Income distribution forecast tough: PST

PACIFIC Shipping Trust (PST) – which will be taken private by its holding company after unitholders voted in favour of the proposed delisting yesterday – said forecasts on its income distribution could be inaccurate given the current economic uncertainty.

PST was responding to BT queries after the unitholders’ meeting yesterday, during which it also responded to criticisms that the independent financial adviser’s (IFA) report on the delisting did not account for the significant boost to revenue from recent ship acquisitions.

In early October, holding company Pacific International Lines proposed to buy up the remaining 40 per cent of PST that it does not own. The shipping firm offered 43 US cents in cash per unit, a price that the IFA, PricewaterhouseCoopers Corporate Finance, reported to the independent directors as fair.

Stuart Hong, who holds under 2 per cent of PST through his investment firm Unisysco Holdings, wanted to know the impact that the acquisition of nine vessels for charter last year would have on income distribution, he told BT on Tuesday.

On Wednesday, PST responded, saying that an independent valuer had reviewed revenue contributions from newly acquired vessels to arrive at the charter-attached valuations of the new vessels, and these were factored into the IFA’s assessment of PST’s revised net asset value.

When asked yesterday about how the additional revenue would flow through to the income available for distribution, PST said any forecast or projection of future income and distribution of the trust depends on key assumptions. These include counterparty performance, potential charter renewals and rates, the distribution policy and the timing and pricing of any equity fund raising, said PST, adding that the independent directors had made the same point to the 80-odd unitholders at the meeting.

‘Given the uncertainties in the current economic climate and the market, any such assumptions relating to the future performance of the business may not be accurate,’ it said. ‘A forecast based on such assumptions could be potentially misleading to unitholders as to the outlook for PST.’

Asked to comment yesterday, Mr Hong would only say that the meeting was ‘an opportunity to talk face-to-face and address the opposing side’s arguments’.

PST minority shareholder criticises report by IFA

He says it fails to consider factors such as revenue from new ships

AN institutional investor of Pacific Shipping Trust (PST) – which is being taken private by its holding company – has criticised the financial adviser’s analysis of the deal, which has determined that the current takeover offer price as fair.

The analysis did not account for the significant boost to revenue from ship acquisitions that were announced a year ago that could, in turn, raise the distribution per unit (DPU), said Stuart Hong, who holds 1.8 per cent of PST through his investment firm Unisysco Holdings.

Mr Hong also told BT that the peer comparison with the two other shipping trusts – Rickmers Maritime and First Ship Lease Trust – was not well executed because the advisers did not fully consider the impact of PST’s stronger creditworthiness on its valuation.

In early October, holding company Pacific International Lines proposed to buy up the remaining 40 per cent of PST that it does not own. The shipping firm offered 43 US cents in cash per unit, representing a 14.7 per cent premium over the last-traded price of 37.5 US cents at the point of the announcement.

But the shipping trust – the first to be listed in Singapore in 2006 – went public at 45 US cents per unit.

The shipping trust went on an acquisition blitz last year, acquiring nine vessels for charter that should all be delivered by the second quarter of 2013.

By Mr Hong’s estimates, these acquisitions that are tied to charter agreements could double revenue – an issue that was said to have not been considered by the appointed independent financial adviser (IFA), PricewaterhouseCoopers Corporate Finance (PwCCF). Without reviewing any forecasts, PwCCF was said to have reported to the independent directors that the privatisation deal was fair.

‘It’s about information inequality,’ said Mr Hong, who has been investing in the shipping trust since January 2009. Financial forecasting of shipping trusts is easier compared to an operating company under normal circumstances, added Mr Hong.

‘One of the main reasons is that your revenues is roughly the daily charter rate times 365. Annual revenues will roughly double, as a result of these acquisitions, and I think that is material.’

PST noted that it would cut its minimum income distribution starting the third quarter of 2009 to 70 per cent from 90 per cent, saying that it wanted to retain cash to fuel future growth.

‘So effectively, my money is helping to fund the 2010 acquisitions,’ said Mr Hong. ‘If the offeror wants to buy my shares, I am entitled to know what PST bought with my money. By that, I need to see the P&L forecasts for the acquisitions.’

Turning to the peer comparison – a common practice by financial advisers – Mr Hong claimed that the poorer creditworthiness of PST’s peers was not reflected. For example, First Ship, which has a S&P’s rating of BB- for its long-term debt, was negotiating to secure a significant loan facility at the time that the PwCCF report was released – a point that was said to have not been raised in the report.

It was only a few days later that First Ship said that it had secured a term loan of US$479.6 million that came with a ‘substantially higher’ interest margin than its last loan facility.

In response to queries, PST said that these concerns can be addressed by the IFA at this Friday’s extraordinary general meeting, which will be held for unitholders to vote on the deal. PST units closed unchanged at 42 US cents yesterday.

Net exit offer for each PST unit is 42.27 US cents

This is after deduction of Q3 distribution

THE net exit offer price for Pacific Shipping Trust’s (PST) delisting will be 42.27 US cents per unit, after deducting the third-quarter distribution of 0.73 US cent from the offer of 43 US cents by Pacific International Lines (PIL).

