Category: Rickmers
Rickmers – BT
Bank raises rate on Rickmers Maritime loan
It invokes market disruption clause in loan terms
JITTERY financial markets continue to be the thorn in the side of corporates as shipping trust Rickmers Maritime yesterday announced that one of its banks has invoked the market disruption clause in the loan terms and will consequently levy a higher interest rate on its loan.
First Ship Lease Trust (FSLT) got hit with this same problem in October and this time it is Rickmers’ turn and it will result in an about US$47,000 rise in interest cost for this fixing period. However, it will not have a significant impact on its earnings per unit for the financial year ending Dec 31, trustee-manager Rickmers Trust Management said.
The market disruption clause is invoked when the US$ Libor, which is the reference rate on the loans, does not accurately reflect the lenders’ actual cost of funds.
In response to queries in the wake of FSLT’s problems in October, Rickmers said then that though it had the clause in its loan documents it had not been invoked yet. The increased interest costs then caused FSLT to reduce its Q408 distribution per unit guidance by 1 per cent.
Three-month US dollar Libor rates hit their lowest in two months in London falling one basis point to 1.1768 per cent yesterday, Reuters reported.
‘The increase in interest rate pursuant to the invocation of the market disruption clause by the bank by no means reflects the credit-worthiness of Rickmers Maritime. Where Rickmers Maritime is concerned, we continue to enjoy strong cash flows and have met all our loan obligations promptly,’ reiterated CFO Quah Ban Huat.
Rickmers Maritime has credit lines with nine other banks, none of which has invoked the market disruption clause, Mr Quah added.
Separately, Rickmers said yesterday that is has taken delivery of its 16th containership, Hanjin Newport, the first of four ships chartered to Hanjin Shipping, South Korea’s largest container liner company.
The 4,250 twenty-foot equivalent unit (TEU) newbuild vessel from Jiangsu New Yangzijiang Ship Building commences a seven-year fixed-rate time charter to Hanjin Shipping.
Rickmers units closed unchanged at 34.5 cents yesterday.
Shipping Trusts – OCBC
Time to stop hoping for the best
Industry continues to struggle. The container shipping industry faces a major supply-demand imbalance. According to AXS Alphaliner, outstanding orders for new ships account for about 47.6% of the existing fleet. This translates to a 12.9% per annum growth in the world fleet over the next three years. With the global recession dampening demand, especially the US consumption story, we expect tough times ahead for the container industry. Major operators, including shipping trust customers, have announced lay ups, vessel redeliveries, and plans to attempt to delay order deliveries. About 1.1m TEUs, or 8% of the world’s total container fleet, is currently idle. This broader reality can have a major impact on the trusts’ cash flows – and consequently, on distributions to unitholders. Charterer performance will be key in the coming months – if economic conditions continue to deteriorate, we could see charterers approaching the trust to renegotiate leases.
Passively waiting out the storm. US-listed comparable, Danaos Corp [NOT RATED], announced that it was suspending dividend payments to divert cash towards funding its new-building program. It also delayed some deliveries. Back in Singapore, Rickmers Maritime (RMT) is contracted to acquire US$988m worth of containerships over the next two years, with partial debt funding currently in place. The manager has so far only said that it “is exploring all options” to finance its order book but this is not enough. The market needs more clarity on what RMT will do and whether it will (or can) follow the Danaos route of delaying deliveries or cutting dividends. Unlike RMT, FSL Trust (FSLT) and Pacific Shipping Trust (PST) have no committed orders. Meanwhile, FSLT will retain about 20-25% of cash income in 1Q09 (versus a 100% distribution payout previously) to prepay debt as a pre-emptive “good faith” gesture to lenders eyeing debt covenants. We believe there is room for FSLT to lower payout further to a point where both unitholders and lenders are satisfied. In comparison, PST is only paying out about 50% of cash income. An explicit debt repayment plan would also demonstrate FSLT’s commitment to sustainability, in our view.
Still NEUTRAL on sector. While the STI is down 4% YTD, Singaporelisted shipping trusts are down 10% for the year. On average, the sector is trading at a 66% discount to NAV but we are not quite ready to call this a “value” opportunity. In our opinion, a re-rating of the sector depends on 1) signs of an improving external environment and 2) the trusts taking more aggressive action to remedy some fundamental concerns.
Rickmers – OCBC
Deadlocked by order book
US$3.5m provision but otherwise steady. Rickmers Maritime (RMT) posted a 11.4% QoQ increase in 4Q08 revenue to US$29.6m. The results met our expectations except for a surprise US$3.5m non-cash provision for vessel impairment on Maersk Djibouti (about 5.5% of FY09F revenue). It is the trust’s only vessel at risk for early lease termination, from February 2010 onwards, per its charter terms. As a result, net profit fell 25.7% QoQ to US$7.2m. RMT will pay out 2.25 US cents for the quarter, flat QoQ and up 5.1% YoY. This translates to an annualized yield of 34% and a distribution payout of 63%. The manager said that given current conditions, it would not provide any guidance on FY09 DPU.
