanctions and embargoes
imposed by the United States government and countries identified by the United States government as state sponsors of terrorism,
such as Iran, Sudan and Syria. The United States sanctions and embargo laws and regulations vary in their application, as they do
not all apply to the same covered persons or proscribe the same activities, and such sanctions and embargo laws and regulations
may be amended or strengthened over time. In 2010, the United States enacted the Comprehensive Iran Sanctions Accountability
and Divestment Act, or CISADA, which expanded the scope of the Iran Sanctions Act of 1996. Among other things, CISADA
expands the application of the prohibitions involving Iran to include ships or shipping services by non-United States companies,
such as our company, and introduces limits on the ability of companies and persons to do business or trade with Iran when such
activities relate to the investment, supply or export of refined petroleum or petroleum products. In addition, in October 2012,
President Obama issued an executive order implementing the Iran Threat Reduction and Syria Human Rights Act of 2012, or the
ITRA, which extends the application of all United States laws and regulations relating to Iran to non-United States companies
controlled by United States companies or persons as if they were themselves United States companies or persons, expands
categories of sanctionable activities, adds additional forms of potential sanctions and imposes certain related reporting obligations
with respect to activities of the Commission registrants and their affiliates. The ITRA also includes a provision requiring the
President of the United States to impose five or more sanctions from Section 6(a) of the Iran Sanctions Act, as amended, on a
person the President determines is controlling beneficial owner of, or otherwise owns, operates or controls or insures a vessel that
was used to transport crude oil from Iran to another country and (1) if the person is a controlling beneficial owner of the vessel,
the person had actual knowledge the vessel was so used or (2) if the person otherwise owns, operates, controls, or insures the
vessel, the person knew or should have known the vessel was so used. Such a person could be subject to a variety of sanctions,
including exclusion from United States capital markets, exclusion from financial transactions subject to United States jurisdiction,
and exclusion of that person's vessels from United States ports for up to two years. Finally, in January 2013, the United States
enacted the Iran Freedom and Counter Proliferation Act of 2012 (the "IFCPA") which expanded the scope of United States
sanctions on any person that is part of Iran's energy, shipping or shipbuilding sector and operators of ports in Iran, and imposes
penalties on any person who facilitates or otherwise knowingly provides significant financial, material or other support to these
entities.
On November 24, 2013, the P5+1 (the United States, United Kingdom, Germany, France, Russia and China) entered into
an interim agreement with Iran entitled the “Joint Plan of Action,” or JPOA. Under the JPOA it was agreed that, in exchange for
Iran taking certain voluntary measures to ensure that its nuclear program is used only for peaceful purposes, the United States and
EU would voluntarily suspend certain sanctions for a period of six months.
On January 20, 2014, the United States and EU indicated that they would begin implementing the temporary relief
measures provided for under the JPOA. These measures include, among other things, the suspension of certain
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sanctions on the Iranian petrochemicals, precious metals, and automotive industries from January 20, 2014 until July 20,
2014. The United States subsequently extended the JPOA twice.
On July 14, 2015, the P5+1 and the EU announced that they reached a landmark agreement with Iran titled the Joint
Comprehensive Plan of Action Regarding the Islamic Republic of Iran’s Nuclear Program, or the JCPOA, which is intended to
significantly restrict Iran’s ability to develop and produce nuclear weapons for 10 years while simultaneously easing sanctions
directed toward non-United States persons for conduct involving Iran, but taking place outside of United States jurisdiction and
does not involve United States persons. On January 16, 2016, the United States joined the EU and the UN in lifting a significant
number of their nuclear-related sanctions on Iran following an announcement by the International Atomic Energy Agency, or the
IAEA, that Iran had satisfied its respective obligations under the JCPOA.
United States sanctions prohibiting certain conduct that is now permitted under the JCPOA have not actually been
repealed or permanently terminated at this time. Rather, the United States government has implemented changes to the sanctions
regime by: (1) issuing waivers of certain statutory sanctions provisions; (2) committing to refrain from exercising certain
discretionary sanctions authorities; (3) removing certain individuals and entities from the Office of Foreign Assets Control’s
sanctions lists; and (4) revoking certain Executive Orders and specified sections of Executive Orders. These sanctions will not be
permanently "lifted" until the earlier of “Transition Day,” set to occur on October 20, 2023, or upon a report from the IAEA
stating that all nuclear material in Iran is being used for peaceful activities.
Although we believe that we are in compliance with all applicable sanctions and embargo laws and regulations and
intend to maintain such compliance, there can be no assurance that we will be in compliance in the future, particularly as the
scope of certain laws may vary or may be subject to changing interpretations and we may be unable to prevent our charterers from
violating contractual and legal restrictions on their operations of the vessels. Any such violation could result in fines or other
penalties for us and could result in some investors deciding, or being required, to divest their interest, or not to invest, in the
Company. Additionally, some investors may decide to divest their interest, or not to invest, in the Company simply because we do
business with companies that do business in sanctioned countries. Moreover, our charterers may violate applicable sanctions and
embargo laws and regulations as a result of actions that do not involve us or our vessels, and those violations could in turn
negatively affect our reputation. Investor perception of the value of our common shares may also be adversely affected by the
consequences of war, the effects of terrorism, civil unrest and governmental actions in these and surrounding countries.
Our vessels are subject to periodic inspections by a classification society.
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 SOLAS. Our VLGCs are currently classed with either Lloyd's Register,
ABS or Det Norske Veritas.
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. Our vessels are on special survey cycles for hull inspection and continuous survey cycles for machinery inspection. Every
vessel is also required to be drydocked every two to three years for inspection of the underwater parts of such vessel. However,
for vessels not exceeding 15 years that have means to facilitate underwater inspection in lieu of drydocking, the drydocking can
be skipped and be conducted concurrently with the special survey.
If a 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, and we could be in violation of covenants in our loan agreements
and insurance contracts or other financing arrangements. This would adversely impact our operations and revenues.
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 others may be entitled to a maritime
lien against that vessel for unsatisfied debts, claims or damages. In many jurisdictions, a maritime lien holder
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may enforce its lien by arresting or attaching 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 of funds 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 which 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 one vessel in our fleet for claims relating
to another of our ships or, possibly, another vessel managed by one of our shareholders holding more than 5% of our common
stock or entities affiliated with them.
Governments could requisition our vessels during a period of war or emergency, resulting in loss of revenues.
The government of a vessel's registry could requisition for title or seize our vessels. Requisition for title occurs when a
government takes control of a vessel and becomes the owner. A government could also requisition our vessels for hire.
Requisition for hire occurs when a government takes control of a vessel and effectively becomes the charterer at dictated charter
rates. Generally, requisitions occur during a period of war or emergency. Government requisition of one or more of our vessels
could have a material adverse effect on our business, results of operations, cash flows and financial condition.
The operation of ocean-going vessels is inherently risky, and an incident resulting in significant loss or environmental
consequences involving any of our vessels could harm our reputation and business.
The operation of an ocean-going vessel carries inherent risks. Our vessels and their cargoes are at risk of being damaged
or lost because of events such as marine disasters, bad weather, mechanical failures, grounding, fire, explosions, collisions,
human error, war, terrorism, piracy, cargo loss, latent defects, acts of God and other circumstances or events. Changing economic,
regulatory and political conditions in some countries, including political and military conflicts, have from time to time resulted in
attacks on vessels, mining of waterways, piracy, terrorism, labor strikes and boycotts. Damage to the environment could also
result from our operations, particularly through spillage of fuel, lubricants or other chemicals and substances used in operations,
or extensive uncontrolled fires. These hazards may result in death or injury to persons, loss of revenues or property,
environmental damage, higher insurance rates, damage to our customer relationships, market disruptions, delay or rerouting, any
of which may also subject us to litigation. As a result, we could be exposed to substantial liabilities not recoverable under our
insurances. Further, the involvement of our vessels in a serious accident could harm our reputation as a safe and reliable vessel
operator and lead to a loss of business.
If our vessels suffer damage, they may need to be repaired at a drydocking facility. The costs of drydock repairs are
unpredictable and may be substantial. We may have to pay drydocking costs that our insurance does not cover at all or in full. The
loss of earnings while these vessels are being repaired and repositioned, as well as the actual cost of these repairs, may adversely
affect our business and financial condition. In addition, space at drydocking facilities is sometimes limited and not all drydocking
facilities are conveniently located. We may be unable to find space at a suitable drydocking facility or our vessels may be forced
to travel to a drydocking facility that is not conveniently located to our vessels' positions. The loss of earnings while these vessels
are forced to wait for space or to travel or be towed to more distant drydocking facilities may adversely affect our business,
financial condition, results of operations and cash flows.
We may be subject to litigation that could have an adverse effect on our business and financial condition.
We are currently not involved in any litigation matters that are expected to have a material adverse effect on our
business or financial condition. Nevertheless, we anticipate that we could be involved in litigation matters from time to time in the
future. The operating hazards inherent in our business expose us to litigation, including personal injury litigation, environmental
litigation, contractual litigation with clients, intellectual property litigation, tax or securities litigation, and maritime lawsuits
including the possible arrest of our vessels. We cannot predict with certainty the outcome or effect of any claim or other litigation
matter. Any future litigation may have an adverse effect on our business, financial position, results of operations and our ability to
pay dividends, because of potential negative outcomes, the costs associated with prosecuting or defending such lawsuits, and the
diversion of management's attention to these matters. Additionally, our insurance may not be applicable or sufficient to cover the
related costs in all cases or our insurers may not remain solvent.
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Acts of piracy on ocean-going vessels could adversely affect our business.
Acts of piracy have historically affected ocean-going vessels trading in regions of the world such as the South China
Sea, the Strait of Malacca, the Indian Ocean, the Arabian Sea, the Red Sea, off the coast of West Africa and in the Gulf of Aden
off the coast of Somalia. Sea piracy incidents continue to occur. If these piracy attacks occur in regions in which our vessels are
deployed and are characterized by insurers as "war risk" zones or Joint War Committee "war and strikes" listed areas, premiums
payable for such coverage, for which we are responsible with respect to vessels employed on spot charters, but not vessels
employed on bareboat or time charters, could increase significantly and such insurance coverage may be more difficult to obtain.
In addition, costs to employ onboard security guards could increase in such circumstances. Some sources report there was a drop
in the number of piracy incidents in 2016. We may not be adequately insured to cover losses from these incidents, which could
have a material adverse effect on us. In addition, detention 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.
Our operations outside the United States expose us to global risks, such as political conflict and terrorism, which may interfere
with the operation of our vessels and could have a material adverse impact on our operating results, revenues and costs.
We are an international company and primarily conduct our operations outside the United States. Changing economic,
political and governmental conditions in the countries where we are engaged in business or where our vessels are registered affect
us. In the past, political conflicts resulted in attacks on vessels, mining of waterways and other efforts to disrupt shipping. As a
result of the military response of the United States and other nations to threats of terrorism as well as the ongoing conflicts in Iraq,
Syria, and Afghanistan, the likelihood of future acts of terrorism may increase, and our vessels may face higher risks of being
attacked. In addition, future hostilities or other political instability in regions where our vessels trade could affect our trade
patterns and adversely affect our operations and performance. Hostilities in or closure of major waterways in the Middle East,
Ukraine or Black Sea region could adversely affect the availability of and demand for crude oil and petroleum products, as well as
LPG, and negatively affect our investment and our customers' investment decisions over an extended period of time. In addition,
sanctions against oil exporting countries such as Iran, Russia, Sudan and Syria may also impact the availability of crude oil,
petroleum products and LPG and which would increase the availability of applicable vessels thereby impacting negatively charter
rates.
Terrorist attacks, or the perception that LPG or natural gas facilities or oil refineries and LPG carriers are potential
terrorist targets, could materially and adversely affect the continued supply of LPG. Concern that LPG and natural gas facilities
may be targeted for attack by terrorists has contributed to a significant community and environmental resistance to the
construction of a number of natural gas facilities, primarily in North America. If a terrorist incident involving a gas facility or gas
carrier did occur, the incident may adversely affect necessary LPG facilities or natural gas facilities currently in operation.
Furthermore, future terrorist attacks could result in increased volatility of the financial markets in the United States and globally
and could result in an economic recession in the United States or the world. Any of these occurrences could have a material
adverse impact on our operating results, revenues and costs.
If labor or other interruptions are not resolved in a timely manner, they could have a material adverse effect on our financial
condition.
We employ masters, officers and crews to man our vessels. If not resolved in a timely and cost-effective manner,
industrial action or other labor unrest or any other interruption arising from incidents of whistleblowing whether proven or not,
could prevent or hinder our operations from being carried out as we expect and could have a material adverse effect on our
business, financial condition, results of operations, and cash flows.
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Information technology failures and data security breaches, including as a result of cybersecurity attacks, could negatively
impact our results of operations and financial condition, subject us to increased operating costs, and expose us to litigation.
We rely on our computer systems and network infrastructure across our operations. Despite our implementation of
security and back-up measures, all of our technology systems are vulnerable to damage, disability or failures due to physical theft,
fire, power loss, telecommunications failure, operational error, or other catastrophic events. Our technology systems are also
subject to cybersecurity attacks including malware, other malicious software, phishing email attacks, attempts to gain
unauthorized access to our data, the unauthorized release, corruption or loss of our data, loss or damage to our data delivery
systems, and other electronic security breaches. In addition, as we continue to grow the volume of transactions in our businesses,
our existing IT systems infrastructure, applications and related functionality may be unable to effectively support a larger scale
operation, which can cause the information being processed to be unreliable and impact our decision-making or damage our
reputation with customers.
Furthermore, despite our efforts to ensure the integrity of our systems and prevent future cybersecurity attacks, it is
possible that our business, financial and other systems could be compromised, especially because such attacks can originate from
a wide variety of sources including persons involved in organized crime or associated with external service providers. Those
parties may also attempt to fraudulently induce employees, customers or other users of our systems to disclose sensitive
information in order to gain access to our data or use electronic means to induce the company to enter into fraudulent transactions.
Past and future occurrences of such attacks could damage our reputation and our ability to conduct our business, impact our credit
and risk exposure decisions, cause us to lose customers or revenues, subject us to litigation and require us to incur significant
expense to address and remediate or otherwise resolve these issues, which could have a material adverse effect on our business,
financial condition, results of operations and cash flows.
Risks Relating to Our Common Shares
The price of our common shares may be highly volatile.
The market price of our common shares has and may continue to fluctuate significantly in response to many factors,
such as actual or anticipated fluctuations in our operating results and those of other public companies in the LPG shipping or
related industries, market conditions in the LPG shipping industry, changes in financial estimates by securities analysts,
significant sales of our shares by us or our shareholders, economic and regulatory trends, general market conditions, rumors and
other factors, many of which are beyond our control. In addition, since approximately 75% of our outstanding shares are held by
our Principal Shareholders, any movement in our stock price may be exaggerated due to less liquidity. An adverse development in
the market price for our common shares could also negatively affect our ability to issue new equity to fund our activities.
Our board of directors may not declare dividends.
We have not paid any dividends since our inception in July 2013. In general, under the terms of our credit facilities, we
are not permitted to pay dividends if there is a default or a breach of a loan covenant. Further, under the Amendment to the 2015
Debt Facility, we are temporarily restricted from paying dividends and repurchasing shares of our common stock until the earlier
of (i) when we complete a common stock offering with net proceeds of at least $50.0 million and (ii) May 31, 2019.
In the future, we will evaluate the potential level and timing of dividends as soon as profits and cash flows allow.
However, the timing and amount of any dividend payments will always be subject to the discretion of our board of directors and
will depend on, among other things, earnings, capital expenditure commitments, market prospects, current capital expenditure
programs, investment opportunities, the provisions of Marshall Islands law affecting the payment of distributions to shareholders,
and the terms and restrictions of our credit facilities. The LPG shipping industry is highly volatile, and we cannot predict with
certainty the amount of cash, if any, that will be available for distribution as dividends in any period. Also, there may be a high
degree of variability from period to period in the amount of cash that is available for the payment of dividends.
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We may incur expenses or liabilities or be subject to other circumstances in the future that reduce or eliminate the
amount of cash that we have available for distribution as dividends, including as a result of the risks described herein. Our growth
strategy contemplates that we will primarily finance our acquisitions of additional vessels through debt financings or the net
proceeds of future equity issuances on terms acceptable to us. If financing is not available to us on acceptable terms, our board of
directors may determine to finance or refinance acquisitions with cash from operations, which would reduce the amount of any
cash available for the payment of dividends.
The Republic of Marshall Islands laws also generally prohibit the payment of dividends other than from surplus
(retained earnings and the excess of consideration received for the sale of shares above the par value of the shares) or while a
company is insolvent or would be rendered insolvent by the payment of such a dividend. We may not have sufficient surplus in
the future to pay dividends and our subsidiaries may not have sufficient funds or surplus to make distributions to us. We can give
no assurance that dividends will be paid at all.
We are a holding company, and depend on the ability of our subsidiaries to distribute funds to us in order to satisfy our
financial obligations and to make dividend payments.
We are a holding company, and our subsidiaries conduct all of our operations and own all of our operating assets. As a
result, our ability to satisfy our financial obligations and to pay dividends, if any, to our shareholders depends on the ability of our
subsidiaries to generate profits available for distribution 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, the terms of our financing arrangements or by the law of
its jurisdiction of incorporation which regulates the payment of dividends.
We may issue additional shares in the future, which could cause the market price of our common shares to decline.
We may issue additional shares in the future in connection with, among other things, future vessel acquisitions or
repayment of outstanding indebtedness, without shareholder approval, in a number of circumstances. Our issuance of additional
shares would have the following effects: our existing shareholders' proportionate ownership interest in us will decrease; the
amount of cash available for dividends payable per share may decrease; the relative voting strength of each previously
outstanding share may be diminished; and the market price of our shares may decline.
A future sale of shares by major shareholders may reduce the share price.
As of the date of this report and based on information contained in documents publicly filed by our Principal
Shareholders, our Principal Shareholders own an aggregate of 41.4 million common shares, or approximately 75% of our
outstanding common shares. Sales or the possibility of sales of substantial amounts of our common shares by any of our Principal
Shareholders could adversely affect the market price of our common shares.
We are incorporated in the Republic of the Marshall Islands, which does not have a well-developed body of corporate law.
We are incorporated in the Republic of the Marshall Islands, which does not have a well-developed body of corporate or
case law. As a result, shareholders may have fewer rights and protections under Marshall Islands law than under a typical
jurisdiction in the United States. Our corporate affairs are governed by our articles of incorporation and bylaws and by the
Marshall Islands Business Corporations Act, or 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 law of the Republic of the Marshall Islands
are not as clearly established as the rights and fiduciary responsibilities of directors under statutes or judicial precedent in
existence in certain United States 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, we cannot predict whether Marshall Islands courts would reach the same conclusions as United States
courts. Therefore, 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 United States
jurisdiction.
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It may be difficult to enforce a United States judgment against us, our officers and our directors because we are a foreign
corporation.
We are incorporated in the Republic of the Marshall Islands and most of our subsidiaries are organized in the Republic
of the Marshall Islands. Substantially all of our assets and those of our subsidiaries are located outside the United States. As a
result, our shareholders should not assume that courts in the countries in which we or our subsidiaries are incorporated or where
our assets or the assets of our subsidiaries are located (1) would enforce judgments of United States courts obtained in actions
against us or our subsidiaries based upon the civil liability provisions of applicable United States federal and state securities laws
or (2) would enforce, in original actions, liabilities against us or our subsidiaries based upon these laws.
We are an "emerging growth company,” as defined in the JOBS Act, and we cannot be certain if the reduced disclosure
requirements applicable to emerging growth companies make our common shares 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." We
cannot determine if investors will find our common shares less attractive because we rely on these exemptions. If some investors
find our common shares less attractive as a result, there may be a less active trading market for our common shares and our share
price may be more volatile.
In addition, under the JOBS Act, our independent registered public accounting firm is not required to attest to the
effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes‑Oxley Act of 2002 for so
long as we are an emerging growth company. For as long as we take advantage of the reduced reporting obligations, the
information that we provide shareholders may be different from information provided by other public companies, which could
impact the trading price of our shares.
Our organizational documents contain anti ‑
‑
takeover provisions.
Several provisions of our articles of incorporation and our bylaws could make it difficult for our shareholders to change
the composition of our board of directors in any one year, preventing them from changing the composition of management. In
addition, the same provisions may discourage, delay or prevent a merger or acquisition that shareholders may consider favorable.
These provisions include:
·
·
·
·
·
·
authorizing our board of directors to issue "blank check" preferred shares without shareholder approval;
providing for a classified board of directors with staggered, three ‑
year terms;
authorizing the removal of directors only for cause;
limiting the persons who may call special meetings of shareholders;
establishing advance notice requirements for nominations for election to our board of directors or for proposing matters
that can be acted on by shareholders at shareholder meetings; and
restricting business combinations with interested shareholders.
In addition, we have entered into a shareholders’ rights agreement that will make it more difficult for a third party to
acquire significant stake in us without the support of our board of directors. See “—We have a shareholders’ rights agreement that
could delay or prevent a change in control” below. These anti-takeover provisions could substantially impede the ability of our
shareholders to benefit from a change in control and, as a result, may reduce the market price of our common shares and
shareholders' ability to realize any potential change of control premium.
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We have a shareholders’ rights agreement that could delay or prevent a change in control.
On December 16, 2016, our Board of Directors adopted a shareholder rights agreement, or the Rights Agreement. The
Rights Agreement may cause substantial dilution to a person or group that attempts to acquire control of our Company on terms
that our Board of Directors does not believe are in our shareholders’ best interest. The Rights Agreement is intended to protect
our shareholders in the event of an unfair or coercive offer to acquire control of the Company and to provide our Board of
Directors with adequate time to evaluate unsolicited offers. The Rights Agreement may prevent or make takeovers or unsolicited
corporate transactions with respect to our Company more difficult, even if shareholders consider such transactions favorable,
possibly including transactions in which shareholders might otherwise receive a premium for their shares. For more information,
please see the Rights Agreement dated December 16, 2016 filed as an exhibit to our current report on Form 8-K filed with the
Commission on December 16, 2016.
ITEM 1B. UNRESOLVED STAFF COMMENTS .
None.
ITEM 2. PROPERTIES .
LPG carriers are our principal physical properties and are more fully described in "Our Fleet" in "Item 1. Business." We
do not own any real estate. We lease office space at 27 Signal Road, Stamford, Connecticut, 06902, USA; River House, 143-145
Farringdon Road, London, EC1R 3AB, UK; and 24 Poseidonos Avenue, 17674, Kallithea, Greece.
ITEM 3. LEGAL PROCEEDINGS .
We have not been involved in any legal proceedings that we believe may have a material effect on our business,
financial position, results of operations or liquidity, and we are not aware of any proceedings that are pending or threatened that
may have a material effect on our business, financial position, results of operations or liquidity. From time to time we are and
expect to be subject to legal proceedings and claims in the ordinary course of our business, such as personal injury and property
casualty claims. These claims, even if lacking merit, could result in the expenditure of significant financial and managerial
resources.
ITEM 4. MINE SAFETY DISCLOSURES .
Not applicable.
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PART I I
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUIT Y, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.
Our common shares have traded on the New York Stock Exchange, or NYSE, since May 9, 2014, under the symbol
"LPG." As of June 9, 2017, we had 67 registered holders of our common shares, including Cede & Co., the nominee for the
Depository Trust Company. This number excludes shareholders whose stock is held in nominee or street name by brokers.
The following tables set forth the high and low prices for our common shares as reported on the NYSE for the calendar
periods listed below.
For the Quarter Ended
June 30, 2015
September 30, 2015
December 31, 2015
March 31, 2016
June 30, 2016
September 30, 2016
December 31, 2016
March 31, 2017
Stock Repurchase Program
NYSE
High
(US$)
Low
(US$)
16.80
17.59
13.80
12.35
10.83
7.74
9.85
12.50
12.85
9.95
10.43
8.67
6.90
5.07
5.63
8.35
See Note 11 to our consolidated financial statements included herein for a discussion of our stock repurchase program
that expired on December 31, 2016.
Equity Compensation Plans
Information about the securities authorized for issuance under our equity compensation plan is incorporated by reference
from our Proxy Statement for the 2017 Annual Meeting of Shareholders, which will be filed with the Commission within 120
days of March 31, 2017.
Dividends
We have not paid any dividends since our inception in July 2013. In general, under the terms of our credit facilities, we
are not permitted to pay dividends if there is a default or a breach of a loan covenant. Further, under the Amendment to the 2015
Debt Facility, we are temporarily restricted from paying dividends and repurchasing shares of our common stock until the earlier
of (i) when we complete a common stock offering with net proceeds of at least $50.0 million and (ii) May 31, 2019.
In the future, we will evaluate the potential level and timing of dividends as soon as profits and capital expenditure
requirements allow. In addition, since we are a holding company with no material assets other than the shares of our subsidiaries
through which we conduct our operations, our ability to pay dividends will depend on our subsidiaries' distributing to us their
earnings and cash flows. The timing and amount of any dividend payments will always be subject to the discretion of our board of
directors and will depend on, among other things, earnings, potential future capital expenditure commitments, market prospects,
current capital expenditure programs, investment opportunities, the provisions of Marshall Islands law affecting the payment of
distributions to shareholders, and the terms and restrictions of our existing and future credit facilities. Marshall Islands law
generally prohibits the payment of dividends other than from operating surplus or while a company is insolvent or would be
rendered insolvent upon the payment of such dividend.
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Table of Contents
Taxation
Please see “Item 1. Business—Taxation” for a discussion of certain tax considerations related to holders of our common shares.
Stock Performance Graph
The performance graph below shows the cumulative total return to shareholders of our common stock relative to the
cumulative total returns of the Russell 2000 Index and the Dorian Peer Group Index (defined below). The graph tracks the
performance of a $100 investment in our common stock and in each of the indices (with the reinvestment of dividends) from May
7, 2014 (the date our common stock was listed on the New York Stock Exchange) to March 31, 2017. The stock price
performance included in this graph is not necessarily indicative of future stock price performance.
The Dorian Peer Group Index is a self-constructed peer group that consists of the following direct competitors on a line-
of-business basis: BWLPG, NVGS and Avance. NVGS’s common stock trades on the New York Stock Exchange, while the
common stock of Avance and BWLPG trade on the Oslo Stock Exchange. For the purposes of the below comparison, the
cumulative total returns for Avance and BWLPG were converted into U.S. dollars based on the relevant NOK to one USD
exchange rate prevailing on the dates listed below.
Dorian LPG Ltd. ("LPG")
Russell 2000 Index ("RTY Index")
Peer Index
NOK to USD exchange conversion rate
5/7/14
100.00
100.00
100.00
5.9098
9/30/14
3/31/15
9/30/15
3/31/16
9/30/16
93.79
99.95
106.57
6.4261
68.58
114.41
73.33
8.0608
54.26
101.20
59.45
8.5155
49.47
103.24
62.47
8.2685
31.58
116.84
28.34
7.9846
3/31/17
55.42
130.27
53.12
8.5985
This performance graph shall not be deemed “soliciting material” or to be “filed” with the Commission for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or otherwise subject to the liabilities under
that Section, and shall not be deemed to be incorporated by reference into any filing of the Company under the Securities Act of
1933, as amended, or the Securities Act.
48
Table of Contents
ITEM 6. SELECTED FINANCIAL DATA .
The following table presents selected historical financial and other data of Dorian LPG Ltd. and its subsidiaries and the
Predecessor Businesses of Dorian LPG Ltd. for the periods indicated. The selected historical financial data of Dorian LPG Ltd. as
of March 31, 2017 and 2016, and for the years ended March 31, 2017, 2016, and 2015 has been derived from our audited
consolidated financial statements and notes thereto, all included in “Item 8. Financial Statements and Supplementary Data” of this
annual report. The selected historical financial data of Dorian LPG Ltd. and its subsidiaries as of March 31, 2015 and 2014, and
for the period July 1, 2013 (inception) to March 31, 2014, and the selected historical financial data of the Predecessor as of March
31, 2013 and for the period April 1, 2013 to July 28, 2013 and for the year ended March 31, 2013, have been derived from our
audited consolidated financial statements and notes thereto and the Predecessor Businesses' audited combined financial statements
not appearing in this Form 10-K. The following table should be read together with and are qualified in its entirety by reference to
such financial statements, which have been prepared in accordance with United States generally accepted accounting principles,
or U.S. GAAP, and with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
(in U.S. dollars, except fleet data)
Statement of Operations Data
Revenues
Expenses
Voyage expenses
Voyage expenses—related party
Vessel operating expenses
Management fees—related party
Impairment
Depreciation and amortization
General and administrative expenses
Loss on disposal of assets
Total expenses
Other income—related parties
Operating income/(loss)
Other income/(expenses)
Interest and finance costs
Interest income
Unrealized gain/(loss) on derivatives
Realized loss on derivatives
Foreign currency gain/(loss), net
Total other income/(expenses), net
Net income/(loss)
Earnings/(loss) per common share—basic
Earnings/(loss) per common share—diluted
Other Financial Data
Adjusted EBITDA
Fleet Data
Calendar days
(2)
Available days
Operating days
Fleet utilization
Average Daily Results
Time charter equivalent rate
(6)(7)
Daily vessel operating expenses
(5)(7)
(4)(7)
(8)
(3)
(1)
Dorian LPG Ltd.
