Global Investments

[Nick]

S&P has released a report - http://research.sgx.com/reports/rpt_view.pl?id=6839 - on 4Q 2012 result. Interesting to note that it forecast 1.0 cents DPU for FY 2013 and FY 2014. Personally, I expect GIL to re-invest the aircraft sale proceeds to ensure the recurring cash economic income will not falter.

GIL is currently trading at 17.9 cents with 0.75 cents final dividend CD.

(Vested)

[Boon]

With no recurring income from the two aircrafts, my projected recurring FCF for 2013 is SGD 11.566 million – a shortfall of SGD 0.81 million from the SGD 12.38 million required to maintain the semi-annually dividend payout of SGD 0.75 cents per share.
(See attached Excel file)

The shortfall of SGD 0.81 million could be easily covered with additional investment of say SGD 20 million with a yield of 5%.

Therefore，I am confident that future recurring FCF is enough to support and sustain the current dividend payout rate. Any gain in sale of investment would be a bonus which could be re-invested for future gains.

(Vested)

[Nick]

With no recurring income from the two aircrafts, my projected recurring FCF for 2013 is SGD 11.566 million – a shortfall of SGD 0.81 million from the SGD 12.38 million required to maintain the semi-annually dividend payout of SGD 0.75 cents per share.
(See attached Excel file)

The shortfall of SGD 0.81 million could be easily covered with additional investment of say SGD 20 million with a yield of 5%.

Therefore，I am confident that future recurring FCF is enough to support and sustain the current dividend payout rate. Any gain in sale of investment would be a bonus which could be re-invested for future gains.

(Vested)

Hi Boon,

I think you may over-estimated Sealane II cash economic income ie US$8.00 x 0.1425 = US$1.14 mil (not US$1.60 mil). I don't think the dividend will drop in FY 2013 barring a major crash (like in 2008). Not very sure about the resilience of the underlying CLN / RMBS portfolio. Personally, I am hoping for small increase in DPU going forward unless Management seek to reinvest proceeds.

(Vested)

[Boon]

Hi Nick，

Thanks for pointing out the mistake. Attached is the amended version. The shortfall now increases to SGD 1.38 million, which I believe could still be covered with income derived from investing the remaining cash of SGD24 million plus sales proceed from the two aircrafts.

On the Australian RMBS, over the past 3 years, SEIZA 2006 (Class F & G) has been receiving full interest payments every quarter. The newly acquired RBTSs are of Class D and E with higher credit rating, hence, less risky relative to SEIZA (Class F & G).

On the USD CLO, I supposed the riskier ones are the high yielding ones – Seallane II and START VII.
Seallane II has been doing great so far. It is a relative short-dated note with final maturity date in 2016. I have yet to learn more about the newly acquired START VII.

The European CLO (AVOCA VI and VII) had done better in 2012 than in 2011. It seems that the worst is over for the European credit crisis.

No doubt, in a credit crisis like in 2008, the high yielding notes would be severely affected but I don’t think we are going to be hit by another one soon.

Any increases in DPU would have to be funded from gains in sale of investments. With the dilution of dividend scrip, it would be harder to keep up with current rate of dividend payout from recurring income alone.

[Nick]

Hi Boon,

Here is the Start VIII CLO Prospectus - http://www.ise.ie/debt_documents/Prospec...8fd122.pdf - the maturity of the Note is short dated as well and matures in 2017. Agree with your views - have to see how the Management reinvest the sales proceeds. FY 2013 - will still benefit from 4 month of rental income from the aircraft and coupled with the realized gains, I don't foresee significant drop in DPU. Personally, I will most likely take scrip dividend as I think there is still value < 20 cents. Despite STAM expertise in CDO investments, I still hold out hopes that the operating lease division will not be entirely liquidated (partial sale of FLY Leasing, aircraft divestment) but instead rejuvenated with new assets financed with debt and internal funds - the cash-flow from this division can be relatively steady and easier to appreciate by the investment community. But if STAM isn't comfortable with such investments, it is safer to focus on what they do best. Nonetheless I am quite pleased with the increased diversification in 4Q 2012.

[Boon]

Hi Nick,

I did take a look at START VIII CLO prospectus. It is very similar to Seallane II in many respects. Both are not rated by any credit agencies but comparison had been drawn using Standard Chartered Bank’s internal Credit Grade. The weighted average Corporate Risk factor for the Initial Reference Portfolio of START VIII CLO was Grade 6A, which is considered less risky as compared to Seallane II (of Grade 7B) – that probably explains why interest payment for Seallane II is 125 basis point higher than START VIII CLO.

