PST – OCBC
Rights issue over and done with
Preferential offering completed in 3Q. Pacific Shipping Trust (PST) raised about US$92.3m in gross proceeds from its preferential offering (PO) in 3Q08. The offering was on the basis of three new units for every four existing units. The issue price of 36.5 US cents per new unit was at an 18.9% discount to PST’s IPO price of 45 US cents. Sponsor Pacific International Lines (PIL) had agreed to subscribe for both its pro-rated shares as well as any unsubscribed units. Approximately 57.2% of the new units were unsubscribed, and PIL has subsequently seen its stake in PST increase from 34.64% to 59.2% after the partial equity “bail-out”.
Stronger balance sheet post PO. The PO proceeds are being used to finance and refinance the four new vessels costing US$222.2m slated for acquisition in 2008: Kota Nabil (delivered in March); Kota Naga (May); CSAV Laja (mid-September); and CSAV Lauca (mid-November). Fully debtfunded, the 2008 acquisitions would have bumped PST’s debt-to-equity up to more than 2x by year end. As of 30 September, PST is geared at 0.8x debt-to-equity. Its portfolio now consists of ten vessels, with a total asset investment of about US$493m. PST has no near-term debt expiry and a conservative loan repayment structure.
No LTV covenant. PST is the only Singapore-listed shipping trust without a loan-to-market value covenant on its loan documents. This means that there is no risk of a technical default because of falling asset values. This puts PST in a better position to ride out the shipping cycle than the other two trusts. While PST has no further capital commitments (unlike Rickmers Maritime), it has not suspended its yearly acquisition target either. The trustee-manager indicated in the 3Q release that they would continue to be on the look-out for “yield-accretive growth opportunities”. In addition, PST has received unitholder approval to expand its investment mandate beyond containerships.
Proxy for PIL. PST is the only shipping trust to have completed an equity issue since listing. This issue has come at the price of a smaller free float but demonstrates the willingness of PST’s sponsor to support its trust. Charters to PIL, a top 20 liner company , account for about 70% of PST’s annual revenue. In essence, the risk quantum for PST has become a proxy for the risk of the parent company. PST’s share price has fallen 68% over 2008. It is currently trading at a 32% trailing yield.