First Ship Lease Trust

[Musicwhiz]

That's also why I prefer to meet up with management during bearish times. At least you know they are more honest and less optimistic.

Given bullish times, almost every dart thrown will bound to be profitable investment. More importantly, it is to apply strong margin of safety.

Right, well said. But of course during bearish times, Management becomes a dartboard for disgruntled shareholders! Especially so if they were not prudent enough, not farsighted enough or simply screwed up.

Margin of safety will be present if you understand the structure of the investment and the industry. For my case, I failed on both counts, hence was forced to take a loss on FSL Trust.

Then again, look on the bright side - even until today, I am learning and gaining experience from monitoring business developments at FSL Trust!

[Stockerman]

Hi all

Does anyone know why FSLT make a loss in FY2010?

What are the immediate risks confronting FSLT now?

Tks.

[Nick]

Hi all

Does anyone know why FSLT make a loss in FY2010?

What are the immediate risks confronting FSLT now?

Tks.

FSLT has been in the dire straits since late 2008 and much of its problems stem from managerial actions prior that - i) Having 100% cash payout policy ii) Failing to repay debt iii) Taking on debt with VTL covenants iv) Chartering vessels to risky companies. This resulted in a tremendous drop in dividends on an annual basis since 2008 as they could not deal with a highly leveraged portfolio.

Major risk - i) Charterers may default ii) Vessel valuation may plunge further resulting in loan covenants being breached iii) Unable to generate sufficient earnings to repay US$11 million to the lenders quarterly iv) Dilutive placements v) Unable to renew charter contracts at similar rates.

[Curiousparty]

Hi Nick

Rickmers Maritime Trust also faces similar problems?
Although the risks are more mitigated as its cilents are more the higher end ones?

Major risks -
i) Charterers may default
ii) Vessel valuation may plunge further resulting in loan covenants being breached
iii) Unable to generate sufficient earnings to repay to the lenders quarterly
iv) Dilutive placements
v) Unable to renew charter contracts at similar rates.

Does it mean that Shipping trusts should be avoided for now?
So far, has any shipping trusts defaulted before? In the event of default, can unit holders can back NAV?

Tks.

[Nick]

RMT has mitigated (i) with pretty good charterers and they didn't face any major default risk over the past 4 years. But RMT is highly leveraged and the VTL waiver ends next year. Charter contracts start to expire late next year and will probably be renewed at a much lower rate (if there is no recovery). If that occurs, can they repay their debt and yet pay a dividend ? Essentially, it boils down to how bullish you are on a shipping recovery in 2014. These are questions which prospective unitholders should ask themselves.

As to whether, shipping trust should be avoided - I can't make any claims. There are pros and cons as always.

(Not Vested in any business trust)

[money]

Hi Nick

Rickmers Maritime Trust also faces similar problems?
Although the risks are more mitigated as its cilents are more the higher end ones?

Major risks -
i) Charterers may default
ii) Vessel valuation may plunge further resulting in loan covenants being breached
iii) Unable to generate sufficient earnings to repay to the lenders quarterly
iv) Dilutive placements
v) Unable to renew charter contracts at similar rates.

Does it mean that Shipping trusts should be avoided for now?
So far, has any shipping trusts defaulted before? In the event of default, can unit holders can back NAV?

Tks.

The current shipping trusts in singapore should be avoided at all costs because they do not set aside money to buy new ships. They are now busy paring down their debts. Theoretically, their NAV will drop to zero if they continue with what they are doing now. Take their current NAV with a pinch of salt.

If you are looking for yield, why not go for stocks like M1, singpost, SPH, etc.., i think their dividends will be far more reliable than the shipping trust. In fact, i have a feeling the shipping trust will be forced to do a rights issue soon. Of course, they will tell us they need our money to grow their fleet of ships

[Stockerman]

Hi Money

Tks for the cautionary note on shipping trusts.

What do you think is a sustainable dividend yield for shipping trusts if they want to avoid doing rights issue?

How about K-Green Trust? It is not as highly geared as shipping trusts. Any down sides?

Tks.

[Nick]

1) KGT is self liquidating. They are not retaining cash to renew its assets. Eventually, the Trust will be worthless.

2) For Shipping Trust - a general rule, as long as dividends < net profits, the Trust is sustainable. Of course, you have to investigate what makes up the net profit ie how many years do they assume the vessels can last, how sustainable the revenue is over the next decade etc.

3) For the 3 shipping trust, only PST started out as self-sustaining. FSLT and RMT were forced to be self sustaining in 2009. In RMT case, they generate $8 mil profit per quarter and yet pay out $2.5 mil distributions so NAV will grow (albeit slowly). FSLT is a bit harder to forecast as they have a number of vessels on spot charters, a strange depreciation policy with extension/buyout options etc.

4) Eventually these guys have to raise funds as they were never meant to be this big. RMT was supposed to raise US$650 mil equity to partially finance their massive M&A but the GFC came and the share price tanked making it virtually impossible to do so.

5) Look at the various operating lease trust listed in USA ie Seaspan, Fly Leasing. Look at their size and contrast that with the local shipping trust and you will be amazed at the difference in scale and size.

[money]

Woohoo!!!

i was looking at the financial statement of mar 2012, given up on this company long ago

All figures in thousands
Distribution to unitholders (655)
Repayment of secured bank loans (11,000)
Interest paid (7,040)

You will be lucky if this shity management can continue to pay shareholders $655,000 amounting to 0.13 cents per share while deleveraging. They will probably have to continue paying off debt for the next 8 to 10 years. Many many years later, then they can start to save money to buy a few ships that will probably be just enough to pay the salary of management. Try discounting the cashflow for many years later, you will be lucky enough to value the company at even 10 cents today.

This shipping trust is gone case, dont carry too much hopes. It will probably do a rights issue or do a share placement soon and dilute your shares.

SELL NOW before it gets too late !!!!!!!!!!!! This stupid management enjoy paying the bankers instead of shareholders. Dont trust what they say at the AGM, trust the dividends that can be paid to you. I wont buy this shity trust at 17 cents, maybe not even 10 cents without a more detailed calculation

[KopiKat]

The Yield just dropped to 0% as they'll have to suspend distribution till Jun-13,

FSL TRUST SECURES RELAXATION OF LOAN COVENANTS
- Secures 12 months relaxation of two loan covenants
- Suspends distribution during Relaxation Period