Predecessor Businesses of
Dorian LPG Ltd.
Year ended
March 31, 2017
Year ended
March 31, 2016
Year ended
March 31, 2015
Period July 1, 2013
(inception) to
March 31, 2014
Period April 1,
2013 to
July 28, 2013
Year ended
March 31, 2013
$
167,447,171
$
289,207,829
$
104,129,149
$
29,633,700
$
15,383,116
$
38,661,846
2,965,978
—
66,108,062
—
—
65,057,487
21,732,864
—
155,864,391
2,410,542
13,993,322
(28,971,942)
137,556
27,491,333
(13,797,478)
(294,606)
(15,435,137)
(1,441,815)
(0.03)
(0.03)
83,279,670
$
$
$
$
8,030
7,976
7,464
93.6 %
22,037
8,233
$
$
$
$
$
$
$
$
12,064,682
—
47,119,990
—
—
42,591,942
29,836,029
1,125,395
132,738,038
1,945,396
158,415,187
(12,757,013)
148,360
(8,917,503)
(6,858,126)
(342,523)
(28,726,805)
129,688,382
2.29
2.29
204,865,215
$
$
$
$
5,491
5,406
5,031
93.1 %
55,087
8,581
$
$
49
22,081,856
—
21,256,165
1,125,000
1,431,818
14,093,744
14,145,086
—
74,133,669
93,929
30,089,409
(289,090)
418,597
1,331,954
(5,291,157)
(998,931)
(4,828,627)
25,260,782
0.45
0.45
47,346,202
$
$
$
$
1,986
1,925
1,652
85.8 %
49,665
10,703
$
$
6,670,971
—
8,394,959
3,122,356
—
6,620,372
433,674
—
25,242,332
—
4,391,368
(1,579,206)
428,201
2,623,456
(3,727,457)
697,481
(1,557,525)
2,833,843
0.09
0.09
12,137,422
3,623,872
198,360
4,638,725
601,202
—
3,955,309
28,204
—
13,045,672
—
2,337,444
(762,815)
98
4,684,007
(1,853,802)
(5)
2,067,483
4,404,927
—
—
6,292,846
$
$
$
$
$
$
$
$
984
964
941
97.7 %
476
476
449
94.3 %
24,402
8,531
$
$
25,748
9,745
$
$
8,751,257
505,926
12,038,926
1,824,000
—
12,024,829
157,039
—
35,301,977
—
3,359,869
(2,568,985)
598
(13,680)
(5,574,799)
(53,700)
(8,210,566)
(4,850,697)
—
—
15,331,596
1,460
1,447
1,359
93.9 %
21,637
8,246
Table of Contents
(in U.S. dollars)
Balance Sheet Data
Cash and cash equivalents
Restricted cash, non – current
Total assets
Current portion of long-term debt
Long-term debt—net of current portion and
deferred financing fees
Total liabilities
Total shareholders’ equity
As of
As of
As of
As of
March 31, 2017
March 31, 2016
March 31, 2015
March 31, 2014
Dorian LPG Ltd.
Predecessor Businesses
of Dorian LPG Ltd.
As of
March 31, 2013
$
$
17,018,552
50,874,146
$
46,411,962
50,812,789
$
204,821,183
33,210,000
$
1,746,234,880
65,978,785
1,842,178,176
66,265,643
1,099,101,270
15,677,553
683,985,463
770,233,162
976,001,718
$
746,354,613
856,578,939
985,599,237
$
171,369,658
225,887,011
873,214,259
$
279,131,795
4,500,000
840,245,766
9,612,000
118,396,460
148,046,334
692,199,432
$
$
1,041,644
—
194,447,604
12,112,000
128,456,145
181,689,814
12,757,790
(9)
(1)
Adjusted EBITDA is an unaudited non-GAAP financial measure and represents net income/(loss) before interest and
finance costs, unrealized (gain)/loss on derivatives, realized loss on derivatives, stock-based compensation expense,
impairment, and depreciation and amortization and is used as a supplemental financial measure by management to assess
our financial and operating performance. We believe that adjusted EBITDA assists our management and investors by
increasing the comparability of our performance from period to period. This increased comparability is achieved by
excluding the potentially disparate effects between periods of derivatives, interest and finance costs, stock-based
compensation expense, impairment, loss on disposal of assets and depreciation and amortization expense, which items
are affected by various and possibly changing financing methods, capital structure and historical cost basis and which
items may significantly affect net income/(loss) between periods. We believe that including adjusted EBITDA as a
financial and operating measure benefits investors in selecting between investing in us and other investment alternatives.
Adjusted EBITDA has certain limitations in use and should not be considered an alternative to net income, operating
income, cash flow from operating activities or any other measure of financial performance presented in accordance with
U.S. GAAP. Adjusted EBITDA excludes some, but not all, items that affect net income. Adjusted EBITDA as presented
below may not be computed consistently with similarly titled measures of other companies and, therefore might not be
comparable with other companies.
The following table sets forth a reconciliation of net income/(loss) to Adjusted EBITDA (unaudited) for the periods
presented:
Dorian LPG Ltd.
Predecessor Businesses of Dorian LPG Ltd.
Period July 1, 2013
(inception) to
March 31, 2017 March 31, 2016 March 31, 2015 March 31, 2014
Year ended
Year ended
Year ended
Period April 1,
2013 to
July 28, 2013
Year ended
March 31, 2013
(in U.S. dollars)
Net income/(loss)
Interest and finance costs
Unrealized (gain)/loss on derivatives
Realized loss on derivatives
Stock-based compensation expense
Impairment
Depreciation and amortization
Adjusted EBITDA
$
$
(1,441,815) $
28,971,942
(27,491,333)
13,797,478
4,385,911
—
65,057,487
83,279,670 $
129,688,382 $
12,757,013
8,917,503
6,858,126
4,052,249
—
42,591,942
204,865,215 $
25,260,782 $
289,090
(1,331,954)
5,291,157
2,311,565
1,431,818
14,093,744
47,346,202 $
2,833,843
1,579,206
(2,623,456)
3,727,457
—
—
6,620,372
12,137,422
$
$
4,404,927
762,815
(4,684,007)
1,853,802
—
—
3,955,309
6,292,846
$
$
(4,850,697)
2,568,985
13,680
5,574,799
—
—
12,024,829
15,331,596
(2)
(3)
We define calendar days as the total number of days in a period during which each vessel in our fleet was owned.
Calendar days are an indicator of the size of the fleet over a period and affect both the amount of revenues and the
amount of expenses that are recorded during that period.
We define available days as calendar days less aggregate off hire days associated with scheduled maintenance, which
include major repairs, drydockings, vessel upgrades or special or intermediate surveys. We use available
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Table of Contents
(4)
(5)
(6)
days to measure the aggregate number of days in a period that our vessels should be capable of generating revenues.
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 number of days in a period that our
operating vessels are on hire (refer to 7 below) .
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.
Time charter equivalent rate, or TCE rate, is an unaudited non-GAAP 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 (such as time charters or
voyage charters) under which the vessels may be employed between the periods. Our method of calculating TCE rate is
to divide revenue net of voyage expenses by operating days for the relevant time period, which may not be calculated the
same by other companies.
The following table sets forth a reconciliation of revenues to TCE rate (unaudited) for the periods presented:
Dorian LPG Ltd.
Predecessor Businesses of
Dorian LPG Ltd.
Period July 1, 2013
Period April 1,
Year ended
Year ended
Year ended
(inception) to
2013 to
Year ended
March 31, 2017
March 31, 2016
March 31, 2015
March 31, 2014
July 28, 2013
March 31, 2013
(in U.S. dollars, except
operating days)
Numerator:
Revenues
Voyage expenses
Voyage expenses — related
party
$
167,447,171 $
(2,965,978)
—
289,207,829
$
104,129,149
$
(12,064,682)
(22,081,856)
—
$
277,143,147
—
$
82,047,293
29,633,700
(6,670,971)
$
—
22,962,729
$
15,383,116 $
(3,623,872)
(198,360)
11,560,884 $
38,661,846
(8,751,257)
(505,926)
29,404,663
Time charter equivalent
$
164,481,193 $
Denominator:
Operating days
TCE rate:
7,464
5,031
1,652
941
449
1,359
Time charter equivalent rate
$
22,037 $
55,087
$
49,665
$
24,402
$
25,748 $
21,637
(7)
We determine operating days for each vessel based on the underlying vessel employment, including our vessels in the
Helios Pool, or Our Methodology. If we were to calculate operating days for each vessel within the Helios Pool as a
variable rate time charter, or Alternate Methodology, our operating days and fleet utilization would be increased with a
corresponding reduction to our TCE rate. Operating data using both methodologies since the inception of the Helios Pool
is as follows:
Our Methodology:
Operating Days
Fleet Utilization
Time charter equivalent
Alternate Methodology:
Operating Days
Fleet Utilization
Time charter equivalent
March 31, 2017
March 31, 2016
Year ended
$
$
7,464
93.6 %
22,037
7,975
100.0 %
20,625
$
$
5,031
93.1 %
55,087
5,291
97.9 %
52,380
We believe that Our Methodology using the underlying vessel employment provides more meaningful insight into
market conditions and the performance of our vessels.
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Table of Contents
(8)
(9)
Daily vessel operating expenses are calculated by dividing vessel operating expenses by calendar days for the relevant
time period.
Total owners’ equity for the Predecessor Businesses of Dorian LPG Ltd.
ITEM 7. 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
consolidated financial statements and related notes included herein. 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. GAAP and are presented in U.S. Dollars unless otherwise indicated. The following discussion
contains forward ‑
looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth
under "Item 1A—Risk Factors," "Forward ‑
Looking Statements" and elsewhere in this report, our actual results may differ
materially from those anticipated in these forward ‑
looking statements.
Overview
We are a Marshall Islands corporation, headquartered in the United States, focused on owning and operating VLGCs.
We currently own and operate twenty-two VLGCs, including nineteen new fuel-efficient 84,000 cbm ECO VLGCs and three
82,000 cbm VLGCs.
Our nineteen ECO VLGCs, which incorporate fuel efficiency and emission-reducing technologies and certain custom
features, were acquired by us for an aggregate purchase price of $1.4 billion, which was financed with proceeds from the 2015
Debt Facility, proceeds from equity offerings, and cash generated from operations. These nineteen ECO VLGCs were delivered to
us between July 2014 and February 2016, seventeen of which were delivered during calendar year 2015 or later.
On April 1, 2015, Dorian and Phoenix began operations of the Helios Pool, which entered into pool participation
agreements for the purpose of establishing and operating, as charterer, under a variable rate time charter to be entered into with
owners or disponent owners of VLGCs, a commercial pool of VLGCs whereby revenues and expenses are shared. The vessels
entered into the Helios Pool may operate either in the spot market, pursuant to COAs or on time charters of two years' duration or
less . As of June 9, 2017, eighteen of our twenty-two VLGCs were deployed in the Helios Pool.
Our customers, either directly or through the Helios Pool, include or have included global energy companies such as
Exxon Mobil Corp., China International United Petroleum & Chemicals Co., Ltd., Royal Dutch Shell plc, Statoil ASA, and
Oriental Energy Company Ltd., commodity traders such as Itochu Corporation and the Vitol Group and importers such as E1
Corp., SK Gas Co. Ltd. and Indian Oil Corporation . For the year ended March 31, 2017, the Helios Pool and two other
individual charterers accounted for 69%, 13%, and 10% of our total revenues, respectively. Within the Helios Pool, two charterers
represented 26% and 13% of net pool revenues—related party for the year ended March 31, 2017. For the year ended
March 31, 2016, the Helios Pool and one other individual charterer represented 70% and 12% of total revenues, respectively.
Within the Helios Pool, two charterers represented 19% and 14% of net pool revenues—related party for the year ended March
31, 2016. For the year ended March 31, 2015, five charterers represented 27%, 19%, 14%, 12%, and 11% of total revenues,
respectively. See “Item 1A. Risk Factors—We operate exclusively in the LPG shipping industry. Due to our lack of
diversification and the lack of diversification of the Helios Pool, adverse developments in the LPG shipping industry may
adversely affect our business, financial condition and operating results” and “Item 1A. Risk Factors—We expect to be dependent
on a limited number of customers for a material part of our revenues, and failure of such customers to meet their obligations could
cause us to suffer losses or negatively impact our results of operations and cash flows.”
We intend to pursue a balanced chartering strategy by employing our vessels on a mix of multi-year time charters, some
of which may include a profit-sharing component, shorter-term time charters, spot market voyages and COAs. Six of our vessels,
including through the Helios Pool, are currently on fixed time charters. See “Item 1. Business—Our Fleet” above for more
information.
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On August 5, 2015, we publicly announced that our Board of Directors had authorized the repurchase of up to $100.0
million of our common stock, which expired on December 31, 2016. As of March 31, 2017, we had repurchased a total of
3,342,035 shares of our common stock for approximately $33.7 million under this program through its expiration.
Recent Developments
On May 31, 2017, we entered into the Amendment, which includes the relaxation of certain covenants under the 2015
Debt Facility; the release of $26.8 million of restricted cash as of the date of the Amendment to be applied towards the next two
debt principal payments, interest and certain fees; and certain other modifications. For further details, refer to Note 24 to our
consolidated financial statements included herein.
On June 8, 2017, we entered into the 2017 Bridge Loan with DNB Capital LLC. The proceeds of the 2017 Bridge Loan
were used to repay in full the RBS Loan Facility at 96% of the then outstanding principal amount . The remaining proceeds were
used to pay legal and advisory fees related to the 2017 Bridge Loan and to provide cash for use in operations. As part of this
transaction, $6.0 million of cash previously restricted under the RBS Loan Facility was released as unrestricted cash for use in
operations. For further details, refer to Note 24 to our consolidated financial statements included herein.
Vessel Deployment—Spot Voyages, Time Charters, COAs, and Pooling Arrangements
We seek to employ our vessels in a manner that maximizes fleet utilization and earnings upside through our chartering
strategy in line with our goal of maximizing shareholder value and returning capital to shareholders when appropriate, taking into
account fluctuations in freight rates in the market and our own views on the direction of those rates in the future. As of June 9,
2017, eighteen of our twenty-two VLGCs were employed in the Helios Pool, which includes time charters with a term of less than
two years.
A spot market voyage charter is generally a contract to carry a specific cargo from a load port to a discharge port for an
agreed upon freight per ton of cargo or a specified total amount. Under spot market voyage charters, we pay voyage expenses
such as port and fuel costs. A time charter is generally a contract to charter a vessel for a fixed period of time at a set daily or
monthly rate. Under time charters, the charterer pays voyage expenses such as port and fuel costs. Vessels operating on time
charters provide more predictable cash flows, but can yield lower profit margins than vessels operating in the spot market during
periods characterized by favorable market conditions. Vessels operating in the spot market generate revenues that are less
predictable but may enable us to capture increased profit margins during periods of improvements in tanker rates although we are
exposed to the risk of declining tanker rates and lower utilization. Pools generally consist of a number of vessels which may be
owned by a number of different ship owners which operate as a single marketing entity in an effort to produce freight efficiencies.
Pools typically employ experienced commercial charterers and operators who have close working relationships with customers
and brokers while technical management is typically the responsibility of each ship owner. Under pool arrangements, vessels
typically enter the pool under a time charter agreement whereby the cost of bunkers and port expenses are borne by the charterer (
i.e.
, the pool) and operating costs, including crews, maintenance and insurance are typically paid by the owner of the vessel.
Pools, in return, typically negotiate charters with customers primarily in the spot market. Since the members of a pool typically
share in the revenue generated by the entire group of vessels in the pool, and since pools operate primarily in the spot market,
including the pools in which we participate, the revenue earned by vessels placed in spot market related pools is subject to the
fluctuations of the spot market and the ability of the pool manager to effectively charter its fleet. We believe that vessel pools can
provide cost-effective commercial management activities for a group of similar class vessels and potentially result in lower
waiting times.
COAs relate to the carriage of multiple cargoes over the same route and enables the COA holder to nominate different
ships to perform individual voyages. It constitutes a number of voyage charters to carry a specified amount of cargo during the
term of the COA, which usually spans a number of years. All of the vessel's operating, voyage and capital costs are borne by the
ship owner.
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On April 1, 2015, Dorian and Phoenix began operation of the Helios Pool, which is a pool of VLGC vessels. We believe
that the operation of certain of our VLGCs in this pool allows us to achieve better market coverage and utilization. Vessels
entered into the Helios Pool are commercially managed jointly by Dorian LPG (UK) Ltd., our wholly-owned subsidiary, and
Phoenix. The members of the Helios Pool share in the net pool revenues generated by the entire group of vessels in the pool,
weighted according to certain technical vessel characteristics, and net pool revenues (see Note 2 to our consolidated financial
statements included herein) are distributed as variable rate time charter hire to each participant. The vessels entered into the
Helios Pool may operate either in the spot market, COAs, or on time charters of two years' duration or less. In March 2016, the
Helios Pool reached an agreement with Oriental Energy, one of the largest propane dehydrogenation plant operators and
importers in China to operate up to eight VLGCs on its behalf. As of June 9, 2017, the Helios Pool operated twenty-seven
VLGCs, including eighteen of our vessels, four Phoenix vessels, and five Oriental Energy vessels. In addition, the Helios Pool has
entered into a COA with Oriental Energy covering its shipments from the United States Gulf, which gives us exposure to the
growing Chinese LPG market.
For further description of our business, please see “Item 1. Business” above.
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
including the following:
Vessel Revenue. Our revenues are driven primarily by the number of vessels in our fleet, the number of days during
which our vessels operate and the amount of daily rates that our vessels earn under our charters, which, in turn, are affected by a
number of factors, including levels of demand and supply in the LPG shipping industry; the age, condition and specifications of
our vessels; the duration of our charters; the timing of when the profit-sharing arrangements are earned; the amount of time that
we spend positioning our vessels; the availability of our vessels, which is related to the amount of time that our vessels spend in
drydock undergoing repairs and the amount of time required to perform necessary maintenance or upgrade work; and other
factors affecting rates for LPG vessels.
We generate revenue by providing seaborne transportation services to customers pursuant to three types of contractual
relationships:
Pooling
Arrangements
. As from April 1, 2015, we began operation of the Helios Pool. Net pool revenues—related party
for each vessel is determined in accordance with the profit-sharing terms specified within the pool agreement for the
Helios Pool. In particular, the pool manager aggregates the revenues and voyage expenses of all of the pool participants
and Helios Pool general and administrative expenses and distributes the net earnings to participants based on:
·
·
pool points (vessel attributes such as cargo carrying capacity, fuel consumption, and speed are taken into
consideration); and
number of days the vessel participated in the Helios Pool in the period. We recognize pool revenue on a monthly
basis, when the vessel has participated in the Helios Pool during the period and the amount of pool revenue for the
month can be estimated reliably. We receive estimated vessel earnings based on the known number of days the
vessel has participated in the Helios Pool, the contract terms, and the estimated monthly pool revenue. We receive
a report from the Helios Pool which identifies the number of days the vessel participated in the Helios Pool, the
total pool points for the period, the total net pool revenues—related party for the period, and the calculated share of
pool revenue for the vessel. We review the report for consistency with each vessel’s pool agreement and vessel
management records.
For the years ended March 31, 2017 and 2016, approximately 69.1% and 70.2% of our revenue, respectively, was
generated through the Helios Pool as net pool revenues—related party. There were no revenues generated through
pooling arrangements for the year ended March 31, 2015.
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Voyage
Charters.
A voyage charter, or spot charter, is a contract 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. Under voyage charters, we are responsible for all of the voyage expenses in addition to providing the
crewing and other vessel operating services. Revenues for voyage charters are more volatile as they are typically tied to
prevailing market rates at the time of the voyage. Our gross revenue under voyage charters are generally higher than
under comparable time charters so as to compensate us for bearing all voyage expenses. As a result, our revenue and
voyage expenses may vary significantly depending on our mix of time charters and voyage charters. For the years ended
March 31, 2017, 2016, and 2015, approximately 0.8%, 16.0% and 74.3%, respectively, of our revenue was generated
pursuant to voyage charters.
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 bunker fuel consumption, port expenses and canal tolls. LPG is typically transported under a
time charter arrangement, with terms ranging up to seven years. In addition, we may also have profit-sharing
arrangements with some of our customers that provide for additional payments above a floor monthly rate (usually up to
an agreed ceiling) based on the actual, average daily rate quoted by the Baltic Exchange for Very Large Gas Carriers on
the benchmark Ras Tanura ‑
Chiba route over an agreed time period converted to a Time Charter Equivalent monthly
rate. For the years ended March 31, 2017, 2016, and 2015, approximately 29.5%, 13.4% and 25.1%, respectively, of our
revenue was generated pursuant to time charters from our VLGCs not in the Helios Pool.
Other
Revenues.
Other revenues represent income from charterers, including the Helios Pool, relating to reimbursement
of expenses such as costs for security guards and war risk insurance for voyages operating in high risk areas. For the
years ended March 31, 2017, 2016, and 2015, approximately 0.6%, 0.4% and 0.6%, respectively, of our revenue was
generated pursuant to other revenues.
Calendar Days. We define calendar days as the total number of days in a period during which each vessel in our fleet
was owned. Calendar days are an indicator of the size of the fleet over a period and affect both the amount of revenues and the
amount of expenses that are recorded during that period.
Available Days. We define available days as calendar days less aggregate off ‑
hire days associated with scheduled
maintenance, which include 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.
Operating Days. 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 number of days in a period that
our operating vessels are on hire.
Drydocking. We must periodically drydock each of our vessels for any major repairs and maintenance and 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 fifteen years of age and thereafter every 2.5 years. We capitalize costs associated with the
drydockings and amortize these costs on a straight ‑
line basis over the period through the date the next survey is scheduled to
become due under the "Deferral" method permitted under U.S. GAAP. 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.
Fleet Utilization. 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.
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Time Charter Equivalent Rate. 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 (such as time charters, voyage charters) under which the vessels may be
employed between the periods. Our method of calculating TCE rate is to divide revenue net of voyage expenses by operating days
for the relevant time period.
Voyage Expenses. Voyage expenses are all expenses unique to a particular voyage, including bunker fuel consumption,
port expenses, canal fees, charter hire commissions, war risk insurance and security costs. Voyage expenses are typically paid by
us under voyage charters and by the charterer under time charters. Accordingly, we generally only incur voyage expenses for our
own account when performing voyage charters or during repositioning voyages between time charters for which no cargo is
available or travelling to or from drydocking. We generally bear all voyage expenses under voyage charters and, as such, voyage
expenses are generally greater under voyage charters than time charters. As a result, our voyage expenses may vary significantly
depending on our mix of time charters and voyage charters.
Vessel Operating Expenses. Vessel operating expenses are expenses that are not unique to a specific voyage. Vessel
operating expenses are paid by us under each of our charter types (as we do not employ our vessels on bareboat charters). Vessel
operating expenses include crew wages and related costs, the costs for lubricants, 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 and are subject to change because of higher crew costs, higher insurance
premiums, unexpected repair expenses and general inflation. Furthermore, we expect maintenance costs will increase as our
vessels age.
Daily Vessel Operating Expenses. Daily vessel operating expenses are calculated by dividing vessel operating
expenses by calendar days for the relevant time period.
Management Fees—Related Party. Management fees to related parties ceased on June 30, 2014. They were paid
pursuant to management agreements entered into by each vessel owning subsidiary with Dorian (Hellas) S.A., or DHSA. DHSA
provided the financial, strategic, technical, crew and commercial management as well as insurance and accounting services to the
vessel owning subsidiaries for a fee of $93,750 per vessel per month payable one month in advance effective from July 29, 2013
through June 30, 2014. Certain of these services were provided through Eagle Ocean Transport Inc., or Eagle Ocean, and
Highbury Shipping Services Limited, or Highbury. Mr. John Hadjipateras, our Chairman, President and Chief Executive Officer,
owns 100% of Eagle Ocean, and our Vice President of Chartering, Insurance and Legal, Nigel Grey ‑
Turner, owns 100% of
Highbury.
In addition, DHSA provided us with pre ‑
delivery services for each newbuilding, which included engineering and
technical support, liaising with the shipyard, and ensuring key suppliers are integrated into the production planning process for a
fee of $15,000 per month for each newbuilding contract. The fees for pre ‑
delivery services were capitalized to the cost of the
vessels under construction. The management fees were charged on a monthly basis per vessel and newbuilding contract and the
total fees were affected by the number of vessels in our fleet and the number of newbuilding contracts managed.
Pursuant to transition agreements that became effective on July 1, 2014, or the Transition Agreements, we pay no further
management or pre-delivery services fees to DHSA and we have transitioned all management functions to our wholly ‑
owned
subsidiaries Dorian LPG Management Corp., Dorian LPG (USA) LLC, and Dorian LPG (UK) Ltd. as of July 1, 2014. Subsequent
to the completion of this transition, no fees for such services are paid to any related parties and no consideration is payable by us
to DHSA.
In addition, pursuant to the Transition Agreements, each of DHSA, Eagle Ocean, and Highbury transferred a certain
number of employees and selected assets to our wholly ‑
owned subsidiaries. Subsequent to the Transition Agreements, Eagle
Ocean continues to incur travel-related costs for certain transitioned employees as well as office-related costs. We reimbursed
Eagle Ocean $0.4 million, $0.8 million, and $0.7 million at cost for the years ended March 31, 2017, 2016, and 2015,
respectively.
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Depreciation and Amortization. We depreciate our vessels on a straight ‑
line basis using an estimated useful life of
25 years from initial delivery from the shipyard and after considering estimated salvage values.
We amortize the cost of deferred drydocking expenditures on a straight ‑
line basis over the period through the date the
next drydocking/special survey is scheduled to become due.
General and Administrative Expenses. General and administrative expenses principally consist of the costs incurred in
the corporate administration of the vessel and non ‑
vessel owning subsidiaries. Beginning July 1, 2014, we ceased to incur
related-party management fees as a result of the completion of the Transaction Agreements described above under "Management
Fees—Related Party." We have granted restricted stock awards to certain of our officers, directors, employees and non-employee
consultants that vest over various periods (see Note 12 to our consolidated financial statements included herein). Granting of
restricted stock results in an increase in expenses. Compensation expense for employees is measured at the grant date based on
the estimated fair value of the awards and is recognized over the vesting period and for nonemployees is re-measured at the end of
each reporting period based on the estimated fair value of the awards on that date and is recognized over the vesting period.
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
description of our material accounting policies, see Note 2 of our consolidated financial statements included herein.
Net pool revenues—related party. Net pool revenues—related party for each vessel in the pool is determined in
accordance with the profit-sharing terms specified within the pool agreement. In particular, the pool manager calculates the net
pool revenues using gross revenues less voyage expenses of all the pool vessels and less the general and administrative expenses
of the pool and distributes the net pool revenues as time charter hire to participants based on:
·
·
pool points (vessel attributes such as cargo carrying capacity, fuel consumption, and construction characteristics are
taken into consideration); and
number of days the vessel participated in the pool in the period.
We recognize net pool revenues—related party on a monthly basis, when the vessel has participated in the pool during
the period and the amount of net pool revenues for the month can be estimated reliably.
Vessel Depreciation. The cost of our vessels 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 25 years from the date the vessel
was originally delivered from the shipyard. Based on the current market and the types of vessels we plan to purchase, we expect
the residual values of our vessels will be based upon a value of approximately $400 per lightweight ton. An increase in the useful
life of our vessels or in their residual value would have the effect of decreasing the annual depreciation charge and extending it
into later periods. An increase in the useful life of a vessel may occur as a result of superior vessel maintenance performed,
favorable ocean going and weather conditions the vessel is subjected to, superior quality of the shipbuilding or yard, or high
freight market rates, which result in owners scrapping the vessels later due to the attractive cash flows. A decrease in the useful
life of our vessels or in their residual value would have the effect of increasing the annual depreciation charge and possibly result
in an impairment charge. A decrease in the useful life of a vessel may occur as a result of poor vessel maintenance performed,
harsh ocean going and weather conditions the vessel is subjected to, or poor quality of the shipbuilding or yard. If regulations
place limitations over the ability of a vessel to
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trade on a worldwide basis, we will adjust the vessel's useful life to end at the date such regulations preclude such vessel's further
commercial use.
Impairment of long ‑
‑
lived assets. We review our vessels and other fixed assets for impairment when events or
circumstances indicate the carrying amount of the asset may not be recoverable. In addition, we compare independent appraisals
to our carrying value for indicators of impairment to our vessels. When such indicators are present, an asset is tested for
recoverability by comparing the estimate of future undiscounted net operating cash flows expected to be generated by the use of
the asset over its remaining useful life and its eventual disposition to its carrying amount. An impairment charge is recognized if
the carrying value is in excess of the estimated future undiscounted net operating cash flows. The impairment loss is measured
based on the excess of the carrying amount over the fair market value of the asset. The new lower cost basis would result in a
lower annual depreciation than before the impairment.
