Baupost Buys Stake in LNG Developer Looking at More Projects

Jun 13, 2014 3:13 am ET

(Updates to add analyst’s comments in third paragraph.)

June 13 (Bloomberg) -- Baupost Group LLC, the hedge-fund firm run by Seth Klarman, bought a stake in Liquefied Natural Gas Ltd. as the Australian company studies further projects to follow its proposed $3.5 billion U.S. venture.

Boston-based Baupost owns 25.9 million shares of Liquefied Natural after making purchases over the past three weeks, a filing to the Australian stock exchange shows. The Perth-based company, developing the Magnolia LNG project in Louisiana, expects U.S. investors to hold as much as half of its shares within the next six weeks, said Managing Director Maurice Brand.

For Baupost to invest in the Australian company, “they must have a view that this will make them multiples in the months and years to come,” Haris Khaliqi, a Sydney-based analyst at Foster Stockbroking Pty, said today by phone.

Liquefied Natural has had a more than fivefold gain this year in Sydney trading, closing today at A$1.605. That values the company at about A$622 million ($586 million).

Klarman, whose firm managed $27 billion at the start of this year, is a bargain hunter who wrote the preface to the sixth edition of “Security Analysis,” a landmark 1934 book by Benjamin Graham on value investing. Since it was founded in 1983, Baupost’s main fund has returned about 17 percent a year, compared with 11 percent for the Standard & Poor’s 500 Index.

“We’ve made solid progress,” Brand said by phone yesterday from Houston. “There’s a recognition that Magnolia LNG has a high probability of success.”

Shale Boom

Liquefied Natural has shifted its focus from Australia and joined a list of companies including Cheniere Energy Inc. planning gas export projects driven by the U.S. shale boom. The company, whose LNG development may begin production in 2018 and become one of the first five in the U.S. to start, is now studying further LNG opportunities, Brand said.

“We’re alert to other prospects,” he said, declining to elaborate.

Baupost also bought 5.7 million shares of Houston-based Cheniere, according to data, as of March 31, compiled by Bloomberg. That holding is valued at about $372 million at yesterday’s close.

Cheniere, whose stock market value in the U.S. has surged to $15.6 billion, shows that “value is realized well before production,” Khaliqi said.

Claren Road

Asia’s LNG buyers, accounting for about three quarters of global consumption in 2013, are considering North American supplies after a surge in extraction from shale deposits pushed the price of gas to a decade low in the U.S. in 2012.

Liquefied Natural has also attracted hedge fund Claren Road Asset Management LLC as a significant new shareholder, the Australian company said last month.

The company’s proposed Fisherman’s Landing LNG development on the east coast of Australia is on hold, pending a gas supply agreement, Brand said.