Ricmkers – OCBC
US$1.1b order book is a burden
US$1.1b order book. In November, Rickmers Maritime (RMT) took delivery of its 13th vessel, MOL Delight for US$72m. We estimate its gearing will increase to 1.4x by the end of the year from 1.1x debt-to-equity as at 30th September. RMT expects to take delivery of 10 more vessels costing over US$1.1b from now to 2010 (with the charters and charter rates already locked in). RMT has credit facilities in place for the next six ships worth US$420m.
High leverage has a high price. Despite an aggressive acquisition program, RMT has been able to defer raising more equity by ramping up gearing in the near term. This increased leverage comes at a price. Consequently, the trust’s debt repayment requirements have accelerated and certain loan tranches have only 1-2 years maturities. We estimate that if RMT continues on its current ‘debt-first’ trajectory, it would have to repay around US$17.9m of debt in FY09 and another US$157m in FY10. Our estimates suggest that even if RMT diverted 100% of its cash income to pay off debt, it would not be enough to service the FY10 dues. An equity issue will be necessary.
At what price, equity? We also note that credit facilities for the US$711.6m vessels due in FY10 have not been arranged yet. We believe the market value of those vessels would have taken a hit versus the asset cost pre-fixed by RMT. So even if lenders provide 100% loan-to-market value, it would not cover the cost of the vessel. We expect the terms on those facilities to be even more stringent, and expect fresh equity will again be needed to fund the FY10 vessels. In total, we estimate that RMT needs around US$600m in fresh equity, at least, over the next two or three years. At current price levels, any issue would be highly dilutive to existing unitholders.
Unappetizing risk-reward ratio. We believe order book concerns will define 2009 for RMT. Worst case solutions to ‘disappear’ the order book include an outright vessel sale, a sale-and-leaseback or a sponsor “bailout” (equity or asset warehouse). We expect any such resolution to be a positive catalyst for RMT’s share price, and the best case scenario for unitholders. Another major concern is the potential breach of the loan-tomarket value covenant on existing loans. The outcome of any breach will depend on the continuing strength of RMT’s blue chip charterers and the health and risk appetite of its lenders. Maintain HOLD with S$0.40 fair value.