Pacific Shipping Trust (PST)

[iff]

I've read that PST's new acquisition is funded by the sponsor and wouldn't require any rights issue.
This is good news and share price already been pushed up last Fri.
(not vested in PST)

[Nick]

I've read that PST's new acquisition is funded by the sponsor and wouldn't require any rights issue.
This is good news and share price already been pushed up last Fri.
(not vested in PST)

Hi iff,

The sponsor will settle the pre-delivery financing ie downpayment to the shipyard. But once the vessels are delivered, PST has to pay for the vessels in full.

PST Portfolio of Vessels

Current Fleet
12 X Container vessels leased to CSAV and sponsor PIL

Newbuilding Fleet:
1) 2 X 180,000 DWT Capesize @ US$123.2 million
Delivery in Oct 2011 and 10 year charter to Shagang
Financing Secured. No new equity needed

2) 2 X MPP vessels @ US$60 million
Delivery in 2H 2012 and 10 year charter to Cosco
Financing Secured. No new equity needed

3) 5 X 57,000 DWT Supramax Vessel @ US$150 million
Delivery in 2H 2012 and 1H 2013 and on 8-10 year charter with Glovis
Financing not secured. Expect equity to be raised in late 2012.

Essentially, the DPU should remain flat till 4Q 2011 when the vessels start to come on-stream. Not sure whether the sponsor PIL may choose to divest vessels to the Trust judging by the high unit price which may make it easier to raise new funds ?

Cheers !

[PassiveReturns]

In general, I am happy to see this new development

[Nick]

PST made a new 52 week high today as it closed at US$0.37 giving rise to a market capitalization of US$218 million which clearly exceeds that of its larger rivals (FSLT market cap is US$201 million and RMT market cap is US$127 million). PST is currently trading at a dividend yield of 8.7%, with a slight discount to its NAV of US$0.405. It has a PE of 8 based on its FY 09 EPS.

SIAS latest research report on PST makes an interesting read. It values the Trust at US$0.43 per unit.

http://kfc1973-stock.blogspot.com/2010/1...third.html

I am not too certain how the valuation was done. But I have done some calculations and highly expect quarterly DPU to exceed US$0.01 when the vessels are delivered and chartered out without any hiccups. So I do expect the Trust unit price and DPU to improve if they can raise equity at this level to fund the Glovis acquisition.

(Vested)
Do your own research before buying or selling. Buy at your own risk !

[freedom]

one concern I have with PST is that the vessels chartered to PIL are really old, and their charter rate is really high compared with other players in the market.

with debt funding the acquisition of 180 mil of 2 Bulks and 2 MPPs, it means, the debt/equity will be above 1. and with financing not secured for the 5 supermax, it is quite similar with what happened in Rickmers in 2008. In 2008, Rickmers secured 600+ mil for 5 MOL vessels and 4 Hanjin vessels using pure debt. later they couldn't withdraw the loan to pay for the vessels. Rickmers also has financial commitment for the 4 Maersk vessels which financing not secured. The good thing about PST, they did not buy those vessels at too high price.

[Nick]

I expect charter revenue from the PIL vessels to drop when their charter expires. Alternatively PST may choose to divest the vessels to shipping liners. Handymax vessels have been surprisingly resilient in the past 18 months unlike larger ships since they are not suffering from the over-supply over-hang which capesize vessels are currently under-going. To be conservative, a prospective unit-holder should assume a 30% drop in revenue from those vessels.

The 9 vessels are acquired close to the bottom cycle unlike RMT vessels which were acquired at peak prices. The sharp drop in market valuation made it impossible for banks to loan $$$ to cover the purchase price. Unless vessel prices experience a sharp decline in the coming months, financing should not be an issue. Of course, this is a risk which PST has under-taken in their quest to find good financing options. I highly expect US$40 million of fresh equity to be raised to fund this acquisition. I suspect PST will raise rights issue in late 2011 or mid 2012 when its MPP and Shagang vessels start to contribute to the DPU and hence possibly raising the unit price to its NAV.

