Rickmers – OCBC

Growth in an uncertain environment

RMT kicks off US$1.35bn acquisition spree. Rickmers Maritime (RMT) has kicked off a three-year acquisition spree costing US$1.35b, with the delivery of 4250-TEU containership MOL Dominance in early June. RMT will spend US$360m in total on the five Mitsui vessels coming in this year; US$276m on the four vessels slated for FY09; and US$711.6 on four megacontainerships worth US$711.6m to be delivered in FY10. RMT is geared at 0.77x debt-to-equity as at the end of 1Q08. On current equity levels of about US$400m, this implies a debt-to-equity of roughly 1.6x by end FY08, 2.3x by end FY09, and 4x by end FY10.

Gearing up in an uncertain credit environment. RMT plans to fund the contracted acquisitions using a combination of retained cash, debt and equity. RMT has already arranged for about US$627.5m in new credit facilities on top of about US$45m that remains unused from its IPO facility. We note that the terms of the new facilities are marginally more expensive at LIBOR 90-120 basis points versus the IPO facility costing LIBOR + 70- 90 basis points. The accelerated debt repayment schedule beginning in FY09 itself vis-à-vis the IPO facility is notable. Debt facilities for the US$711.6m vessels due in FY10 have not been arranged yet.

Equity injection inevitable by FY10. With the increased gearing and debt repayment schedule, RMT has no option but to inject new equity into the trust. However, the US$672.5m in unused facilities (before paying for MOL Dominance) give RMT some breathing space. We expect the trust to bypass the lackluster equity markets in 2H08 to get a higher price realization. However, an equity issue will be inevitable by FY10 in order to accommodate RMT’s debt repayment schedule and the US$771.6m vessels due in that year. We have phased in US$600m in new equity over FY09-11. This is a base case roadmap that will take RMT back to roughly 1x debt-to-equity levels by FY11, allowing it to pursue further growth opportunities. We conservatively assume the new equity is issued at current price levels of 80 US cents .

RMT’s aggressive growth plans are supported by its ability to run time charters with long term visibility. It has credit facilities in place that can cover its growth plans for FY08 and FY09. The only question is how far the market can recover to enable RMT to successfully issue new equity at a reasonable price. Maintain BUY with S$1.22 fair value.