Rickmers Maritime Trust

[greengiraffe]

Shipping industry is a highly cyclical and short cycle industry. There are very few as far as I can remember that read the cycle correctly. Pacific International Lines (PIL) is one of the rare ones.

They listed Pacific Shipping Trust, the first shiiping trust on SGX, and has since delisted it at a better price than they floated.

Shipping industry is more tedious than stock market - 3 good years to be followed by 7 bad ones. Moreover the high fixed costs can tip badly managed companies into bankruptcies.

Dun play play. If you are in one, better pray that you read it correctly.

[safetyfirst]

When a person trades on margin and gets a margin call, what will he do? If he is bearish on his position, he will cut loss and sell down (sell some ships?). If he is still bullish, he will meet the margin call with fresh funds (like this situation).

Is Mr Rickmers justified in being bullish? Only time will tell.....

Is Lee Hsien Yang's wife justified in being bullish and backing the rights issue?

MIIF is quite different from rickmers. I think rickmers would be closer to cityspring infrastructure, one rights issue today followed by another one a few years down the road

[propertyinvestor]

When a person trades on margin and gets a margin call, what will he do? If he is bearish on his position, he will cut loss and sell down (sell some ships?). If he is still bullish, he will meet the margin call with fresh funds (like this situation).

Is Mr Rickmers justified in being bullish? Only time will tell.....

Is Lee Hsien Yang's wife justified in being bullish and backing the rights issue?

MIIF is quite different from rickmers. I think rickmers would be closer to cityspring infrastructure, one rights issue today followed by another one a few years down the road

I think this rights issue is a good thing. It helps Rickmers to maintain its low borrowing cost while ensuring no change to the dividend payout of the trust.

An investment in this trust now would mean being bullish on a recovery in the shipping sector over the next 3 years.

[Nick]

When a person trades on margin and gets a margin call, what will he do? If he is bearish on his position, he will cut loss and sell down (sell some ships?). If he is still bullish, he will meet the margin call with fresh funds (like this situation).

Is Mr Rickmers justified in being bullish? Only time will tell.....

Is Lee Hsien Yang's wife justified in being bullish and backing the rights issue?

I wouldn't read too much into this. She only has 450,000 shares in the Company and isn't under-writing anything.

RMT is currently trading at 33.0 cents - TERP will be 28.5 cents giving rise to a dividend yield of 10.5%. It would be wise to create a pro forma cash-flow statement to see whether the 2.4 cents DPU can be maintained going forward in light of the interest savings, reduced loan amortization and possibly lower charter income from next year onwards.

[propertyinvestor]

When a person trades on margin and gets a margin call, what will he do? If he is bearish on his position, he will cut loss and sell down (sell some ships?). If he is still bullish, he will meet the margin call with fresh funds (like this situation).

Is Mr Rickmers justified in being bullish? Only time will tell.....

Is Lee Hsien Yang's wife justified in being bullish and backing the rights issue?

I wouldn't read too much into this. She only has 450,000 shares in the Company and isn't under-writing anything.

RMT is currently trading at 33.0 cents - TERP will be 28.5 cents giving rise to a dividend yield of 10.5%. It would be wise to create a pro forma cash-flow statement to see whether the 2.4 cents DPU can be maintained going forward in light of the interest savings, reduced loan amortization and possibly lower charter income from next year onwards.

What Rickmers is betting on right now is a recovery in the shipping sector. The dividend is sustainable provided the banks relaxes the VTL and loan covenants. For this to happen, the Shipping rates for Handymax MUST recover by 2014.

The alternative scenario for growth is for banks to start lending to shipping companies again.

Given that local banks cant lend much money to property related businesses, its likely some of the banks will look to finance shipping/commodity companies in the next few years ahead.

[safetyfirst]

Hi PI, are you betting big on rickmers?

[greengiraffe]

I suddenly thought of a question on Rickmers:

It is trading at steep discount to book value. If it is so good, the sponsors should have taken it private at steep discount.

Why did it choose to recap and continue to pay higher dividend yields post rights issue? Its like continuing to go to ah long for more expensive financing.

Potential Investor

[d.o.g.]

It is trading at steep discount to book value. If it is so good, the sponsors should have taken it private at steep discount.

Book value is meaningless for shipowning companies. In a boom, the ships are worth more than book. The reverse is true in a bust. That is why RM has had to negotiate a VTL waiver - because the market value of the ships is below the value required to stay within the VTL covenant.

RMT's book value is still positive. But replace the book value figure with the actual market value, and RMT's equity would be a lot lower, perhaps even negative. If RMT's true equity is negative, then of course there is no point taking it private - RM would be paying real money to buy something that is worthless. They would be better off buying physical ships on the open market.