I mentioned here (http://www.valuebuddies.com/thread-154-p...ml#pid2126 ) that Ship Finance concluded a similar deal with Glovis and they secured financing at 80% LTV. This is similar LTV ratio to the MPP and Shagang deal. I guess banks are starting to lend again but let's not forget that most of the weak ship owners are not in any position to acquire vessels in 2010 and possibly 2011.

[freedom]

whether the new acquisitions consider bottom price. it is till debatable.

in 07, order of 57,000 dwt dry bulk ship in Cosco was around 30 - 40 mil, can check Cosco's contract during 07.

http://info.sgx.com/webcoranncatth.nsf/V...7003C893E/$file/Bulk_Carrier_10.pdf?openelement

http://info.sgx.com/webcoranncatth.nsf/V...400376E55/$file/New_Shipbuilding_Contract_USD525.pdf?openelement

PST paid 5 for 150 mil, still 30 mil per ship, not really considered bottom price. however, the charter rate never recovers to 07 level, I think. recently BDI dropped off a cliff to below 2000. not so bright outlook for dry bulk sector.

during the crisis of 2008 - 2009, it was just no order was placed, but the new-build price did not really drop too much, just back to 07 price only. Only the second-hand market drop dramastically.

[Nick]

I wouldn't say the vessels are at bottom prices for new-buildings. They are trading at normalized levels now.

BDI is dropping significantly and the tanker market isn't in good shape either. Though the counter-party, Shagang, isn't a shipping liner. It is transporting its own raw materials.

Financing risk is very credible here. I been mentioning it previously in this thread. Until the deal is signed, I won't rest easy !

Assuming PST raise US$40 million worth of new equity, debt to equity ratio at the end of 2012 will stand at -

Equity: $290 million (approx)
Debt: $435 million (approx)
Debt to Equity: 150%

[freedom]

I wouldn't say the vessels are at bottom prices for new-buildings. They are trading at normalized levels now.

BDI is dropping significantly and the tanker market isn't in good shape either. Though the counter-party, Shagang, isn't a shipping liner. It is transporting its own raw materials.

Financing risk is very credible here. I been mentioning it previously in this thread. Until the deal is signed, I won't rest easy !

Assuming PST raise US$40 million worth of new equity, debt to equity ratio at the end of 2012 will stand at -

Equity: $290 million (approx)
Debt: $435 million (approx)
Debt to Equity: 150%

quite alarming level of debt to equity ratio. they may raise more equity later to reach a better ratio of around 100%

[Nick]

I wouldn't say the vessels are at bottom prices for new-buildings. They are trading at normalized levels now.

BDI is dropping significantly and the tanker market isn't in good shape either. Though the counter-party, Shagang, isn't a shipping liner. It is transporting its own raw materials.

Financing risk is very credible here. I been mentioning it previously in this thread. Until the deal is signed, I won't rest easy !

Assuming PST raise US$40 million worth of new equity, debt to equity ratio at the end of 2012 will stand at -

Equity: $290 million (approx)
Debt: $435 million (approx)
Debt to Equity: 150%

quite alarming level of debt to equity ratio. they may raise more equity later to reach a better ratio of around 100%

Always a possibility. PST did a rights issue in 2008 so they are not 'shy' in getting funding from the equity markets. I have no issue with equity fund raising as long as the acquisitions are good and the fund raising was done when the unit price wasn't depressed. PIL has a 59% stake so ultimately, it must say yes to any fund raising !

But, we must also take note that PST pays down its debts and retains 30% of its net profit on a quarterly basis which in turn means that debts is being reduced while equity is slowly increasing so the overall debt to equity ratio should decline with time. Assuming the CB are converted, RMT debt to equity ratio stands at around 160%. RMT will also experience this reduction in gearing ratio with time.