PIL detailed this in its exit offer letter sent yesterday to unitholders of PST.

PST, which is the Singapore Exchange’s first listed shipping trust, received a voluntary offer from its sponsor PIL to delist in October.

An extraordinary general meeting (EGM) will be held on Dec 16 to approve both the delisting of PST and the exit offer.

A green light for both resolutions requires at least 75 per cent of total issued units held by unitholders present and voting as well as the tally of nay votes not exceeding 10 per cent of the total issued units.

PIL holds some 76 per cent of the total number of issued units and it will vote all of its units in favour of a delisting.

The last date to submit the proxy form of the EGM is Dec 14, 10am.

PIL’s offer of 43 US cents represents a 15 per cent premium to its last traded price of US$0.375 on Sept 29.

After PST is delisted, PIL intends to streamline PST’s operations which may include plans to sell PST’s fleet to PIL or the redeployment of employees to other entities owned by PIL.

It may also wind up the operations of PST.

PST cited the low trading liquidity with an average daily trading volume that represents about 0.1 per cent of the trust’s total free float as a reason to delist.

Going private would also give it greater operational flexibility.

‘Any potential acquisitions will be benchmarked against PST’s distribution yield to ensure that they are accretive to unitholders,’ said PST.

‘This places a constraint on PST’s ability to issue new units since its investment decision will be compared against its distribution yield, which is in turn a function of the prevailing trading prices of the units.’

• The Teo family has proposed to take PCT private via voluntary delisting, with an offer price of US$0.43 a unit, 15% above the last traded price of 37.5 cents, but 4% off the IPO price of 45 cents back in 2006. (PCT was the first listed shipping trust, and indisputably the best of the lot.)

• The proposal needs, among others, to be passed by at least 75% of votes at an EGM to be convened, and is subject to the offerors getting at least 75% of the trust at the close of the offer.

• We are surprised with the proposed delisting, given financing has largely been arranged for the construction of 9 new vessels (7 bulk carriers and 2 multi-purpose vessels) costing US$333 mln, and to be delivered between Sept ’11 (PST has recently taken delivery of 1 bulk carrrier) and 2014.

• But this will raise PST’s gearing, which is already on the high side, at almost 50% at end Jun ’11.

• While the latest distribution (annualized 3.236 cents based on payout for H1 ’11) seems sustainable, translating to 8.6% at last traded price, the Teos are likely to succeed with their offer, given the nervous state of the stock market, and also given the general disappointment with shipping trusts, specifically cuts in distribution not very long after listing.

PIL unveils plan to delist Pacific Shipping Trust

The group proposes to take PST private, offering 43 US cents in cash per unit

SINGAPORE’s first shipping trust to list – Pacific Shipping Trust (PST) – might soon become the first one to delist as well, after years of lacklustre share performance for the shipping trust brigade.

Holding company Pacific International Lines Pte Ltd (PIL) announced yesterday its proposal to take PST private. PIL plans to streamline the structure of the PST group along with that of the offeror group. The shipping firm will be offering 43 US cents in cash for every unit in the trust that it does not already own – a 14.7 per cent premium over its last-traded price of 37.5 US cents. PST listed on the Singapore Exchange in a 2006 initial public offering price of 45 US cents a unit.

Against the volume-weighted average price (VWAP) of 35.4 US cents for the six-month period before the offer, the offer price stands at a premium of 21 per cent.

So tepid has trading activity been for the business trust in recent months that the VWAPs for the one month, three months and six months before the offer were in a tight range of about 35 to 36 US cents.

Among other things, the proposed privatisation hinges on the delisting resolution being approved by at least 75 per cent of the total number of issued units held by the unitholders present and voting at an extraordinary general meeting to be called. Also, the resolution cannot be opposed by 10 per cent or more of the same such units.

Under the proposed voluntary delisting, the minimum acceptance condition is for PIL to end up holding a stake of at least 75 per cent in the trust. Currently, PIL holds about 59.19 per cent. Subject to the Securities Industry Council’s consent, the offeror has the right to waive this condition.

Trustee-manager PST Management Pte Ltd noted the trust’s low trading liquidity with an average daily trading volume that represents about 0.1 per cent of the trust’s total free float.

It also cited the need for greater operating flexibility as one of the reasons for the decision to go private.

‘For as long as PST remains a listed business trust and seeks to expand its business and vessel portfolio, PST would have to fund such new vessels through a combination of equity, debt and/or internal cash resources,’ it said.

‘Any potential acquisitions will be benchmarked against PST’s distribution yield. . . This places a constraint on PST’s ability to issue new units since its investment decision will be compared against its distribution yield, which is in turn a function of the prevailing trading prices of the units.’

The other two shipping trusts in Singapore have also seen their unit prices take a beating. Rickmers Maritime’s units have fallen 21.8 per cent in value year to date to 30.5 cents. It had listed at an offer price of $1.57 per unit. First Ship Lease Trust’s units have shed 44 per cent since January. They last traded at 26 cents, against their IPO price of $1.50 a unit.