Author: tfwee
CitySpring – BT
CitySpring seeks assets worth $1b
But infrastructure trust says valuations are still too high
CITYSPRING Infrastructure Trust, sponsored by Singapore investment company Temasek, is seeking buys worth over $1 billion but said asking prices were still too high.
‘We’re on the negotiating table for a number of opportunities but valuations are too high. Holders of good assets are not yet coming down to a value we find reasonable,’ CitySpring chief executive Au Yeung Fai told Reuters in an interview yesterday.
The trust was not in a desperate need to acquire, and would rather walk away from deals rather than overpay, Mr Au Yeung said, adding that some deals were as much as 30 per cent above what he was prepared to fork out.
CitySpring wants to buy assets such toll roads, ports, and power firms in countries including China, India, and in South-east Asia, and with two-thirds of the opportunities reviewed worth under $1 billion and a third worth over $1 billion.
CitySpring shares closed at $0.71 yesterday, down half a cent.
The stock has fallen 23 per cent so far this year, against the benchmark Straits Times Index’s 27 per cent drop.
Mr Au Yeung, a former investment banker with Barclays and then JP Morgan, said most sellers in Asia are still holding on in hopes of riding out the global economic downturn, although he sees the potential for plum deals in Australia.
‘In Australia there are a lot of infrastructure trusts which are financially distressed and are looking to offload their assets. Maybe some of those valuations will come down, but they haven’t come down sufficiently yet,’ said Mr Au Yeung.
Stocks of Australian trusts such as Macquarie Infrastructure, Babcock & Brown Infrastructure and Transurban Group have been battered by poor market conditions this year, putting pressure on them to sell assets.
CitySpring, in which Temasek has a 28-per cent stake, currently owns a town gas producer and water desalination plant in Singapore, and an undersea electricity cable linking two states in Australia.
It is also interested in the third and final power generation firm PowerSeraya, being divested by Temasek , but has not yet decided whether to bid, Mr Au Yeung said.
Backing from deep-pocketed Temasek has made it easier for CitySpring to obtain bank financing, and this relationship has not hindered deal negotiations despite political sensitivities linked to the wealth fund’s overseas investments, Mr Au Yeung said.
‘This has never been an issue for us. Temasek still has a good reputation across the region, and assets we target typically are not government privatisations but in private hands,’ said Mr Au Yeung, a Cambridge University mathematics graduate.
Unlike Singapore-listed real estate investment trusts such as CapitaMall and Ascendas Reit which typically distribute 90-100 per cent of income to shareholders, Mr Au Yeung said CitySpring will stick to a policy of retaining about half of its cashflow.
‘Some of the cash which is left over, we feel it’s prudent to keep in the trust, to cater for business needs and unforeseen events,’ he said.
‘If we cut everything to the wire, there’s no margin for error and in today’s market with so much uncertainties, that’s not a good model.’ – Reuters
Hotels – DBS
August’08 visitors number shows a continuing slide
Story: Based on STB statistics yesterday, Singapore continues to see weaker visitor numbers in August ’08; 842,000 visitor arrivals, which was a 7.7% decrease from a year ago. Average Room Rate (ARR) in August 2008 was S$232, + 4.9% YoY, Average Occupancy Rate (AOR) was c.81%, posting a 9.5% decline a year ago. As such, RevPAR growth narrowed to only +2.8% YoY at S$187 for the month.
Point: The performance is largely in line with our expectations. As per our Hospitality Sector report dated 4th Sept’08, titled ” Playtime is Over”, we have highlighted that 2H08 tourism sector performance to moderate compared to 1H08, and (i) Aug’08 should remain weak due to the distraction from the Chinese Olympics, (ii) high regional inflation and slowing GDP growth leading to cuts in discretionary spending and (iii) in the medium term, a slowing tourism sector arising from a global slowdown.
Moving forward, although Sept’08 sector performance is expected to be boosted by the Formula One Night race held over the coming weekend, weak underlying fundamentals could lead to further slowing tourism numbers in the medium term.
Relevance: Given the lack of catalyst for a re-rating and potential headwinds moving forward, we are maintaining our Neutral Call on the sector. In terms of stock picks, we remain selective as slowing tourist arrivals could imply weaker earnings for hoteliers moving forward.
We maintain BUY on ART, TP $0.94, which is trading at an attractive 30% discount to our revised RNAV of S$0.94. Earnings should remain resilient with leases locked in for an average of 8 months ahead.
For CDL HT, we view that exposure to slowing RevPAR could lead to weak earnings and thus cap performance in the near term. As such we maintain HOLD, TP $1.23.
FSL – Westcomb
Proposes distribution reinvestment scheme
• First Ship Lease Trust (“FSL Trust”) proposed the adoption of the First Ship Lease Trust Distribution Reinvestment Scheme (the “Scheme”).
• The proposed Scheme, if adopted, will enable Unitholders to elect to receive their distributions in the form of new units (“New Units”) in lieu of cash. Unitholders will have the flexibility to elect for part of their distribution to be received in the form of New Units with the remaining distribution to be paid in cash. Unitholders who do not choose to participate in the Scheme will continue to receive their distribution in cash.
• The Scheme enables Unitholders to acquire additional units in FSL Trust and thus increase their unitholding incrementally without incurring brokerage or other transaction costs. With the issue of New Units in lieu of cash, the capital base of FSL Trust will be enlarged incrementally and this is expected to enhance the trading liquidity of the units in the long run.
• The cash retained, which would otherwise have been paid as distribution, could be deployed to fund the continuing growth and expansion of FSL Trust.
