Global Investments

[KopiKat]

Boon,

Thanks! I completely missed that out...

[Nick]

Hi IoNer,

Just curious how did you arrive at the 3.59m net distributable cash?

I define net distributable cash-flow to be operating cash-flow - interest expense - loan amortization (the $17 mil debt on GIL b/s). This is the cash available for distribution after repaying all the necessary expenses.

1H 2012

Ops Cash-flow: $5.169 million
Interest Exp: $0.601 million
Debt Repayment: $0.978 million
Net Distributable Cash-flow: $3.590 million

From the cashflow statement, i get about 5.2m by taking Operating CF + loan repayment received - borrowing cost - cost of rights issue - proceeds from sale of assets.

I see no reason why we should include the loan principal repayment inside the net distributable cash-flow as it must be retained by the Trust and re-invested. If a fund lend out $1 million to a company for 5% interest p.a and 5 year tenor, at the end of the 5 year, it cannot distribute the $1 mil repayment to its shareholders or else, it is merely a return of capital as opposed to dividends from operating earnings. It should only pay out the $0.05 million profits annually. Similarly, GIL should only use its operating cash-flow less expenses to pay a dividend. Granted, the sale of assets may carry profit which could be distributed but if they seek to grow NAV, I think they should retain it.

I prefer the operating cash flow as a gauge for cash flow due to the direct method of accounting. On that note, the fund did achieve 12.56m of OCF in FY2011, while receiving 14.8m of Loan repayments (about 2m excluding the AUD8.1 repayment). That covers the 12.4m required to maintain the 1.5cents dividends.

GIL never used its loan principal repayment to finance its dividends. It wishes to grow its NAV and maintain a sustainable distributions to shareholders so it retains it principal cash repayment for future investments. I like this model as it isn't self-liquidating.

FY 2010

Ops Cash-flow: $8.202 million
Interest Exp: $1.561 million
Debt Repayment: $1.859 million
Net Distributable Cash-flow: $4.782 million
Dividends Declared: $3.930 million (1.00 cents / share)

FY 2011

Ops Cash-flow: $12.560 million
Interest Exp: $1.302 million
Debt Repayment: $1.826 million
Net Distributable Cash-flow: $9.432 million
Dividends Declared: $8.254 million (1.50 cents / share)

GIl didn't use their loan principal repayment or sale of assets to finance past dividends. At the moment, it is likely they will use some of their cash to finance FY 2012 dividends but hopefully with greater investment, FY 2013 dividend will be entirely sustainable.

I see a need for GIL to generate an incremental $5.5 - 6.0 million worth of cash-flow with their $70 million cash hoard (of which $16 mil utilized) to meet this. If they are venturing its operating lease assets, I suspect a mixture of debt and equity will be sufficient in meeting this threshold due to higher ROE. We have to wait and see what they do over the next few months.

Hi Boon,

Thanks for the analysis. I guess that's why they are unable to repay the debt.

[Boon]

Aircraft: Sold forward at USD25,890,000

http://info.sgx.com/webcoranncatth.nsf/V...30081E0E3/$file/27_20111212AnnouncementOfTheForwardSaleOfTheCompanyTwoBoeing757-200Aircraft.pdf?openelement

According to the announcement, the sale of the two aircrafts would result in a net accounting gain of approximately US$2.65 million for the financial year ending 31 December 2013.

I am interpreting it as follow:

Sales proceed estimate = (Book Value – Debt) at 30-April-2013 + US$2.65 million

(Book Value – Debt) as at 30-June-2012 = S$30.48 million – S$15.614 million =S$ 14.9 million. By 30th April 2012, another 10 months, it will be around S$ 14.0 million, I guess.

Therefore, sales proceed estimate is about S$ 14 million + US$ 2.65 million = about S$ 17 million.

Please comment. Thanks.

[Nick]

Aircraft: Sold forward at USD25,890,000

http://info.sgx.com/webcoranncatth.nsf/V...30081E0E3/$file/27_20111212AnnouncementOfTheForwardSaleOfTheCompanyTwoBoeing757-200Aircraft.pdf?openelement

According to the announcement, the sale of the two aircrafts would result in a net accounting gain of approximately US$2.65 million for the financial year ending 31 December 2013.

I am interpreting it as follow:

Sales proceed estimate = (Book Value – Debt) at 30-April-2013 + US$2.65 million

(Book Value – Debt) as at 30-June-2012 = S$30.48 million – S$15.614 million =S$ 14.9 million. By 30th April 2012, another 10 months, it will be around S$ 14.0 million, I guess.

Therefore, sales proceed estimate is about S$ 14 million + US$ 2.65 million = about S$ 17 million.

Please comment. Thanks.

I believe both of you are correct in principle - just that IoNer hasn't taken debt repayment into account.

I don't think we will see a decline in the net book value of the aircraft as your calculations has intended ie $14.9 mil to $14.0 mil. This is due to GIL retaining a small portion of the profit to reduce its liabilities ie depreciation expense < debt repayment.

B/S as of 30 June 2012:

Aircraft: $30.5 million
Debt: $15.6 million
Equity: $14.9 million

Based on FY 2011 results, the annual depreciation is $1.3 million while loan repayment is approx $1.8 million. Since the completion date is on 31 April 2013, we can extrapolate these figures by 10 months forward.

Proforma B/S as of 31 April 2013:

Aircraft: 30.5 - 10/12 (1.3) = $29.4 million
Debt: 15.6 - 10/12 (1.8) = $14.1 million
Equity: $15.3 million

This assumes USD/SGD rates remains constant. Small issue really since the numerical difference is barely US$1.0 million. Please correct me if I am mistaken.

