First Ship Lease Trust

[Duskerdawn]

http://www.americanshipper.com/main/news...67347.aspx

"Aggregate spot container freight pricing on eight major east-west trades between the United States, Europe and Asia are up 102 percent from the same time last year, according to maritime consultant Drewry’s latest World Container Index report."

http://en.sse.net.cn/indices/ccfinew.jsp

China Containerized Freight Index - shows an increasing trend from 2016. (Cross referencing with the report above, confirms the trend mentioned.)

Hmm.. the spate of shipping bankruptcies may have reduced the competitive pressures to sufficient levels, making shipping firms look more attractive now.

[wonghw12]

http://www.americanshipper.com/main/news...67347.aspx

"Aggregate spot container freight pricing on eight major east-west trades between the United States, Europe and Asia are up 102 percent from the same time last year, according to maritime consultant Drewry’s latest World Container Index report."

http://en.sse.net.cn/indices/ccfinew.jsp

China Containerized Freight Index - shows an increasing trend from 2016. (Cross referencing with the report above, confirms the trend mentioned.)

Hmm.. the spate of shipping bankruptcies may have reduced the competitive pressures to sufficient levels, making shipping firms look more attractive now.

How well containerships do may have little influence on FSLT. It has a few containerships but these are on long term charters. The drivers are really the tankers.

[Boon]

http://infopub.sgx.com/FileOpen/First%20...eID=446902

FSL has released its annual report with a few highlights:

1) The chairman is concerned on the values of the vessel. As of now FSL has made impairments to " 5 container ship,2 crude oil tanker (FSL Shanghai & Hong Kong) & 1 product tanker" . In my opinion, there may be more impairments from the other product tankers because of declining MR rates. So expect net profit to be zero this FY; no need pay tax to agencies like IRAS again . If i was smart, I would space out my impairments over a few years to match the lease expiry, so that my net profit will always be zero with positive cash flow

2) This leads to the issue of loan valuations. As of 31 March 17, outstanding loan is US$190, one question i will ask is what is the current LTV ratio? This may shed light on the actual value of all its 22 vessels. Also, it seems last year's talk on getting a loan renewal was untrue as FSL mgmt is still trying to get debt refinancing.

<vested>

Hi CY09,
 
Impairment should be made when carrying amount exceed recoverable amount (the higher of fvlcts and viu). I don’t think one could control the timing of making an impairment loss.
 
Besides, it serves no purpose to “tweak” net profit, as FSL's shipping related income is tax exempt anyway. 
 
Accounting profit is not important, but positive cash generation is.
 
Rights issues is being considered by the board.
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page 75 of AR2016:
 
The lease income derived by the Group’s entities from the respective bareboat charter and time charter agreements qualifies for tax exemption under the Maritime Sector Incentive (“MSI”) scheme (previously known as the Maritime Finance Incentive scheme), with effect from 19 March 2007. This tax exemption on the qualifying income will be granted for the remaining useful life of any vessel that is acquired by the Trust during the initial period of 10 years from the effective date subject to further extension. The distributions made out of the tax exempt income less allowable expenses will also be exempt from Singapore income tax in the hands of the unitholders. The freight income and pool income derived by the Group is also exempted from tax under Section 13A of the Singapore Income Tax Act (“SITA”), Chapter 134.
 
The Group is subject to tax on its non-tax exempt income such as interest income at the prevailing corporate tax rate, after adjusting for allowable expenses. 
 
Page 63 of AR2016:
 
3.3  Impairment Assessment of Vessels 
Impairment loss is recognised when events and circumstances indicate that the vessel may be impaired and the carrying amount of the vessel exceeds the recoverable amount. The recoverable amount for each vessel is determined based on the higher of the fair value of the vessel less the estimated costs of disposal and the carrying value of the vessels based on “value-in-use” methodology. 
In determining the fair value less costs of disposal, the Group has obtained valuation reports from third parties sources in December 2016. The valuation of the vessels was prepared assuming a sale between a willing seller and a willing buyer on a charter-free basis. 
For the value-in-use calculations, the Group determined the cash flows based on past performance and their expectation of market development. The Group prepared the value-in-use calculation based on projected cash flows over the remaining useful life of each vessel and its projected residual value. 
The projected cash inflows are based on existing charter contracts rates and/or inflation-adjusted daily rates from observable historical trends of five to 20 years. Management has adjusted the projected cash flows with management’s assessment of the achievable cash flows based on recent performance of the vessels and the age of the vessels. If the Group were to project cash flows based on the current average rates, the carrying values of the vessels will decrease by approximately 8% (2015: 5%). 
The projected cash outflows take into consideration each vessel’s inflation-adjusted actual and budgeted operating expenses. The pre-tax discount rates range from 6.39% to 7.76% (2015: 6.39% to 7.76%) and take into account the time value of money and the risks specific to the vessels’ estimated cash flows. If the pre-tax discount rates increase by 1%, the carrying values of the vessels will decrease by approximately 3% (2015: 1%). 
During the financial year ended 31 December 2016, the Group recognised an impairment loss on vessels amounting to US$44,137,000 (2015: US$971,000). As at 31 December 2016, the carrying amount of the vessels was US$427,508,000 (2015: US$526,516,000). 