Our estimates of fair market value assume that our vessels are all in good and seaworthy condition without need for
repair and if inspected would be certified in class without notations of any kind. Our estimates are based on information available
from various industry sources, including:
·
·
·
·
·
reports by industry analysts and data providers that focus on our industry and related dynamics affecting vessel
values;
news and industry reports of similar vessel sales;
approximate market values for our vessels or similar vessels that we have received from shipbrokers, whether
solicited or unsolicited, or that shipbrokers have generally disseminated;
offers that we may have received from potential purchasers of our vessels; and
vessel sale prices and values of which we are aware through both formal and informal communications with
shipowners, shipbrokers, industry analysts and various other shipping industry participants and observers.
As we obtain information from various industry and other sources, our estimates of fair market value are inherently
uncertain. In addition, vessel values are highly volatile; as such, our estimates may not be indicative of the current or future fair
market value of our vessels or prices that we could achieve if we were to sell them.
As of March 31, 2017, independent appraisals of our VLGC fleet had indicators of impairment in accordance with ASC
360 Property,
Plant,
and
Equipment
. We determined estimated net operating cash flows for these VLGCs by applying various
assumptions regarding future time charter equivalent revenues net of commissions, operating expenses, scheduled drydockings,
expected offhire and scrap values. These assumptions were based on historical data as well as future expectations. We estimated
spot market rates by obtaining the trailing 10-year historical average spot market rates, as published by maritime industry
researchers. Estimated outflows for operating expenses and drydocking expenses were based on historical and budgeted costs and
were adjusted for assumed inflation. Utilization was based on our historical levels achieved in the spot market and estimates of a
residual value consistent with scrap rates used in management's evaluation of scrap value. Such estimates and assumptions
regarding expected net operating cash flows require considerable judgment and were based upon historical experience, financial
forecasts and industry trends and conditions. Therefore, based on this analysis, we concluded that no impairment charge was
necessary because we believe the vessel carrying values are recoverable. No impairment charges were recognized for the year
ended March 31, 2017.
In addition, we performed a sensitivity analysis as of March 31, 2017, to determine the effect on recoverability of
changes in TCE rates. The sensitivity analysis suggests that we would not incur an impairment charge on any of our twenty-two
VLGCs if daily TCE rates based on the 10-year historical average spot market rates were reduced by 30%. An impairment charge
of approximately $245.7 million on nineteen of our twenty-two VLGCs would be triggered by a reduction of 40% in the 10-year
historical average spot market rates. The amount, if any, and timing of any impairment charges we may recognize in the future
will depend upon the then current and expected future charter rates and vessel values, which may differ materially from those
used in our estimates as of March 31, 2017.
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For the year ended March 31, 2016, independent appraisals of four of our VLGCs had indicators of impairment in
accordance with ASC 360 Property,
Plant,
and
Equipment
. We determined estimated net operating cash flows for these VLGCs
by applying various assumptions regarding future time charter equivalent revenues net of commissions, operating expenses,
scheduled drydockings, expected offhire and scrap values. These assumptions were based on historical data as well as future
expectations. We estimated spot market rates used are based on the trailing 10-year historical average spot market rates based on
average rates published by maritime industry researchers. Estimated outflows for operating expenses and drydocking expenses
were based on historical and budgeted costs and were adjusted for assumed inflation. Utilization was based on our historical
levels achieved in the spot market and estimates of a residual value consistent with scrap rates used in management's evaluation of
scrap value. Such estimates and assumptions regarding expected net operating cash flows require considerable judgment and were
based upon historical experience, financial forecasts and industry trends and conditions. Therefore, based on this analysis, we
concluded that no impairment charge was necessary because we believe the vessel carrying values are recoverable. No
impairment charges were recognized for the year ended March 31, 2016.
In addition, we performed a sensitivity analysis as of March 31, 2016, to determine the effect on recoverability of
changes in daily TCE rates. The sensitivity analysis suggests that we would not incur an impairment charge on any of those four
VLGCs if daily TCE rates based on the 10-year historical average spot market rates were reduced by 30%. An impairment charge
of approximately $4.9 million on those four VLGCs would be triggered by a reduction of 40% in the 10-year historical average
spot market rates. The amount, if any, and timing of any impairment charges we may recognize in the future will depend upon
then current and expected future charter rates and vessel values, which may differ materially from those used in our estimates as
of March 31, 2016.
For the year ended March 31, 2015, an independent appraisal of our PGC vessel indicated impairment and, therefore, we
determined estimated net operating cash flows for our PGC vessel by applying the above methodology with the exception of
utilizing 6-year historical average spot market rates. Management believes the use of estimates based on the 6-year historical
average rates calculated as of the reporting date was reasonable for our PGC vessel as the vessel had a remaining useful life of six
years. We recognized an impairment loss of $1.4 million for our PGC vessel to its fair value of $4.0 million, which resulted from
the prolonged market weaknesses continuing into the fourth fiscal quarter in the year ended March 31, 2015 in the market for
shipping petro-chemical gases, an important trade for PGC vessels. Sales of similarly aged PGC vessels reflected the market
weaknesses and the impending newbuilding PGC vessels entering the global fleet.
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The table set forth below indicates the carrying value of each owned vessel in our fleet as of March 31, 2017 and 2016 at
which times none of the vessels listed in the table below were being held for sale:
(3)
(3)
(3)
(3)
(3)
(3)
(3)
(3)
(3)(4)
Vessels
Captain
Nicholas
ML
Captain
John
NP
Captain
Markos
NL
Comet
Corsair
Corvette
Cougar
Concorde
Cobra(3)
Continental
Constitution
Commodore
Cresques
Constellation
Clermont
Cheyenne
Cratis
Commander
Chaparral
Copernicus
Challenger
Caravelle
(3)(4)
(3)(4)
(3)(4)
(3)
(3)
(3)
(3)
(3)
(3)
(3)
(3)
(3)
Capacity
(Cbm)
Year
Built
2008
2007
2006
2014
2014
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2016
82,000
82,000
82,000
84,000
84,000
84,000
84,000
84,000
84,000
84,000
84,000
84,000
84,000
84,000
84,000
84,000
84,000
84,000
84,000
84,000
84,000
84,000
1,842,000
Date of
Acquisition/
Delivery
Purchase Price/
Original Cost
7/29/2013
7/29/2013
7/29/2013
7/25/2014
9/26/2014
1/2/2015
6/15/2015
6/24/2015
6/26/2015
7/23/2015
8/20/2015
8/28/2015
9/1/2015
9/30/2015
10/13/2015
10/22/2015
10/30/2015
11/5/2015
11/20/2015
11/25/2015
12/11/2015
2/25/2016
$
$
68,156,079
64,955,636
61,421,882
75,276,432
80,906,292
84,262,500
80,427,640
81,168,031
80,467,667
80,487,197
80,517,226
80,468,889
82,960,176
78,649,026
80,530,199
80,503,271
83,186,333
78,056,729
80,516,187
83,333,085
80,576,863
81,119,450
1,727,946,790
(1)
(2)
March 31, 2016
$
Carrying value at Carrying value at
March 31, 2017
57,197,794
$
54,887,622
51,778,685
68,029,872
73,560,192
77,400,447
75,168,321
75,933,150
75,330,393
75,563,954
75,838,206
75,834,065
78,175,396
74,423,824
76,271,898
76,318,158
78,889,685
74,144,577
76,576,714
79,276,014
76,804,559
77,949,896
$ 1,605,353,421
60,347,071
56,741,656
53,560,395
70,728,846
76,484,212
80,458,627
78,116,797
78,905,515
78,242,067
78,476,407
78,729,121
78,745,787
81,210,645
77,228,406
79,172,913
79,218,316
81,919,911
76,925,109
79,462,497
82,279,285
79,690,068
80,875,760
$ 1,667,519,411
(1)
(2)
(3)
(4)
Our vessels are stated at carrying values (refer to our accounting policy in Note 2 to our consolidated financial
statements included herein) including deferred drydocking costs and, as of March 31, 2017, the carrying value of each of
our vessels exceeded their estimated market value. On an aggregate fleet basis, the estimated market value of our vessels
was lower than their carrying value as of March 31, 2017 by $272.1 million. No impairment was recorded during the
year ended March 31, 2017 as we believe that the carrying value of our vessels is fully recoverable.
Our vessels are stated at carrying values (refer to our accounting policy in Note 2 to our consolidated financial
statements included herein) including deferred drydocking costs and with the exception of four VLGCs as of March 31,
2016, the carrying value of each of our vessels was lower than its estimated market value as of March 31, 2016. On an
aggregate fleet basis, the estimated market value of our vessels exceeded their carrying value as of March 31, 2016 by
$31.0 million. No impairment was recorded during the year ended March 31, 2016 as we believe that the carrying value
of our vessels is fully recoverable.
VLGCs for which we believe, as of March 31, 2017, that the estimated fair value is lower than the VLGC’s carrying
value. We believe that the aggregate carrying value of these vessels exceeds their aggregate estimated fair value by
$272.1 million as of March 31, 2017. However, as described above, the estimated net operating cash flows for each of
the twenty-two VLGCs was higher than the carrying amount and consequently, no impairment loss was recognized
VLGCs for which we believe, as of March 31, 2016, that the estimated fair value is lower than the VLGC’s carrying
value. We believe that the aggregate carrying value of these vessels exceeds their aggregate estimated fair value by $4.9
million as of March 31, 2016. However, as described above, the estimated net operating cash flows for each of the four
VLGCs was higher than the carrying amount and consequently, no impairment loss was recognized.
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Drydocking and special survey costs. We must periodically drydock each of our vessels to comply with industry
standards, regulatory requirements and certifications. 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 2.5 years.
Drydocking costs are accounted under the deferral method whereby the actual costs incurred are deferred and are
amortized on a straight ‑
line basis over the period through the date the next drydocking is scheduled to become due. Costs
deferred include expenditures incurred relating to shipyard costs, hull preparation and painting, inspection of hull structure and
mechanical components, steelworks, machinery works, and electrical works. Drydocking costs do not include vessel operating
expenses such as replacement parts, crew expenses, provisions, luboil consumption, insurance, management fees or management
costs during the drydock period. Expenses related to regular maintenance and repairs of our vessels are expensed as incurred,
even if such maintenance and repair occurs during the same time period as our drydocking.
If a drydocking is performed prior to the scheduled date, the remaining unamortized balances are immediately written
off. Unamortized balances of vessels that are sold are written ‑
off and included in the calculation of the resulting gain or loss in
the period of the vessel's sale. The nature of the work performed and the number of drydockings undertaken in a given period
determine the level of drydocking expenditures.
Fair Value of Derivative Instruments. We use derivative financial instruments to manage interest rate risks. The fair
value of our interest rate swap agreements is the estimated amount that we would receive or pay to terminate the agreements at
the reporting date, taking into account current interest rates and the current credit worthiness of both us and the swap
counterparties. The estimated amount is the present value of estimated future cash flows, being equal to the difference between
the benchmark interest rate and the fixed rate in the interest rate swap agreement, multiplied by the notional principal amount of
the interest rate swap agreement at each interest reset date.
The fair value of our interest swap agreements at the end of each period are most significantly affected by the interest
rate implied by the LIBOR interest yield curve, including its relative steepness. Interest rates have experienced significant
volatility in recent years in both the short and long term. While the fair value of our interest rate swap agreements are typically
more sensitive to changes in short ‑
term rates, significant changes in the long ‑
term benchmark interest rates also materially
impact our interest.
The fair value of our interest swap agreements is also affected by changes in our own and our counterparty specific
credit risk included in the discount factor. Our estimate of our counterparty's credit risk is based on the credit default swap spread
of the relevant counterparty which is publicly available. The process of determining our own credit worthiness requires significant
judgment in determining which source of credit risk information most closely matches our risk profile, which includes
consideration of the margin we would be able to secure for future financing. A 10% increase / decrease in our own or our
counterparty credit risk would not have had a significant impact on the fair value of our interest rate swaps.
The LIBOR interest rate yield curve and our specific credit risk are expected to vary over the life of the interest rate
swap agreements. The larger the notional amount of the interest rate swap agreements outstanding and the longer the remaining
duration of the interest rate swap agreements, the larger the impact of any variability in these factors will be on the fair value of
our interest rate swaps. We economically hedge the interest rate exposure on a significant amount of our long ‑
term debt and for
long durations. As such, we have experienced, and we expect to continue to experience, material variations in the period ‑
to ‑
period fair value of our derivative instruments.
Although we measure the fair value of our derivative instruments utilizing the inputs and assumptions described above,
if we were to terminate the interest rate swap agreements at the reporting date, the amount we would pay or receive to terminate
the derivative instruments may differ from our estimate of fair value. If the estimated fair value differs from the actual termination
amount, an adjustment to the carrying amount of the applicable derivative asset or liability would be recognized in earnings for
the current period. Such adjustments have been and could be material in the future.
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Results of Operations
For the year ended March 31, 2017 as compared to the year ended March 31, 2016
Revenues
The following table compares revenues for the years ended March 31:
Net pool revenues—related party
Time charter revenues
Voyage charter revenues
Other revenues
Total
$
$
2017
115,753,153
49,474,510
1,296,952
922,556
167,447,171
$
$
2016
202,918,232
38,737,172
46,194,134
1,358,291
289,207,829
$
$
Increase /
(Decrease)
Percent
Change
(87,165,079)
10,737,338
(44,897,182)
(435,735)
(121,760,658)
(43.0)%
27.7 %
(97.2)%
(32.1)%
(42.1)%
Revenues of $167.4 million for the year ended March 31, 2017, including net pool revenues—related party, voyage
charters, time charters and other revenues earned by our vessels, decreased $121.8 million, or 42.1%, from $289.2 million for the
year ended March 31, 2016. The decrease is primarily attributable to a decrease in average TCE rates from $55,087 for the year
ended March 31, 2016 to $22,037 for the year ended March 31, 2017. The general decline in rates during the year ended March
31, 2017 was driven by several factors, including, but not limited to, a large number of newbuildings delivered into the global
fleet during the year, commodity price fluctuations causing LPG to be less competitive with naphtha for petrochemical users and
LPG price firmness in the United States resulting in marginal East-West arbitrage economics, thereby subduing demand for long-
haul LPG transportation. The Baltic Exchange Liquid Petroleum Gas Index, an index published daily by the Baltic Exchange for
the spot market rate for the benchmark Ras Tanura Chiba route (expressed as U.S. dollars per metric ton), averaged $26.380
during the year ended March 31, 2017 compared to an average of $79.857 for the year ended March 31, 2016, a decline of 67.0%.
The decrease in rates was partially offset by an increase in operating days and vessel utilization from 5,031 and 93.1% for the
year ended March 31, 2016, respectively, to 7,464 and 93.6% for the year ended March 31, 2017, respectively. Additionally, there
was a decrease of $2.9 million in revenues contributed by the Grendon
during the year ended March 31, 2016 that was sold prior
to the year ended March 31, 2017.
Voyage Expenses
Voyage expenses were $3.0 million during the year ended March 31, 2017 , a decrease of $9.1 million, or 75.4%, from
$12.1 million for the year ended March 31, 2016 . Voyage expenses are all expenses unique to a particular voyage, including
bunker fuel consumption, port expenses, canal fees, charter hire commissions, war risk insurance and security costs. Voyage
expenses are typically paid by us under voyage charters and by the charterer under time charters, including our vessels chartered
to the Helios Pool. Accordingly, we mainly incur voyage expenses for voyage charters or during repositioning voyages between
time charters for which no cargo is available or traveling to or from drydocking. The decrease for the year ended March 31, 2017
when compared to the year ended March 31, 2016 was mainly attributable to a reduction of VLGCs that operated on voyage
charters outside of the Helios Pool during the year ended March 31, 2017, resulting in decreases in VLGC bunker costs of $5.7
million, port expenses of $1.0 million and other voyage expenses of $0.8 million. In addition, the Grendon
incurred voyage
expenses of $1.6 million for the year ended March 31, 2016 that did not recur during the year ended March 31, 2017 as the vessel
was sold prior to the period.
Vessel Operating Expenses
Vessel operating expenses were $66.1 million during the year ended March 31, 2017 , or $8,233 per vessel per calendar
day, which is calculated by dividing vessel operating expenses by calendar days for the relevant time period for the vessels that
were in our fleet. This was an increase of $19.0 million, or 40.3%, from $47.1 million or $8,581 per vessel per calendar day, for
the year ended March 31, 2016. The increase in vessel operating expenses was primarily the result of an increase in vessel
operating days for the year ended March 31, 2017 compared to the year ended March 31, 2016 as sixteen of our ECO VLGCs
were delivered during the year ended March 31, 2016. Vessel operating expenses per vessel per calendar day decreased $348
from $8,581 for the year ended March 31, 2016 to $8,233 for the year ended March 31, 2017. The decrease in vessel operating
expenses per vessel per calendar day of $348 was largely due to a $2.4
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million, or $436 per vessel per calendar day, reduction in costs relating to the training of additional crew for VLGCs delivered
during the year ended March 31, 2016 that did not recur in the year ended March 31, 2017. This was partially offset by an
increase of $112 per vessel per calendar day relating to additional repairs and maintenance incurred and spares and stores
purchased primarily for two VLGCs that underwent drydocking during the year ended March 31, 2017.
Depreciation and Amortization
Depreciation and amortization was approximately $65.1 million for the year ended March 31, 2017, an increase of
$22.5 million, or 52.7%, from $42.6 million for the year ended March 31, 2016 . The increase is primarily attributable to an
increase in VLGC calendar days from 5,491 during the year ended March 31, 2016 to 8,030 during the year ended
March 31, 2017 as a result of sixteen of our ECO VLGCs being delivered during the year ended March 31, 2016 and operating for
the full year during the year ended March 31, 2017.
General and Administrative Expenses
General and administrative expenses were $21.7 million for the year ended March 31, 2017 , a decrease of $8.1 million,
or 27.2%, from $29.8 million for the year ended March 31, 2016 mainly due to decreases of $5.1 million in cash bonuses to
various employees, $3.4 million for certain non-capitalizable costs incurred prior to vessel delivery, and $1.1 million for other
general and administrative expenses. Partially offsetting these decreases were increases of $1.1 million in salaries, wages and
benefits resulting from an increase in the number of employees and merit-based salary increases, $0.3 million for stock-based
compensation and $0.1 million for professional, legal, audit and accounting fees.
Loss on disposal of assets
Loss on disposal of assets amounted to $1.1 million for the year ended March 31, 2016 and was primarily attributable to
the sale of the Grendon
. There was no loss on disposal of assets for the year ended March 31, 2017.
Other income — related parties
Other income —related parties amounted to $2.4 million for the year ended March 31, 2017, an increase of $0.5 million,
or 23.9%, from $1.9 million for the year ended March 31, 2016. The increase was primarily attributable to an increase of $0.7
million of fees for commercial management services provided by Dorian LPG (UK) Ltd. to the Helios Pool partially offset by a
decrease of $0.2 million for certain chartering and marine operation services provided by Dorian LPG (USA) LLC and its
subsidiaries to DHSA.
Interest and Finance Costs
Interest and finance costs amounted to $29.0 million for the year ended March 31, 2017 , an increase of $16.2 million
from $12.8 million for the year ended March 31, 2016 . The increase of $16.2 million during this period was mainly due to an
$11.4 million increase in interest incurred on our long-term debt, amortization and other financing expenses, including capitalized
interest, from $17.6 million in the year ended March 31, 2016 to $29.0 million in the year ended March 31, 2017. This increase
was largely due to an increase in average indebtedness, excluding deferred financing fees, from $543.1 million for the year ended
March 31, 2016 to $810.4 million for the year ended March 31, 2017. Additionally, we had no capitalized interest during the year
ended March 31, 2017 compared to $4.8 million during the year ended March 31, 2016. The outstanding balance of our long-term
debt as of March 31, 2017 was $770.1 million.
Unrealized Gain/(Loss) on Derivatives
Unrealized gain/(loss) on derivatives amounted to a gain of approximately $27.5 million for the year ended
March 31, 2017 , compared to an unrealized loss of $8.9 million for the year ended March 31, 2016 . The $36.4 million variance
was primarily attributable to (i) unrealized gains of $19.4 million from changes in the fair value of our interest rate swaps due to
changes in forward LIBOR yield curves for the year ended March 31, 2017 compared to unrealized losses of $8.9 million for the
year ended March 31, 2016 and (ii) an $8.1 million unrealized gain attributable to the termination of our interest rate swaps
related to the RBS Loan Facility during the year ended March 31, 2017.
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Realized Loss on Derivatives
Realized loss on derivatives amounted to a realized loss of approximately $13.8 million for the year ended
March 31, 2017, an increase of $6.9 million, or 101.2%, from a realized loss of $6.9 million for the year ended March 31, 2016.
The increase is primarily attributable to the termination of the interest rate swaps related to the RBS Loan Facility during the year
ended March 31, 2017.
Foreign Currency Gain/(Loss), net
Foreign currency gain/(loss), net amounted to a net loss of approximately $0.3 million for the year ended
March 31, 2017 and was relatively unchanged compared to the year ended March 31, 2016.
For the year ended March 31, 2016 as compared to the year ended March 31, 2015
Revenues
The following table compares revenues for the years ended March 31:
Net pool revenues—related party
Time charter revenues
Voyage charter revenues
Other revenues
Total
$
$
2016
202,918,232
38,737,172
46,194,134
1,358,291
289,207,829
$
$
2015
—
26,098,290
77,331,934
698,925
104,129,149
$
$
Increase /
(Decrease)
Percent
Change
202,918,232
12,638,882
(31,137,800)
659,366
185,078,680
NM
48.4 %
(40.3)%
94.3 %
177.7 %
Revenues of $289.2 million for the year ended March 31, 2016, including net pool revenues—related party, voyage
charters, time charters and other revenues earned by our VLGCs and our PGC, increased $185.1 million, or 177.7%, from $104.1
million for the year ended March 31, 2015. The increase is primarily attributable to $162.2 million of revenues contributed by
sixteen of our newbuilding VLGCs that were delivered subsequent to March 31, 2015. Additionally, revenues contributed by
VLGCs in our operating fleet during both periods increased $21.8 million resulting from employment of 2,101 operating days
during the year ended March 31, 2016 compared to 1,512 operating days during the year ended March 31, 2015. The Grendon’s
revenues increased $1.1 million to $2.9 million on 224 operating days for the year ended March 31, 2016 from $1.8 million on
140 operating days for the year ended March 31, 2015.
During the year ended March 31, 2016, nineteen of our VLGCs operated within the Helios Pool, including one VLGC
that left the Helios Pool to begin a long-term time charter in July 2015, and our VLGCs with the Helios Pool earned net pool
revenues—related party of $202.9 million. Four of our VLGCs operated in the spot market outside of the Helios Pool and earned
$43.3 million in voyage charter revenues and four of our VLGCs earned time charter revenues amounting to $38.7 million during
the year ended March 31, 2016. For the year ended March 31, 2015, four of our VLGCs operated in the spot market and earned
$76.1 million in voyage charter revenues, and three of our VLGCs earned time charter revenues during the period amounting to
$25.5 million, including a VLGC that ended its time charter on July 27, 2014. Time charter revenues included $7.8 million of
profit-sharing for the year ended March 31, 2015.
Voyage Expenses
Voyage expenses were $12.1 million during the year ended March 31, 2016 a decrease of $10.0 million, or 45.4%, from
$22.1 million for the year ended March 31, 2015 . The decrease was mainly attributable to a decrease in the number of vessels
operating on voyage charters as a result of vessels operating in the Helios Pool as well as decreases in fuel prices. These decreases
resulted in decreases in bunker costs of $8.4 million, port expenses of $1.0 million and other voyage expenses of $0.6 million.
Voyage expenses during the year ended March 31, 2016 mainly related to bunkers of $7.2 million, port charges and other related
expenses of $2.6 million, brokers’ commissions of $1.3 million, security costs of $0.4 million and other voyage expenses of $0.6
million. Voyage expenses during the year ended March 31, 2015 mainly related to bunkers of $15.7 million, port charges and
other related expenses of $3.6 million, brokers’ commissions of $1.7 million, security costs of $0.7 million and other voyage
expenses of $0.4 million.
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Vessel Operating Expenses
Vessel operating expenses were $47.1 million during the year ended March 31, 2016 , or $8,581 per vessel per calendar
day, which is calculated by dividing vessel operating expenses by calendar days for the relevant time period for the vessels that
were in our fleet. This was an increase of $25.8 million, or 121.7%, from $21.3 million or $10,703 per vessel per calendar day, for
the year ended March 31, 2015. This increase is primarily the result of an increase of $24.0 million of vessel operating expenses
attributable to sixteen of our ECO VLGCs that were delivered subsequent to March 31, 2015. Additionally, vessel operating
expenses increased $1.8 million for the seven vessels that were in our fleet during both periods resulting from 2,518 calendar days
during the year ended March 31, 2016 compared to 1,986 calendar days during the year ended March 31, 2015. The decline in
vessel operating expenses per vessel per calendar day during the year ended March 31, 2016 was largely due to the addition of
newer vessels, which incur lower operating costs, along with a $0.5 million reduction in costs relating to the training of additional
crew when compared to the year ended March 31, 2015.
Management Fees—Related Party
Beginning July 1, 2014, we ceased to incur these related-party management fees as a result of the completion of the
Transition Agreements described above in “Important Financial and Operational Terms and Concepts—Management Fees—
Related Party.” Management fees expensed for the year ended March 31, 2015 represent fees charged by DHSA amounting to
approximately $1.1 million in accordance with our management agreements entered into with DHSA. The management fees were
charged on a monthly basis per vessel and the total fees were affected by the number of vessels in our fleet. No management fees
—related party were incurred during the year ended March 31, 2016.
Impairment
We did not incur any impairment charges during the year ended March 31, 2016. In the year ended March 31, 2015, we
recognized an impairment loss of $1.4 million for our owned PGC vessel. This impairment loss was triggered by reductions in
vessel values reflecting challenging conditions in the PGC market, and represented the difference between the carrying value and
recoverable amount, being fair value.
Depreciation and Amortization
Depreciation and amortization was approximately $42.6 million for the year ended March 31, 2016, an increase of
$28.5 million, or 202.2%, from $14.1 million for the year ended March 31, 2015. The increase is primarily attributable to $23.8
million of depreciation and amortization related to sixteen of our ECO VLGCs that were delivered subsequent to March 31, 2015.
Additionally, there was an increase of $4.7 million for the six VLGCs that were in our fleet during both years resulting from an
increase in VLGC calendar days from 1,621 during the year ended March 31, 2015 to 2,196 during the year ended March 31,
2016.
General and Administrative Expenses
General and administrative expenses were $29.8 million for the year ended March 31, 2016 , an increase of $15.7
million, or 110.9%, from $14.1 million for the year ended March 31, 2015 mainly due to compensation-related increases of $8.9
million for salaries, wages and benefits (primarily due to an increase of $5.1 million relating to cash bonuses to various
employees relating to the year ended March 31, 2016, as well as prior periods, were granted and expensed in the year ended
March 31, 2016), $1.7 million for stock-based compensation, and $0.5 million in directors fees. Additionally, increases in
conjunction with the build out of our operations amounted to $3.0 million for certain non-capitalizable costs incurred prior to
vessel delivery including crew costs prior to initial voyage, $0.3 million in information technology and $1.3 million for other
general and administrative expenses. During the year ended March 31, 2016, general and administrative expenses were comprised
of $15.3 million of salaries and benefits (inclusive of the $3.0 million expense, approved by the board of directors in March 2016,
for cash bonuses relating to the year ended March 31, 2016, and $2.1 million in cash bonuses, approved by the board of directors
in May 2015, to various employees for services related to prior periods), $4.1 million of stock-based compensation, $3.4 million
for certain non-capitalizable costs incurred prior to vessel
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delivery, $2.5 million for professional, legal, audit and accounting fees and $4.5 million of other general and administrative
expenses. During the year ended March 31, 2015, general and administrative expenses were comprised of $6.4 million of salaries
and benefits (inclusive of a $0.4 million accrual for statutory retirement benefits for our Greece-based employees), $2.4 million
for professional, legal, audit and accounting fees, $2.3 million of stock-based compensation and $3.0 million of other general and
administrative expenses.
Loss on Disposal of Assets
Loss on disposal of assets amounted to $1.1 million for the year ended March 31, 2016 and was primarily attributable to
the sale of the Grendon
. There was no loss on disposal of assets for the year ended March 31, 2015.
Other Income —Related Parties
Other income —related parties amounted to $1.9 million for the year ended March 31, 2016, an increase of $1.8 million
from $0.1 million for the year ended March 31, 2015. The increase was primarily attributable to $1.4 million of fees for
commercial management services provided by Dorian LPG (UK) Ltd. to the Helios Pool as well an increase of $0.5 million for
certain chartering and marine operation services provided by Dorian LPG (USA) LLC and its subsidiaries to DHSA.