What will be more intriguing is how STAM will use the sales proceeds and cover the sudden loss of cash economic income amounting to US$1.32 million from these investment !

[l0nEr]

---

Aircraft: Sold forward at USD25,890,000

http://info.sgx.com/webcoranncatth.nsf/V...30081E0E3/$file/27_20111212AnnouncementOfTheForwardSaleOfTheCompanyTwoBoeing757-200Aircraft.pdf?openelement

According to the announcement, the sale of the two aircrafts would result in a net accounting gain of approximately US$2.65 million for the financial year ending 31 December 2013.

I am interpreting it as follow:

Sales proceed estimate = (Book Value – Debt) at 30-April-2013 + US$2.65 million

(Book Value – Debt) as at 30-June-2012 = S$30.48 million – S$15.614 million =S$ 14.9 million. By 30th April 2012, another 10 months, it will be around S$ 14.0 million, I guess.

Therefore, sales proceed estimate is about S$ 14 million + US$ 2.65 million = about S$ 17 million.

Please comment. Thanks.

I believe both of you are correct in principle - just that IoNer hasn't taken debt repayment into account.

I don't think we will see a decline in the net book value of the aircraft as your calculations has intended ie $14.9 mil to $14.0 mil. This is due to GIL retaining a small portion of the profit to reduce its liabilities ie depreciation expense < debt repayment.

B/S as of 30 June 2012:

Aircraft: $30.5 million
Debt: $15.6 million
Equity: $14.9 million

Based on FY 2011 results, the annual depreciation is $1.3 million while loan repayment is approx $1.8 million. Since the completion date is on 31 April 2013, we can extrapolate these figures by 10 months forward.

Proforma B/S as of 31 April 2013:

Aircraft: 30.5 - 10/12 (1.3) = $29.4 million
Debt: 15.6 - 10/12 (1.8) = $14.1 million
Equity: $15.3 million

This assumes USD/SGD rates remains constant. Small issue really since the numerical difference is barely US$1.0 million. Please correct me if I am mistaken.

What will be more intriguing is how STAM will use the sales proceeds and cover the sudden loss of cash economic income amounting to US$1.32 million from these investment !

Yepp, i considered the debt portion on the liabilities side of the Balance Sheet and did not computer them together when calculating the gains.

But instead of amortizating the loan, i thought it would be better to discount the USD25,890,000 back to the current balance sheet date, so as to compute the NAV for the fund at the Balance Sheet Date.

As of June 2012:
Cash: SGD78,674,000
Aircraft: Sold forward at USD25,890,000 <---- Discount it back from April 2013 Value.
Fly leasing: 1,051,010 shares x USD13.04 stock price as of 17 Aug = USD13,705,170
Debt: SGD15,614,000 <---- Kept at the 30 June 2012 Value.
Other liabilities: SGD739,000
Using just purely the above liquid assets at USD1=SGD1.25, NAV is already 0.135per share.

So the end question no matter what, is what the fund intends to do to invest the money? Without any concrete plans, it does not seem like they will be able to maintain the dividend payout. Though i still think the fund is trading at a significant discount to its more 'tangible' NAV.

[Nick]

A further $4.41 million was utilized to purchase listed equities. Over the past few weeks, GIL has invested $20.5 million in listed equities and hopefully these would have a positive impact on the Group's 2H 2012 dividend income cash-flow.

http://info.sgx.com/webcoranncatth.nsf/V...40038808F/$file/29_20120824_UseOfProceedsFromRightsIssue.pdf?openelement [SGX Announcement]

S&P has released a report on GIL's 1H 2012 performance:

http://research.sgx.com/reports/rpt_view.pl?id=6787 [Report]

GIL closed at 14.1 cents and its 0.75 cents interim dividend will XD on 29 August 2012.


(Vested)

[Nick]

GIL has invested a further $5.03 million in listed equities with the proceeds from the rights issue. Since July 2012 till date, it has invested $29.69 million in listed equities. If these investments can generate 7% dividend yield, it will mean incremental revenue of $2.0 million for GIL.

http://info.sgx.com/webcoranncatth.nsf/V...5002FA4B3/$file/31_20120926_UseOfProceedsFromRightsIssue.pdf?openelement [Announcement]

GIL closed at 14.0 cents.

(Vested)

[weijian]

Just some food for thought - Buying LISTED equities makes GIL not much different from a mutual fund. I thought Mgt are worth their fees through their knowledge and access to UNLISTED or more exotic types of assets, the kind where the average joe like me and u can't get our hands on (and hence we pay them right?).

It can be argued that there are currently no such bargains around and hence as a prudent move, they are ploughing their $ into listed equities to at least get some returns. But in the longer term if i were a shareholder, i definitely wouldn't be pleased.

[Nick]

I agree with you Weijian. I was expecting them to purchase operating lease assets or a portfolio of high yield bonds. But I guess listed equities has its advantages - its easier to value, more fungible and retailers can understand it better. I am looking forward to their 3Q result to see what exactly they have been purchasing. Management gave explanation here in their 1H 12 Slides:

With the expansion in the investment scope in December 2011, the Company now has greater flexibility to evaluate opportunities in broader asset classes and to invest in assets that would add value and that are in line with the Company’s objectives of delivering regular dividends and achieving capital growth. Since late 2010, the Company has participated in bidding for certain assets but was not successful in securing the investments. The Company has invested S$16.17 million in listed equities as at 10 August 2012 while continuing to explore suitable investments in other asset classes. Listed equities are fairly liquid assets which could be divested easily to fund investment in other asset classes when opportunity arises.

[dzwm87]

It doesn't seem that they had disclosed their equities investment?

Seem we have to wait till the next Annual Report