Category: FSL
FSL – BT
FSL renegotiates terms for TORM product tankers
FIRST Ship Lease Trust (FSL Trust) has renegotiated charter terms for two product tankers, TORM Margrethe and TORM Marie, which were leased to a wholly owned subsidiary of Denmark’s TORM.
The new terms state that the bareboat charter rates for the two vessels will be realigned to the variable rates TORM achieves in the market. In exchange for the rate concessions, FSL will be allocated equity in TORM, FSL said.
The original bareboat agreements also had early buyout, purchase and lease extension options, but these will be cancelled under the new terms.
In addition, should the actual rates achieved by TORM for the vessels underperform the market benchmark by a pre-agreed, semi-annually tested margin, FSL will have the right to terminate the charters.
TORM said earlier this month that the company had reached a conditional agreement with the coordination committee of its banks regarding a deferral of instalments and a covenant standstill on its ship financing until the end of this month.
Due to the carrier’s current financial difficulties, it had also been in talks with its time charter partners to provide a long-term financing solution to its problems by amending its charter-in agreements.
Despite the amended terms, FSL said assured investors that it did not expect any material impact on the net tangible assets per unit of the trust for the current financial year.
The new terms are subject to consent from FSL’s lenders. ‘While some lenders have already given their consent, formal approval is still pending,’ said FSL.
Units in the trust closed 0.5 cent up at 22 cents yesterday.
Shipping – BT
Fewer box ships lying idle but supply set to increase
Overcapacity still not addressed by owners, operators
The inactive containership fleet has fallen for the first time since August 2011, driven by carriers which are readying themselves for the busy peak summer months ahead.
However, optimists who think it may signal the turning of a tide towards a better match between supply of ships and demand for cargo – and therefore herding shipping lines back to profitability – think again.
On the one hand, data from Alphaliner shows that the idle boxship fleet as of Mar 26 declined about 75,000 twenty-foot equivalent units (TEUs) over two weeks. The mothballed fleet of container vessels now stands at 5.3 per cent of global capacity or 838,000 TEUs, down from 5.8 per cent or 913,000 TEUs.
The reductions have all come from container lines putting back their idled ships into service to handle more cargo demand in the summer, whereas non-operator owned idle ships have stagnated at 397,000 TEUs.
Notably, carriers have decided to yank larger vessels out of lay-up. The number of idled vessels capable of carrying 7,500 TEUs or more have dropped to 12 units from 18.
‘Freight rates are about demand and supply. Re-introducing idle capacity will increase the supply which weakens the utilization. This will affect the rates negatively,’ said Jason Chiang, senior manager at Drewry Maritime (Asia).
Moreover, Drewry Maritime Research said that idled container tonnage remains relatively low and the overcapacity situation is still underaddressed by ship owners and operators today.
During the throes of the global financial crisis in 2009, about 12 per cent of the global box ship fleet were made inactive.
‘Until the inherent structural capacity is truly tackled, we will continue to have periodic and violent bouts of overcapacity that will keep rates and operating margins yo-yoing up and down,’ said Neil Dekker, head of Drewry’s container research.
There is a lot more room yet for more lay-ups.
In 2012, 59 ‘large’ container vessels of over 10,000 TEUs capacity will be entering the global fleet. It is almost for sure they will be deployed on the already overcrowded Asia-Europe long-haul trades, which Credit Suisse estimates to have about 330,000 TEUs worth of capacity a week.
Said Mr Chiang: ‘The liners’ hands may be forced to their last option of idling. Another 7.4 per cent of supply will be added to the system, the simple answer is that a similar amount of existing capacity should be idled to allow for the introduction of new capacity.’
FSL – BT
FSL Trust lands its first charter contract of the year
FIRST Ship Lease Trust (FSL Trust) has landed its first charter contract of the year with Brazilian oil major Petroleo Brasileiro (Petrobras).
FSL Singapore, a 47,470 deadweight-tonne (dwt) product tanker, will be on a three-year time-charter contract to Petrobras at a gross daily rate of US$14,000.
