Unitholders Approve PST Delisting

Pacific Shipping Trust (“PST”) is a step closer to making history as the first shipping trust to be listed and delisted from the Singapore Exchange. In early October, parent company Pacific International Lines proposed to buy up the remaining 40 percent shares in PST. PIL offered 43 US cents in cash per unit, representing a 14.7 per cent premium over the last-traded price of 37.5 US cents at the point of the announcement.

On December 16, 2011, PST unitholders voted in favour of the delisting that was conditional upon an approval of at least 75 per cent of the total number of issued units held by the unitholders present and voting, on a poll, either in person or by proxy at the extraordinary general meeting (“EGM”), with not more than 10 per cent objecting. At the time of offer, PIL was already holding in excess of 75% of the total number of units at the time of offer. The challenge was to convince minority unitholders that the offer price was fair and the delisting was to their interest. Continue Reading

Pacific Shipping Trust Seeks Delisting

The Singapore shipping trust sector suffered a major setback this week after forerunner Pacific Shipping Trust (“PST”) announced intentions to voluntarily delist from the Singapore Exchange. PST was listed way back in May 2006 amid fanfare and was touted as a new attractive asset class in the form of a “maritime annuity” for investors. But after years of lacklustre share performance and lukewarm investor appetite, its parent company Pacific International Lines (“PIL”) has decided it is time to call it a day.

PIL cited the need for greater operating flexibility as one of the reasons for PST’s delisting. PST’s growth potential has been hampered by the need to benchmark any potential acquisition against its distribution yield and making sure that any acquisitions are accretive to unitholders. This is difficult to accomplish in reality because the distribution yield is a function of the prevailing trading prices of the units and the lacklustre share performance over the years has made it challenging for the shipping trust to source for yield accretive transactions. At the same time, the amount of debt that PST can take on for each acquisition is limited by and subject to credit, debt service and prudence considerations. The delisting will also eliminate the costs of compliance with the listing rules and regulations, allowing PST to focus its resources on its business operations. “PST as a non-listed entity will have greater operational flexibility to pursue opportunities and make investment decisions without being constrained by market-based yield expectations, market sentiment and price volatility,” PIL said. Continue Reading

FSL Seeks to Widen Investment Mandate

First Ship Lease (“FSL”) Trust is seeking new changes to its initial strategy policies that will allow the trust to look at time charters and offshore assets. In a circular, FSL Trust is seeking unitholders’ approval to give the trust the flexibility to enter into time charters of any duration in addition to bareboat charters. The trust is currently restricted to long-term charters with a minimum initial charter term of seven years and could only consider short-term or voyage charter contracts if vessels are redelivered in weak market conditions.

FSL Trust pointed out that the current market downturn has meant that asset prices have decreased and are now below the historical averages for some market segments and therefore there are opportunities to benefit from the expected recovery of asset prices and freight rates by entering into shorter term charters. And should time charters be chosen, unitholders are assured that measures will be put in place to properly manage risks associated with operating and maintaining vessels on time charters.  Continue Reading

PST Closes USD 132 million Financing Commitments

Last Friday, Pacific Shipping Trust (“PST”) announced that it has secured bilateral financing commitments for a total of USD 132 million from Oversea-Chinese Banking Corporation, Standard Chartered and ING Bank to fund its acquisition of five new 57,000 dwt Supramax bulk carriers. The ships are contracted with Tianjin Xingang Shipbuilding, part of state-owned China Shipbuilding Industry Company, at a total cost of USD 150 million. By simple arithmetic, the trust has demonstrated once again its ability to secure loans of exceptionally high advance ratios (between 80 – 90%) from its lenders. These ships upon delivery will be time-chartered to Glovis, the car carrier/logistics company under the Hyundai-Kia Automatic group of South Korea, for periods of 8 and 10 years respectively.

The tenors and structure for the new financing arrangements are understood to be largely similar to the loans secured previously from DBS Bank, Malayan Banking and Bangkok Bank, and, more importantly, these bilateral loans are also free from any loan-to-value covenants or financial covenants, very much in line with PST’s standard requirements. In return, the shipping trust will amortise their debt monthly. We view this as another example of banks competing aggressively against one another for the same high quality owners in Asia, which has inevitably resulted in further polarization of the shipowners into two separate groups – one that is extremely well serviced by their bankers and the other that continues to face huge challenges in raising debt.   Continue Reading

A Brilliant Coup for Singapore

Since its introduction in 2004 as a new business model, the business trust has not created the level of excitement initially envisaged by the authorities. The concept of business trusts was conceived after the success of real estate investment trusts and the idea was to provide investors an alternative option to derive an income yield based on the cash flows generated by assets, without any restrictions on the asset type. 

