PST – BT

PST to buy two bulk carriers for US$123m

Purchase amounts to 75% of market cap, but PST has sealed charter of vessels

PACIFIC Shipping Trust (PST) yesterday said that it will acquire two capesize bulk carriers from Mitsubishi Corporation for a total of US$123.2 million. It also entered into two agreements for the 10-year time charter of each of the new vessels to China-based steel firm Jiangsu Shagang Group Co.

The consideration for the two vessels amounts to 75 per cent of PST’s market capitalisation of US$165 million as at June 25 – when its trustee-manager PST Management (PSTM) signed the contract with Mitsubishi. However, PSTM said that the acquisition is in line with ‘the ordinary course of business of PST’ because the commitment to purchase the vessels was done concurrently with the commitment to charter them out, and would not result in any significant change in its risk profile.

PSTM will fund the acquisition through a combination of internal cash, and debt and equity financing. The bulk of payment for the ships – 85 per cent – will be payable upon their delivery in September next year, while 12 per cent of the purchase price of US$61.6 million for each ship will be payable within six days of the signing of the relevant sales contracts. The remaining three per cent will be payable by December this year.

The two vessels are expected to contribute about US$194 million in charter revenue over the 10-year time charter period to Jiangsu Shagang – touted as China’s largest private steel enterprise. The amount is based on the US$27,000 a day that each vessel will fetch while it is chartered out to the Chinese steel company.

PSTM said that its acquisition of the two 180,000 deadweight tonne (DWT) – a measure of how much weight a ship is carrying or can safely carry – ships marks its foray into the non-container vessel segment of the shipping business.

Said PST Management’s acting CEO Teo Choo Wee: ‘We believe that this is the right timing to enter into a dry bulk acquisition. PST has acquired the vessels at an attractive price that is substantially lower than the prices contracted in 2007 and 2008 for comparable ships.’

The two ships will increase PST’s fleet to 14 vessels. PST said that all of its ships will be leased out on long-term, fixed-rate charters.

‘With long-term leases stretching into 2021, PST will enjoy stable income of close to US$500 million over the next 10 years.’

In April, PST said that it saw a 19 per cent drop in first-quarter distribution per unit (DPU) to 0.793 US cent, from 0.980 US cent a year back.

The DPU is also a drop from 0.827 US cent in Q4 2009, as revenue from the trust’s 12 vessels stayed flat at US$15.2 million.

Income retained for working capital rose to US$10 million, from US$3.2 million in Q1 2009. As a result, income for distribution fell to US$4.7 million, from US$5.8 million previously.

Yesterday, PST’s shares closed unchanged at 28 US cents after it resumed trading in the afternoon following its announcement.