PST – BT

Distribution cut only a guidance: PST

Plan is to use additional funds for possible acquisitions

PACIFIC Shipping Trust (PST) became the latest to jump on the bandwagon as it warned last week in its second-quarter results release that it may cut distributions for the third quarter.

However, its management hastened to add in a post-results briefing that the possibility of a distribution per unit (DPU) cut from 90 per cent to 70 per cent of distributable income was only a guidance.

Even if there is a cut, PST’s plan is to use the additional funds for possible acquisitions rather than for debt reduction as, unlike peers in the shipping trust sector, it has virtually no short-term debt. It also does not have any newbuilds on order, putting it in a good position to take advantage of low prices to purchase assets for future expansion.

PST has been saying since earlier this year that it is taking its time to look for yield-accretive acquisitions at good valuations in the chemical tanker and offshore supply sectors to diversify its income base. CEO Alvin Cheng said at the briefing that he will be looking more closely at acquisitions and has a planning horizon of 12 to 24 months.

PST is focusing on small to medium size vessels in the US$20 million to US$25 million range as the trust does not believe in the viability of extremely large sizes, Mr Cheng added.

The anchor handling tug and supply vessel (AHTS) market in particular holds the possibility of good bargains, PST believes. It is known that many small and medium size AHTSs were built speculatively over the past year and could now be on the market at attractive prices as their owners face a credit squeeze under current conditions.

‘We see hope of recovery in the next six to 12 months and we will position ourselves to capture some of the opportunities,’ said Mr Cheng.

On the flip side, however, the acquisition trail may lead PST into deeper waters than it has projected. ‘While no guidance is given on whether the distribution policy will be maintained at 70 per cent going forward, we do not rule out the possibility that the trust may further reduce payout ratio should the need arise to fund acquisitions,’ said UOB-KayHian in a research report released on Monday.

‘That said, we view this positively as ship prices have fallen sharply from their peaks in 2008. Accretive acquisitions may drive a re-rating of the stock,’ UOB-KayHian added as it maintained its ‘buy’ rating with a target price of 37 US cents.

PST units closed half a US cent higher at 26.5 US cents yesterday.