Companies that are expected to securitise their assets via the business trust structure are likely to be asset heavy in nature such as transport and utilities. But despite the efforts in promoting this structure to companies and investors, there has been limited success. Today, you can still count the number of Singapore listed business trusts with your two hands. The three shipping trusts – Pacific Shipping Trust, First Ship Lease and Rickmers Maritime and a couple of infrastructure trusts – CitySpring Infrastructure Trust, K-Green Trust and Macquarie International Infrastructure Fund are among the few business trusts listed on the Singapore Exchange. But all could change for the better if Hutchison Whampoa’s plans to spin off its Southern Chinese port assets go through.  Continue Reading

Groda Reneges on FSL

The true risk in shipping trusts is the creditworthiness or counterparty risk. On Tuesday, First Ship Lease (“FSL”) announced that Groda Shipping has requested to re-deliver two product tankers, each currently under a seven year base term bareboat charter contract with FSL until November 2014. Employed under long term COAs with Russian energy firm Rosneft Oil Company, the two vessels contribute 15% out of FSL’s annualised revenue of USD 101 million and the pre-mature termination of the contracts will impact cash flow and distributions negatively.

FSL disclosed that Groda Shipping is required to pay lease rental on a monthly basis in advance and has made payment for only one vessel in May. Groda Shipping will no longer make full payments for either vessel from June 2010 onwards. On the brighter side, FSL pointed out that it has the assignment of the long term COAs between Groda Shipping and Rosneft and a cash security deposit of USD 3 million per vessel, which works out to be close to 5 months of charter hire. All eyes are now on the approach the trustee manager will be adopting towards the lessee who had made a clear intention to renege on the contracts. FSL says it is currently in discussions with Groda Shipping and exploring available legal and commercial options.

Bitter Pills to Swallow but Recovery Nearer in Sight

Over 12 months of negotiations and uncertainty, Rickmers Maritime has finally reached an agreement with its lending banks and sponsor, Rickmers Group. Who would have thought that the decision to acquire ships with long term charters from the major liners during the good days could exert such a severe impact on the trust’s performance? After all, during the boom investors focused largely on growth but this has led to the challenges that shipping trusts are facing today in the form of deflated asset values and lease rates. Rickmers Maritime has two pressing issues to resolve – a) a USD 130 million top-up facility that matured in April 2010 and b) an obligation to acquire 7 vessels from the sponsor with total contract value of USD 918.7 million.

In terms of loan restructurings, Rickmers Maritime’s lenders believed to be Citibank, DBS and HSH Nordbank have agreed to convert the balance amount of the USD 130 million facility into a five-year amortising loan and the value-to-loan covenants will be waived by all the lending banks for up to three years. In addition, the trust can take comfort that no market disruption clause will be invoked during the wavier period. But in exchange for the loan extension and temporary covenant waivers, the trust is required to prepay USD 59 million in FY 2010 and accept a revised interest rate of 1.75% per annum over three month LIBOR, which represents increases of between 55 bps and 105 bps on its existing borrowings. Unitholders will also have to live with the decision that the trust can only make quarterly distribution payments of up to 0.6 US cents per unit, provided no event of default has occurred under any facility. Continue Reading

KIC joins hands with Nathalin

Malaysian private oil terminal operator KIC Group is reportedly setting up a shipping trust with its lead partner, Nathalin Group of Thailand – the largest private shipping company in the country. The shipping trust, that targets to be operational by the end of this year, will be roping in Thailand’s top energy firm PTT for the acquisition of 22 vessels at around USD 200 million within the next three years. KIC plans to deploy the vessels to support its oil terminal operations in Malaysia at the Port of Tanjung Pelepas in Johor, Westports in Port Klang and the Asia Petroleum Hub that is currently under construction.

More Rights Issues in the Works?

It is the time of the year when most companies in Singapore will be holding their Annual General Meetings. This year, more companies are expected to put forward “blank cheque” resolutions to raise money by selling more shares, encouraged by the revisions in Singapore Exchange (“SGX”) listing rules.

In February 2009, SGX increased the limit to allow a listed issuer to seek a general mandate from shareholders for issuance of new shares on a pro-rata basis up to 100% of its issued share capital, vis-à-vis the 50% limit previously. The stock exchange believes that concerns over dilution of minority shareholders’ interests are mitigated in a pro-rata renounceable rights issue as all shareholders have equal opportunities to participate and can dispose their entitlements through trading of nil-paid rights if they do not wish to subscribe for their rights shares. Continue Reading

Budding Optimism

First Ship Lease (“FSL”) Trust and Pacific Shipping Trust (“PST”) have both released their first quarter results this year and reported stable numbers. FSL Trust saw its lease revenue marginally decline by 1.6% to USD 24.4 million compared with 1Q FY09 due to the lower lease payments received from two vessels leased to Geden Lines. These leases are pegged to USD 3 month LIBOR which has declined between 1Q FY09 and 1QFY10. In a similar fashion, PST’s first quarter revenue in 1Q FY10 remained unchanged at USD 15.2 million, delivering a predictable and healthy performance.

Mr Philip Clausius, Chief Executive Officer of FSL Trust Management, says the trust is encouraged by the positive signs of a demand recovery in the shipping industry, although the oversupply of new ships continues to be an overshadow over the mid-term. FSL Trust pointed out that as at March 2010, the aggregate charter free value of its 23 vessels stood at USD 623 million, which is 5.5% higher than the charter free value of USD 590.5 million obtained from independent appraisers in October 2009. This points towards a recovery in asset values and industry credit profile. Continue Reading