Interest and Finance Costs
Interest and finance costs amounted to $12.8 million for the year ended March 31, 2016 , an increase of $12.5 million
from $0.3 million for the year ended March 31, 2015 . The increase of $12.5 million during this period was mainly due to a $13.8
million increase in interest incurred on our long-term debt, amortization and other financing expenses from $3.8 million in the
year ended March 31, 2015 to $17.6 million in the year ended March 31, 2016. These increases were partially offset by a $1.3
million increase in capitalized interest from $3.5 million in the year ended March 31, 2015 to $4.8 million in the year ended
March 31, 2016. The average indebtedness during the year ended March 31, 2016 was $543.1 million compared to $125.9 million
during the year ended March 31, 2015, reflecting debt drawdowns of $676.8 million made under our 2015 Debt Facility. The
outstanding balance of our long-term debt as of March 31, 2016 was $836.4 million.
Unrealized Gain/(Loss) on Derivatives
Unrealized gain/(loss) on derivatives amounted to an unrealized loss of approximately $8.9 million for the year ended
March 31, 2016 , compared to an unrealized gain of $1.3 million for the year ended March 31, 2015 . The $10.2 million variance
was primarily attributable to changes in the fair value of our interest rate swaps due to changes in forward LIBOR yield curves.
Realized Loss on Derivatives
Realized loss on derivatives amounted to a realized loss of approximately $6.9 million for the year ended March 31,
2016, an increase of $1.6 million, or 22.8%, from a realized loss of $5.3 million for the year ended March 31, 2015. The increase
is primarily attributable to four interest rate swaps we entered into subsequent to March 31, 2015, which increased our notional
debt amounts.
Foreign Currency Gain/(Loss), net
Foreign currency gain/(loss), net amounted to a net loss of approximately $0.3 million for the year ended
March 31, 2016. This was a decrease in the loss of $0.7 million, or 65.7%, compared to a loss of $1.0 million for the year ended
March 31, 2015. The decrease is primarily attributable to unrealized losses from cash held in Norwegian Krone during the year
ended March 31, 2015 that did not recur during the year ended March 31, 2016.
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Liquidity and Capital Resources
Our business is capital intensive, and our future success depends on our ability to maintain a high ‑
quality fleet. As of
March 31, 2017, we had cash and cash equivalents of $17.0 million and restricted cash of $50.9 million.
Our primary sources of capital during the year ended March 31, 2017 was $52.1 million in cash generated from
operations. As of March 31, 2017, the outstanding balance of our long-term debt, net of deferred financing fees of $20.1 million,
was $770.1 million including $66.0 million of principal on our long-term debt scheduled to be repaid within the next twelve
months. On May 31, 2017, as part of the Amendment, $26.8 million of restricted cash was released, which was used to prepay
$24.8 million of the $66.0 million current portion of our long-term debt. As part of the Amendment, the restricted cash will be
partially replaced incrementally on a semi-annual basis over the twelve months following the date of the Amendment. See Note
24 to our consolidated financial statements included herein for further details of the Amendment. On June 8, 2017, we entered
into the $97.0 million 2017 Bridge Loan, which is due on or before August 8, 2018 and repaid in full the RBS Loan Facility, of
which $9.6 million was included in the current portion of long-term debt as of March 31, 2017. Additionally as part of this
transaction, $6.0 million of cash previously restricted under the RBS Loan Facility was released as unrestricted cash for use in
operations. See Note 24 to our consolidated financial statements included herein for further details on the 2017 Bridge Loan and
the repayment of the RBS Loan Facility
Operating expenses, including expenses to maintain the quality of our vessels in order to comply with international
shipping standards and environmental laws and regulations, the funding of working capital requirements, long-term debt
repayments, and financing costs, including the repayment of principal and interest under our debt facilities, represent our short ‑
term, medium ‑
term and long ‑
term liquidity needs as of March 31, 2017. Along with the proceeds from the 2017 Bridge Loan,
restricted cash released as part of the Amendment and restricted cash released resulting from the repayment of the RBS Loan
Facility, we anticipate satisfying our liquidity needs for the next year with cash on hand and cash from operations. However, if
these sources are insufficient to satisfy our short-term liquidity needs, or to satisfy our future medium-term or long-term liquidity
needs, we may need to seek alternative sources of debt or equity financing and/or modifications of our existing credit facilities.
However, there is no assurance that we will be able to obtain any such financing or modifications to our existing credit facilities
on terms acceptable to us, or at all.
Our dividend policy will also impact our future liquidity position. Marshall Islands law generally prohibits the payment
of dividends other than from surplus or while a company is insolvent or would be rendered insolvent by the payment of such a
dividend. In addition, under the terms of our credit facilities, we may only declare or pay any dividends from our free cash flow
and may not do so if an event of default is occurring or the payment of such dividend would result in an event of default. Further,
under the Amendment to the 2015 Debt Facility, we are temporarily restricted from paying dividends and repurchasing shares of
our common stock until the earlier of (i) when we complete a common stock offering with net proceeds of at least $50.0 million
and (ii) May 31, 2019.
As part of our growth strategy, we will continue to consider strategic opportunities, including the acquisition of
additional vessels and repurchases of our own securities. We may choose to pursue such opportunities through internal growth or
joint ventures or business acquisitions. We expect to finance the purchase price of any future acquisitions either through internally
generated funds, public or private debt financings, public or private issuances of additional equity securities or a combination of
these forms of financing.
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Cash Flows
The following table summarizes our cash and cash equivalents provided by/(used in) operating, financing and investing
activities for the periods presented:
Net cash provided by operating activities
Net cash used in investing activities
Net cash (used in)/provided by financing activities
Net decrease in cash and cash equivalents
March 31, 2017
$
52,103,768
(1,981,022)
(79,318,882)
(29,393,410)
$
For the years ended
March 31, 2016
March 31, 2015
$
$
151,027,500
(910,414,841)
601,090,409
(158,409,221)
$
$
25,623,220
(312,326,844)
213,694,591
(74,310,612)
Operating Cash Flows. Net cash provided by operating activities for the year ended March 31, 2017 amounted to $52.1
million compared with $151.0 million for the year ended March 31, 2016. The decrease primarily reflects lower operating profits
and was driven by a decrease in our average time charter equivalent rate from $55,087 during the year ended March 31, 2016 to
$22,037 for the year ended March 31, 2017. The general decline in rates during the year ended March 31, 2017 was driven by
several factors, including, but not limited to, a large number of newbuildings delivered into the global fleet during the year,
commodity price fluctuations causing LPG to be less competitive with naphtha for petrochemical users and LPG price firmness in
the United States resulting in marginal East-West arbitrage economics, thereby subduing demand for long-haul LPG
transportation. The Baltic Exchange Liquid Petroleum Gas Index, an index published daily by the Baltic Exchange for the spot
market rate for the benchmark Ras Tanura Chiba route (expressed as U.S. dollars per metric ton), averaged $26.380 during the
year ended March 31, 2017 compared to an average of $79.857 for the year ended March 31, 2016, a decline of 67.0%.
Net cash provided by operating activities for the year ended March 31, 2016 amounted to $151.0 million compared with
$25.6 million for the year ended March 31, 2015. The increase primarily reflects higher earnings and was driven by an increase in
our number of vessels from seven as of March 31, 2015, to twenty-two as of March 31, 2016, as well as an increase in our
average time charter equivalent rate from $49,665 during the year ended March 31, 2015, to $55,087 during the year ended March
31, 2016.
Net cash flow from operating activities depends upon our overall profitability, market rates for vessels employed on
voyage charters, charter rates agreed to for time charters, the timing and amount of payments for drydocking expenditures and
unscheduled repairs and maintenance, fluctuations in working capital balances and bunker costs.
Investing Cash Flows. Net cash used in investing activities was $2.0 million for the year ended March 31, 2017, a
decrease of $908.4 million compared to the year ended March 31, 2016. For the year ended March 31, 2017, net cash used in
investing activities comprised mainly of $1.9 million of payments for capitalized costs related to our fleet. Net cash used in
investing activities was $910.4 million for the year ended March 31, 2016, an increase of $598.1 million compared to the year
ended March 31, 2015. For the year ended March 31, 2016, net cash used in investing activities comprised mainly of $895.1
million of scheduled payments to the shipyards, supervision costs, management fees, and other capitalized costs related to
newbuildings, and $17.6 million of restricted cash deposits, partially offset by $2.7 million of proceeds from asset disposals. Net
cash used in investing activities of $312.3 million for the year ended March 31, 2015 comprised mainly of $314.2 million of
scheduled payments to the shipyards, supervision costs, management fees, and other capitalized costs related to newbuildings,
partially offset by a $2.2 million decrease in restricted cash.
Financing Cash Flows. Net cash used in financing activities was $79.3 million for the year ended March 31, 2017, a
change of $680.4 million compared to net cash provided by financing activities for the year ended March 31, 2016. For the year
ended March 31, 2017, net cash used in financing activities consisted of repayments of long-term debt of $66.3 million, treasury
stock repurchases of $13.0 million and debt financing costs of $0.1 million. Net cash provided by financing activities was $601.1
million for the year ended March 31, 2016, an increase of $387.4 million compared to the year ended March 31, 2015. Net cash
provided by financing activities for the year ended March 31, 2016 consisted of $676.8 million of borrowings related to our 2015
Debt Facility partially offset by repayments of long-term debt of $40.8 million, treasury stock repurchases of $20.9 million and
debt financing costs of $14.0 million. Net cash provided by financing activities was $213.7 million for the year ended March 31,
2015 and consisted of cash proceeds
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from our initial public offering, the overallotment exercise by the underwriters of our initial public offering, and a private
placement of our common stock, together totaling $155.8 million, and $80.1 million in cash proceeds from borrowings related to
our 2015 Debt Facility offset partially by debt financing costs of $11.2 million, repayments of long-term debt of $9.6 million and
payment of equity issuance costs of $1.4 million.
Capital Expenditures. LPG transportation is a capital ‑
intensive business, requiring significant investment to maintain
an efficient fleet and to stay in regulatory compliance.
We are required to complete a special survey for a vessel once every five years until 15 years of age and thereafter
every 2.5 years and an intermediate survey every 2.5 years after the first special survey. Drydocking each vessel takes
approximately 10 ‑
20 days. We spend significant amounts for scheduled drydocking (including the cost of classification society
surveys) for each of our vessels.
As our vessels age and our fleet expands, our drydocking expenses will increase. We estimate the current cost of a
VLGC special survey to be approximately $1.0 million per vessel (excluding any capital improvements to the vessel that may be
made during such drydockings) and the cost of an intermediate survey to be approximately $100,000 per vessel. Ongoing costs
for compliance with environmental regulations are primarily included as part of our drydocking and classification society survey
costs. Additionally, ballast water management systems are expected to be installed on six VLGCs between July 2018 and March
2022 for approximately $0.8 million per vessel. We are not aware of any other future regulatory changes or environmental laws
that we expect to have a material impact on our current or future results of operations that we have not already considered. Please
see "Item 1A. Risk Factors—Risks Relating to Our Company—We may incur substantial costs for the drydocking, maintenance
or replacement of our vessels as they age, and, as our vessels age, the risks associated with older vessels could adversely affect
our ability to obtain profitable charters.”
Contractual Obligations
The following table summarizes our contractual obligations as of March 31, 2017:
Long ‑
term debt obligations
Interest payments
Remaining payments on office leases
Total
(1)(2)
(1)
(3)
Total
770,102,728
130,833,874
533,308
901,469,910
$
$
Less than
1 Year
65,978,785
27,898,548
378,679
94,256,012
$
$
Payments due by period
1 to 3 Years
3 to 5 Years
$
$
173,656,573
47,484,251
154,629
221,295,453
$
$
300,295,681
35,520,046
$
335,815,727
—
$
More than
5 Years
230,171,689
19,931,029
—
250,102,718
(1)
(2)
(3)
Subsequent to March 31, 2017, we entered into the Amendment and the 2017 Bridge Loan. The Amendment includes the release of restricted
cash to be applied towards the next two debt principal payments, interest and certain fees. The proceeds of the 2017 Bridge Loan were used to
repay in full the RBS Loan Facility at 96% of the then outstanding principal amount. For further details on the Amendment and the 2017
Bridge Loan, refer to Note 24 to our consolidated financial statements included herein.
Our interest commitment on our RBS Loan Facility is calculated based on an as assumed LIBOR rate of 1.42% (the six ‑
month LIBOR rate
as of March 31, 2017), plus the applicable margin for the respective period as per the loan agreement. Our interest commitment on our 2015
Debt Facility is calculated based on an assumed LIBOR rate of 1.15% (the three ‑
month LIBOR rate as of March 31, 2017), plus the
applicable margin for the respective period as per the loan agreement and the estimated net settlement of the related interest rate swaps.
Our United Kingdom and Greece office lease payments were translated into U.S. Dollars using foreign currency equivalent rates of British
Pound Sterling 1.25 and Euro 1.07, respectively, as of March 31, 2017.
Off-Balance Sheet Arrangements
We currently do not have any off ‑
balance sheet arrangements.
69
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Description of Our Debt Obligations
See Notes 10 and 24 to our consolidated financial statements included herein for a description of our debt obligations.
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
Refer to Note 2 of our consolidated financial statements included herein.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE S ABOUT MARKET RISK.
We are exposed to market risk from changes in interest rates and foreign currency fluctuations, as well as inflation. We
use interest rate swaps to manage interest rate risks, but will not use these financial instruments for trading or speculative
purposes.
Interest Rate Risk
The LPG shipping industry is capital intensive, requiring significant amounts of investment. Much of this investment is
provided in the form of long-term debt. Our debt agreements contain interest rates that fluctuate with LIBOR. We have entered
into interest rate swap agreements to hedge a majority of our exposure to fluctuations of interest rate risk associated with our 2015
Debt Facility. We have hedged $250 million of non-amortizing principal and $272.8 million of amortizing principal of the 2015
Debt Facility as of March 31, 2017 and thus increasing interest rates could adversely impact our future earnings. For the 12
months following March 31, 2017, a hypothetical increase or decrease of 20 basis points in the underlying LIBOR rates would
result in an increase or decrease of our interest expense on our non-hedged interest bearing debt by approximately $0.4 million
assuming all other variables are held constant. See Notes 10 and 19 to our audited consolidated financial statements included
herein for a description of our debt obligations and interest rate swaps, respectively. Subsequent to March 31, 2017, we entered
into the Amendment and the 2017 Bridge Loan. The Amendment includes the release of restricted cash to be applied towards the
next two debt principal payments, interest and certain fees. The proceeds of the 2017 Bridge Loan were used to repay in full the
RBS Loan Facility at 96% of the then outstanding principal amount . For further details on the Amendment and the 2017 Bridge
Loan, refer to Note 24 to our consolidated financial statements included herein.
Foreign Currency Exchange Rate Risk
Our primary economic environment is the international LPG shipping market. This market utilizes the U.S. dollar as its
functional currency. Consequently, our revenues are in U.S. dollars and the majority of our operating expenses are in U.S. dollars.
However, we incur some of our expenses in other currencies, particularly the Euro, Norwegian Krone, British Pound Sterling, the
Japanese Yen and the Singapore Dollar. The amount and frequency of some of these expenses, such as vessel repairs, supplies
and stores, may fluctuate from period to period. Depreciation in the value of the U.S. dollar relative to other currencies will
increase the cost of us paying such expenses. For the year ended March 31, 2017, 18% of our expenses (excluding depreciation
and amortization, interest and finance costs and gain/loss on derivatives), were in currencies other than the U.S. dollar, and as a
result we expect the foreign exchange risk associated with these operating expenses to be immaterial. We do not have foreign
exchange exposure in respect of our credit facility and interest rate swap agreements, as these are denominated in U.S. dollars.
70
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The portion of our business conducted in other currencies could increase in the future, which could expand our exposure
to losses arising from currency fluctuations.
Inflation
Certain of our operating expenses, including crewing, insurance and drydocking costs, are subject to fluctuations caused
by market forces. Crewing costs in particular have risen over the past number of years as a result of a shortage of trained crews.
Please see "Item 1A. Risk Factors—We may be unable to attract and retain key management personnel and other employees in
the shipping industry without incurring substantial expense as a result of rising crew costs, which may negatively affect the
effectiveness of our management and our results of operations." A shortage of qualified officers makes it more difficult to crew
our vessels and may increase our operating costs. If this shortage were to continue or worsen, it may impair our ability to operate
and could have an adverse effect on our business, financial condition and operating results. Inflationary pressures on bunker (fuel
and oil) costs could have a material effect on our future operations if the number of vessels employed on voyage charters
increases. In the case of any 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, 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 see "Item 1A. Risk Factors—Changes in fuel, or bunker, prices may adversely affect profits.”
Forward Freight Agreements
From time to time, we may take hedging or speculative positions in derivative instruments, including FFAs. The usage
of such derivatives can lead to fluctuations in our reported results from operations on a period-to-period basis. During the year
ended March 31, 2017, we had no open FFA positions.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DAT A.
The financial information required by this Item is set forth on pages F-1 to F-30 and is filed as part of this annual report.
ITEM 9. CHANGES IN AND DISAGREEMENT S WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES .
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated
the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e) and 15d-15(e)
under the Exchange Act, as of the end of the period covered by this Annual Report on Form 10-K. Based on this evaluation, our
management concluded that our disclosure controls and procedures were effective as of March 31, 2017. Our disclosure controls
and procedures are designed to provide reasonable assurance that information required to be disclosed by the Company in the
reports that it files or submits to the Commission under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in Commission rules and forms and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining an adequate system of internal control over financial
reporting, as defined in the Rule 13a-15(f) and 15d-15(f) of the Exchange Act. Our management conducted an evaluation of our
effectiveness of our internal control over financial reporting based on the framework in Internal
Control—Integrated
Framework
(2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Our internal control over
financial reporting includes those policies and procedures that: (i)
71
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pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of our financial
statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made in accordance with
authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. Because
of the inherent limitations of internal controls over financial reporting, misstatements may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate. Based on the evaluation, management concluded that our internal
control over financial reporting was effective as of March 31, 2017.
In accordance with the Jumpstart Our Businesses Startups Act of 2012 as an emerging growth company, we are exempt
from the requirement to obtain an attestation report from our independent registered public accounting firm on the assessment of
our internal controls pursuant to the Sarbanes-Oxley Act of 2002.
Changes in Internal Control over Financial Reporting
Our management with the participation of our principal executive officer and principal financial officer or persons
performing similar functions has determined that no change in our internal control over financial reporting (as that term is defined
in Rules 13(a)-15(f) and 15(d)-15(f) of the Exchange Act) occurred during the fourth fiscal quarter of our fiscal year ended
March 31, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
Limitation on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and our internal control over financial reporting, management
recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives. In addition, the design of disclosure controls and our internal control over financial
reporting must reflect the fact that there are resource constraints and that management is required to apply its judgment in
evaluating the benefits of possible controls and procedures relative to their costs.
ITEM 9B. OTHER INFORMATION .
None
72
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PART II I
ITEM 10. DIRECTORS, EXECUTIVE OFFICER S AND CORPORATE GOVERNANCE.
The required information is incorporated by reference from our Proxy Statement to be filed with respect to our 2017
Annual Meeting of Shareholders within 120 days of March 31, 2017.
We have adopted a Code of Ethics that applies to all of our employees, directors, officers, and agents. Our Code of
Ethics is publicly available on our website at www.dorianlpg.com/investor-center/corporate-governance/. We intend to satisfy the
disclosure requirements under Item 5.05 of Form 8-K regarding amendment to, or waiver from, a provision of the Code of Ethics
for our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing
similar functions by posting such information on our website, www.dorianlpg.com. Information on our website is not included in,
and should not be deemed incorporated by reference into, this Annual Report.
ITEM 11. EXECUTIVE COMPENSATIO N.
The required information is incorporated by reference from our Proxy Statement to be filed with respect to our 2017
Annual Meeting of Shareholders within 120 days of March 31, 2017.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNER S AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The required information is incorporated by reference from our Proxy Statement to be filed with respect to our 2017
Annual Meeting of Shareholders within 120 days of March 31, 2017.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTION S, AND DIRECTOR INDEPENDENCE.
The required information is incorporated by reference from our Proxy Statement to be filed with respect to our 2017
Annual Meeting of Shareholders within 120 days of March 31, 2017.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES .
The required information is incorporated by reference from our Proxy Statement to be filed with respect to our 2017
Annual Meeting of Shareholders within 120 days of March 31, 2017.
73
Table of Contents
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE S.
PART I V
1.
Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of March 31, 2017 and 2016
Consolidated Statements of Operations for the years ended March 31, 2017, 2016 and 2015
Consolidated Statements of Shareholders' Equity for the years ended March 31, 2017, 2016 and 2015
Consolidated Statements of Cash Flows for the years ended March 31, 2017, 2016 and 2015
Notes to Consolidated Financial Statements
2.
Financial Statement Schedules
All schedules have been omitted because they are not applicable, not required or the information is included elsewhere in the Financial
Statements or Notes thereto.
3.
Exhibits
See accompanying Exhibit Index included after the signature page of this Report for a list of exhibits filed or furnished with or
incorporated by reference in this annual report.
74
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: June 13, 2017
SIGNATURES
Dorian LPG Ltd.
(Registrant)
/s/ John Hadjipateras
John Hadjipateras
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Capacity
/s/ John Hadjipateras
John Hadjipateras
/s/ Theodore B. Young
Theodore B. Young
/s/ John C. Lycouris
John C. Lycouris
/s/ Thomas J. Coleman
Thomas J. Coleman
/s/ Ted Kalborg
Ted Kalborg
/s/ Øivind Lorentzen
Øivind Lorentzen
/s/ Malcolm McAvity
Malcolm McAvity
/s/ Christina Tan
Christina Tan
President, Chief Executive Officer and Chairman of the Board
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
75
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Exhibit Number
3.1
3.2
3.3
3.4
4.1
4.2
10.1*
10.2
10.3
10.4
10.5
10.6
10.7
EXHIBIT INDEX
Articles of Incorporation, incorporated by reference to Exhibit 3.1 to the Company’s Registration
Statement on Form F-1 (Registration Number 333-194434), filed with the Commission on March 7,
2014.
Description
Bylaws, incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form F-1
(Registration Number 333- 194434), filed with the Commission on March 7, 2014.
Amendment to Articles of Incorporation, incorporated by reference to Exhibit 3.3 to the Company's
Registration Statement on Form F-1/A (Registration Number 333-194434), filed with the Commission
on April 28, 2014.
Certificate of Designations for Dorian LPG Ltd. Series A Junior Participating Preferred Stock,
incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed with the Commission on
December 21, 2015.
Form of Common Share Certificate, incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form F-1 (Registration Number 333-194434), filed with the Commission on
March 7, 2014.
Rights Agreement, dated December 16, 2016, between Dorian LPG Ltd. and Computershare Inc.,
incorporated by reference to Exhibit 4.1 of the Company’s Form 8-K filed with the Commission on
December 16, 2016.
Equity Incentive Plan, incorporated by reference to Exhibit 10.1 to the Company's Registration
Statement on Form F-1/A (Registration Number 333-194434), filed with the Commission on April 28,
2014.
Shareholders Agreement between Dorian LPG Ltd., Scorpio Tankers Inc., SeaDor Holdings LLC and
Dorian Holdings LLC, incorporated by reference to Exhibit 10.2 to the Company's Registration
Statement on Form F-1/A (Registration Number 333-194434), filed with the Commission on March 31,
2014.
$135.2 million Term Loan Facility, dated July 29, 2013, between CJNP LPG Transport LLC, CMNL
LPG Transport LLC, CNML LPG Transport LLC, Corsair LPG Transport LLC, Dorian LPG Ltd. and
The Royal Bank of Scotland plc, incorporated by reference to Exhibit 10.10 to the Company's
Registration Statement on Form F-1/A (Registration Number 333-194434), filed with the Commission
on March 31, 2014.
Supplemental Letter to $135.2 million Term Loan Facility, dated October 18, 2013, incorporated by
reference to Exhibit 10.19 to the Company's Registration Statement on Form F-1/A (Registration
Number 333-194434), filed with the Commission on March 31, 2014.
Registration Rights Agreement by and between Dorian LPG Ltd. and Kensico Capital Management
Corporation, incorporated by reference to Exhibit 10.5 to the Company’s Annual Report on Form 10-K
filed with the Commission on May 31, 2016.
Form of Vessel Management Agreement with Dorian LPG Management Corp., incorporated by
reference to Exhibit 4.21 to the Company’s Annual Report on Form 20-F filed with the Commission on
July 30, 2014.
Form of General Agency Agreement with Dorian LPG Management Corp., incorporated by reference to
Exhibit 4.22 to the Company’s Annual Report on Form 20-F filed with the Commission on July 30,
2014.
76
Table of Contents
10.8
10.9
10.10*
10.11*
10.12
10.13
10.14
10.15
21.1
23.1
23.2
31.1
31.2
Administrative, Advisory and Support Services Agreement between Dorian LPG Ltd. and Dorian LPG
(USA) LLC, incorporated by reference to Exhibit 4.24 to the Company’s Annual Report on Form 20-F
filed with the Commission on July 30, 2014.
$758 million Facility Agreement, dated March 23, 2015, between by and among Dorian LPG Finance
LLC, as borrower, the Company, as facility guarantor, certain wholly-owned subsidiaries of the
Company as upstream guarantors, ABN Amro Capital USA LLC, Citibank N.A., London Branch, ING
Bank N.V., London Branch, and DVB Bank SE, as bookrunners, and the lenders party to the agreement,
incorporated by reference to Exhibit 10.25 to the Company’s Annual Report on Form 10-K filed with the
Commission on June 4, 2015.
2014 Executive Severance and Change in Control Severance Plan, incorporated by reference to Exhibit
10.11 to the Company’s Annual Report on Form 10-K filed with the Commission on May 31, 2016.
Form of Restricted Stock Award Agreement, incorporated by reference to Exhibit 10.1 of the Company’s
Current Report on Form 8-K filed with the Commission on June 22, 2016.
Amendment No. 1 dated June 15, 2015 to the facility agreement originally dated March 23, 2015 by and
among Dorian LPG Finance LLC, as borrower, the Company, as facility guarantor, certain wholly-
owned subsidiaries of the Company as upstream guarantors, ABN Amro Capital USA LLC, Citibank
N.A., London Branch, ING Bank N.V., London Branch, and DVB Bank SE, as bookrunners, and the
lenders party to the agreement.
Side Letter dated February 1, 2016 to the facility agreement originally dated March 23, 2015 by and
among Dorian LPG Finance LLC, as borrower, the Company, as facility guarantor, certain wholly-
owned subsidiaries of the Company as upstream guarantors, ABN Amro Capital USA LLC, Citibank
N.A., London Branch, ING Bank N.V., London Branch, and DVB Bank SE, as bookrunners, and the
lenders party to the agreement.
Amendment No. 2 dated May 31, 2017 to the facility agreement originally dated March 23, 2015, as
amended, by and among Dorian LPG Finance LLC, as borrower, the Company, as facility guarantor,
certain wholly-owned subsidiaries of the Company as upstream guarantors, ABN Amro Capital USA
LLC, Citibank N.A., London Branch, ING Bank N.V., London Branch, and DVB Bank SE, as
bookrunners, and the lenders party to the agreement, incorporated by reference to Exhibit 10.1 of the
Company’s Current Report on Form 8-K filed with the Commission on June 1, 2017.
Loan Agreement providing for a Senior Secured Bridge Term Loan of $97,000,000, dated June 8, 2017,
by and among Corsair LPG Transport LLC, CNML LPG Transport LLC, CMNL LPG Transport LLC,
CJNP LPG Transport LLC, as borrowers, the Company, as parent guarantor, DNB Markets, Inc., as
mandated lead arranger and book runner, DNB Bank ASA, New York Branch, as facility agent and
security trustee, and DNB Capital LLC, as lender, incorporated by reference to Exhibit 10.1 of the
Company’s Current Report on Form 8-K filed with the Commission on June 12, 2017.
List of Subsidiaries.
Consent of Independent Registered Public Accounting Firm.
Consent of Seward & Kissel LLP.
Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
77
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32.1 †
Certifications of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 †
Certifications of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
XBRL Document.
101.SCH
XBRL Taxonomy Extension Schema.
101.CAL
XBRL Taxonomy Extension Schema Calculation Linkbase.
101.DEF
XBRL Taxonomy Extension Schema Definition Linkbase.
101.LAB
XBRL Taxonomy Extension Schema Label Linkbase.
101.PRE
XBRL Taxonomy Extension Schema Presentation Linkbase.
† This certification is deemed not filed for purposes of Section 18 of the Exchange Act or otherwise subject to the
liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange
Act.
* Indicates management contract or compensatory plan.
78
Table of Contents
DORIAN LPG LTD.
INDEX TO THE FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of March 31, 2017 and 2016
Consolidated Statements of Operations for the years ended March 31, 2017, 2016 and 2015
Consolidated Statements of Shareholders' Equity for the years ended March 31, 2017, 2016 and 2015
Consolidated Statements of Cash Flows for the years ended March 31, 2017, 2016 and 2015
Notes to Consolidated Financial Statements
F-1
F-2
F-3
F-4
F-5
F-6
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIR M
To the Board of Directors and Shareholders
of Dorian LPG Ltd.
