PST – BT

PST adds MPP vessel class to the mix

IN a bid to diversify its vessel holdings, Pacific Shipping Trust (PST) has secured charters for two new 24,000-tonne multi-purpose vessels (MPPs) valued at US$30 million each.

The ships will be leased for 10 years to Xiamen Ocean Shipping Company China, a wholly owned subsidiary of Cosco China.

The charter rate for each vessel is US$14,900 per day. When delivered in September and December 2012, the vessels are expected to add US$108 million to PST’s total contracted revenue – an increase of 23 per cent that will take its total contracted revenue until October 2022 to US$570 million.

PST’s trustee-manager PST Management (PSTM) finalised both the chartering and vessel-building deal with shipyard Dalian Shipbuilding Industry Company.

At a briefing yesterday, when an analyst pointed out that the charter rate of US$14,900 per day was ‘rather high’, PSTM’s acting chief executive officer readily admitted it is.

‘This is a negotiated structure that we have with Cosco Xiamen,’ said Teo Choo Wee. ‘In return for this, we give them an option at the end of year 10 to purchase the vessel for US$14.7 million.’

Though some global reports show demand has softened for MPPs of late, Mr Teo said it will pick up. ‘The global fleet number of MPPs is small, but demand- wise, I think, is increasing.

‘With the number of infrastructure projects increasing globally, especially in developing countries and emerging markets, there will be tremendous requirements to transport specialised or project cargos, and we expect the demand for this type of vessel to continue,’ he said.

PST’s latest acquisition is meant to diversify its asset holdings and income sources. Prior to the new agreement, its fleet of 14 vessels consisted of 12 container ships, almost all of which are leased by its parent company Pacific International Lines (PIL).

The other two vessels are new additions, introduced in late June. PST bought two Cape-size 180,000-tonne bulk carriers for a total of US$123.2 million from Mitsubishi Corporation. They will be chartered to China-based steel company Jiangsu Shagang Group.

Cosco Xiamen coming on board as a charterer reduces PST’s reliance on PIL as its major income driver. Cosco Xiamen will make up 19 per cent of total contracted revenue, with Chinese steelmaker Jiangsu Shagang at 34 per cent and PIL at 35 per cent. CSAV accounts for the remaining 12 per cent.

Mr Teo said the decision to purchase and charter MPPs mirrors the actions of parent company PIL. In mid-June, PIL diversified into MPPs, lodging four new-build orders with Dalian Shipyard.

‘Cosco Xiamen was initially interested in taking over PIL’s vessels, but they were already committed in PIL’s keep,’ said Mr Teo. ‘So the decision was to explore with PST. The result is two direct deals with the two companies, Dalian and Cosco Xiamen.’

PIL will help fund the pre-delivery financing for PST.

PST was not left with much cash, said its chief financial officer Ivy Lim, with 12 per cent of the cost of the Shagang vessels paid up and another 3 per cent of the sum due in December.

PIL will therefore make a series of advances to PST, which includes the total amount as well as a 0.125 per cent arrangement fee of US$41,250 owed to PIL.

Currently, PSTM’s debt- to-asset ratio stands at 1:1. ‘But we plan to increase this slightly with the two vessels,’ said Ms Lim. ‘We haven’t finalised the final amount yet, but when we evaluate the financing structure, it will depend on the best course of debt and best course of equity we can get in the market. We put in very conservative numbers, and the numbers still make sense to our shareholders.’

Yesterday, PST’s shares closed unchanged at 31.5 cents.