stock is stillovervalued even after the company fired co-founder and CEO Charif Souki and beganproduction and exportsfrom its Sabine Pass LNG liquefaction facility, a hedge fund manager and noted shortseller said.
"Theproblem is you're just simply overpaying for it with no [room] at all for cost overruns,"James Chanos of Kynikos Associates LP toldCNBC's "Fast Money Halftime Report" on May 4 at the Sohn Investment Conferencein New York. It was the latest salvo in a war of words over Cheniere that has playedout on the airwaves.
"Webelieve Cheniere's cost estimates are too low in their forecast. Having said that,you're paying a ridiculous price for 2020 or 2021 cash flows relative to almostany other type of energy infrastructure play you can buy in the marketplace today.So people are paying for a hoped-for income stream, which, again, we think is overstated,through their cost estimates, not their revenue."
Activistinvestor Carl Icahn, a major Cheniere holder who has acknowledged that he was "veryinstrumental" in ousting Souki in December 2015, disagreed with that assessment.
"You'rebuying a company here that's a great company, almost [a] no-brainer," he toldCNBC in an April 28 interview."I disagree a little with Jim Chanos in that respect because the contracts… are pretty damn good."
Icahnalso blamed Souki for Cheniere's stock position.
"Chanossays you should short it, and he had a good point because the company had tremendouscosts, and he looked at CapEx," he said. "The CapEx was Souki lookingto go into all these insane and harebrained ideas."
Souki,however, maintained that Icahn is misguided in his demand that Cheniere return cashto shareholders.
"There'sno cash to return until 2019 because the cash flow from the early [LNG liquefaction]trains is paying for the later trains. He didn't understand that," Souki April 26 on Jim Cramer's CNBCshow "Mad Money." "[E]ven when you get to 2019, you have a choice:You either continue to invest in the company or you distribute cash to the shareholders.You cannot do both."
Icahn,who added that he has never met Souki and "only talked to him once, maybe twice,on the phone," remained convinced that the serial entrepreneur did not knowhow to run Cheniere.
"I'lltell you what he knew. He knew how to almost go bankrupt, because that's what happenedto him," Icahn said.
Chanos,meanwhile, is pessimistic about "the LNG glut for the next handful of years."
"Peopleare playing up for the pure play, and really in excessive amounts. In addition,the plants, with the exception of one, haven't been built yet, so you're still atrisk of cost overruns over the next five years as they get built out."