Majuro, Republic of the Marshall Islands
We have audited the accompanying consolidated balance sheets of Dorian LPG Ltd. and subsidiaries (the "Company") as of
March 31, 2017 and 2016, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of
the three years in the period ended March 31, 2017. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Dorian LPG
Ltd. and subsidiaries as of March 31, 2017 and 2016, and the results of their operations and their cash flows for each of the three
years in the period ended March 31, 2017, in conformity with accounting principles generally accepted in the United States of
America.
/s/ Deloitte Certified Public Accountants S.A.
Athens, Greece
June 13, 2017
F-1
Table of Contents
Dorian LPG Ltd.
Consolidated Balance Sheet s
(Expressed in United States Dollars, except for number of shares)
As of
March 31, 2017
As of
March 31, 2016
Assets
Current assets
Cash and cash equivalents
Trade receivables, net and accrued revenues
Prepaid expenses and other receivables
Due from related parties
Inventories
Total current assets
Fixed assets
Vessels, net
Other fixed assets, net
Total fixed assets
Other non-current assets
Deferred charges, net
Derivative instruments
Due from related parties—non-current
Restricted cash
Other non-current assets
Total assets
Liabilities and shareholders’ equity
Current liabilities
Trade accounts payable
Accrued expenses
Due to related parties
Deferred income
Current portion of long-term debt
Total current liabilities
Long-term liabilities
Long-term debt—net of current portion and deferred financing fees
Derivative instruments
Other long-term liabilities
Total long-term liabilities
Total liabilities
Commitments and contingencies
Shareholders’ equity
Preferred stock, $0.01 par value, 50,000,000 shares authorized, none issued nor outstanding
Common stock, $0.01 par value, 450,000,000 shares authorized, 58,342,201 and 58,057,493 shares
issued, 54,974,526 and 56,125,028 shares outstanding (net of treasury stock), as of March 31, 2017
and March 31, 2016, respectively
Additional paid-in-capital
Treasury stock, at cost; 3,367,675 and 1,932,465 shares as of March 31, 2017 and March 31, 2016,
respectively
Retained earnings
Total shareholders’ equity
Total liabilities and shareholders’ equity
$
$
$
$
$
$
$
17,018,552
11,030
1,903,804
42,457,000
2,580,742
63,971,128
1,603,469,247
317,348
1,603,786,595
1,884,174
5,843,368
19,800,000
50,874,146
75,469
1,746,234,880
7,075,622
5,386,397
11,162
7,313,048
65,978,785
85,765,014
683,985,463
—
482,685
684,468,148
770,233,162
46,411,962
107,317
2,247,706
54,504,359
2,288,073
105,559,417
1,667,224,476
591,288
1,667,815,764
294,935
—
17,600,000
50,812,789
95,271
1,842,178,176
6,826,503
9,721,477
708,210
4,606,540
66,265,643
88,128,373
746,354,613
21,647,965
447,988
768,450,566
856,578,939
—
—
583,422
852,974,373
(33,897,269)
156,341,192
976,001,718
1,746,234,880
$
580,575
848,179,471
(20,943,816)
157,783,007
985,599,237
1,842,178,176
The accompanying notes are an integral part of these consolidated financial statements.
F-2
Table of Contents
Revenues
Net pool revenues—related party
Time charter revenues
Voyage charter revenues
Other revenues
Total revenues
Expenses
Voyage expenses
Vessel operating expenses
Management fees—related party
Impairment
Depreciation and amortization
General and administrative expenses
Loss on disposal of assets
Total expenses
Other income—related parties
Operating income/(loss)
Other income/(expenses)
Interest and finance costs
Interest income
Unrealized gain/(loss) on derivatives
Realized loss on derivatives
Foreign currency loss, net
Total other income/(expenses), net
Net income/(loss)
Earnings/(loss) per common share—basic
Earnings/(loss) per common share—diluted
Dorian LPG Ltd.
Consolidated Statements of Operation s
(Expressed in United States Dollars)
March 31, 2017 March 31, 2016 March 31, 2015
Year ended
$
115,753,153 $
49,474,510
1,296,952
922,556
167,447,171
202,918,232 $
38,737,172
46,194,134
1,358,291
289,207,829
—
26,098,290
77,331,934
698,925
104,129,149
2,965,978
66,108,062
—
—
65,057,487
21,732,864
—
155,864,391
2,410,542
13,993,322
12,064,682
47,119,990
—
—
42,591,942
29,836,029
1,125,395
132,738,038
1,945,396
158,415,187
(28,971,942)
137,556
27,491,333
(13,797,478)
(294,606)
(15,435,137)
(1,441,815) $
(0.03) $
(0.03) $
(12,757,013)
148,360
(8,917,503)
(6,858,126)
(342,523)
(28,726,805)
129,688,382 $
2.29 $
2.29 $
$
$
$
22,081,856
21,256,165
1,125,000
1,431,818
14,093,744
14,145,086
—
74,133,669
93,929
30,089,409
(289,090)
418,597
1,331,954
(5,291,157)
(998,931)
(4,828,627)
25,260,782
0.45
0.45
The accompanying notes are an integral part of these consolidated financial statements.
F-3
Table of Contents
Balance, April 1, 2014
Issuance—April 24, 2014
Issuance—May 13, 2014
Issuance—May 22, 2014
Restricted share award issuances
Net income for the period
Stock-based compensation
Balance, March 31, 2015
Net income for the period
Stock-based compensation
Purchase of treasury stock
Balance, March 31, 2016
Net loss for the period
Restricted share award issuances
Stock-based compensation
Purchase of treasury stock
Balance, March 31, 2017
Dorian LPG Ltd.
Consolidated Statements of Shareholders’ Equit y
(Expressed in United States Dollars, except for number of shares)
Number of
common
shares
48,365,011
1,412,698
7,105,263
245,521
929,000
—
—
58,057,493
—
—
—
58,057,493
—
284,708
—
—
58,342,201
$
Common
stock
Treasury
stock
483,650
14,127
71,053
2,455
9,290
—
—
580,575
—
—
—
580,575
—
2,847
—
—
583,422
$
—
—
—
—
—
—
—
—
—
—
(20,943,816)
(20,943,816)
—
—
—
(12,953,453)
(33,897,269)
Additional
paid-in
capital
688,881,939
25,849,437
123,169,507
4,335,901
(9,290)
—
2,311,565
844,539,059
—
3,640,412
—
848,179,471
—
(2,847)
4,797,749
—
Retained
Earnings
2,833,843
—
—
—
—
25,260,782
—
28,094,625
129,688,382
—
—
157,783,007
(1,441,815)
—
—
—
$
852,974,373 $
156,341,192 $
Total
692,199,432
25,863,564
123,240,560
4,338,356
—
25,260,782
2,311,565
873,214,259
129,688,382
3,640,412
(20,943,816)
985,599,237
(1,441,815)
—
4,797,749
(12,953,453)
976,001,718
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Table of Contents
Dorian LPG Ltd.
Consolidated Statements of Cash Flow s
(Expressed in United States Dollars)
Cash flows from operating activities:
Net income/(loss)
Adjustments to reconcile net income/(loss) to net cash provided by
operating activities:
Impairment
Depreciation and amortization
Amortization of financing costs
Unrealized (gain)/loss on derivatives
Stock-based compensation expense
Loss on disposal of assets
Unrealized foreign currency loss, net
Other non-cash items
Changes in operating assets and liabilities
Trade receivables, net and accrued revenue
Prepaid expenses and other receivables
Due from related parties
Inventories
Other non-current assets
Trade accounts payable
Accrued expenses and other liabilities
Due to related parties
Payments for drydocking costs
Net cash provided by operating activities
Cash flows from investing activities:
Payments for vessels and vessels under construction
Restricted cash deposits
Restricted cash released
Proceeds from disposal of assets
Payments to acquire other fixed assets
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from long-term debt borrowings
Repayment of long-term debt borrowings
Purchase of treasury stock
Financing costs paid
Cash proceeds from common share issuances
Payments relating to issuance costs
Net cash (used in)/provided by financing activities
Effects of exchange rates on cash and cash equivalents
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
Supplemental disclosure of cash flow information
Cash paid during the period for interest excluding interest capitalized to vessels
Predelivery costs for vessels and vessels under construction included in
liabilities
Financing costs included in liabilities
Issuance costs included in liabilities
March 31, 2017
Year ended
March 31, 2016
March 31, 2015
$
(1,441,815)
$
129,688,382
$
25,260,782
—
—
65,057,487
3,709,421
(27,491,333)
4,385,911
—
222,281
305,774
96,287
343,902
9,847,359
(292,669)
19,802
743,993
(1,172,349)
(697,048)
(1,533,235)
52,103,768
(1,911,182)
(64,146)
2,789
—
(8,483)
(1,981,022)
—
(66,265,644)
(12,953,453)
(99,785)
—
—
(79,318,882)
(197,274)
(29,393,410)
46,411,962
17,018,552
24,537,376
$
$
—
—
— $
42,591,942
2,499,185
8,917,503
4,052,249
1,125,395
96,550
138,588
22,739,907
(467,158)
(71,717,616)
1,087,686
2,175
1,044,595
9,045,077
183,040
—
151,027,500
(895,063,383)
(17,602,789)
—
2,713,660
(462,329)
(910,414,841)
676,819,873
(40,794,928)
(20,943,816)
(13,990,720)
—
—
601,090,409
(112,289)
(158,409,221)
204,821,183
46,411,962
8,354,474
1,040,189
$
$
—
— $
1,431,818
14,093,744
830,899
(1,331,954)
2,311,565
—
1,244,394
489,039
(21,018,670)
(1,437,501)
1,252,754
(2,317,430)
(97,446)
2,731,828
2,306,631
411,705
(538,938)
25,623,220
(314,173,298)
(28,700,000)
30,938,702
—
(392,248)
(312,326,844)
80,086,143
(9,612,000)
—
(11,220,812)
155,830,178
(1,388,918)
213,694,591
(1,301,579)
(74,310,612)
279,131,795
204,821,183
69,323
1,211,534
1,039,479
244,414
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Table of Contents
Dorian LPG Ltd.
Notes to Consolidated Financial Statements
(Expressed in United States Dollars)
1. Basis of Presentation and General Information
Dorian LPG Ltd. (“Dorian”) was incorporated on July 1, 2013 under the laws of the Republic of the Marshall Islands, is
headquartered in the United States and is engaged in the transportation of liquefied petroleum gas (“LPG”) worldwide through the
ownership and operation of LPG tankers. Dorian LPG Ltd. and its subsidiaries (together “we,” “us,” “our,” or the “Company”) is
focused on owning and operating very large gas carriers (“VLGCs”), each with a cargo carrying capacity of greater than 80,000
cbm. Our fleet currently consists of twenty-two VLGCs, including nineteen fuel-efficient 84,000 cbm ECO-design VLGCs
(“ECO VLGCs”) and three 82,000 cbm VLGCs.
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted
in the United States of America (“U.S. GAAP”) and include the accounts of Dorian LPG Ltd. and its subsidiaries.
On April 1, 2015, Dorian and Phoenix Tankers Pte. Ltd. (“Phoenix”) began operations of Helios LPG Pool LLC (the
“Helios Pool”), which entered into pool participation agreements for the purpose of establishing and operating, as charterer, under
variable rate time charters to be entered into with owners or disponent owners of VLGCs, a commercial pool of VLGCs whereby
revenues and expenses are shared. See Note 3 below for further description of the Helios Pool relationship.
Our subsidiaries, which are all wholly-owned and all are incorporated in Republic of the Marshall Islands (unless
otherwise indicated below), as of March 31, 2017 are listed below.
Vessel Owning Subsidiaries
Subsidiary
CMNL LPG Transport LLC
CJNP LPG Transport LLC
CNML LPG Transport LLC
Comet LPG Transport LLC
Corsair LPG Transport LLC
Corvette LPG Transport LLC
Dorian Shanghai LPG Transport LLC
Concorde LPG Transport LLC
Dorian Houston LPG Transport LLC
Dorian Sao Paulo LPG Transport LLC
Dorian Ulsan LPG Transport LLC
Dorian Amsterdam LPG Transport LLC
Dorian Dubai LPG Transport LLC
Constellation LPG Transport LLC
Dorian Monaco LPG Transport LLC
Dorian Barcelona LPG Transport LLC
Dorian Geneva LPG Transport LLC
Dorian Cape Town LPG Transport LLC
Dorian Tokyo LPG Transport LLC
Commander LPG Transport LLC
Dorian Explorer LPG Transport LLC
Dorian Exporter LPG Transport LLC
Management Subsidiaries
Subsidiary
Dorian LPG Management Corp
Dorian LPG (USA) LLC (incorporated in USA)
Dorian LPG (UK) Ltd. (incorporated in UK)
Dorian LPG Finance LLC
Occident River Trading Limited (incorporated in UK)
Type of
vessel
VLGC
VLGC
VLGC
VLGC
VLGC
VLGC
VLGC
VLGC
VLGC
VLGC
VLGC
VLGC
VLGC
VLGC
VLGC
VLGC
VLGC
VLGC
VLGC
VLGC
VLGC
VLGC
Vessel’s name
Captain
Markos
NL
Captain
John
NP
Captain
Nicholas
ML
Comet
Corsair
Corvette
Cougar
Concorde
Cobra
Continental
Constitution
Commodore
Cresques
Constellation
Cheyenne
Clermont
Cratis
Chaparral
Copernicus
Commander
Challenger
Caravelle
Built
2006
2007
2008
2014
2014
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2016
CBM
(1)
82,000
82,000
82,000
84,000
84,000
84,000
84,000
84,000
84,000
84,000
84,000
84,000
84,000
84,000
84,000
84,000
84,000
84,000
84,000
84,000
84,000
84,000
F-6
Table of Contents
Dormant Subsidiaries
Subsidiary
SeaCor LPG I LLC
SeaCor LPG II LLC
Capricorn LPG Transport LLC
Constitution LPG Transport LLC
Grendon Tanker LLC
(2)
(1) CBM: Cubic meters, a standard measure for LPG tanker capacity
(2) Owner of the Pressurized Gas Carrier (“PGC”) Grendon
until it was sold in February 2016
Customers
For the year ended March 31, 2017, the Helios Pool and two other individual charterers accounted for 69%, 13% and 10% of
our total revenues, respectively. For the year ended March 31, 2016, the Helios Pool and one other individual charterer
represented 70% and 12% of total revenues, respectively. For the year ended March 31, 2015, five charterers represented 27%,
19%, 14%, 12% and 11% of total revenues, respectively.
2. Significant Accounting Policies
(a) Principles of consolidation: The consolidated financial statements incorporate the financial statements of the
Company and its wholly‑owned subsidiaries. Income and expenses of subsidiaries acquired or disposed of during the
period are included in the consolidated statements of operations from the effective date of acquisition and up to the
effective date of disposal, as appropriate. All intercompany balances and transactions have been eliminated.
(b) Use of estimates: The preparation of the financial statements in conformity with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(c) Other comprehensive income/(loss): We follow the accounting guidance relating to comprehensive income, which
requires separate presentation of certain transactions that are recorded directly as components of shareholders’ equity.
We have no other comprehensive income/(loss) items and, accordingly, comprehensive income/(loss) equals net
income/(loss) for the periods presented and thus we have not presented this in the consolidated statement of operations
or in a separate statement.
(d) Foreign currency translation: Our functional currency is the U.S. Dollar. Foreign currency transactions are measured
and recorded in the functional currency using the exchange rate in effect at the date of the transaction. As of balance
sheet date, monetary assets and liabilities that are denominated in a currency other than the functional currency are
adjusted to reflect the exchange rate at the balance sheet date and any gains or losses are included in the statement of
operations. For the periods presented, we had no foreign currency derivative instruments.
(e) Cash and cash equivalents: We consider highly liquid investments such as time deposits and certificates of deposit
with an original maturity of three months or less to be cash equivalents.
(f) Trade receivables, net and accrued revenues: Trade receivables, net and accrued revenues, reflect receivables from
vessel charters, net of an allowance for doubtful accounts. At each balance sheet date, all potentially uncollectible
accounts are assessed individually for purposes of determining the appropriate provision for doubtful accounts.
Provision for doubtful accounts for the periods presented was zero.
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(g) Due from related parties: Due from related parties reflect receivables from the Helios Pool and other related parties.
Distributions of earnings due from the Helios Pool are classified as current and working capital contributed to the Helios
Pool is classified as non-current.
(h) Inventories: Inventories consist of bunkers on board the vessels when vessels are unemployed or are operating under
voyage charters and lubricants and stores on board the vessels. Inventories are stated at the lower of cost or market. Cost
is determined by the first in, first out method.
(i) Vessels, net: Vessels, net are stated at cost net of accumulated depreciation and impairment charges. The costs of the
vessels acquired as part of a business acquisition are recorded at their fair value on the date of acquisition. The cost of
vessels purchased consists of the contract price, less discounts, plus any direct expenses incurred upon acquisition,
including improvements, commission paid, delivery expenses and other expenditures to prepare the vessel for her initial
voyage. The initial purchase of LPG coolant for the refrigeration of cargo is also capitalized. Allocated interest costs
incurred during construction are capitalized. Subsequent expenditures for conversions and major improvements are also
capitalized when they appreciably extend the life, increase the earning capacity or improve the efficiency or safety of the
vessels. Repairs and maintenance are expensed as incurred.
(j) Impairment of long‑‑lived assets: We review our vessels “held and used” for impairment whenever events or changes
in circumstances indicate that the carrying amount of the assets may not be recoverable. When the estimate of future
undiscounted cash flows, excluding interest charges, expected to be generated by the use of the asset is less than its
carrying amount, the asset is evaluated for an impairment loss. Measurement of the impairment loss is based on the fair
value of the asset.
(k) Vessel depreciation: Depreciation is computed using the straight ‑line method over the estimated useful life of the
vessels, after considering the estimated salvage value. Each vessel’s salvage value is equal to the product of its
lightweight tonnage and estimated scrap rate. Management estimates the useful life of its vessels to be 25 years from the
date of initial delivery from the shipyard. Second hand vessels are depreciated from the date of their acquisition through
their remaining estimated useful life.
(l) Drydocking and special survey costs: Drydocking and special survey costs are accounted under the deferral method
whereby the actual costs incurred are deferred and are amortized on a straight‑line basis over the period through the date
the next survey is scheduled to become due. We are required to drydock each of our vessels every five years until it
reaches 15 years of age, after which we are required to drydock the applicable vessel every 2.5 years. Costs deferred are
limited to actual costs incurred at the yard and parts used in the drydocking or special survey. Costs deferred include
expenditures incurred relating to shipyard costs, hull preparation and painting, inspection of hull structure and
mechanical components, steelworks, machinery works, and electrical works. If a survey is performed prior to the
scheduled date, the remaining unamortized balances are immediately written off. Unamortized balances of vessels that
are sold are written‑off and included in the calculation of the resulting gain or loss in the period of the vessel’s sale. The
amortization charge is presented within Depreciation and amortization in the consolidated statement of operations.
(m) Financing costs: Financing costs incurred for obtaining new loans and credit facilities are deferred and amortized to
interest expense over the respective term of the loan or credit facility using the effective interest rate method. Any
unamortized balance of costs relating to loans repaid or refinanced is expensed in the period the repayment or
refinancing is made, subject to the accounting guidance regarding Debt—Modifications and Extinguishments. Any
unamortized balance of costs related to credit facilities repaid is expensed in the period. Any unamortized balance of
costs relating to credit facilities refinanced are deferred and amortized over the term of the respective credit facility in
the period the refinancing occurs, subject to the provisions of the accounting guidance relating to Debt—Modifications
and Extinguishments. The unamortized financing costs are reflected as a reduction of Long-term debt—net of current
portion and deferred financing fees in the accompanying consolidated balance sheet.
(n) Restricted cash: Restricted cash represents minimum liquidity to be maintained with certain banks under our
borrowing arrangements and pledged cash deposits. The restricted cash is classified as non-current in the event
F-8
Table of Contents
that its obligation is not expected to be terminated within the next twelve months as they are long-term in nature.
(o) Revenues and expenses: Revenue is recognized when an agreement exists, the vessel is made available to the
charterer or services are provided, the charter hire is determinable and collection of the related revenue is reasonably
assured.
Net pool revenue: As from April 1, 2015, we began operation of a pool. Net pool revenues—related party for each
vessel in the pool is determined in accordance with the profit-sharing terms specified within the pool agreement. In
particular, the pool manager calculates the net pool revenues using gross revenues less voyage expenses of all the pool
vessels and less the general and administrative expenses of the pool and distributes the net pool revenues as time charter
hire to participants based on:
·
·
pool points (vessel attributes such as cargo carrying capacity, fuel consumption, and speed are taken into
consideration); and
number of days the vessel participated in the pool in the period.
We recognize net pool revenues—related party on a monthly basis, when the vessel has participated in the pool during
the period and the amount of net pool revenues for the month can be estimated reliably.
Voyage charter revenue: Under a voyage charter, the revenues are recognized on a pro‑rata basis over the duration of
the voyage determined on a discharge—to discharge port basis but we 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. In the event a vessel is acquired or sold while a voyage is in progress, the revenue
recognized is based on an allocation formula agreed between the buyer and the seller. Demurrage income represents
payments by the charterer to the vessel owner when loading or discharging time exceeds the stipulated time in the
voyage charter and is recognized when earned and collection is reasonably assured. Despatch expense represents
payments by us to the charterer when loading or discharging time is less than the stipulated time in the voyage charter
and is recognized as incurred. Voyage charter revenue relating to voyages in progress as of the balance sheet date are
accrued and presented in Trade receivables and accrued revenue in the accompanying consolidated balance sheet.
Time charter revenue: Time charter revenues are recorded ratably over the term of the charter as service is provided.
Time charter revenues received in advance of the provision of charter service are recorded as deferred income and
recognized when the charter service is rendered. Deferred income or accrued revenue also may result from straight‑line
revenue recognition in respect of charter agreements that provide for varying charter rates. Deferred income and accrued
revenue amounts that will be recognized within the next twelve months are presented as current, with amounts to be
recognized thereafter presented as non‑current. Revenues earned through the profit-sharing arrangements in the time
charters represent contingent rental revenues that are recognized when earned and amounts are reasonably assured based
on estimates provided by the charterer.
Commissions: Charter hire commissions to brokers or managers, if any, are deferred and amortized over the related
charter period and are included in Voyage expenses.
Vessel operating expenses: Vessel operating expenses are accounted for as incurred on the accrual basis. 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 and other miscellaneous expenses.
(p) Repairs and maintenance: All repair and maintenance expenses, including underwater inspection costs are expensed
in the period incurred. Such costs are included in Vessel operating expenses.
F-9
Table of Contents
(q) Stock-based compensation: Stock-based payments to employees and directors are determined based on their grant
date fair values and are amortized against income over the vesting period. The fair value is considered to be the closing
price recorded on the grant date. We account for restricted stock award forfeitures upon occurrence.
(r) Stock repurchases: We record the repurchase of our shares of common stock at cost based on the settlement date of
the transaction. These shares are classified as treasury stock, which is a reduction to shareholders’ equity. Treasury
shares are included in authorized and issued shares but excluded from outstanding shares.
(s) Segment reporting: Each of our vessels serve the same type of customer, have similar operations and maintenance
requirements, operate in the same regulatory environment, and are subject to similar economic characteristics. Based on
this, we have determined that it operates in one reportable segment, the international transportation of liquid petroleum
gas with its fleet of vessels. Furthermore, when we charter a vessel to a charterer, the charterer is free to trade the vessel
worldwide and, as a result, the disclosure of geographic information is impracticable.
(t) Derivative instruments: All derivatives are stated at their fair value, as either a derivative asset or a liability. The fair
value of the interest rate derivatives is based on a discounted cash flow analysis and their fair value changes are
recognized in current period earnings. When the derivatives do qualify for hedge accounting, depending upon the nature
of the hedge, changes in fair value of the derivatives are either recognized in current period earnings or in other
comprehensive income/(loss) (effective portion) until the hedged item is recognized in the consolidated statements of
operations. For the periods presented, no derivatives were accounted for as accounting hedges.
(u) Fair value of financial instruments: In accordance with the requirements of accounting guidance relating to Fair
Value Measurements, the Company classifies and discloses its assets and liabilities carried at fair value in one of the
following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
(v) Recent accounting pronouncements: In November 2016, the Financial Accounting Standards Board (the “FASB”)
issued accounting guidance to require that a statement of cash flows explain the change during the period in the total of
cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The
pronouncement is effective for fiscal years beginning after December 15, 2017, including interim periods within those
fiscal years. The implementation of this guidance is anticipated to result in restricted cash transfers not reported as cash
flow activities in the consolidated statements of cash flows, and, upon adoption, is not anticipated to have an impact on
our consolidated balance sheets and statements of operations.
In August 2016, the FASB issued accounting guidance addressing specific cash flow issues with the objective of
reducing the existing diversity in practice. The pronouncement is effective for fiscal years beginning after December 15,
2017, and interim periods within those fiscal years. We do not believe that the impact of the adoption of this amended
guidance will have a material effect on our financial statements.
In March 2016, the FASB issued accounting guidance to simplify the requirements of accounting for share-based
payment transactions. The guidance simplifies the accounting for taxes related to stock-based compensation, including
adjustments to how excess tax benefits and an entity’s payments for tax withholdings should be classified. Additionally,
an entity may make an entity-wide policy election to either estimate the number of awards that are expected to vest or
account for forfeitures when they occur. The pronouncement is effective for annual periods beginning after December
15, 2016, and interim periods within that reporting period with early adoption permitted in any interim or annual period.
We have adopted this pronouncement and have made the entity-wide policy election to account for forfeitures when they
occur. The amended guidance had no significant impact on our financial statements for the year ended March 31, 2017.
F-10
Table of Contents
In February 2016, the FASB issued accounting guidance to update the requirements of financial accounting and
reporting for lessees and lessors. The updated guidance, for lease terms of more than 12 months, will require a dual
approach for lessee accounting under which a lessee would account for leases as finance leases or operating leases. Both
finance leases and operating leases will result in the lessee recognizing a right-of-use asset and a corresponding lease
liability. For finance leases, the lessee would recognize interest expense and amortization of the right-of-use asset, and
for operating leases, the lessee would recognize a straight-line total lease expense. Lessor accounting remains largely
unchanged. The new standard requires a modified retrospective transition approach for all leases existing at, or entered
into after, the date of initial application, with an option to use certain transition relief. The pronouncement is effective
prospectively for public business entities for annual periods beginning after December 15, 2018, and interim periods
within that reporting period. Early adoption is permitted for all entities. We are currently assessing the impact the
amended guidance will have on our financial statements.
In July 2015, the FASB issued accounting guidance requiring entities to measure most inventory at the lower of cost and
net realizable value. The pronouncement is effective prospectively for annual periods beginning after December 15,
2016, and interim periods within that reporting period. We do not believe that the impact of the adoption of this
amended guidance will have a material effect on our financial statements.
In April 2015, an accounting pronouncement was issued by the FASB to update the guidance related to the presentation
of debt issuance costs, which we adopted in April 2016. This guidance requires debt issuance costs, related to a
recognized debt liability, be presented in the balance sheet as a direct deduction from the carrying amount of the related
debt liability rather than being presented as an asset. The reclassification does not impact net income/(loss) as previously
reported or any prior amounts reported on the consolidated statements of comprehensive income, or the consolidated
statements of cash flows. The effect of the retrospective application of this change in accounting principle on our
consolidated balance sheets as of March 31, 2017 and March 31, 2016 resulted in a reduction of “Deferred charges, net”
and “Total assets” in the amount of $20.1 million and $23.7 million, respectively, with a corresponding reduction of
“Long-term debt—net of current portion” and “Total long-term liabilities.”
In May 2014, the FASB amended its accounting guidance for revenue recognition. The fundamental principles of the
new guidance are that companies should recognize revenue in a manner that reflects the timing of the transfer of services
to customers and consideration that a company expects to receive for the services provided. It also requires additional
disclosures necessary for the financial statement users to understand the nature, amount, timing and uncertainty of
revenue and cash flows arising from contracts with customers. In August 2015, the FASB voted to defer the effective
date by one year for fiscal years beginning on or after December 15, 2017 and interim periods within that reporting
period and permit early adoption of the standard, but not before the beginning of 2017. We are currently assessing the
impact the amended guidance will have on our financial statements.
3. Transactions with Related Parties
Dorian
(Hellas)
S.A.
Ship‑Owning
Companies
Management
Agreements:
Pursuant to management agreements entered into by each vessel
owning subsidiary on July 26, 2013, as amended, with Dorian (Hellas) S.A. (“DHSA” or the “Manager”), the technical, crew and
commercial management as well as insurance and accounting services of its vessels was outsourced to DHSA. In addition, under
these management agreements, strategic and financial services had also been outsourced to DHSA. DHSA had entered into
agreements with each of Eagle Ocean Transport Inc. (“Eagle Ocean Transport”) and Highbury Shipping Services Limited
(“HSSL”), to provide certain of these services on behalf of the vessel owning companies. Mr. John Hadjipateras, our Chairman,
President and CEO, owns 100% of Eagle Ocean Transport, and our Vice President of Chartering, Insurance and Legal, Nigel
Grey‑Turner, owns 100% of HSSL. The fees payable for the above services to DHSA amounted to $93,750 per month per vessel,
payable one month in advance. These management agreements terminated on June 30, 2014. As of July 1, 2014, vessel
management services and the associated agreements for our fleet were transferred from DHSA and are now provided through our
wholly owned subsidiaries Dorian LPG (USA) LLC, Dorian LPG (UK) Ltd. and Dorian LPG Management Corp. Subsequent to
the transition agreements, Eagle Ocean Transport continues to incur related travel costs for certain transitioned employees as well
as office-related costs,
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for which we reimbursed Eagle Ocean Transport $0.4 million, $0.8 million and $0.7 million for the years ended March 31, 2017,
2016, and 2015, respectively. Such expenses are reimbursed based on their actual cost.
