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22-11-2010, 04:37 AM
Business Times - 22 Nov 2010
Hock Lock Siew
The lowdown on shipping trusts
By JOYCE HOOI
IT hasn't been much fun being a shipping trust, lately. If your creditor isn't leaning on you, your client is reneging on you or asking for a 30 per cent discount on charter rates.
At some point in the past 18 months, at least one or a combination of these three vexing situations has been a reality for all three shipping trusts listed here - Rickmers Maritime Trust, First Ship Lease Trust (FSL) and Pacific Shipping Trust (PST).
Consequently, the past 18 months haven't been a barrel of laughs for investors either. The share price for PST has lost about 23 per cent of its offer price value since the trust listed in 2006, while FSL and Rickmers have lost 55 per cent and 75 per cent respectively since they went public in 2007.
While the headlines for the trust sector have been glum in general, they have varied for each of the trusts across a spectrum of harrowing news.
Glum news
At one end of the spectrum has been Rickmers, which found itself unable to raise enough equity to buy seven vessels that it had committed itself to for US$918.7 million, even as it scrambled to refinance US$130 million in loan facilities with its banks.
About the same time, charterer Groda Shipping & Transportation told FSL to take back two tankers about four years early in May - but not before running up a US$4.1 million tab for unpaid bunker bills that led to tanker arrests and a 10 per cent dive in FSL's share price.
Amid renewed fears of counter-party risk, some threw up their hands. OCBC Investment Research's Meenal Kumar ceased coverage of the entire sector in June, citing 'subdued trading volumes'. He also noted the difficulty of getting publicly available information on some of the trusts' clients, such as Groda.
At the opposite end of the spectrum, however, PST's trials were milder by comparison - and already seem to be receding into the past. Chilean liner CSAV, which charters two vessels from PST, caused a bit of a flap in April last year when it looked likely to negotiate a temporary 30 per cent reduction in charter hire payments.
But now, with CSAV's turnaround in fortunes - it posted a record Q3 profit earlier this month - the threat of renegotiation has been reduced to a panicky footnote.
It is fitting that for Q3, only PST reported an increase in its distribution per unit (DPU) - albeit a small one of 1.7 per cent year on year.
Of the lot, PST has been favoured by analysts for its conservative financing strategy. It also scored points for its canny move to diversify into bulk carriers and multi-purpose vessels in measured doses that precluded any frantic equity-raising exercises.
FSL, on the other hand, is still being hobbled by the fall in revenue from the two tankers that Groda returned prematurely. Its Q3 distribution per unit of 0.95 US cent was 36.7 per cent lower year on year - and the outlook appears subdued.
DBS Group Research's Suvro Sarkar cut DPU estimates for FY 2011 by 17 per cent to about one US cent per quarter.
FSL's payout ratio is at 40 per cent as of Q3 - which is relatively prudent and not abysmal unless you are an investor who remembers getting 100 per cent of distributable cash flow in 2008 before the sector hit an ice patch.
What FSL does have in its favour is its vessel portfolio, which is the most diversified of the three - at a time when diversification has become a hedge against events that the sector cannot control, such as falling vessel values.
Diversification, on the other hand, is not on the immediate horizon for Rickmers' all-containership fleet. After a period of giddy acquisition that preceded its financing woes - at one point, it had 11 containerships waiting to be delivered within a two-year span - it will be content with its existing 16 while it regroups.
While containership rates have recovered convincingly and are poised to improve next year, the much-dreaded double dip could undo it all.
And all else remaining equal, there is the 0.6 US cent cap on Rickmers' DPU per quarter. It will be in place for at least as long as the trust is protected by the value-to-loan waiver granted by its creditors for up to three years. Its latest DPU of 0.57 US cents was a payout of just 13 per cent of distributable cash flow.
Stable and boring bet
It could work out for everyone, of course, and the sector could become the more exciting alternative to Reits that it was originally branded - and not in a way that causes indigestion.
But as things stand, PST - which its sponsor's MD called 'stable and boring' in March, according to Lloyd's List - looks like the sector's best bet. When 'boring' is the best adjective for a sector, investors might just stock up on antacid tablets and move elsewhere.