 
Page 5 of AR2016:
 
“The highest priority for the Board is to secure a refinancing of the outstanding debt, and to this end we are considering a variety of strategies. as a Board, we are committed to improving the structure of the Trust’s balance sheet in a manner that enables unitholders to benefit. This will require the balance sheet to be strengthened and we are considering various options in this regard. as part of these considerations we are requesting unitholders to approve a general mandate to issue pro-rata renounceable rights of up to 100% of the Trust’s capital.“
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hi boon,
re: stated in AR
  If the Group were to project cash flows based on the current average rates, the carrying values of the vessels will decrease by approximately 8% (2015: 5%).

Are they saying if they construct the VIU using rates based on prevailing market charter rates (not the existing contracted ones), the VIU will drop by 8%?

And since they are using higher of FVLCS and VIU, the book value reported is using VIU (since FVLCS is lower and banks r looking at that) that is based on EXISTING contracted rates right?
 

I am not too sure either on what the statement in red mean !
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[Boon]

Leases of 9 vessels expiring within this year.
So far so good, one has been redeployed and three with contracts extended.

Vessel (leases expiring)
FSL Hong Kong (1Q FY2017) - on revenue sharing basis with Teekay Group
Speciality (2Q FY2017) - contract extended
Superiority (2Q FY2017) - contract extended
Seniority (2Q FY2017) - contract extended
FSL Shanghai (3Q FY2017) 
FSL Hamburg (4Q FY2017) 
FSL Singapore (4Q FY2017) 
Cumbrian Fisher (4Q FY2017) 
Clyde Fisher (4Q FY2017)
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FSL Trust announces agreement to extend bareboat charters for three vessels 
http://fsltrust.listedcompany.com/newsro...K770.1.pdf
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[Boon]

Hi Boon,

What is your opnion on the value of FSL's vessels if they are unable to continue as a going concern?

We know the aframax market value is 17 mil and its 3 container ships have a fixed BBCE revenue until mid 2020

Presumably, we are talking about orderly sale and not fire sale here.
 
FVLCTS is based on charter free basis.
 
Vessel with secured charter contract should be worth more than on charter free basis.
 
Hence, value of FSL's vessels, taking secured charter contract into consideration, should be higher than V in 

FVLCTS.

Is this what you are trying to say ?
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[CY09]

Hi Boon,

Nope not saying. But asking your opinion for the value of FSL's fleet if they are now all sold on the market

[wonghw12]

Leases of 9 vessels expiring within this year.
So far so good, one has been redeployed and three with contracts extended.

Vessel (leases expiring)
FSL Hong Kong (1Q FY2017) - on revenue sharing basis with Teekay Group
Speciality (2Q FY2017) - contract extended
Superiority (2Q FY2017) - contract extended
Seniority (2Q FY2017) - contract extended
FSL Shanghai (3Q FY2017) 
FSL Hamburg (4Q FY2017) 
FSL Singapore (4Q FY2017) 
Cumbrian Fisher (4Q FY2017) 
Clyde Fisher (4Q FY2017)
_____________________________________________________________________________________________________________________
FSL Trust announces agreement to extend bareboat charters for three vessels 
http://fsltrust.listedcompany.com/newsro...K770.1.pdf
_____________________________________________________________________________________________________________________

I am skeptical on the charter rates for these extended charters. Hopefully they'll share more information during results.

[cfa]

Leases of 9 vessels expiring within this year.
So far so good, one has been redeployed and three with contracts extended.

Vessel (leases expiring)
FSL Hong Kong (1Q FY2017) - on revenue sharing basis with Teekay Group
Speciality (2Q FY2017) - contract extended
Superiority (2Q FY2017) - contract extended
Seniority (2Q FY2017) - contract extended
FSL Shanghai (3Q FY2017) 
FSL Hamburg (4Q FY2017) 
FSL Singapore (4Q FY2017) 
Cumbrian Fisher (4Q FY2017) 
Clyde Fisher (4Q FY2017)
_____________________________________________________________________________________________________________________
FSL Trust announces agreement to extend bareboat charters for three vessels 
http://fsltrust.listedcompany.com/newsro...K770.1.pdf
_____________________________________________________________________________________________________________________

I am skeptical on the charter rates for these extended charters. Hopefully they'll share more information during results.

Exactly , extended but at what chartered rates ? Can the new chartered rates generate enough cash flow to meet expenses ?

[CY09]

Hint: middle to last portion of annual report fy15 will provide some info

[Boon]

From page 88 of AR2015:
 
Lease term+ extension = 10 year + 5 years + 5 years (commencing 1 June 2007)
 
From years 1 to 5, the daily bareboat charter rate of USD4,100 was applied for Speciality, Seniority and Superiority ; from years 6 to 10, the daily bareboat charter rate is USD4,500. 
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