[Nick]

Capital Group to subscribe to Rickmers Maritime rights issue
• Substantial unitholder Capital Group commits full support for rights issue
• Undertaking from Capital Group brings collective support, together with
undertakings from the Sponsor and Independent Directors, to 39.92%

http://info.sgx.com/webcoranncatth.nsf/V...50032403D/$file/RM_Press_Release_Capital_Group_21_March_2013.pdf?openelement

It is important to note that the guidance of 0.6 US cent DPU is only for FY 2013. At the moment, RMT portfolio consist of 16 container vessels of which 15 are on profitable pre-crisis charters and 1 is on short term charter with significantly lower present rates. If one examines the charter maturity time-line - http://www.rickmers-maritime.com/timeline.html - 2 vessels charter will expire in 2014 and 4 vessels charter will expire in 2015. If charter rates do not recover to pre-crisis levels, there is significant downside to revenue. Essentially, there is little upside to revenue since the vessels are leased at high rates - a strong recovery will only guarantee the current revenue will continue to be maintained till the end of the decade. A weak recovery or even no recovery will hamper their cash-flow significantly and the projected US$20 million annual distribution might have to be curtailed. It wasn't long ago that FSLT did a private placement to purchase Torm vessels for growth - a year later, they have slashed the DPU completely. Just playing the Devil's Advocate here - like all things, there are risk and returns - the 10% yield is tied to the higher risk involved. If strong recovery takes place, a unit-holder gains an interesting asset class with guaranteed 10% returns for the next 5 - 7 years and even possibility of yield compression for capital gains. On another note, will the rights issue cause a 50% reduction in the conversion price for the US$49 million Convertible Loan ?

Some numbers based on 4Q 2012 (15 precrisis contracts & 1 ST)

EBITDA: US$26.8 mil
Interest Expense: US$10.2 mil
Debt Repaid: US$13.7 mil
Distribution: US$2.5 mil

If the rights issue is fully subscribed, it can be used entirely to reduce its debt from US$568 mil to US$490 mil and its US$57 mil cash will be retained in its balance sheet. This will reduce the debt interest expense by 14% to US$8.8 mil. If this level of revenue can be maintained till 2020, the annual CF will look like this -

EBITDA: US$107 mil
Interest Expense: US$35 mil
Distribution: US$20 mil
Debt Repaid: US$52 mil (over time this figure can increase since interest expense reduce with lower principal)

If no recovery occurs, the EBITDA will drop significantly.

(Not Vested)

[greengiraffe]

Hi Nick,

Thanks a lot for your detail analysis. Always a pleasure to read what's in your mind. Definitely more than toll roads.

Cheers
GG

Capital Group to subscribe to Rickmers Maritime rights issue
• Substantial unitholder Capital Group commits full support for rights issue
• Undertaking from Capital Group brings collective support, together with
undertakings from the Sponsor and Independent Directors, to 39.92%

http://info.sgx.com/webcoranncatth.nsf/V...50032403D/$file/RM_Press_Release_Capital_Group_21_March_2013.pdf?openelement

It is important to note that the guidance of 0.6 US cent DPU is only for FY 2013. At the moment, RMT portfolio consist of 16 container vessels of which 15 are on profitable pre-crisis charters and 1 is on short term charter with significantly lower present rates. If one examines the charter maturity time-line - http://www.rickmers-maritime.com/timeline.html - 2 vessels charter will expire in 2014 and 4 vessels charter will expire in 2015. If charter rates do not recover to pre-crisis levels, there is significant downside to revenue. Essentially, there is little upside to revenue since the vessels are leased at high rates - a strong recovery will only guarantee the current revenue will continue to be maintained till the end of the decade. A weak recovery or even no recovery will hamper their cash-flow significantly and the projected US$20 million annual distribution might have to be curtailed. It wasn't long ago that FSLT did a private placement to purchase Torm vessels for growth - a year later, they have slashed the DPU completely. Just playing the Devil's Advocate here - like all things, there are risk and returns - the 10% yield is tied to the higher risk involved. If strong recovery takes place, a unit-holder gains an interesting asset class with guaranteed 10% returns for the next 5 - 7 years and even possibility of yield compression for capital gains. On another note, will the rights issue cause a 50% reduction in the conversion price for the US$49 million Convertible Loan ?

Some numbers based on 4Q 2012 (15 precrisis contracts & 1 ST)

EBITDA: US$26.8 mil
Interest Expense: US$10.2 mil
Debt Repaid: US$13.7 mil
Distribution: US$2.5 mil

If the rights issue is fully subscribed, it can be used entirely to reduce its debt from US$568 mil to US$490 mil and its US$57 mil cash will be retained in its balance sheet. This will reduce the debt interest expense by 14% to US$8.8 mil. If this level of revenue can be maintained till 2020, the annual CF will look like this -

EBITDA: US$107 mil
Interest Expense: US$35 mil
Distribution: US$20 mil
Debt Repaid: US$52 mil (over time this figure can increase since interest expense reduce with lower principal)

If no recovery occurs, the EBITDA will drop significantly.

(Not Vested)