Global Investments

[Nick]

Thanks for the article I0nEr.

In light of the forward sale of the 2 aircraft to Fedex in half a year time, GIL only exposure to jet leasing will lie in its 4.1% stake in FLY Leasing. With that being said, if they choose to use their substantial cash hoard to purchase aircraft on long term lease, the cash-flow visibility will be greatly welcome. GIL operating lease segment seems to be recovering with higher dividends from FLY Leasing, Ascendos is profitable and distributing income and the Boeing aircraft will be sold for over US$2 million profit in 2013. I had initially expected new investments to be channeled in this division.

The Management will probably reveal the listed equities they invested in recently during their 3Q results. Based on the current share float of 825.3 million shares, a distribution of 1.5 cents / share will require cash out-flow of $12.4 million. GIL only generated $3.59 million net distributable cash (after deducting loan amortization and interest expense) in 1H 2012. This works out to 0.435 cents per share semi-annually or an annualized yield of 6.2%. They have to utilize their substantial $60 million cash hoard to invest in appropriate yielding instruments to boost distributable cash-flow substantially. Most of the cash expenses are already fixed ie management fees as a function of market cap (not AUM or net of cash) and operating expenses should be stagnant so new investments might boost operating margins over time. The key lies in what STAM will do with the cash hoard and whether can it make decent investments to generate sustainable cash-flow over the next few years to maintain (and grow) the DPU. My personal estimate is that 7% return from $70 mil new investment is the minimum hurdle to attain the 1.5 cents dividend. Hence I suspect the recent equity investments are none other than REITs, leasing companies, infrastructure funds, telcos etc. Yet, I am puzzled why the management has failed to repay the debt entirely saving on interest expense and loan amortization.

Next year, this challenge will remain as they have to deploy the cash proceeds from the Boeing sale to new investments (and repay the aircraft debt) or else distributable income will drop further. The Management has previously highlighted that they faced competition in bidding for certain investments. This is one of the major risk with investing in GIL at the moment.

(Vested)