Management fees related to these agreements for the year ended March 31, 2015 amounted to $1.1 million and are presented in
Management fees—related party in the consolidated statements of operations. There were no management fees incurred for the
years ended March 31, 2017 and 2016.
Dorian LPG (USA) LLC and its subsidiaries entered into an agreement with DHSA, retroactive to July 2014 and superseding an
agreement between Dorian LPG (UK) Ltd. and DHSA, for the provision by Dorian LPG (USA) LLC and its subsidiaries of
certain chartering and marine operation services to DHSA, for which income was earned and included in “Other income—related
parties” totaling $0.4 million, $0.5 million and $0.1 million for the years ended March 31, 2017, 2016 and 2015, respectively.
As of March 31, 2017, $0.8 million was due from DHSA and included in “Due from related parties.” As of March 31, 2016, $0.9
million was due from DHSA and included in “Due from related parties” and $0.5 million was due to DHSA and included in “Due
to related parties.”
Pre‑Delivery
Services:
A fixed monthly fee of $15,000 per hull was payable to the Manager for pre‑delivery services
provided during the period from July 29, 2013 until the date of delivery of each newbuilding. These management agreements
terminated on June 30, 2014. As of July 1, 2014, vessel management services and the associated agreements for our fleet were
transferred from the Manager and are now provided through our wholly owned subsidiaries. Management fees related to the
pre‑delivery services provided by DHSA for the year ended March 31, 2015 amounted to $0.9 million.
Helios
LPG
Pool
LLC
(“Helios
Pool”)
On April 1, 2015, Dorian and Phoenix began operations of the Helios Pool, which entered into pool participation agreements for
the purpose of establishing and operating, as charterer, under variable rate time charters to be entered into with owners or
disponent owners of VLGCs, a commercial pool of VLGCs whereby revenues and expenses are shared. We hold a 50% interest in
the Helios Pool as a joint venture with Phoenix and all significant rights and obligations are equally shared by both parties. All
profits of the Helios Pool are distributed to the pool participants based on pool points assigned to each vessel as variable charter
hire and, as a result, there are no profits available to the equity investors as a share of equity. We have determined that the Helios
Pool is a variable interest entity as it does not have sufficient equity at risk. We do not consolidate the Helios Pool because we are
not the primary beneficiary and do not have a controlling financial interest. In consideration of Accounting Standards
Codification (“ASC”) 810-10-50-4e, the significant factors considered and judgments made in determining that the power to
direct the activities of the Helios Pool that most significantly impact the entity’s economic performance are shared, in that all
significant performance activities which relate to approval of pool policies and strategies related to pool customers and the
marketing of the pool for the procurement of customers for the pool vessels, addition of new pool vessels and the pool cost
management, require unanimous board consent from a board consisting of two members from each joint venture investor. Further,
in accordance with the guidance in ASC 810-10-25-38D, the Company and Phoenix are not related parties as defined in ASC 850
nor are they de facto agents pursuant to ASC 810-10, the power over the significant activities of the Helios Pool is shared, and no
party is the primary beneficiary in the Helios Pool, or has a controlling financial interest. In March 2016, the Helios Pool reached
an agreement with Oriental Energy Company Ltd. ("Oriental Energy") whereby Oriental Energy would contribute certain vessels
to the Helios Pool, have certain of its vessels time chartered by the Helios Pool and simultaneously enter into a multi-year
contract of affreightment covering Oriental Energy’s shipments from the United States Gulf. The agreement with Oriental Energy
had no impact on the ownership structure or the power to direct significant activities of the Helios Pool. As of March 31, 2017,
the Helios Pool operated twenty-seven VLGCs, including eighteen of our vessels, five Oriental Energy vessels and four Phoenix
vessels .
As of March 31, 2017, we had receivables from the Helios Pool of $61.4 million, including $19.8 million of working capital
contributed for the operation of our vessels in the pool. As of March 31, 2016, we had receivables from the Helios Pool of $71.0
million, including $17.6 million of working capital contributed for the operation of our vessels in the pool. Our maximum
exposure to losses from the pool as of March 31, 2017 is limited to the receivables from the pool.
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The Helios Pool does not have any third-party debt obligations. The Helios Pool has entered into commercial management
agreements with each of Dorian LPG (UK) Ltd. and Phoenix as commercial managers and has appointed both commercial
managers as the exclusive commercial managers of pool vessels. Fees for commercial management services provided by Dorian
LPG (UK) Ltd. are included in “Other income-related parties” in the consolidated statement of operations and were $2.1 million
and $1.4 million for the years ended March 31, 2017 and 2016, respectively. Additionally, we received a fixed reimbursement of
expenses such as costs for security guards and war risk insurance for vessels operating high risk areas from the Helios Pool, for
which we earned $0.9 million and $1.2 million for the years ended March 31, 2017 and 2016, respectively, and are included in
“Other revenues” in the consolidated statement of operations.
Through our vessel owning subsidiaries, we have chartered vessels to the Helios Pool during the years ended March 31, 2017 and
2016. The time charter revenue from the Helios Pool is variable depending upon the net results of the pool, operating days and
pool points for each vessel. The Helios Pool enters into voyage and time charters with external parties and receives freight and
related revenue and, where applicable, incurs voyage costs such as bunkers, port costs and commissions. At the end of each
month, the Helios Pool calculates net pool revenues using gross revenues, less voyage expenses of all the pool vessels, less fixed
time charter hire for any chartered-in vessels, less the general and administrative expenses of the pool. Net pool revenues, less any
amounts required for working capital of the Helios Pool, are distributed as variable rate time charter hire for the relevant vessel to
participants based on pool points (vessel attributes such as cargo carrying capacity, fuel consumption, and speed are taken into
consideration) and number of days the vessel participated in the pool in the period. We recognize net pool revenues on a monthly
basis, when the vessel has participated in the pool during the period and the amount of net pool revenues for the month can be
estimated reliably and collectability is reasonably assured. Revenue earned is presented in Note 13.
Consulting
Since the formation of the Predecessor Companies, a member of our board of directors, who resigned effective May 1, 2015,
provided certain chartering and commercial services to the Company, its subsidiaries, and the Predecessor Companies. This
individual entered into a consulting agreement in May 2015 that provides for, among other things, an annual fee of $250,000,
payable for services rendered commencing on May 8, 2014. The agreement was amended in June 2016, retroactive to January 1,
2016, to provide for, among other things, an annual fee for services rendered of $120,000. Related to this consulting agreement,
we expensed $0.1 million, $0.2 million, and $0.2 million for the years ended March 31, 2017, 2016, and 2015, respectively.
Artwork
During the year ended March 31, 2016, we purchased $0.1 million of artwork for newbuilding vessels, which have been
capitalized and presented in “Vessels, net” in the consolidated balance sheets, for our Athens, Greece office and for a shipyard,
which are included in “General and administrative expenses” in the consolidated statement of operations. The artist is a relative of
one of our executive officers. No artwork was purchased during the year ended March 31, 2017.
Commissions
Orient River Trading Ltd., a company 100% owned by a senior officer of our 100% owned subsidiary Dorian Management Corp.,
provided disponent owner services for certain charterers that do not recognize Marshall Islands vessel-owning subsidiary
companies. Commission expenses on voyages utilizing these services, included in “Voyage expenses” in the consolidated
statement of operations, amounted to $0.1 million for each of the years ended March 31, 2016 and 2015. There were no services
rendered for us by Orient River Trading Ltd. for the year ended March 31, 2017.
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Table of Contents
4. Inventories
Our inventories by type were as follows:
Lubricants
Victualing
Bonded stores
Other
Total
5. Vessels, Net
Balance, April 1, 2015
Vessels delivered
Other additions
Disposals
Depreciation
Balance, March 31, 2016
Other additions
Transfers out
Depreciation
Balance, March 31, 2017
March 31, 2017
1,807,617
457,787
124,985
190,353
2,580,742
$
$
Cost
439,180,669
1,292,872,267
195,272
(4,268,279)
—
1,727,979,929
984,639
(195,273)
—
1,728,769,295
$
$
$
Accumulated
depreciation
(19,204,616)
—
—
429,214
(41,980,051)
(60,755,453)
—
—
(64,544,595)
(125,300,048)
$
$
$
$
$
$
$
March 31, 2016
$
1,612,354
494,098
103,446
78,175
2,288,073
Net book Value
419,976,053
1,292,872,267
195,272
(3,839,065)
(41,980,051)
1,667,224,476
984,639
(195,273)
(64,544,595)
1,603,469,247
Vessels delivered represent amounts transferred from Vessels under Construction relating to the cost of our ECO
VLGCs delivered to us between July 2014 and February 2016. Other additions to vessels, net were largely due to capital
improvements made to two of our VLGCs during the year ended March 31, 2017 and other capital improvements to our fleet
during the year ended March 31, 2016. Disposals for the year ended March 31, 2016 were primarily attributable to the sale of the
Grendon
.
Vessels with a total carrying value of $1,603.5 million as of March 31, 2017 are first‑priority mortgaged as collateral for
our loan facilities (refer to Note 10 below). As of March 31, 2016, vessels with a total carrying value of $1,667.2 million were
first priority mortgaged as collateral for our loan facilities.
6. Vessels Under Construction
Balance, April 1, 2015
Installment payments to shipyards
Other capitalized expenditures
Capitalized interest
Vessels delivered (transferred to Vessels)
Balance, March 31, 2016
Balance, March 31, 2017
$
$
398,175,504
867,187,966
22,699,783
4,809,014
(1,292,872,267)
—
—
Other capitalized expenditures for the year ended March 31, 2016 represent LPG coolant of $5.0 million, fees paid to
third party vendors of $17.3 million and $0.4 million of employee-related costs for supervision fees and other newbuilding pre-
delivery costs including engineering and technical support, liaising with the shipyard, and ensuring key suppliers are integrated
into the production planning process.
7. Other Fixed Assets, Net
Other fixed assets, net were $317,348 and $591,288 as of March 31, 2017 and March 31, 2016, respectively, and
represent leasehold improvements, software and furniture and fixtures at cost. Accumulated depreciation on other fixed assets, net
was $561,311 as of March 31, 2017 and $279,651 as of March 31, 2016.
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Table of Contents
8. Deferred Charges, Net
The analysis and movement of deferred charges, net is presented in the table below:
Balance, April 1, 2015
Amortization
Balance, March 31, 2016
Additions
Amortization
Balance, March 31, 2017
Drydocking
costs
669,705
(374,770)
294,935
1,817,231
(227,992)
1,884,174
$
$
$
The drydocking costs incurred during the year ended March 31, 2017 relate to the drydocking of two of our VLGCs .
9. Accrued Expenses
Accrued expenses comprised of the following:
Accrued voyage and vessel operating expenses
Accrued professional services
Accrued loan and swap interest
Accrued employee-related costs
Accrued board of directors' stock-based compensation and fees
Other
Total
10. Long‑‑Term Debt
Description of our Debt Obligations
2015 Debt Facility
March 31, 2017 March 31, 2016
$
$
2,029,598
1,470,298
999,733
786,467
88,750
11,551
5,386,397
$
$
1,644,557
1,676,880
1,664,002
4,231,542
492,652
11,844
9,721,477
In March 2015, we entered into a $758 million debt financing facility (the “2015 Debt Facility”) with four separate
tranches. Commercial debt financing (“Commercial Financing”) of $249 million was provided by ABN AMRO Capital USA
LLC (“ABN”); ING Bank N.V., London Branch, ("ING"); DVB Bank SE ("DVB"); Citibank N.A., London Branch (“Citi”); and
Commonwealth Bank of Australia, New York Branch, ("CBA"), (collectively the "Commercial Lenders"), while the Export
Import Bank of Korea ("KEXIM") directly provided $204 million of financing (“KEXIM Direct Financing”). The remaining $305
million of financing was provided under tranches guaranteed by KEXIM of $202 million (“KEXIM Guaranteed”) and insured by
the Korea Trade Insurance Corporation ("K-sure") of $103 million (“K-sure Insured”). Financing under the KEXIM guaranteed
and K-sure insured tranches are provided by certain Commercial Lenders; Deutsche Bank AG; and Santander Bank, N.A. The
debt financing is secured by, among other things, eighteen of our ECO VLGCs, and represents a loan-to-contract cost ratio before
fees of approximately 55%.
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Table of Contents
The 2015 Debt Facility contains various covenants providing for, among other things, maintenance of certain financial
ratios and certain limitations on payment of dividends, investments, acquisitions and indebtedness. A commitment fee was
payable on the average daily unused amount under the 2015 Debt Facility of 40% of the margin on each tranche. Certain terms of
the borrowings under each tranche of the 2015 Debt Facility are as follows:
Tranche 1
Commercial Financing
Tranche 2
KEXIM Direct Financing
Tranche 3
KEXIM Guaranteed
Tranche 4
K-sure Insured
Term
7 years
12 years
(3)
12 years
(3)
12 years
(3)
Interest Rate Description
London InterBank Offered Rate
(“LIBOR”) plus a margin
(4)
(1)
LIBOR plus a margin of
LIBOR plus a margin of
LIBOR plus a margin of
2.45
1.40
1.50
%
%
%
Interest Rate at
March 31, 2017
(2)
3.73 %
3.43 %
2.38 %
2.48 %
(1) The interest rate of the 2015 Debt Facility on Tranche 1 is determined in accordance with the agreement as three or six month LIBOR plus the
applicable margin and the interest rate on Tranches 2, 3 and 4 is determined in accordance with the agreement as three month LIBOR plus the
applicable margin for the respective tranches.
(2) The set LIBOR rate in effect as of March 31, 2017 was 0.98%.
(3) The KEXIM Direct Financing, KEXIM Guaranteed, and K-Sure tranches have put options to call for the prepayment on the final payment date of
the Commercial Financing tranche subject to specific notifications and commitments for refinancing/renewal of the Commercial Financing tranche.
(4) The Commercial Financing tranche margin over LIBOR is 2.75% and is reduced to 2.50% if 50% or more but less than 75% of the vessels financed
in the 2015 Debt Facility are employed under time charters as defined in the agreement and to 2.25% if 75% or more of the vessels financed in the
2015 Debt Facility are employed under time charters as defined in the agreement. As of March 31, 2017, the set margin was 2.75%.
The 2015 Debt Facility is secured by, among other things, (i) first priority Bahamian mortgages on the vessels financed;
(ii) first priority assignments of all of the financed vessels’ insurances, earnings, requisition compensation, and management
agreements; (iii) first priority security interests in respect of all issued shares or limited liability company interests of the
borrowers and vessel-owning guarantors; (iv) first priority charter assignments of all of the financed vessels’ long-term charters;
(v) assignments of the interests of any ship manager in the insurances of the financed vessels; (vi) an assignment by the borrower
of any bank, deposit or certificate of deposit opened in accordance with the facility; and (vii) a guaranty by the Company
guaranteeing the obligations of the borrower and other guarantors under the facility agreement. The 2015 Debt Facility further
provides that the facility is to be secured by assignments of the borrower’s rights under any hedging contracts in connection with
the facility but such assignments have not been entered into at this time.
Royal Bank of Scotland plc. (“RBS”) secured bank debt
We assumed the debt obligations associated with the financing of the vessels that were acquired through the acquisition
of CJNP
LPG
Transport
LLC,
CMNL
LPG
Transport
LLC,
and CNML
LPG
Transport
LLC
. The prior loan arrangements
associated with those vessels required approval from the lenders to sell the vessels and agreement from the lenders to transfer the
borrowings to another party. As a consequence, the Company and the lender negotiated new borrowing terms in connection with
this transaction. The new terms are described below. The total borrowings outstanding immediately prior to the debt modification
and immediately after remained the same.
CJNP
LPG
Transport
LLC,
CMNL
LPG
Transport
LLC,
CNML
LPG
Transport
LLC,
and Corsair
LPG
Transport
LLC
as joint and several borrowers (Borrowers), and Dorian LPG Ltd. as parent guarantor entered into a loan facility of $135,224,500
(the “RBS Loan Facility”), which replaced the prior borrowing arrangements of the Predecessor. The RBS Loan Facility is
divided into three tranches. Tranche A of $47.6 million, Tranche B of $34.5 million and Tranche C of up to $53.1 million and is
associated with each of the Captain
John
NP
, Captain
Markos
NL
and the Captain
Nicholas
ML
, respectively.
Tranche A is payable in twelve equal semi‑annual installments each in the amount of $1,700,000 that commenced on
September 24, 2013 plus a balloon of $27,200,000 payable concurrently with the last installment on March 24, 2019.
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Table of Contents
Tranche B is payable in eleven equal semi‑annual installments each in the amount of $1,278,500 that commenced on
November 17, 2013 plus a balloon of $20,456,000 payable concurrently with the last installment on November 17, 2018.
Tranche C is payable in fourteen equal semi‑annual installments each in the amount of $1,827,500 that commenced on
January 21, 2014 plus a balloon of $27,520,000 payable concurrently with the last installment July 21, 2020.
The interest rate on the RBS Loan Facility increased in accordance with the loan agreement from LIBOR plus a margin
of 1.5% per annum to LIBOR plus a margin of 2.0% per annum on September 26, 2014, concurrent with the delivery of the
Corsair
and to 2.5% on September 26, 2015 until maturity. In the event of non ‑
compliance the Borrowers will be required
within one month of being notified in writing by the lender to make such prepayment. In the event the lender agrees to release
Corsair
or another borrower approved by the lender from joint and several liabilities under the agreement, the minimum market
adjusted security cover is adjusted to 175% and the margin will be increased to 2.75%.
The RBS Loan Facility provides that it be secured by, among other things, (i) first priority mortgages on the vessels
financed; (ii) first assignments of all freights, earnings and insurances; (iii) first assignment of any borrowers’ rights and interests
in any hedging agreement in connection with the facility; and (iv) assignment of any approved charter in respect of any financed
vessel.
The 2015 Debt Facility and RBS Loan Facility also contain customary covenants that require us to maintain adequate
insurance coverage, properly maintain the vessels and to obtain the lender’s prior consent before changes are made to the flag,
class or management of the vessels, or entry into a new line of business. The loan facilities include customary events of default,
including those relating to a failure to pay principal or interest, breaches of covenants, representations and warranties, a cross-
default to other indebtedness and non-compliance with security documents, and customary restrictions from paying dividends if
an event of default has occurred and is continuing, or if an event of default would result therefrom.
Debt Covenants: The following financial covenants are the most restrictive from the 2015 Debt Facility and the RBS
Loan Facility with which the Company is required to comply, calculated on a consolidated basis, determined and defined
according to the provisions of the loan agreement:
2015
Debt
Facility
Covenants
·
The ratio of current assets and long-term restricted cash divided by current liabilities shall always be greater
than 1.00;
· Maintain minimum shareholders’ equity at all times equal to the aggregate of (i) $400,000,000, (ii) 50% of any
new equity raised after loan agreement date and (iii) 25% of the positive net income for the immediately
preceding financial year;
· Minimum interest coverage ratio of consolidated EBITDA to consolidated net interest expense must be
maintained greater than or equal to (i) 1.00 for the 12-month period starting in the calendar quarter following
the one in which delivery of the first ship occurs, (ii) 1.50 in the subsequent year, (iii) 2.00 in the third year
following the initial period, and (iv) 2.50 thereafter;
·
·
·
The ratio of consolidated net debt to consolidated total capitalization shall not exceed 0.60 to 1.00;
Liquidity reserve minimum must be the higher of (a) the aggregate of (i) $25 million and (ii) $1,100,000 for
every vessel delivered and financed by the 2015 Debt Facility and (b) 5% of the consolidated interest bearing
debt outstanding of the Company;
Fair market value of the mortgaged ships plus any additional security over outstanding loan balance shall be at
least 135%;
F-17
Table of Contents
RBS
Loan
Facility
Covenants
·
The ratio of cash flow from operations before interest and finance costs to cash debt service costs shall not be
less than 1:1;
· Minimum shareholders' equity, as adjusted for any reduction in vessel fair market value, shall not be less than
$85 million;
· Minimum cash balance of $10 million at the end of each quarter and minimum cash balances of $1.5 million
per mortgaged vessel in a pledged account with the lender at all times;
·
·
The ratio of Total Debt to Shareholders Funds shall not exceed 150% at all times;
The ratio of the aggregate market value of the vessels securing the loan to the principal amount outstanding
under such loan, plus 100% of the related swap exposure, at all times shall be in excess of 125%; and
· No dividends shall be paid in excess of free cash flow if an event of default is occurring.
The RBS Loan Facility further (i) requires that the existing shareholders at the date of the agreement maintain their
ownership of our common shares at a minimum level of 15% of our issued share capital, subject to downward adjustment for any
future equity issuances by us, (ii) provides that the ownership of more than one ‑
third of our common shares by any shareholder
other than the existing shareholders at the date of the agreement is an event of default and/or permits the lender to accelerate the
indebtedness, (iii) permits the lender to accelerate the indebtedness if at any time the existing shareholders at the date of the
agreement do not maintain a representative on our board of directors or any other of our management committees; (iv) requires
the lender's approval prior to chartering for a period of greater than one year any of the vessels securing the loan, subject to
certain conditions; and (v) restricts our subsidiaries, which own the vessels securing the loan, from paying any dividends,
however, the loan facility permits the borrowers to make expenditures to fund our administration and operations.
Similarly, the 2015 Debt Facility permits the lenders to accelerate the indebtedness if, without the prior written consent of the
lenders, (i) one-third of our common shares are owned by any shareholder other than certain entities, directors or officers listed in
the agreement; (ii) there are certain changes to our board of directors; or (iii) Mr. John Hadjipateras ceases to serve on our board
of directors.
We entered into a bridge loan agreement and repaid in full the RBS Loan Facility at 96% of the then outstanding
principal amount in June 2017. See Note 24 for further details on the bridge loan agreement and the repayment of the RBS Loan
Facility. We were in compliance with the financial covenants for the 2015 Debt Facility as of March 31, 2017, which was
amended in May 2017. See Note 24 for further details on the amendment.
F-18
Table of Contents
Debt Obligations
The table below presents our debt obligations:
RBS secured bank debt
Tranche A
Tranche B
Tranche C
Total RBS secured bank debt
2015 Debt Facility
Commercial Financing
KEXIM Direct Financing
KEXIM Guaranteed
K-sure Insured
Total 2015 Debt Facility
Total debt obligations
Less: deferred financing fees
Debt obligations—net of deferred financing fees
Presented as follows:
Current portion of long-term debt
Long-term debt—net of current portion and deferred financing fees
Total
Deferred Financing Fees
The analysis and movement of deferred financing fees is presented in the table below:
Balance, April 1, 2015
Additions
Amortization
Balance, March 31, 2016
Additions
Amortization
Balance, March 31, 2017
$
$
$
$
$
$
$
$
March 31, 2017
34,000,000
25,570,000
40,312,500
99,882,500
$
March 31, 2016
37,400,000
28,127,000
43,967,500
109,494,500
$
227,512,277
177,680,534
175,773,718
89,253,699
670,220,228
770,102,728
20,138,480
749,964,248
65,978,785
683,985,463
749,964,248
$
$
$
$
$
$
241,442,384
194,827,596
192,736,763
97,867,129
726,873,872
836,368,372
23,748,116
812,620,256
66,265,643
746,354,613
812,620,256
Financing
costs
13,296,216
12,951,085
(2,499,185)
23,748,116
99,785
(3,709,421)
20,138,480
$
$
$
Additions represent debt issuance costs associated with the 2015 Debt Facility for the years ended March 31, 2017 and 2016,
respectively, which have been deferred and are amortized over the life of the agreement and are included as part of interest
expense in the consolidated statements of operations.
Future Cash Payments for Debt
The minimum annual principal payments, in accordance with the loan agreements, required to be made after March 31,
2017 are as follows:
Year ending March 31:
2018
2019
2020
2021
2022
Thereafter
Total
$
$
65,978,785
113,634,787
60,021,786
85,714,286
214,581,395
230,171,689
770,102,728
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Table of Contents
11. Common Stock
Under the articles of incorporation effective July 1, 2013, the Company’s authorized capital stock consists of
500,000,000 registered shares, par value $0.01 per share, of which 450,000,000 are designated as common share and 50,000,000
shares are designated as preferred shares.
On July 29, 2013, the Company issued the following shares:
·
·
·
9,310,054 common shares on completion of its NPP, at NOK75.00 per share, equivalent to USD12.66 per share
based on the exchange rate on July 29, 2013
4,667,135 common shares to Dorian Holdings
4,667,135 common shares to SeaDor Holdings LLC
The fair value of the shares issued to Dorian and SeaDor was determined by the Company to be NOK75 (or USD12.66)
per share based on the issue price of the NPP.
On November 26, 2013, the Company issued the following shares:
·
·
16,081,081 common shares on completion of a second Private Placement in Norway (“NPP2”), at NOK92.50
per share, equivalent to USD15.16 per share based on the exchange rate on November 26, 2013
7,990,425 common shares to Scorpio Tankers Inc.
On February 12, 2014, the Company issued the following shares:
·
5,649,200 common shares on completion of a third Private Placement in Norway (“NPP3”), at NOK110.00 per
share, equivalent to USD17.92 per share based on the exchange rate on February 12, 2014
Each holder of common shares is entitled to one vote on all matters submitted to a vote of shareholders. Subject to
preferences that may be applicable to any outstanding shares of preferred stock, holders of common shares are entitled to share
equally in any dividends, which the Company’s board of directors may declare from time to time, out of funds legally available
for dividends. Upon dissolution, liquidation or winding‑up, the holders of common shares will be entitled to share equally in all
assets remaining after the payment of any liabilities and the liquidation preferences on any outstanding preferred stock. Holders of
common shares do not have conversion, redemption or pre‑emptive rights.
On April 25, 2014, the Company completed a one-for-five reverse stock split and reduced the number of the Company’s
issued and outstanding common shares and affected all issued and outstanding common shares, outstanding immediately prior to
the effectiveness of the reverse stock split. The number of the Company’s authorized common shares was not affected by the
reverse split and the par value of our common shares remained unchanged at $0.01 per share. The reverse stock split reduced the
number of the Company’s common shares outstanding at March 31, 2014 from 241,825,149 to 48,365,011 after the cancellation
of 19 fractional shares. No fractional shares were issued in connection with the reverse stock split. Shareholders who otherwise
held a fractional share of the Company’s common stock as a result of the reverse stock split received a cash payment in lieu of
such fractional share. All amounts related to number of shares and per share amounts have been retroactively restated.
On April 25, 2014, we completed a private placement of 1,412,698 common shares with a strategic investor at a price of
NOK 110.00 or USD 18.40 based upon the exchange rate on April 24, 2014, which represents approximately $26.0 million in
gross proceeds not including closing fees.
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Table of Contents
On May 13, 2014, we completed an initial public offering of 7,105,263 common shares on the New York Stock
Exchange at a price of $19.00 per share, or $135.0 million in gross proceeds not including underwriting fees or closing costs. The
shares began trading on the New York Stock Exchange on May 8, 2014 under the ticker symbol “LPG”.
On May 22, 2014, we completed the issuance of 245,521 common shares related to the overallotment exercise by the
underwriters of our initial public offering at a price of $19.00 per share, or $4.7 million in gross proceeds not including
underwriting fees or closing costs.
On June 25, 2014, we completed the exchange offer of unregistered common shares that we previously issued in our
prior equity private placements, other than the common shares owned by our affiliates, for 15,528,507 common shares that have
been registered under the Securities Act of 1933, as amended, the complete terms and conditions of which were set forth in a
prospectus dated May 8, 2014 and the related letter of transmittal.
In June 2014, we granted 655,000 shares of restricted stock to certain of our officers and, in March 2015, we granted
274,000 shares of restricted stock to certain of our employees and non-employee consultants (see Note 12 for further discussion
regarding stock-based compensation).
In August 2015, we established a stock repurchase program authorizing the repurchase of up to $100.0 million of our
common stock, which expired on December 31, 2016. We repurchased a total of 3,342,035 shares of our common stock for
approximately $33.7 million under this program through its expiration. Purchases under the program were made at our discretion
in the form of open market repurchase programs, privately negotiated transactions, accelerated share repurchase programs or a
combination of these methods.
In June 2016, we granted 250,000 shares of restricted stock to certain of our officers and employees (see Note 12 for
further discussion regarding stock-based compensation) .
In June 2016, September 2016, December 2016 and March 2017, we granted 6,950, 10,130, 8,695 and 5,995 shares of
stock, respectively, to our non-executive directors, which were valued and expensed at their grant date fair market value (see Note
12 for further discussion regarding stock-based compensation) .