Hock Lock Siew
The lowdown on shipping trusts
By JOYCE HOOI
IT hasn't been much fun being a shipping trust, lately. If your creditor isn't leaning on you, your client is reneging on you or asking for a 30 per cent discount on charter rates.
At some point in the past 18 months, at least one or a combination of these three vexing situations has been a reality for all three shipping trusts listed here - Rickmers Maritime Trust, First Ship Lease Trust (FSL) and Pacific Shipping Trust (PST).
Consequently, the past 18 months haven't been a barrel of laughs for investors either. The share price for PST has lost about 23 per cent of its offer price value since the trust listed in 2006, while FSL and Rickmers have lost 55 per cent and 75 per cent respectively since they went public in 2007.
While the headlines for the trust sector have been glum in general, they have varied for each of the trusts across a spectrum of harrowing news.
Glum news
At one end of the spectrum has been Rickmers, which found itself unable to raise enough equity to buy seven vessels that it had committed itself to for US$918.7 million, even as it scrambled to refinance US$130 million in loan facilities with its banks.
About the same time, charterer Groda Shipping & Transportation told FSL to take back two tankers about four years early in May - but not before running up a US$4.1 million tab for unpaid bunker bills that led to tanker arrests and a 10 per cent dive in FSL's share price.
Amid renewed fears of counter-party risk, some threw up their hands. OCBC Investment Research's Meenal Kumar ceased coverage of the entire sector in June, citing 'subdued trading volumes'. He also noted the difficulty of getting publicly available information on some of the trusts' clients, such as Groda.
At the opposite end of the spectrum, however, PST's trials were milder by comparison - and already seem to be receding into the past. Chilean liner CSAV, which charters two vessels from PST, caused a bit of a flap in April last year when it looked likely to negotiate a temporary 30 per cent reduction in charter hire payments.
But now, with CSAV's turnaround in fortunes - it posted a record Q3 profit earlier this month - the threat of renegotiation has been reduced to a panicky footnote.
It is fitting that for Q3, only PST reported an increase in its distribution per unit (DPU) - albeit a small one of 1.7 per cent year on year.
Of the lot, PST has been favoured by analysts for its conservative financing strategy. It also scored points for its canny move to diversify into bulk carriers and multi-purpose vessels in measured doses that precluded any frantic equity-raising exercises.
FSL, on the other hand, is still being hobbled by the fall in revenue from the two tankers that Groda returned prematurely. Its Q3 distribution per unit of 0.95 US cent was 36.7 per cent lower year on year - and the outlook appears subdued.
DBS Group Research's Suvro Sarkar cut DPU estimates for FY 2011 by 17 per cent to about one US cent per quarter.
FSL's payout ratio is at 40 per cent as of Q3 - which is relatively prudent and not abysmal unless you are an investor who remembers getting 100 per cent of distributable cash flow in 2008 before the sector hit an ice patch.
What FSL does have in its favour is its vessel portfolio, which is the most diversified of the three - at a time when diversification has become a hedge against events that the sector cannot control, such as falling vessel values.
Diversification, on the other hand, is not on the immediate horizon for Rickmers' all-containership fleet. After a period of giddy acquisition that preceded its financing woes - at one point, it had 11 containerships waiting to be delivered within a two-year span - it will be content with its existing 16 while it regroups.
While containership rates have recovered convincingly and are poised to improve next year, the much-dreaded double dip could undo it all.
And all else remaining equal, there is the 0.6 US cent cap on Rickmers' DPU per quarter. It will be in place for at least as long as the trust is protected by the value-to-loan waiver granted by its creditors for up to three years. Its latest DPU of 0.57 US cents was a payout of just 13 per cent of distributable cash flow.
Stable and boring bet
It could work out for everyone, of course, and the sector could become the more exciting alternative to Reits that it was originally branded - and not in a way that causes indigestion.
But as things stand, PST - which its sponsor's MD called 'stable and boring' in March, according to Lloyd's List - looks like the sector's best bet. When 'boring' is the best adjective for a sector, investors might just stock up on antacid tablets and move elsewhere.
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