Large funding needs. RMT’s gearing has increased from 1.1x debt-toequity at 30 September to 1.5x as at 31 December. In January, RMT took delivery of its 14th vessel, MOL Destiny for US$72m. Including the January vessel, RMT is contracted to acquire US$1.1b worth of containerships over the next two years. RMT has credit facilities in place to fund the FY09 vessels costing US$420m in all. If the FY09 buys are fully debt-funded, we estimate RMT’s gearing will hit an unsustainable 2.7x on existing equity levels by year end.
And a large funding gap. Assuming the existing facilities are fully utilized, we estimate RMT would need to repay around US$17.9m of debt in FY09 and another US$157m in FY10. Additionally, RMT has yet to arrange funding for the US$711.6m vessels due in FY10. 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. The time for a fresh equity issue is fast approaching. An equity issue in FY09 itself is, in our opinion, necessary to strengthen RMT’s negotiating position with lenders.
Deadlocked until orderbook is ‘resolved’. The manager has so far only said that it “is exploring all options” to finance its order book but this is not enough. The market needs more clarity on financing conditions, the extent of fresh equity required, and the odds of ‘disappearing’ order book (through an outright vessel sale, a sale-and-leaseback or a sponsor “bailout”). A potential loan-to-market value covenant breach is another risk. The outcome of such a breach would depend on the health of RMT’s blue chip charterers and the risk appetite of its lenders. Maintain HOLD with S$0.40 fair value.
Rickmers – DBS
Financing remains key
Rickmers Maritime did not surprise and maintained its quarterly DPU payout of 2.25 UScts, in line with steady operating performance. We believe the payout can be sustained in FY09. However, RMT still needs to find a solution to its committed FY10 capex needs of US$711m. In addition, near term refinancing needs include a US$130m bullet repayment due in 1H10. With spot charter rates currently hovering around 50-60% below contracted long term charter rates, the risk of renegotiations cannot be ruled out either. Hence, we maintain HOLD at a reduced target price of S$0.40.
Net profit affected by impairment charges. In a prudent move, RMT took a US$3.5m impairment charge on the Maersk Djibouti vessel to account for the risk that Maersk may exercise the early termination option by Feb’10. No other vessel has this clause, however.
Current Loan to Value ratio is within range but risks persist. Data from Clarksons Research indicates that newbuilding prices for similar vessels as those on RMT’s orderbook may have fallen 10-12%. We estimate one of the loan tranches, a US$288m facility financing the 5 Mitsui ships, may be at risk of technical default.
FY09 DPU should be stable, but lack of visibility. RMT will add 5 vessels to its portfolio this year, fully financed by existing credit lines. This should ensure enough cash flows in FY09 for RMT to maintain the 2.25 UScts quarterly payout, even while conserving cash. However, with financing uncertainties looming, dividend visibility may be clouded beyond that. In our forecast numbers alongside, we assume a 60% debt-funded potentially dilutive acquisition scenario. But our target price of S$0.40 is derived as the average of fair values under 3 probable scenarios – I) as described above, ii) non-realization of above acquisition and cash flows accruing only from portfolio as of end-FY09 and iii) inability to conclude near-term refinancing deals.
Rickmers – BT
Impairment charge hits Rickmers’ Q4 earnings
RICKMERS Maritime Trust has posted a 23 per cent fall in net profit for the fourth quarter to US$7.2 million, due to US$3.5 million in provisions for impairment of a vessel. But the shipping trust recommended a distribution per unit (DPU) of 2.25 US cents, the same as for the third quarter and 5 per higher than the 2.14 US cents a year ago.
Net profit for the year came to US$34.4 million, up from US$20.6 million for 2007. Rickmers was formed in March 2007 but commenced activities only upon listing on May 4, 2007.
Fourth-quarter charter revenue rose 76 per cent to US$29.6 million from US$16.8 million a year ago. For the full-year, charter revenue leaped to US$102.1 million from US$37.6 million (for the portion of 2007 that the trust was operating) as Rickmers rapidly added vessels to its fleet in 2008.
Fleet size rose to 13 vessels at end-2008 from nine at end-2007. In FY2008, Rickmers accepted delivery of a 3,450 twenty-foot equivalent unit (TEU) vessel which has been leased to Evergreen unit Italia Marittima on an eight-year fixed-rate charter and three 4,250 TEU ships chartered to Mitsui OSK Lines on 10-year fixed-rate charters.
DPU for 2008 came to 8.89 US cents, representing an average payout ratio of 73 per cent. However, CEO of trustee-manager Rickmers Trust Management, Thomas Preben Hansen, was unwilling to provide further DPU guidance in the current climate even though he believed there is ‘no reason to cut DPU guidance’.
CFO Quah Ban Huat said: ‘In this climate, we took a prudent approach of providing for vessel impairment of US$3.5 million in the fourth quarter of 2008 due to the risk that the charterer of one of our vessels may exercise an early termination option which could result in the redelivery of the vessel from February 2010 onwards.
‘This provision will not have any impact on our cash flow and distribution.’