In December 2016 and March 2017, we granted 1,739 and 1,199 shares of stock, respectively, to a non-employee
consultant, which were valued and expensed at their grant date fair market value (see Note 12 for further discussion regarding
stock-based compensation) .
12. Stock-Based Compensation Plans
In April 2014, we adopted an equity incentive plan, which we refer to as the Equity Incentive Plan, under which we
expect that directors, officers, and employees (including any prospective officer or employee) of the Company and its subsidiaries
and affiliates, and consultants and service providers to (including persons who are employed by or provide services to any entity
that is itself a consultant or service provider to) the Company and its subsidiaries and affiliates, as well as entities wholly ‑
owned or generally exclusively controlled by such persons, may be eligible to receive non ‑
qualified stock options, stock
appreciation rights, stock awards, restricted stock units and performance compensation awards that the plan administrator
determines are consistent with the purposes of the plan and the interests of the Company. We have reserved 2,850,000 of our
common shares for issuance under the Equity Incentive Plan, subject to adjustment for changes in capitalization as provided in the
Equity Incentive Plan in April 2014. The plan is administered by our compensation committee.
In June 2014, we granted 655,000 shares of restricted stock to certain of our officers and, in March 2015, we granted
274,000 shares of restricted stock to certain of our employees and non-employee consultants. One-third of these restricted shares
vest three years after grant date, one-third vest four years after grant date, and one-third vest five years after grant date. The
restricted shares were valued at their fair market value on their grant date and are expensed on a straight-line basis over five years.
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In June 2016, we granted 250,000 shares of restricted stock to certain of our officers and employees. One-fourth of these
restricted shares vested immediately on the grant date, one-fourth will vest one year after grant date, one-fourth will vest two
years after grant date, and one-fourth will vest three years after grant date. The restricted shares were valued at their grant date
fair market value and expensed on a straight-line basis over the vesting periods.
In June 2016, September 2016, December 2016 and March 2017, we granted 6,950, 10,130, 8,695 and 5,995 shares of
stock, respectively, to our non-executive directors, which were valued and expensed at their grant date fair market value.
In December 2016 and March 2017, we granted 1,739 and 1,199 shares of stock, respectively, to a non-employee
consultant, which were valued and expensed at their grant date fair market value.
Our stock-based compensation expense was $4.4 million, $4.1 million (including accrued stock-based compensation of
$0.5 million for our board of directors) and $2.3 million for the years ended March 31, 2017, 2016, and 2015, respectively, and is
included within general and administrative expenses in our accompanying consolidated statements of operations. Unrecognized
compensation cost as of March 31, 2017 was $9.7 million and will be recognized over the remaining weighted average life of
1.41 years.
A summary of the activity of our restricted shares as of March 31, 2017 and 2016 and changes during the year ended
March 31, 2017 and 2016, are as follows:
Incentive Share Awards
Unvested as of April 1, 2015
Granted
Unvested as of March 31, 2016
Granted
Vested
Forfeited
Unvested as of March 31, 2017
13. Revenues
Revenues comprise the following:
Net pool revenues—related party
Time charter revenues
Voyage charter revenues
Other revenues
Total revenues
Numbers of Shares
Weighted-Average
Grant-Date
Fair Value
929,000
$
—
$
929,000
284,708
(97,208)
(1,875)
1,114,625
$
19.70
—
19.70
7.82
7.82
7.82
17.72
March 31, 2017
115,753,153 $
49,474,510
1,296,952
922,556
167,447,171
$
$
$
Year ended
March 31, 2016
$
202,918,232
38,737,172
46,194,134
1,358,291
289,207,829 $
March 31, 2015
—
26,098,290
77,331,934
698,925
104,129,149
Time charter revenue included a profit-sharing element of the time charter agreements of $7.8 million for the year ended
March 31, 2015. There was no profit-sharing element of the time charter agreements for the years ended March 31, 2017 and
2016. Other revenue represents income from charterers relating to reimbursement of expenses such as costs for security guards
and war risk insurance.
F-22
Table of Contents
14. Voyage Expenses
Voyage expenses comprise the following:
Bunkers
Port charges and other related expenses
Brokers’ commissions
Security cost
War risk insurances
Other voyage expenses
Total
15. Vessel Operating Expenses
Vessel operating expenses comprise the following:
March 31, 2017
Year ended
March 31, 2016
March 31, 2015
$
$
804,371
886,651
684,302
390,330
40,704
159,620
2,965,978
$
$
$
7,240,544
2,558,697
1,335,584
370,762
219,261
339,834
12,064,682 $
15,678,905
3,603,707
1,703,589
709,035
146,320
240,300
22,081,856
Crew wages and related costs
Spares and stores
Insurance
Lubricants
Repairs and maintenance costs
Miscellaneous expenses
Total
16. Interest and Finance Costs
Interest and finance costs is comprised of the following:
March 31, 2017
Year ended
March 31, 2016
March 31, 2015
$
$
43,724,030
9,432,845
4,668,838
2,742,944
3,867,993
1,671,412
66,108,062
$
$
31,449,090
6,403,785
3,527,386
2,489,494
2,076,576
1,173,659
47,119,990
$
$
14,529,018
2,666,100
1,343,071
964,951
1,315,028
437,997
21,256,165
Interest incurred
Amortization of financing costs
Other financing costs
Capitalized interest
Total
17. Income Taxes
March 31, 2017
Year ended
March 31, 2016
March 31, 2015
$
$
$
24,695,674
3,709,421
566,847
28,971,942
—
$
14,350,900 $
2,499,185
715,942
(4,809,014)
12,757,013 $
2,657,943
830,899
301,868
(3,501,620)
289,090
Dorian LPG Ltd. and its vessel-owning subsidiaries are incorporated in the Marshall Islands and under the laws of the
Marshall Islands, are not subject to tax on income or capital gains and no Marshall Islands withholding tax will be imposed on
dividends paid by the Company to its shareholders. Dorian LPG Ltd. and its vessel-owning subsidiaries are also subject to United
States federal income taxation in respect of income that is derived from the international operation of ships and the performance
of services directly related thereto attributable to the transport of cargo to or from the United States (“Shipping Income”), unless
exempt from United States federal income taxation.
If Dorian LPG Ltd. and its vessel-owning subsidiaries do not qualify for the exemption from tax under Section 883, of
the Internal Revenue Code of 1986, as amended, Dorian LPG Ltd. and its subsidiaries will be subject to a 4% tax on its “United
States source shipping income,” imposed without the allowance for any deductions. For these purposes, “United States source
shipping income” means 50% of the Shipping Income derived by Dorian LPG Ltd. and its vessel-owning subsidiaries that is
attributable to transportation that begins or ends, but that does not both begin and end, in the United States.
F-23
Table of Contents
For our fiscal years ended March 31, 2017, 2016 and 2015, we believe that we qualify, and we expect to qualify, for
exemption under Section 883 and as a consequence, our gross United States source shipping income will not be subject to a 4%
gross basis tax.
18. Commitments and Contingencies
Operating Leases
Operating lease rent expense was as follows:
Operating lease rent expense
Year ended
March 31, 2017 March 31, 2016 March 31, 2015
$
249,331
451,240 $
415,928 $
We had the following commitments as a lessee under operating leases relating to our United States, Greece and United
Kingdom offices:
Less than one year
One to three years
Total
Fixed Time Charter Commitments
March 31, 2017
$
$
378,679
154,629
533,308
We had the following future minimum fixed time charter hire receipts based on non-cancelable long-term fixed time
charter contracts:
Less than one year
One to three years
Three to five years
Total
Other
March 31, 2017
$
$
48,598,113
56,311,227
5,828,252
110,737,592
From time to time we expect to be subject to legal proceedings and claims in the ordinary course of business, principally
personal injury and property casualty claims. Such claims, even if lacking in merit, could result in the expenditure of significant
financial and managerial resources. We are not aware of any claim, which is reasonably possible and should be disclosed or
probable and for which a provision should be established in the accompanying consolidated financial statements.
19. Financial Instruments and Fair Value Disclosures
Our principal financial assets consist of cash and cash equivalents, amounts due from related parties, trade accounts
receivable and derivative instruments. Our principal financial liabilities consist of long-term debt, derivative instruments,
accounts payable, amounts due to related parties and accrued liabilities.
(a) Concentration of credit risk: Financial instruments, which may subject us to significant concentrations of credit risk,
consist principally of amounts due from our charterers, including the receivables from Helios Pool, and cash and cash
equivalents. We limit our credit risk with amounts due from our charterers, including those through the Helios Pool, by
performing ongoing credit evaluations of our charterers’ financial condition and generally do not require collateral from
our charterers. We limit our credit risk with our cash and cash equivalents by placing it with highly-rated financial
institutions.
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Table of Contents
(b) Interest rate risk: Our long-term bank loans are based on LIBOR and hence we are exposed to movements thereto. We
entered into interest rate swap agreements in order to hedge a majority of our variable interest rate exposure related to
the RBS Loan Facility and our 2015 Debt Facility. The interest rate swaps related to the RBS Loan Facility were
terminated during the year ended March 31, 2017 for $8.1 million.
The principal terms of our interest rate swaps are as follows:
Interest rate swap
RBS - CMNL
RBS - CMNL
RBS - CJNP
RBS - CJNP
RBS - CNML
2015 Debt Facility - Citibank
2015 Debt Facility - ING
2015 Debt Facility - CBA
2015 Debt Facility - Citibank
2015 Debt Facility - Citibank
2015 Debt Facility - Citibank
(3)
(2)
(7)
Transaction
Date
July 2013
July 2013
July 2013
July 2013
July 2013
(7)
(7)
(7)
(7)
(1)
(4)
(5)
(6)
September 2015
September 2015
October 2015
October 2015
June 2016
June 2016
(7)
(7)
(7)
(7)
(7)
Termination
Date
November 2016
November 2016
November 2016
November 2016
November 2016
March 2022
March 2022
March 2022
March 2022
March 2022
March 2022
Fixed
interest rate
5.395 %
4.936 %
4.772 %
2.960 %
4.350 %
1.933 %
2.002 %
1.428 %
1.380 %
1.213 %
1.161 %
Nominal value Nominal value
March 31, 2017 March 31, 2016
20,456,000
7,671,000
27,979,875
9,420,125
43,000,000
200,000,000
50,000,000
82,550,000
123,825,000
—
—
564,902,000
—
—
—
—
—
200,000,000
50,000,000
71,250,000
106,875,000
67,124,650
27,583,142
522,832,792
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Non-amortizing with a final settlement of $200 million in March 2022.
Non-amortizing with a final settlement of $50 million in March 2022.
Reduces quarterly by $2.8 million with a final settlement of $17.9 million due in March 2022.
Reduces quarterly by $4.2 million with a final settlement of $26.9 million due in March 2022.
Reduces quarterly by $2.0 million with a final settlement of $29.9 million due in March 2022.
Reduces quarterly by $0.8 million with a final settlement of $12.3 million due in March 2022.
RBS swaps assumed from Predecessor Businesses in July 2013 and terminated in November 2016.
(c) Fair Value Measurements:
Fair Value on a Recurring Basis: Interest rate swaps are stated at fair value, which is determined using a discounted
cash flow approach based on market ‑
based LIBOR swap yield rates. LIBOR swap rates are observable at commonly
quoted intervals for the full terms of the swaps and, therefore, are considered Level 2 items in accordance with the fair
value hierarchy. The fair value of the interest rate swap agreements approximates the amount that we would have to pay
for the early termination of the agreements. The following table summarizes the location on the balance sheet of the
financial assets and liabilities that are carried at fair value on a recurring basis, which comprise our financial derivatives
all of which are considered Level 2 items in accordance with the fair value hierarchy:
March 31, 2017
March 31, 2016
Other non-current assets
Derivatives not designated as hedging instruments Derivative instruments
Interest rate swap agreements
$
5,843,368 $
Long-term liabilities
Other non-current assets
Derivative instruments Derivative instruments
— $
Long-term liabilities
Derivative instruments
21,647,965
— $
The effect of derivative instruments within the consolidated statement of operations for the periods presented is as
follows:
Derivatives not designated as hedging instruments
Interest Rate Swap—Change in fair value
Interest Rate Swap—Realized loss
Gain/(loss) on derivatives, net
Location of gain/(loss) recognized
Unrealized gain/(loss) on derivatives
Realized loss on derivatives
March 31, 2017 March 31, 2016
$
$
27,491,333 $
(13,797,478)
13,693,855 $
(8,917,503)
(6,858,126)
(15,775,629)
$
$
March 31, 2015
1,331,954
(5,291,157)
(3,959,203)
As of March 31, 2017 and March 31, 2016, no fair value measurements for assets or liabilities under Level 1 or Level 3
were recognized in the accompanying consolidated balance sheets.
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Table of Contents
Fair value on a non-recurring basis: For the years ended March 31, 2017, 2016 and 2015, we reviewed the carrying
amount and the estimated recoverable amount for each of our vessels. The review for the year ended March 31, 2015
indicated that the carrying amount was not recoverable for our PGC vessel. We prepared future undiscounted cash flows
for the PGC vessel as there were indicators of impairment for this size vessel, which provided evidence that the book
value was not recoverable. The fair value is considered a Level 2 item in the fair value hierarchy and is based on our best
estimate of the value of the vessel, which is supported by independent vessel appraisals. We recognized an impairment
loss on this PGC vessel of $1.4 million during the year ended March 31, 2015. No impairment loss was incurred for the
years ended March 31, 2017 and 2016.
We did not have any other assets or liabilities measured at fair value on a non-recurring basis during the years ended
March 31, 2017, 2016 and 2015.
(d) Book values and fair values of financial instruments. In addition to the derivatives that we are required to record at
fair value on our balance sheet (see (c) above), we have other financial instruments that are carried at historical cost.
These financial instruments include trade accounts receivable, amounts due from related parties, cash and cash
equivalents, accounts payable, amounts due to related parties and accrued liabilities for which the historical carrying
value approximates the fair value due to the short-term nature of these financial instruments. We also have long-term
bank debt for which we believe the historical carrying value approximates their fair value as the loans bear interest at
variable interest rates, being LIBOR, which is observable at commonly quoted intervals for the full terms of the loans,
and hence are considered as Level 2 items in accordance with the fair value hierarchy. Cash and cash equivalents and
restricted cash are considered Level 1 items.
20. Retirement Plans
Defined Contribution Plan
United States-based employees participate in our 401(k) retirement plan and may contribute a portion of their annual
compensation to a 401(k) plan on a pre-tax basis, in accordance with Internal Revenue Service guidelines. On behalf of all
participants in the plan, we provide a safe harbor contribution subject to certain limitations. Employee contributions and our safe
harbor contributions are vested at all times. We recognized and paid compensation expense associated with the safe harbor
contributions totaling $0.1 million for each of the years ended March 31, 2017, 2016, and 2015.
Defined Benefit Plan
Our Greece-based employees have a statutory required defined benefit pension plan according to provisions of Greek
law 2112/20 covering all eligible employees (the “Greece Plan”). We recognized compensation expense and recorded a
corresponding liability associated with our projected benefit obligation to the Greece Plan totaling $0.1 million, $0.2 million, and
$0.3 million for the years ended March 31, 2017, 2016, and 2015, respectively.
Other
We contribute to retirement accounts for certain United Kingdom-based employees based on a percentage of their annual
salaries. For each of the years ended March 31, 2017, 2016, and 2015, we recognized compensation expense of $0.1 million
related to these contributions.
21. Shareholder Rights Plan
On December 16, 2016, our Board of Directors declared a dividend of one preferred share purchase right (a "Right") for
each share of our common stock outstanding on December 27, 2016. Each Right is attached to and trades with the associated
share of common stock. The Rights will become exercisable only if a person or group has acquired 15% or more of our
outstanding common stock or announces a tender offer or exchange offer which, if consummated, would result in ownership by a
person or group of 15% or more of our outstanding common stock (an "Acquiring Person"). If a person becomes an Acquiring
Person, each Right will entitle its holder (other than an Acquiring Person and certain related
F-26
Table of Contents
parties) to purchase for $60 a number of shares of our common stock having a market value of twice such price. In addition, at
any time after a person or group acquires 15% or more of our outstanding common stock (unless such person or group acquires
50% or more), our Board of Directors may exchange one share of our common stock for each outstanding Right (other than
Rights owned by the Acquiring Person and certain related parties, which would have become void). Any person who, prior to the
time of public announcement of the existence of the Rights, publicly disclosed in a Schedule 13D or Schedule 13G (or an
amendment thereto) on file with the Securities and Exchange Commission that they beneficially owned 15% or more of our
outstanding common stock is not considered to be an Acquiring Person so long as such person does not acquire additional shares
in excess of certain limitations.
The Rights will expire on August 31, 2018.
22. Earnings/(Loss) Per Share (“EPS”)
Basic EPS represents net income/(loss) attributable to common shareholders divided by the weighted average number of
common shares outstanding during the measurement period. Our restricted stock shares include rights to receive dividends that
are subject to the risk of forfeiture if service requirements are not satisfied, thus these shares are not considered participating
securities and are excluded from the basic weighted-average shares outstanding calculation. Diluted EPS represent net
income/(loss) attributable to common shareholders divided by the weighted average number of common shares outstanding
during the measurement period while also giving effect to all potentially dilutive common shares that were outstanding during the
period.
The calculations of basic and diluted EPS for the periods presented were as follows:
(In U.S. dollars except share data)
Numerator:
Net income/(loss)
Denominator:
Basic weighted average number of common shares outstanding
Effect of dilutive restricted stock
Diluted weighted average number of common shares outstanding
EPS:
Basic
Diluted
March 31, 2017
Year ended
March 31, 2016
March 31, 2015
$
(1,441,815)
$
129,688,382 $
25,260,782
54,079,139
—
54,079,139
(0.03) $
(0.03) $
56,657,570
49,524
56,707,094
2.29 $
2.29 $
56,183,707
—
56,183,707
0.45
0.45
$
$
For each of the years ended March 31, 2017 and 2016, there were 1,114,625 and 655,000 shares of unvested restricted
stock, respectively, excluded from the calculation of diluted EPS because the effect of their inclusion would be anti-dilutive.
There were no shares of unvested restricted stock excluded from the calculation of diluted EPS for the year ended March 31,
2015.
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Table of Contents
23. Selected Quarterly Financial Information (unaudited)
The following tables summarize the 2017 and 2016 quarterly results:
Three months
ended
June 30, 2016
Three months
ended
Three months
ended
Three months
ended
September 30, 2016 December 31, 2016 March 31, 2017
Revenues
Operating income/(loss)
Net income/(loss)
$
Earnings/(loss) per common share, basic and diluted $
$
50,515,776 $
12,413,266
(1,291,121)
(0.02)
$
$
33,611,233
(4,210,840)
(7,145,558)
(0.13)
$
$
$
35,734,988
(3,453,959)
5,039,624
0.09
$
$
$
47,585,174
9,244,855
1,955,240
0.04
Three months
ended
June 30, 2015
Three months
ended
Three months
ended
Three months
ended
September 30, 2015 December 31, 2015
March 31, 2016
Revenues
Operating income
Net income
Earnings per common share, basic and diluted
$
$
$
35,642,460 $
13,571,687
13,652,883 $
0.24 $
74,946,432
48,743,550
41,213,264
0.72
$
$
$
93,283,708 $
54,011,305
54,661,323 $
0.97 $
85,335,229
42,088,645
20,160,912
0.36
24. Subsequent Events
Amendment to the 2015 Debt Facility
On May 31, 2017, we entered into an agreement to amend the 2015 Debt Facility (the “Amendment”). The Amendment
includes the relaxation of certain covenants under the 2015 Debt Facility; the release of $26.8 million of restricted cash as of the
date of the Amendment to be applied towards the next two debt principal payments, interest and certain fees; and certain other
modifications, including an expanded definition of the components of consolidated liquidity.
The Amendment includes a provision for the reduction of the minimum balance held as restricted cash. The minimum
balance of the restricted cash deposited under the Amendment is:
·
·
·
·
the lesser of $18.0 million and $1.0 million per mortgaged vessel under the 2015 Debt Facility at all times from the
date of the Amendment (“Amendment Date”) through six months from the Amendment Date;
the lesser of $29.0 million and $1.6 million per mortgaged vessel under the 2015 Debt Facility at all times from six
months from the Amendment Date through the first anniversary of the Amendment Date;
the lesser of $40.0 million and $2.2 million per mortgaged vessel under the 2015 Debt Facility at all times
thereafter; and
if we complete a common stock offering of at least $50 million, including fees (an “Approved Equity Offering”), the
restricted cash shall be calculated as an amount at least equal to 5% of the total principal of the 2015 Debt Facility
outstanding, but at no time less than the lesser of $20.0 million and $1.1 million per mortgaged vessel under the
2015 Debt Facility.
The following covenants were relaxed under the Amendment:
· Minimum interest coverage ratio of consolidated EBITDA to consolidated net interest expense must be maintained
greater than or equal to (i) 1.25 at all times prior to and through March 31, 2018, (ii) 1.50 at all times from April 1,
2018 through March 31, 2019, and (iii) 2.50 at all times thereafter; and
·
Fair market value of the mortgaged ships plus any additional security over the outstanding loan balance shall be at
least (i) 125% at all times prior to and through March 31, 2018, (ii) 130% at all times from April 1, 2018 through
March 31, 2019, (iii) 135% at all times thereafter.
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Table of Contents
The following negative covenants were added under the Amendment:
· Restrictions on dividends and stock repurchases until the earlier of (i) an Approved Equity Offering and (ii) the
second anniversary of the Amendment Date; and
· Restrictions on voluntary payments of the RBS Loan Facility, excluding refinancing, until the earlier of (i) an
Approved Equity Offering and (ii) the second anniversary of the Amendment Date.
Fees related to the Amendment totaled approximately $1.1 million.
2017 Bridge Loan
On June 8, 2017, we entered into a $97. 0 million bridge loan agreement (the “2017 Bridge Loan”) with
DNB Capital LLC (“DNB”). The principal amount of the 2017 Bridge Loan is due on or before August 8, 2018
(the “Maturity Date”) and accrues interest on the outstanding principal amount at a rate of LIBOR plus 2.50%
for the period ending December 7, 2017; LIBOR plus 4.50% for the period from December 8 until March 7,
2018; LIBOR plus 6.50% for the period March 8, 2018 until June 7, 2018, and 8.50% from June 8, 2018 until
the Maturity Date.
The proceeds of the 2017 Bridge Loan were used to repay in full the RBS Loan Facility at 96% of the then outstanding
principal amount. The remaining proceeds were used to pay accrued interest, legal, arrangement and advisory fees related to the
2017 Bridge Loan. As part of this transaction, $6.0 million of cash previously restricted under the RBS Loan Facility was released
as unrestricted cash for use in operations.
The 2017 Bridge Loan provides that it be secured by, among other things, (i) first priority mortgages on the four VLGCs
that were financed under the RBS Loan Facility, (ii) first assignments of all freights, earnings and insurances relating to these four
VLGCs, and (iii) pledges of membership interests of the borrowers.
The 2017 Bridge Loan also contains customary covenants that require us to maintain adequate insurance coverage,
properly maintain the vessels and to obtain the lender’s prior consent before changes are made to the flag, class or management of
the vessels. The 2017 Bridge Loan includes customary events of default, including those relating to a failure to pay principal or
interest, breaches of covenants, representations and warranties, a cross-default to other indebtedness and non-compliance with
security documents, and customary restrictions on the borrowers from paying dividends if an event of default has occurred and is
continuing, or if an event of default would result therefrom.
The following financial covenants are the most restrictive from the 2017 Bridge Loan with which the Company is
required to comply, calculated on a consolidated basis, determined and defined according to the provisions of the loan agreement:
· Consolidated liquidity of at least $50.0 million, provided cash and cash equivalents, including restricted cash
and all cash held in accounts by Helios LPG Pool LLC attributable to the vessels owned directly or indirectly
by us, including no less than $10.0 million of which shall at all times be held on a freely available and
unencumbered basis;
·
The ratio of consolidated net debt to consolidated total capitalization shall not exceed 0.60 to 1.00;
· Minimum interest coverage ratio of consolidated EBITDA to consolidated net interest expense must be
maintained greater than or equal to (i) 1.25 until and including the quarter ended March 31, 2018, and (ii) 1.50
thereafter;
· Minimum shareholders' equity must be equal to the aggregate of (i) $400.0 million, (ii) 50% of new equity
raised after June 8, 2017, and (iii) 25% of the positive net income for the immediately preceding fiscal year;
·
The ratio of current assets and long-term restricted cash divided by current liabilities less the current
F-29
Table of Contents
portion of long-term debt shall always be greater than 1.00; and
·
The ratio of the aggregate market value of the vessels securing the loan to the principal amount outstanding
under such loan at all times shall be in excess of 150%.
F-30
Exhibit 10.12
Private & Confidential
Exhibit 10.12
Execution Version
Dated June 15, 2015
DORIAN LPG FINANCE LLC
as Borrower
THE ENTITIES
listed in Schedule 1, Part B
as Upstream Guarantors
DORIAN LPG LTD.
as Facility Guarantor
ABN AMRO CAPITAL USA LLC
CITIBANK N.A., LONDON BRANCH
and
THE OTHER BANKS AND FINANCIAL INSTITUTIONS
listed in Schedule 1, Part D
as Bookrunners
THE BANKS AND FINANCIAL INSTITUTIONS
listed in Schedule 1, Part E
as Mandated Lead Arrangers
THE BANKS AND FINANCIAL INSTITUTIONS
listed in Schedule 1, Part F
as Commercial Lenders
THE BANKS AND FINANCIAL INSTITUTIONS
listed in Schedule 1, Part G
as KEXIM Lenders
THE EXPORT-IMPORT BANK OF KOREA
as KEXIM
THE BANKS AND FINANCIAL INSTITUTIONS
listed in Schedule 1, Part I
as K-sure Lenders
THE BANKS AND FINANCIAL INSTITUTIONS
Listed in Schedule 1, Part J
as Swap Banks
ABN AMRO CAPITAL USA LLC
as Global Coordinator, Administrative Agent and Security Agent
CITIBANK N.A., LONDON BRANCH
or any of its holding companies, subsidiaries or affiliates
as ECA coordinator
CITIBANK N.A., LONDON BRANCH
as ECA Agent
AMENDMENT NO. 1 TO FACILITY AGREEMENT
for a Loan of up to $758,105,296
NORTON ROSE FULBRIGHT
AMENDMENT NO. 1 TO FACILITY AGREEMENT (this Amendment ), dated as of June 15, 2015 and effective as of
the Effective Date, relating to the Facility Agreement dated March 23, 2015 (the Original Facility Agreement and as
further amended hereby, the Facility Agreement ), made among (1) Dorian LPG Finance LLC, as borrower (the
Borrower ), (2) the entities listed in Schedule 1, Part B therein, as upstream guarantors, (3) Dorian LPG Ltd., as
facility guarantor (the Facility Guarantor ), (4) ABN AMRO Capital USA LLC (the Security Agent ), Citibank N.A.,
London Branch ( Citi ) and the other banks and financial institutions listed in Schedule 1, Part D therein, as
bookrunners, (5) the banks and financial institutions listed in Schedule 1, Part E therein, as mandated lead arrangers,
(6) the banks and financial institutions listed in Schedule 1, Part F therein, as commercial lenders (the Commercial
Lenders ), (7) the banks and financial institutions listed in Schedule 1, Part G therein, as KEXIM lenders (the KEXIM
Lenders ), (8) the Export-Import Bank of Korea, as KEXIM ( KEXIM ), (9) the banks and financial institutions listed in
Schedule 1, Part I therein, as K-sure lenders (the K-sure Lenders , and together with the Commercial Lenders,
KEXIM and the KEXIM Lenders, the Lenders and each a Lender ), (10) the banks and financial institutions listed in
Schedule 1, Part J therein, as swap banks, (11) the Security Agent as global coordinator, administrative agent, and
security agent, (12) Citi, as ECA coordinator, and (13) Citi, as ECA Agent (as may be amended, supplemented,
varied, extended or replaced from time-to-time), pursuant to which the Lenders agreed to make available to the
Borrower, upon the terms and conditions therein described, a loan facility in the original amount of up to Seven
Hundred Fifty Eight Million One Hundred Five Thousand Two Hundred Ninety Six United States Dollars
(USD$758,105,296).
WITNESSETH :
WHEREAS, pursuant to Clause 19.2 (Financial
condition)
of the Original Facility Agreement, the Facility
Guarantor is required to maintain Consolidated Liquidity at least equal to the Liquidity Reserve Required Balance, with
such amounts to be held in an Earnings Account pursuant to Clause 25.1 (Earnings
Accounts);
WHEREAS, it is the intention of all parties that only that portion of the Liquidity Reserve Required Balance
which relates to the Ships delivered under the Facility Agreement shall be required to be held in an Earnings Account
and the balance of the funds relating to any other delivered vessel in the Facility Guarantor's fleet may be held in
other accounts;
NOW, THEREFORE, subject to, and upon the terms and conditions herein set forth, and in consideration of
the mutual agreements, provisions, covenants and conditions contained herein, the parties to the Original Facility
Agreement hereby agree to amend certain provisions of the Facility Agreement to reflect the parties' understanding of
the aforementioned matters as follows:
1. DEFINITIONS
1.1 Wherever used in this Amendment, unless the context requires otherwise: (i) terms defined in the
recitals hereto shall have the meanings assigned to them in such recitals and (ii) clause 1 (Definitions
and
Interpretation)
of the Original Facility Agreement shall apply herein, mutatis
mutandis,
as if set out
in this Amendment in full.
