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

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

First Ship Lease: Demonstrating Strength through Diversification

With a fleet of 9 product tankers, 3 chemical tankers, 2 dry bulk carriers, 2 crude oil tankers and 7 containerships, FSL Trust has the most diversified asset portfolio among the three shipping trusts. The key risk in shipping trusts is the credit risk associated with counterparty default, and FSL Trust seeks to mitigate this through the diversification of lessee base and subsector exposure, and strong risk management. It is also the only trust with a risk management department that mirrors a bank credit department.

Apart from asset diversification, FSL Trust has also been actively seeking alternative funding sources. In October 2008, it became the first Singapore entity to have its American Depositary Receipts (“ADRs”) trading on the PrimeQX tier of International OTCQX in an attempt to reach out to more high quality investors in the United States. And, in 2009, a plan to issue up to USD 200 million senior notes was also put into place, but unfortunately was aborted due to the Dubai World credit crisis.
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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.

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

Showing Resilience

Last Thursday, Pacific Shipping Trust (“PST”) released its full year results and as expected, there were no surprises. Key figures – revenue, operating profit and distributable income were largely in line with analyst expectations. Gross revenue in 4Q09 grew 8% to USD 15.6 million from the corresponding quarter in 2008, boosted by contributions from a vessel chartered to Compania Sud Americana de Vapores S.A. (“CSAV”). Net profit for the full year of 2009 increased 49% to USD 27.4 million while distributable income grew correspondingly by 46% to USD 27.1 million. With a fleet of 12 containerships all on long term charters, PST has contracted charter income of USD 300 million over the next 7 years.

For shipping trust investors, credit risk remains a top concern. And unlike the other two shipping trusts, PST has only two charterers – its sponsor Pacific International Lines (“PIL”) and CSAV and both have been facing immediate challenges in the container shipping business. PST has chartered 10 vessels (2 Panamaxes and 8 Handymaxes) to PIL for 6 to 8 years and 2 Panamaxes to CSAV for 5 years. Questions at the results briefing were therefore naturally centered on the financial standings of both companies.  Continue Reading

A Good Citizen

For the benefit of our readers in Asia, we reproduce some excerpts on First Ship Lease (“FSL”)’s suspended USD 200 million notes offering from our sister publication Freshly Minted before we take a little closer look at the motivations behind the shipping trust’s offering. 

“Philip Clausius is a committed man. He moved FSL to Singapore and has become a fixture in the shipping community. But even this was not enough. To further demonstrate his commitment and cement his presence locally, he has become a Singaporean citizen. So it came as no surprise that when the idea of a bond issue was broached, Mr. Clausius wanted a deal done that would tap both the Asian and U.S. investor bases, not just a straight 144A issue marketed to U.S institutional investors, which may have well been easier. Mr. Clausius understood that once established as a “local” issuer in Asia the rates would become highly competitive. Continue Reading

Less Buzz, but…………More Business

On the outside, this year’s Jefferies Conference was subdued with less buzz than previously. However, it was a marked improvement to last year’s event, which coincided with the collapse of Lehman Brothers. Then the shipping markets were still good but all eyes were focused on the Bloomberg screens awaiting developments, while discussions revolved around whether or not to buy gold. Today was different. The economy seems to be improving while the shipping markets struggle. Shipping’s main source of capital, bank debt, is rationed while the equity markets are offering hope. Today was the day for public shipping companies to plead their case to investors. It was all about business.

We know that the presentations are the interlude and that the real action takes place behind the scenes during the one on one meetings as investors and companies engage in speed dating. Yet even in the public venue, we saw a clear dichotomy between the haves and have not’s. The rooms were packed for those companies with large market caps, liquidity and share volatility. For investors these days, slow and steady does not win the race. Nevertheless, the good news was that all the companies had meetings, although some had more than others. But all agreed the meetings were of high quality and now included a new class of investor – the opportunity fund.

As usual, our coverage will focus on points of interest to us. But as it was impossible to cover three tracks, our emphasis, for the most part, was on those unappreciated companies where interest may have waned, whether for lack of coverage or as a consequence of the market sector in which they participate.

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Covenants Waived

Last week, First Ship Lease Trust (“FSL Trust”) announced that they had come to terms with their bankers with respect to existing credit facilities. The amendment incorporates the following main terms.

During the loan to value covenant waiver period which extends until the end of 2Q 2011:

-          The minimum coverage ratio of the charter-free fair market value of FSL Trust’s vessel portfolio over its outstanding indebtness will be reduced from 145% to 100%. Continue Reading

Investing and Investment Banking

The market is depressed. The people are not.
The debt markets exist. But you are looking at a lot less for a short term costing a lot more. A lot of the banks will be properly back into the game by 2010. It will help to have companies based in ship finance exporting countries.

The capital markets exist. The bond market is open at very reasonable rates. The equity markets are open for existing issuers but valuations are poor.

We may have a rebound this year thanks to stimulus plans and fiscal loosening, but the underlying damage is done. Banks will eventually HAVE to account for their losses. The write-downs have to come from somewhere and government debt is hardly the answer. Unless they wait years with the balance sheets impaired.
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