Photo by Leong Chan Teik
Mr Roger Tan, VP of the research arm of the Securities Investors Assocation of Singapore (SIAS), started the panel discussion yesterday (Jul 18) with: “A year ago my wife asked me what to invest in, and I wanted to stop giving her too much money so I asked her to invest in shipping trusts. I gave the insurance that if she lost money I would cover that. I’m covering that now. For investors putting money in shipping trusts, what would you advise?”
In the global economic crisis, the three shipping trusts on the Singapore Exchange have indeed sunk – but recently the weather has lifted, or continues to be threatening, depending on which trust one is talking about.
Responding to Roger’s question at the SIAS Asian Investment and Conference in Suntec City, Mr Cheong Chee Tham, CFO of First Ship Lease Trust, said: “If you invest in shipping trust, you are investing in a stable form of distribution. The trust reduces the volatility of the shipping industry for you. You shouldn’t expect massive capital appreciation, though.”
A member of the audience asked how Rickmers Maritime would finance four new vessels worth US$711.6 million which it is scheduled to take delivery of. “I believe this is what most investors are concerned about. What if you can’t get the financing? What if Maersk decides to walk away from the contract to charter the ships?”
High yields reflect market uncertainty about future dividend payouts.
Rickmers Maritime CEO Thomas Preben Hansen said if Maersk decided to walk away, “we could litigate – there is no escape at all from the contract."
However, Maersk "actually wants the ships,” he said.
As for financing, the trust is exploring all options, including selling the ships, selling the ships and leasing them back, said the CEO.
Another question from the floor: Does Pacific Shipping Trust have any plan to have its units trade in Singapore dollars, instead of the US$ as is the case now?
Pacific Shipping Trust CEO Alvin Cheng Yu-Dong said the USD listing reflected, among other things, the fact that the trust’s vessels are denominated in USD, the charters are paid in USD and loans are in USD.
“Our board has debated this and our conclusion is that it brings our unit holders no benefit to convert from USD listing to SGD listing.” In addition, many of the trust’s investors are USD-based investors, who would ask why convert into to SGD listing, said Mr Cheng.
Last question from the floor during the brief discussion with the panel: Is the loan for each ship fully paid by the end of the multi-year charter?
It’s a ‘no’ from Rickmers and FSLT. For Pacific Shipping Trust, it’s a ‘yes’ but it applies only to the fleet that the trust had at the point of its IPO and those were not new vessels.
As Mr Cheng explained, a typical loan for a new vessel is repaid over 10-12 years but the charter is 7-8 years, so it's not a norm for vessel loans to be fully paid by the end of the first charter.
Earlier, the three trusts had made presentations to an overflowing crowd at the SIAS event.
* Rickmers: Its outlook seems the most challenged, given its relatively high gearing, its loan covenants and yet-to-be-found financing for new vessels.
* Pacific Shipping Trust: Sailing on calmer seas. Its CEO, Mr Cheng, emphasised the view that the trust’s market price was significantly undervalued. Each PST unit is worth 54 US cents, versus its recent traded price of 23 US cents, based on Value in Use which is the present value of the future cash flows expected to be derived from the vessels.
Mr Cheng added that while ship assets may fall in value, PST will not be affected in as far as its loans are concerned as it does not have any loan-to-market value covenants in its loan agreements.
However, it does have a client, CSAV, which is negotiating for lower charter rates to help it through a bad patch.
* FSLT: Its CFO highlighted that it had no vessel acquisition that didn’t have financing in place. The trust has guided for a 2.45 US cent payout for Q2, unchanged from Q1 but lower than the 3.08 US ¢ in 4Q FY08 which was based on a 100% payout ratio. The savings are for voluntary paying down of some loans.
OCBC Investment Research analyst Meenal Kumar has a ‘hold’ rating on FSLT with 58 cents as a fair value estimate. She has a ‘sell’ on Rickmers Maritime and a fair value price of 39 cents.
More clarity on the challenges facing the shipping trusts can be expected when they announce Q2 results starting from Tuesday (July 21).
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