The vessel has been on spot charters since the middle of 2010, according to a company spokesperson.
The time-charter arrangement is new for FSL Trust, which has engaged in long-term bareboat charters before this, where boat lessees are responsible for all costs including crew and maintenance.
Under the new time-charter agreement, Petrobras will be liable for voyage costs such as fuel and port charges, while FSL Trust will be responsible for the operational costs of the vessel.
Removing FSL Singapore from spot market voyages is intended to reduce volatility in cash flow to FSL Trust.
The decision to engage in a time-charter agreement comes amid a major downturn in the shipping industry.
‘We believe that this (time-charter) arrangement will bring further stability to FSL Trust’s revenue stream, strengthen its resilience and diversify its customer base,’ said Vijay Kamath, senior vice-president and chief commercial officer of FSL Trust Management (FSLTM), trustee-manager of FSL Trust.
FY2011 was a rough year for FSL Trust, which suffered a net loss of US$17.1 million, almost three times the loss of US$5.7 million incurred in 2011.
Income available for distribution also fell by 30 per cent from US$26.0 million to US$18.3 million.
FSL Trust units closed trading unchanged yesterday at 21 cents.
FSL – BT
Defaulting lessees to impact NTA of FSL Trust
First Ship Lease Trust on Tuesday said that it has issued written notice to the three lessees of three chemical tankers who have defaulted on their lease payments under their respective lease agreements in February.
First Ship has demanded payment to be made no later than March 8.
The vessels, Pertiwi, Prita Dewi and Pujawati, were leased to wholly-owned subsidiaries of PT Berlian Laju Tanker Tbk (BLT).
Each lessee is obliged to pay the relevant charter hire due under the relevant lease agreement on the first day of each calendar month, and the obligations of the lessees under the lease agreements are guaranteed by BLT.
The lessees' contribution to FSL Trust's total revenue for FY2011 was 12.8 per cent and the default would have a material impact on the net tangible assets (NTA) per unit of FSL Trust.
Based on the financial statements announced for the year ended December 31, 2011, the NTA per unit is expected to decrease by US$0.03 from US$0.53 to US$0.50.
However, the default will not cause First Ship to be unable to continue to servie the debt obligations under its loan agreement.
FSL – DBSV
Bracing for more pain
• In a surprise move, DPU was cut by almost 90% from 0.95 UScts in 3Q11 to 0.10 UScts in 4Q11
• This defensive move is aimed at staying within loan covenants and withstanding any potential counterparty defaults in FY12
• Uninspiring asset valuations and DPU outlook. Cut to SELL with TP of S$0.20
Survival strategies. While operating cash flows in 4Q11 were largely in line with estimates, the key surprise was a 90% cut in DPU to 0.10UScts. The Board’s move is aimed to strengthen balance sheet and conserve liquidity amid a tough operating environment.
Declining asset values threaten. The Trust was able to successfully refinance its borrowings last year with a US$479.6m 6-year amortising loan, secured against its current portfolio of 25 vessels. Under this new term loan facility, FSL Trust will make quarterly loan repayments of US$11m and interest margin will be increased to 2.6-3.0% above LIBOR, depending on the value-to-loan coverage. The charter-free valuation of its vessels must not go below 125% of outstanding loans, and the ratio stands at about 130% as of last valuation. This does not leave much room for comfort.
And counterparty risks hover. Management believes that 2012 will be another bad year for the shipping industry. The Trust’s counterparty risks will be considerably higher amid growing risk of defaults and bankruptcies among shipping companies. Indeed, its newest customer, Danish tanker operator TORM is already in negotiations with lenders to restructure its debt to avoid default. Other tanker players are unlikely to fare any better. Thus, we prefer to avoid exposure to these risks and downgrade the stock to SELL, with a reduced DDM-based TP of S$0.20. Without any dividend support, the stock is unlikely to perform in a downturn. If and when the shipping markets turnaround, high-beta pure container operators like NOL will fare better.