Rickmers – OCBC
Has derated significantly; maintain BUY
Second MOL acquisition completed. Rickmers Maritime (RMT) recently accepted delivery of its 12th vessel, MOL Dedication, the second of 13 additional vessels RMT is contracted to buy over 2008-2010. Newbuild MOL Dedication will be time chartered to Japan’s Mitsui O.S.K. Lines Ltd (MOL) for a 10-year period. It is the second of five 4250-TEU containerships costing US$72m each that will be chartered to MOL. The first, MOL Dominance, was delivered in June 2008. The remaining three MOL vessels are also expected over 2H08. Contributions from the five MOL vessels should increase RMT’s 2H revenue, which makes up 56.1% of our full-year estimate.
Ambitious growth plans. RMT’s debt-to-equity ratio had increased to 0.91x at 30th June from 0.77x as at the end of 1Q. Including MOL Dedication, RMT will spend US$288m on the Mitsui vessels coming in over 2H. Its heavy acquisition program continues beyond 2008: it will spend US$276m on the four vessels slated for FY09; and US$711.6m on the four megacontainerships to be delivered in FY10. On 2Q equity levels of about US$417m, this implies a debt-to-equity of roughly 1.6x by end FY08, 2.2x by end FY09, and 3.9x by end FY10.
Equity issue inevitable (but not immediately). RMT’s aggressive growth plans are supported by its ability to run time charters with long term visibility. It plans to fund the contracted acquisitions using a combination of retained cash, debt and equity. RMT has already arranged for new credit facilities to fund its FY08 and FY09 purchases. RMT has US$608.3m in unused debt facilities (before paying for MOL Dedication), which gives it some breathing space in the nearer term. However, an equity issue will be inevitable over FY09-FY10 in order to accommodate RMT’s debt repayment schedule and the US$771.6m vessels due in FY10.
Has derated significantly. In line with turbulent markets and the Singapore-listed shipping trust sector, RMT saw volatile movements in its share price last week. It fell to a low of 88 S cents on Thursday before recovering to 93.5 S cents by Friday’s close. A lot of the noise came from the broader market but a major RMT-specific concern is that institutional investors make up a significant portion of its unitholder base. Such overhang is a concern across the high-yield space including other shipping trusts, business trusts and S-REITs. RMT is our top pick for the shipping trust sector and we think today’s 13.6% yield (FY08F) looks attractive. Maintain BUY with S$1.22 fair value.
AIG – BT
AIG has direct stake in three listings here
Its largest stake is in Macquarie Prime Reit, followed by First Lease & Jiutian
Ailing insurer American International Group (AIG) has direct and significant stakes in Singapore listings Macquarie Prime real estate investment trust (Reit), First Ship Lease Trust and Jiutian Chemical Group, Bloomberg data showed.
About 10 other firms listed here are exposed to investment funds owned by the world’s largest insurer, which was thrown a life-line on Wednesday in the form of a US$85 billion government loan.
AIG directly owns 10.9 per cent of Macquarie Prime Reit, which works out to $75.3 million based on yesterday’s closing price of 72 cents. It also holds 0.9 per cent stake of the Reit through two AIG-managed international funds, known as the Singapore bond and Acorns of Asia balanced funds.
First Ship Lease Trust has about 8 per cent, or 40.4 million shares, held directly by AIG. This is worth $34.4 million based on the last closing price of 85 cents. AIG also holds an additional 1.6 per cent of First Ship through the same two international funds.
China-based Jiutian Chemical Group has nearly 4 per cent in the direct hands of AIG. The 64.6 million shares is equivalent to $4.84 million, according to yesterday’s closing price of 7.5 cents. Two AIG-managed funds – AIG South-east Asia small companies fund and Southeast Asia small and mid-cap fund – owns another 0.3 per cent.
AIG has not declared changes in shareholding to the Singapore Exchange.
First Ship Lease Trust called AIG late afternoon on Wednesday regarding the company’s shareholding and was told that AIG would be holding on to its stake for now, chief financial office Cheong Chee Tham told BT.
‘We have received no indication from AIG on selling,’ he said.
Macquarie Pacific Star spokesperson said: ‘Macquarie Pacific Star, the manager of MP Reit, maintains regular communications with the Reit’s substantial unitholders,’ adding that AIG has held its stake in the Reit since its listing in September 2005.
‘However, we are not in a position to speak on behalf of them. AIG, as a substantial unitholder, is required to inform the market of any change in their interest in MP Reit.’
AIG-managed funds are also invested in other stocks including S-chips Ferrochina, Fibrechem Technologies and Synear Food Holdings, property firms Ho Bee Investment and Hotel Properties, marine players STX Pan Ocean and Swiber Holdings, as well as Raffles Education Corporation and Raffles Medical Group. All stakes are below 0.5 per cent.
Fibrechem and Raffles Medical have not contacted AIG on their shareholdings, spokesmen said. Ferrochina and Raffles Education declined comment.
As the US Treasury rushes to save AIG, Wall Street has turned its attention to Morgan Stanley, after the Financial Times reported that the US investment bank was in preliminary merger talks with parties including Wachovia, the fourth largest US bank based on assets, and China Investment Corporation. This follows the declared bankruptcy of Lehman Brothers in the same week.
Morgan Stanley directly owns 12 per cent of United Industrial Corporation (UIC), a property unit of Singapore’s second largest bank United Overseas Bank, Bloomberg data showed. It also holds another 1.36 per cent in UIC through its asset management and investment divisions.
Some 10 per cent of logistics firm CWT is also held by Morgan Stanley. It holds 9.79 per cent directly and 0.25 per cent through its asset management arm. ‘Everything remains well and unchanged now,’ CWT chief financial officer Lynda Goh told BT.
Lehman has no significant direct investment in stocks here, according to Bloomberg.