1.2 The Finance Parties and the Obligors designate this Amendment as a Finance Document.
2. AMENDATORY PROVISIONS
2.1 From and after the Effective Date (as defined in clause 3.1), all references in the Original Facility
Agreement to "this Agreement" (or words or phrases of a similar meaning) shall be deemed to be
references to the Original Facility Agreement as amended by this Amendment unless the context
otherwise specifically requires.
2.2 In clause 1.1 (Definitions)
of the Original Facility Agreement, the following definition shall be inserted:
Minimum Earnings Account Balance means an amount at least equal to the aggregate of (i)
$25,000,000 and (ii) $1,100,000 for each delivered Ship.
2.3 In clause 1.1 (Definitions)
of the Original Facility Agreement, the last sentence of the definition of
"Security Value" shall be deleted and replaced by the following:
For the avoidance of doubt, neither the Liquidity Reserve Required Balance nor the Minimum Earnings
Account Balance shall be taken into account when calculating Security Value.
2.4 Clause 19.2(a) of the Original Facility Agreement shall be deleted and replaced in its entirety by the
following:
Minimum Liquidity: At all times it maintains Consolidated Liquidity at least equal to the Liquidity
Reserve Required Balance, of which the Minimum Earnings Account Balance shall be held in an
Earnings Account pursuant to Clause 25.1 (Earnings
Account).
2.5 Clause 25.1(c) (Earnings
Account)
of the Original Facility Agreement shall be amended to replace
"Liquidity Reserve Required Balance" with "Minimum Earnings Account Balance".
2.6 Clause 25.1(d) (Earnings
Account)
of the Original Facility Agreement shall be amended to replace
"Liquidity Reserve Required Balance" with "Minimum Earnings Account Balance".
2.7 Clause 25.1(e)(iii) (Earnings
Account)
of the Original Facility Agreement shall be amended to replace
"Liquidity Reserve Required Balance" with "Minimum Earnings Account Balance".
2.8 The following sub-clause (iv) shall be added in Clause 25.1(e):
(iv) The Facility Guarantor maintains at all times Consolidated Liquidity in aggregate at least equal to
the Liquidity Reserve Required Balance.".
2.9 The word "and" at the end of Clause 25.1(e)(ii) shall be deleted and shall be added at the end of
Clause 25.1(e)(iii).
2.10 The period at the end of Clause 25.1(e)(iii) shall be replaced with a semi-colon.
2.11 In Schedule 3 (Conditions
Precedent)
, Part 2 (Conditions
precedent
to
each
Utilization
Date)
Item 7
(Establishment
of
Accounts)
of the Original Facility Agreement shall be amended to replace both
references to "Liquidity Reserve Required Balance" with "Minimum Earnings Account Balance". In
addition, the following sentence shall be added to the end thereof:
In addition, the aggregate amount standing to the credit of the Facility Guarantor's accounts (including
the Earnings Account) on a consolidated basis is at least equal to the Liquidity Reserve Required
Balance.
2.12 In Schedule 9 (Compliance
Certificate),
Item 2(a) shall be deleted in its entirety and replaced by the
following:
pursuant to the requirements more particularly described in Clause 19.2(a) (Minimum
Liquidity):
(i)
the Consolidated Liquidity is equal to $[•], which is at least equal to the Liquidity Reserve Required
Balance, (ii) the Liquidity Reserve Required Balance is $[•] and (iii) the Minimum Earnings Account
Balance is $[•] and is being maintained in an Earnings Account.
3. CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF THIS AMENDMENT
3.1 This Amendment shall not be effective unless and until the date the Administrative Agent, or its duly
authorized representative, shall have received the fully executed Amendment and the other evidence
set forth in this clause 3, in form and substance satisfactory to the Agent and at such time, this
Amendment shall be deemed effective as of March 23, 2015 (the "Effective Date").
3.2 No Default: No Default shall have occurred and be continuing under the Facility Documents or will
occur by virtue of entering into this Amendment or the transactions contemplated hereby.
3.3 No Material Adverse Change: In the determination of the Required Lenders, no Material Adverse
Change shall have occurred.
4. NO FURTHER CHANGES
4.1 Except as provided herein, all the remaining provisions of the Original Facility Agreement shall remain
unchanged, valid and binding on all the parties thereto.
5. REPRESENTATIONS AND WARRANTIES
5.1 The representations and warranties made in Clause 17 (Representations)
of the Original Facility
Agreement shall be deemed repeated as of the date hereof.
6. EXISTING SECURITY
Each Obligor confirms that the Security Documents to which it is a party:
6.1 shall continue to secure all liabilities which are expressed to be secured by them; and
6.2 shall continue in full force and effect in all respects.
7. FURTHER ASSURANCE
7.1 Each Obligor shall, at the request of the Administrative Agent and at its own expense, do all such acts
and things necessary or advisable to give effect to the amendments made or to be made pursuant to
this Amendment.
8. GOVERNING LAW
8.1 The laws of the State of New York shall govern all matters arising out of, in connection with or relating
to this Amendment, including, without limitation, its validity, interpretation, construction, performance
and enforcement.
9. SUBMISSION TO JURISDICTION; WAIVERS
9.1 Any legal action or proceeding with respect to this Amendment shall be brought exclusively in the
courts of the State of New York located in the City of New York,
Borough of Manhattan, or of the United States of America for the Southern District of New York and, by
execution and delivery of this Amendment, each of the Obligors executing this Amendment hereby
accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the
aforesaid courts; provided that nothing in this Amendment shall limit the right of the Finance Parties to
commence any proceeding in the federal or state courts of any other jurisdiction to the extent a
Finance Party determines that such action is necessary or appropriate to exercise its rights or
remedies under this Amendment. The parties hereto hereby irrevocably waive any objection, including
any objection to the laying of venue or based on the grounds of forum non conveniens, that any of
them may now or hereafter have to the bringing of any such action or proceeding in such jurisdictions.
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute
and deliver this Amendment as of the date first above written.
DORIAN LPG FINANCE LLC
As Borrower
/s/ Theodore B. Young
By:
Name: Theodore Young
Title: President
COMET LPG TRANSPORT LLC
As Upstream Guarantor
/s/ Theodore B. Young
By:
Name: Theodore Young
Title: President
CORVETTE LPG TRANSPORT LLC
As Upstream Guarantor
/s/ Theodore B. Young
By:
Name: Theodore Young
Title: President
DORIAN SHANGHAI LPG TRANSPORT LLC
As Upstream Guarantor
/s/ Theodore B. Young
By:
Name: Theodore Young
President
Title:
Signature Page to Amendment No. 1 to Facility Agreement
DORIAN HOUSTON LPG TRANSPORT LLC
As Upstream Guarantor
/s/ Theodore B. Young
By:
Name: Theodore Young
President
Title:
DORIAN SAO PAULO LPG TRANSPORT LLC
As Upstream Guarantor
/s/ Theodore B. Young
By:
Name: Theodore Young
President
Title:
CONCORDE LPG TRANSPORT LLC
As Upstream Guarantor
/s/ Theodore B. Young
By:
Name: Theodore Young
President
Title:
CONSTELLATION LPG TRANSPORT LLC
As Upstream Guarantor
/s/ Theodore B. Young
By:
Name: Theodore Young
President
Title:
DORIAN ULSAN LPG TRANSPORT LLC
As Upstream Guarantor
/s/ Theodore B. Young
By:
Name: Theodore Young
President
Title:
Signature Page to Amendment No. 1 to Facility Agreement
DORIAN AMSTERDAM LPG TRANSPORT LLC
As Upstream Guarantor
/s/ Theodore B. Young
By:
Name: Theodore Young
President
Title:
DORIAN MONACO LPG TRANSPORT LLC
As Upstream Guarantor
/s/ Theodore B. Young
By:
Name: Theodore Young
President
Title:
DORIAN BARCELONA LPG TRANSPORT LLC
As Upstream Guarantor
/s/ Theodore B. Young
By:
Name: Theodore Young
President
Title:
DORIAN TOKYO LPG TRANSPORT LLC
As Upstream Guarantor
/s/ Theodore B. Young
By:
Name: Theodore Young
President
Title:
DORIAN DUBAI LPG TRANSPORT LLC
As Upstream Guarantor
/s/ Theodore B. Young
By:
Name: Theodore Young
President
Title:
Signature Page to Amendment No. 1 to Facility Agreement
DORIAN GENEVA LPG TRANSPORT LLC
As Upstream Guarantor
/s/ Theodore B. Young
By:
Name: Theodore Young
President
Title:
DORIAN CAPE TOWN LPG TRANSPORT LLC
As Upstream Guarantor
/s/ Theodore B. Young
By:
Name: Theodore Young
President
Title:
COMMANDER LPG TRANSPORT LLC
As Upstream Guarantor
/s/ Theodore B. Young
By:
Name: Theodore Young
President
Title:
DORIAN EXPLORER LPG TRANSPORT LLC
As Upstream Guarantor
/s/ Theodore B. Young
By:
Name: Theodore Young
President
Title:
DORIAN EXPORTER LPG TRANSPORT LLC
As Upstream Guarantor
/s/ Theodore B. Young
By:
Name: Theodore Young
President
Title:
Signature Page to Amendment No. 1 to Facility Agreement
DORIAN LPG LTD.
As Facility Guarantor
/s/ Theodore B. Young
By:
Name: Theodore Young
Title: Chief Financial Officer
ABN AMRO CAPITAL USA LLC
As Bookrunner, Mandated Lead Arranger, Global Coordinator, Administrative Agent, Security Agent and
Original Lender
/s/ Francis Birkeland
By:
Name: Francis Birkeland
Title: Managing Director
By:
Name: Urvashi Zutshi
/s/ Urvashi Zutshi
Title:
Managing Director
ABN AMRO BANK N.V.
As Swap Bank
/s/ K.H.Tieleman
By:
Name: K.H.Tieleman
Title:
CITIBANK N.A., LONDON BRANCH
By:
Name: A.C.A.J. Biesbroeck
/s/ A.C.A.J. Biesbroeck
Title:
As Bookrunner, Mandated Lead Arranger, ECA Coordinator, ECA Agent and Original Lender
/s/ Kara Catt
By:
Name: Kara Catt
Title:
Vice President
By:
Name:
Title:
Signature Page to Amendment No. 1 to Facility Agreement
CITIGROUP GLOBAL MARKETS INC.
As Swap Bank
/s/ Michael A.J. Parker
By:
Name: Michael A.J. Parker
Title: Managing Director
THE EXPORT-IMPORT BANK OF KOREA
As Mandated Lead Arranger, Swap Bank and Original Lender
/s/ Seo Hye Lim
By:
Name: Seo Hye Lim
Title:
Senior Loan Officer
ING CAPITAL MARKETS LLC
As Swap Bank
/s/ Gary E. Kalbaugh
By:
Name: Gary E. Kalbaugh
Title: Director
ING BANK N.V., LONDON BRANCH
As Bookrunner, Mandated Lead Arranger and Original Lender
/s/ David Grant
By:
Name: David Grant
Title: MD
By:
Name:
Title:
By:
Name:
Title:
By:
Name:
Title:
/s/ Olga Terentieva
By:
Name: Olga Terentieva
VP
Title:
Signature Page to Amendment No. 1 to Facility Agreement
DVB BANK SE
As Bookrunner, Mandated Lead Arranger, Swap Bank and Original Lender
/s/ Ole Chr. Sande
By:
Name: Ole Chr. Sande
Title:
AVP
By:
Name:
Title:
/s/ Jegg Vander Koffs
Jegg Vander Koffs
VP
COMMONWEALTH BANK OF AUSTRALIA, NEW YORK BRANCH
As Swap Bank and Original Lender
By:
Name: James Miller
/s/ James Miller
Title:
Head of Americas Origination Structured Asset
Finance
By:
Name:
Title:
DEUTSCHE BANK AG, HONG KONG BRANCH
As Mandated Lead Arranger and Original Lender
By:
Name: Edward Hui
/s/ Edward Hui
By:
Name: Ken-KS Cheng
/s/ Ken-KS Cheng
Title:
Vice President Structured Trade & Export Finance
Hong Kong
Title:
Associate Structured Trade & Export Finance
Hong Kong
DZ BANK AG
DEUTSCHE ZENTRAL-GENOSSENSCHAFTSBANK FRANKFURT AM MAIN
As Original Lender
/s/ Manfred Fischer
By:
Name: Manfred Fischer
Title: Managing Director
By:
Name: Steffen Philipp
/s/ Steffen Philipp
Title:
Associate Director
Signature Page to Amendment No. 1 to Facility Agreement
SANTANDER BANK, N.A.
As Original Lender
/s/ Jean-Baptiste Piette
By:
Name: Jean-Baptiste Piette
Title:
Executive Director
BANCO SANTANDER, S.A.
As Mandated Lead Arranger
/s/ Remedios Cantalapiedra
By:
Name: Remedios Cantalapiedra
Title:
Associate
By:
Name:
Title:
By:
Name: Francisco Verdugo Munoz
/s/ Francisco Verdugo Munoz
Title:
Managing Director
Signature Page to Amendment No. 1 to Facility Agreement
Exhibit 10.13
Exhibit 10.13
Dorian LPG Finance LLC
c/o Dorian LPG (USA) LLC
27 Signal Road
Stamford, CT 06902 USA
From: Dorian LPG Finance LLC
Trust Company Complex
Ajeltake Road, Ajeltake Island
Majuro, Marshall Islands
MH96960
c/o Dorian LPG (USA) LLC
27 Signal Road
Stamford, CT 06902
To: The parties listed in Schedule 1
February 1, 2016
Dear Sirs/Madams:
Re: Side Letter to the Facility Agreement, dated March 23, 2015 as amended by
Amendment No. 1, dated June 15, 2015 (together, the "Facility Agreement")
1. We refer to the Facility Agreement. Defined expressions in the Facility Agreement shall
have the same meaning when used herein unless the context otherwise requires.
2. We hereby confirm and acknowledge the following:
(a)
Clause 3.1 (Purpose)
of the Facility Agreement provides that each Advance shall be
made available in the lesser of (a) 55% of the Delivered Price of each Ship (other
than with respect to Ship 1 and Ship 2 which shall be 55% of the Age Adjusted
Delivered Price of each Ship), plus an amount equal to the K-sure Premium and
KEXIM Premium for such Ship, and (b) 55% of the Fair Market Value of such Ship,
tested at the time of delivery of such Ship, plus an amount equal to the K-sure
Premium and KEXIM Premium for such Ship, for an aggregate maximum principal
amount of $758,105,296 for all Advances;
(b)
Clause 1.1 (Definitions)
of the Facility Agreement defines the Delivered Price of each
Ship as such Ship's Contract Price, Extras and Contingent Extras, up to a maximum
for such Ship as specified in Schedule 2 (Ship
information)
to the Facility Agreement,
and provides that the aggregate of Contingent Extras shall not exceed $2,336,364;
(c)
he Delivered Price for Ship 6 was $77,123,470, which was $236,530 less than
anticipated (the "Excess Amount"); and
(d)
the aggregate amount of Contingent Extras for all Ships will exceed $2,336,364.
3. In consideration of the above, we have requested and the other Parties have agreed that the
Excess Amount ($130,091) of which being the undrawn Commitment with respect to Ship
6), shall be re-allocated to finance an increase in Contingent Extras.
4. The Parties have agreed to the following consequential amendment to the Facility
Agreement:
in the definition of Contingent Extras in Clause 1.1 (Definitions), "$2,336,364"
shall be deleted and replaced with "$2,572,894".
5. We hereby confirm our agreement to the above amendment which will be effective, as of
the date first mentioned above, once each of the Parties has confirmed its acknowledgment
and agreement to the provisions of this letter by counter-signing this letter.
6. The Facility Agreement shall be hereby amended (and deemed amended) in accordance with
this letter.
7. This letter is a Finance Document.
8. Save as amended by this letter, the provisions of the Facility Agreement shall continue in
full force and effect and the Facility Agreement and this letter shall be read and construed
together as one instrument.
9. From and after the date first above written, all references in the Facility Agreement to
"this Agreement" (or words or phrases of a similar meaning) shall be deemed to be
references to the Facility Agreement as amended by this letter unless the context otherwise
specifically requires.
10. This letter and any non-contractual obligations in connection with it are governed by, and
shall be construed in accordance with, New York law.
[Signature Pages Follow]
Yours faithfully
DORIAN LPG FINANCE LLC
As Borrower
/s/ Theodore B. Young
By:
Name: Theodore B. Young
Title: President
Acknowledged and agreed to by:
Dorian LPG Ltd.
As Facility Guarantor
/s/ Theodore B. Young
Hief
By:
Financial
Name: Theodore Young
Office
Title:
Chief Financial Officer
COMET LPG TRANSPORT LLC
As Upstream Guarantor
/s/ Theodore B. Young
By:
Name: Theodore Young
Title: President
CORVETTE LPG TRANSPORT LLC
As Upstream Guarantor
/s/ Theodore B. Young
By:
Name: Theodore Young
Title: President
DORIAN SHANGHAI LPG TRANSPORT LLC
As Upstream Guarantor
/s/ Theodore B. Young
By:
Name: Theodore Young
Title: President
DORIAN HOUSTON LPG TRANSPORT LLC
As Upstream Guarantor
/s/ Theodore B. Young
By:
Name: Theodore Young
Title: President
DORIAN SAO PAULO LPG TRANSPORT LLC
As Upstream Guarantor
/s/ Theodore B. Young
By:
Name: Theodore Young
Title: President
CONCORDE LPG TRANSPORT LLC
As Upstream Guarantor
/s/ Theodore B. Young
By:
Name: Theodore Young
Title: President
CONSTELLATION LPG TRANSPORT LLC
As Upstream Guarantor
/s/ Theodore B. Young
By:
Name: Theodore Young
Title: President
DORIAN ULSAN LPG TRANSPORT LLC
As Upstream Guarantor
/s/ Theodore B. Young
By:
Name: Theodore Young
Title: President
DORIAN AMSTERDAM LPG TRANSPORT LLC
As Upstream Guarantor
/s/ Theodore B. Young
By:
Name: Theodore Young
Title: President
DORIAN MONACO LPG TRANSPORT LLC
As Upstream Guarantor
/s/ Theodore B. Young
By:
Name: Theodore Young
Title: President
DORIAN BARCELONA LPG TRANSPORT LLC
As Upstream Guarantor
/s/ Theodore B. Young
By:
Name: Theodore Young
Title: President
DORIAN TOKYO LPG TRANSPORT LLC
As Upstream Guarantor
/s/ Theodore B. Young
By:
Name: Theodore Young
Title: President
DORIAN DUBAI LPG TRANSPORT LLC
As Upstream Guarantor
/s/ Theodore B. Young
By:
Name: Theodore Young
Title: President
DORIAN GENEVA LPG TRANSPORT LLC
As Upstream Guarantor
/s/ Theodore B. Young
By:
Name: Theodore Young
Title: President
DORIAN CAPE TOWN LPG TRANSPORT LLC
As Upstream Guarantor
/s/ Theodore B. Young
By:
Name: Theodore Young
Title: President
COMMANDER LPG TRANSPORT LLC
As Upstream Guarantor
/s/ Theodore B. Young
By:
Name: Theodore Young
Title: President
DORIAN EXPLORER LPG TRANSPORT LLC
As Upstream Guarantor
/s/ Theodore B. Young
By:
Name: Theodore Young
Title: President
DORIAN EXPORTER LPG TRANSPORT LLC
As Upstream Guarantor
/s/ Theodore B. Young
By:
Name: Theodore Young
Title: President
ABN AMRO CAPITAL USA LLC
As Bookrunner, Mandated Lead Arranger, Global Coordinator, Administrative Agent, Security Agent
and Original Lender
/s/ Francis Birkeland
By:
Name: Francis Birkeland
Title: Managing Director
ABN AMRO BANK N.V.
As Swap Bank
/s/ M.N. Hoogeveen
By:
.N
Name: M.N. Hoogeveen
Title:
CITIBANK N.A., LONDON BRANCH
/s/ Urvashi Zutshi
By:
Name: Urvashi Zutshi
Title: Managing Director
/s/ Nienke Blans
By:
Name: Nienke Blans
Title:
As Bookrunner, Mandated Lead Arranger, ECA Coordinator, ECA Agent and Original Lender
/s/ F.A. Wilhelmsen
By:
Name: F.A. Wilhelmsen
Title: Vice President
CITIGROUP GLOBAL MARKETS INC.
As Swap Bank
/s/ Valentino Gallo
By:
Alentino
Name: Valentino Gallo
Gallo
Title:
Managing Director
By:
Name:
Title:
By:
Name:
Title:
THE EXPORT-IMPORT BANK OF KOREA
As Mandated Lead Arranger, Swap Bank and Original Lender
/s/ Kwon Hyuk-Joon
By:
won
Name: Kwon Hyuk-Joon
Title: Director
By:
Name:
Title:
ING CAPITAL MARKETS LLC
As Swap Bank
/s/ Moses Lin
By:
o
Name: Moses Lin
Title: Director
By:
Name:
Title:
ING BANK N.V., LONDON BRANCH
As Bookrunner, Mandated Lead Arranger and Original Lender
/s/ Rory Hussey
By:
ory
Name: David Grant
Title: Managing Director
DVB BANK SE
/s/ Robartus Krol
By:
Name: Robartus Krol
Title:
Director
As Bookrunner, Mandated Lead Arranger, Swap Bank and Original Lender
/s/ Elsa Savvatianou
By:
Name: Elsa Savvatianou
Title: Vide President
/s/ Georg Junginger
By:
Name: Georg Junginger
Title:
Vive President
COMMONWEALTH BANK OF AUSTRALIA, NEW YORK BRANCH
As Swap Bank and Original Lender
/s/ Erik Doebler
By:
rik
Name: Erik Doebler
Title: Associate Director
By:
Name:
Title:
DEUTSCHE BANK AG, HONG KONG BRANCH
As Mandated Lead Arranger and Original Lender
/s/ Edward Hui
By:
Name: Edward Hui
Title: Vice President
/s/ Ken Cheng
By:
Name: Ken Cheng
Title:
Associate
DZ BANK AG
DEUTSCHE ZENTRAL-GENOSSENSCHAFTSBANK FRANKFURT AM MAIN
As Original Lender
/s/ Manfred Fischer
By:
Name: Manfred Fischer
Title: Managing Director
SANTANDER BANK, N.A.
As Original Lender
/s/ Steffen Philipp
By:
Name: Steffen Philipp
Title:
Associate Director
/s/ Jean-Baptiste Piette
By:
Name: Jean-Baptiste Piette
Title: Executive Director
By:
Name:
Title:
BANCO SANTANDER, S.A.
As Mandated Lead Arranger
/s/ Antonio Sala
By:
Name: Antonio Sala
Title: Executive Director
/s/ Jose Luis Vicent
By:
Name: Jose Luis Vicent
Title:
Executive Director
ABN AMRO Capital USA LLC
17th Floor, 100 Park Ave
10017, New York, USA
ABN AMRO Bank N.V.
Gustav Mahlerlaan 10
1082 PP Amsterdam,
The Netherlands
Citibank N.A., London Branch
Loans Operations Depaiiment
7/9 Traugutta str., 1st Floor
00-985 Warsaw, Poland
Citigroup Global Markets Inc.
390 Greenwich Street
10013, New York, USA
Schedule 1
DVB Bank SE
3 Moraitini Street & Palea Leof. Posidonos
Delta Paleo Faliro
175 61 Athens, Greece
Commonwealth Bank of Australia, New York Branch
Level 17, 599 Lexington Avenue
New York, NY 10022, USA
Deutsche Bank AG, Hong Kong Branch Level 52,
International Commerce Centre
1 Austin Road West, Kowloon, Hong Kong
DZ BANK AG Deutsche ZentralGenossenschaftsbank,
Frankfurt am Main Platz der Republik
60265 Frankfu1i am Main, Germany
The Export-Import Bank of Korea BIFC 20th floor,
Munhyeongeumyung-ro 40 Nam-gu,
608-828, Busan, Republic of Korea
Santander Bank, N.A.
4 5 East 5 3rd Street.
10005 New York, USA
ING Capital Markets LLC
1325 Avenue of the Americas
10019, New York, USA
ING Bank N.V., London Branch
60 London Wall
London, UK EC2M 5TQ, UK
Banco Santander, S.A.
Ciudad Grupo Santander
Edif. Encinar - planta 2
28660 Boadilla del Monte (Madrid) Spain
Exhibit 21.1
Subsidiary
Dorian LPG Management Corp.
Dorian LPG Finance LLC
Dorian LPG (USA) LLC
Dorian LPG (UK) Ltd
Occident River Trading Limited
CNML LPG Transport LLC
CJNP LPG Transport LLC
CMNL LPG Transport LLC
Grendon Tanker LLC
Comet LPG Transport LLC
Corsair LPG Transport LLC
Corvette LPG Transport LLC
Concorde LPG Transport LLC
Constellation LPG Transport LLC
Commander LPG Transport LLC
Dorian Houston LPG Transport LLC
Dorian Shanghai LPG Transport LLC
Dorian Sao Paulo LPG Transport LLC
Dorian Ulsan LPG Transport LLC
Dorian Amsterdam LPG Transport LLC
Dorian Dubai LPG Transport LLC
Dorian Monaco LPG Transport LLC
Dorian Barcelona LPG Transport LLC
Dorian Geneva LPG Transport LLC
Dorian Cape Town LPG Transport LLC
Dorian Tokyo LPG Transport LLC
Dorian Explorer LPG Transport LLC
Dorian Exporter LPG Transport LLC
Constitution LPG Transport LLC
Capricorn LPG Transport LLC
Seacor LPG I LLC
Seacor LPG II LLC
Exhibit 21.1
Country of Incorporation
Marshall Islands
Marshall Islands
United States (Delaware)
United Kingdom
United Kingdom
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statements Nos. 333-200714 and 333-208375
on Form S-3 of our report dated June 13, 2017, relating to the consolidated financial statements of Dorian
LPG Ltd. appearing in the Annual Report on Form 10-K of Dorian LPG Ltd. for the year ended March 31,
2017.
/s/ Deloitte Certified Public Accountants S.A.
Athens, Greece
June 13, 2017
Exhibit 23.2
Exhibit 23.2
Consent of Counsel
Reference is made to the annual report on Form 10-K of Dorian LPG Ltd. (the “ Company ”) for the fiscal year
ended March 31, 2017 (the “ Annual Report ”) and the registration statements on Form S-3 (Registration Nos. 333-208375
and 333-200714) of the Company, including the prospectus contained therein (the “ Registration Statements ”). We hereby
consent to (i) the filing of this letter as an exhibit to the Annual Report, which is incorporated by reference into the
Registration Statements and (ii) each reference to us and the discussions of advice provided by us in the Annual Report
under the section “Item 1. Business—Taxation” and to the incorporation by reference of the same in the Registration
Statements, in each case, without admitting we are “experts” within the meaning of the Securities Act of 1933, as amended,
or the rules and regulations of the U.S. Securities and Exchange Commission promulgated thereunder with respect to any
part of the Registration Statements.
/s/ Seward & Kissel LLP
New York, New York
June 13, 2017
Exhibit 31.1
Exhibit 31.1
Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer
I, John Hadjipateras, certify that:
1.
I have reviewed this annual report on Form 10-K of Dorian LPG Ltd.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of and for, the
periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report
is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Dated: June 13, 2017
/s/ John Hadjipateras
John Hadjipateras
Chief Executive Officer
Exhibit 31.2
Exhibit 31.2
Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer
I, Theodore B. Young, certify that:
1.
I have reviewed this annual report on Form 10-K of Dorian LPG Ltd.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of and for, the
periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report
is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Dated: June 13, 2017
/s/ Theodore B. Young
Theodore B. Young
Chief Financial Officer
Exhibit 32.1
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report of Dorian LPG Ltd. (the “Company”), on Form 10-K for the period ended March
31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John Hadjipateras,
Chief Executive Officer of the Company, certify, to the best of my knowledge, pursuant to Rule 13a-14(b) under the
Securities and Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
1.
2.
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of
1934; and
the information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Dated: June 13, 2017
/s/ John Hadjipateras
John Hadjipateras
Chief Executive Officer
Exhibit 32.2
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report of Dorian LPG Ltd. (the “Company”), on Form 10-K for the period ended March
31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Theodore B. Young,
Chief Financial Officer of the Company, certify, to the best of my knowledge, pursuant to Rule 13a-14(b) under the
Securities and Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
1.
2.
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of
1934; and
the information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Dated: June 13, 2017
/s/ Theodore B. Young
Theodore B. Young
Chief Financial Officer