As mentioned before, both these high yield notes are considered high risk assets which potentially could suffer losses in the event of credit crisis or deteriorating credit condition – hopefully, no such credit event would happen during the tenors of these two notes.

Also, it is encouraging to note that in 4Q2012, AvocaVI (Class M Subordinated Note) had been revalued upward by SGD 0.6 million – another sign of improved credit condition, I supposed.

I agree with you that there is still value at < SGD 20 cents and I don’t foresee any significant drop in DPU either. Even at 20 cents, the dividend yield is still at 7.5%.
However, I think share price of GIL would likely remain to be traded at a discount to NAV as investors need to maintain a margin of safety for exposure to some of the riskier assets. In another word, upside of share price would probably be capped by the NAV (currently stands at 23 cents per share).

That said, I think there exist opportunities for NAV to grow, which include:

1) Fly Leasing : increase in dividend payout and further share price appreciation
2) Ascendos : increase in distribution income
3) SEIZA 2006 – 1 Trust (Senior NIM notes) : Resumption of interest payment and reversal of impairment.
4) SEIZA Augustus 2007-1 Trust (Class G and N notes) : Resumption of interest payment and reversal of impairment.
5) Avoca VI and VII : increase in interest income and further reversal of impairment.
6) Asia Listed Equities : increase in dividend payout and further share price appreciation
7) Bonds: capital appreciation.

I am not too sure on the likelihood of 3) or 4) happening - very low I guess, probably close to zero ?

I am opting for cash dividend instead of scrip.

(Vested)

[Nick]

GIL has fixed the issue price of the 0.75 SG cents 2H scrip dividend at 15.22 SG cents (9.89% discount to the average trading price). I have recently divested my stake after the XD as I was not comfortable with the lack of disclosure on their equity and bond investments, and the increased investment in high yielding CDOs. I would be keen to re-enter if the market priced it at a higher yield - the scrip dividend entry price is quite attractive so I may opt for the scrip.

http://info.sgx.com/webcoranncatth.nsf/V...F00810F3B/$file/07_20130228_ScripDividendScheme_IssuePriceOfNewShares.pdf?openelement [Scrip Dividend Issue Price]

(Not Vested)

[a74henry]

Scrip dividend looks attractive vs MV.

Assuming the DPS and FCF is maintained, this stock's dividend yield looks yummy.

[Boon]

FLY Leasing, in which GIL owns 876,261 shares as at 31-Dec-2012, announced its FY2012 results yesterday – another strong year. (See highlights below)

FLY’s share price has rallied from USD 12.32 (31-Dec-2012) to USD 14.60 (07-March 2013). Assuming GIL still holds the same number of FLY shares, it translates into a gain of USD 2.0 million or SGD 0.003 per share (equivalent to 20% of yearly dividend payout of SGD 0.015 per share)

FLY: Fourth Quarter 2012 Highlights (USD)
• Adjusted net income of $53.2 million, $2.04 per share
• Net income of $31.0 million, $1.17 per share
• Raised a $250 million revolving Acquisition Facility to fund growth
• Re-priced $395 million Term Loan, reducing annual cash interest payments by approximately $4 million
• Declared 21st consecutive quarterly dividend on January 15th ($0.22 per share)

Additional 2012 Full Year Highlights
• Adjusted net income of $116.3 million, $4.48 per share
• Net income of $47.7 million, $1.80 per share
• Sourced $1.3 billion of new secured debt financing
• Reduced total secured borrowings by $274 million, reducing net leverage to 3.6x
• Sold four aircraft with an average age of 13 years for a pre-tax gain of $8.4 million
• Paid $0.84 per share in dividends

http://www.flyleasing.com/wp-content/upl...elease.pdf

(Vested)

[Boon]

In 1Q2013, the share price of FLY Leasing, in which GIL owns 876,261 shares as at 31-Dec-2012, had rallied 31% from USD 12.32 (31-Dec-2012) to USD 16.18 (28-March 2013). Assuming GIL still holds the same number of FLY shares (876,261 shares) as at 31-Dec-2012, this would contribute towards GIL 1Q2013 result – gain of USD 3.38 million.

GIL sold away 174,749 FLY shares during 2012. As always, in hindsight, it was a mistake – haha ! And it would not be a surprise if more FLY shares had been divested during 1Q2013.

Come 2Q2013, if the sale of the two aircrafts could be completed on 30th April 2013 according to plan, it would result in a net accounting gain of approximately USD 2.65 million.

Barring any materialization of downside risks (such as unrealized foreign currency translation loss or impairment of other assets), one would expect GIL to post reasonably good result for 1H2013 - therefore should be able to maintain its semi-annually dividend payout of SGD 0.0075 per share for1H2013..

(Vested)