Shipping Trusts – OCBC

4Q09 results review

Results in line; payouts lower. Full year results for the three Singapore-listed shipping trusts were in line with our expectations, with FY09 distributable income within 4% of our estimate for each trust. The trusts all declared significantly lower payouts for 4Q09 vis-à-vis 4Q08. FSL Trust’s (FSLT) payout represented 56% of cash earnings compared to 100% in the corresponding quarter. Pacific Shipping Trust’s (PST) 4Q09 payout was equivalent to 43% of cash earnings versus 53% in 4Q08. Meanwhile Rickmers Maritime’s (RMT) quarterly distributions amounted to 13% of cash earnings versus 59% a year ago. The trusts used the retained cash to repay loans and/or bolster cash reserves. 

No movement on key issues. The results were fairly uneventful with limited or little progress on the outstanding fronts. PST has not re-opened talks with charterer CSAV on the liner’s request for rate renegotiations. On a positive note, CSAV’s debt re-structuring and equity fund-raising plans are coming along on target, which PST’s manager was “encouraged” by. FSLT, meanwhile, continues to scout acquisition opportunities that will utilize the funds raised through the recent placement. The manager also kept its options open for another attempt to diversify its funding sources through a senior unsecured notes offering. RMT is still in talks with its bankers and sponsor on loan-to-value covenants, a US$130m loan facility maturing in April, and large capex commitments. While talks continue, completed newbuilds are being warehoused by sponsor Rickmers Group. 

Too soon to call for a recovery. There are arguments for both sides. The bull case for containers: 1) inventory restocking; 2) some economic growth; 3) slow steaming; 4) scrapping and order book management. The bear case: 1) uneven economic data pointing to the likelihood of a slow, ‘benign’ recovery; 2) a still substantial order book; 3) financing difficulties; and 4) precarious industry discipline – laid up vessels are already being re-introduced into service, and it’s unclear who controls the tap. The broader industry’s stance on the ‘knife-edge’ of recovery moves us to upgrade our sector view from UNDERWEIGHT to NEUTRAL. Nevertheless, we leave our ratings on the individual trusts unchanged for now, as we wait to see more sustained evidence of a recovery. A cautious approach in the coming weeks may be prudent considering that RMT’s US$130m loan facility is maturing just next month. How that maturity is handled may drive sector valuations and sentiment in the near-term.