Category: Rickmers
Rickmers – BT
Rickmers secures US$627.5m facilities
RICKMERS Maritime has secured US$627.5 million in new credit facilities. The funds will be used in its fleet expansion. Rickmers said it will benefit from attractive interest rates ranging from 0.95 per cent to 1.2 per cent above US$ Libor per annum. A significant portion of the credit facilities will be hedged, thereby fixing the future cost of debt financing, it said.
Shipping Trusts – OCBC
Trust versus Trust
Attractive asset class as a whole. We have BUY ratings on all three shipping trusts – Rickmers Maritime (RMT), Pacific Shipping Trust (PST), and First Ship Lease Trust (FSLT). The asset class as a whole is very attractive – unitholders gain exposure to an attractive sector while sidestepping some of the inherent volatility of the industry thanks to long lease terms and cash flow visibility. The trusts’ shipping income is taxexempt and distributions are also tax-exempt for all investors. All three trusts offer attractive distribution yields of more than 10-12% and potential for DPU accretion.
Payout strategy and asset yields vary. We believe key performance criteria include: 1) asset yields and distribution pay-out strategy, and 2) growth plans and leverage. We estimate that PST’s vessels feature relatively higher asset yields versus the other listed peers. Meanwhile, FSLT is the only trust to distribute 100% of its cash income. Consequently, its DPU consists of a return on unitholders’ investment (net income) and a return of invested principal (depreciation). PST has pegged its debt repayment to its depreciation charge in an effort to preserve NAV. RMT is currently retaining more than 25% of its cash income, which it can utilize for capex. RMT’s future payout strategy has not been explicitly stated.
Big plans for growth. All three trusts plan to aggressively grow through DPU-accretive acquisitions, with RMT growing at the fastest pace and magnitude. PST and FSLT are targeting about US$200 and US$300m in acquisitions yearly. RMT is contracted to acquire US$1.35b worth of vessels over 2008-2010, once approval is finalized in an upcoming EGM. These growth plans are powered through leverage. By the end of this year, we believe the trusts’ debt-to-equity will range from over 1x to 2x. Business trusts have no gearing limit but we believe a sustainable debt-to-equity target is 1x because of the high volatility in vessel values. In our view, the trusts’ growth beyond 1-1.5x can only be sustained by further equity issues. Some of the trusts may have an option to postpone the next issue – for instance, RMT’s debt-to-equity might increase to 3x before the next tranche is raised – but the need for fresh equity is inevitable at this pace.
Our top pick is PST. The reengineering of PST’s debt model over 2008 presents a one-time opportunity of sharply increasing DPU through accretion from leverage and a higher payout strategy.
Source : OCBC Securities
Rickmers – BT
Rickmers inks US$1.35b deal
Purchase of 13 new container ships will triple contracted fleet capacity
RICKMERS Maritime has moved a step closer to acquiring 13 new vessels that are expected to treble its contracted fleet capacity when fully delivered.
The company, which owns and operates container ships, has inked a memorandum of agreement (MOA) to buy the 13 new container ships from Polaris Ship Management Company for US$1.35 billion.
This follows the preliminary agreements that were signed between the two companies last year. The ships, slated for delivery between 2008 and 2010, will take the firm’s fleet size to 23 and increase its contracted fleet capacity by over 220 per cent.
Five 4,250 TEU (twenty-foot equivalent unit) vessels from this acquisition will be chartered to Mitsui OSK Lines, while four others of similar capacity will be contracted to South Korea’s Hanjin Shipping. Four 13,100 TEU vessels, among the largest in the world, will be chartered to AP Moller-Maersk. The tenure of these fixed-rate charters range from seven to 10 years.
‘I am confident that our investors will share our excitement with this 222 per cent growth pipeline, which includes four of the largest container ships ever built,’ said Thomas Hansen, CEO of Rickers Trust Management (RTM), which manages Rickmers Maritime. ‘The MOA signifies our commitment in growing the trust and we will continue to keep a lookout for other viable acquisitions that fit our investment mandate and allow us to deliver positive returns to our unit holders.’
The ships are set to boost Rickmers’ distributable cash flow once they are delivered and in operation. ‘They are expected to increase Rickmers Maritime’s aggregate contracted revenue in excess of US$2.1 billion for the years up to 2010,’ said Quah Ban Huat, Rickmers Maritime chief financial officer.
The purchase of the vessels is still subject to the approval of unit-holders.
Rickmers – OCBC
A Tale of Two Bets
Competitive distribution yield despite cash retention. Rickmers Maritime (RMT) is a listed shipping trust. Its shipping and distribution incomes are tax-exempt for all investors. RMT currently distributes 8.56 US cents annually. With its current price at S$1.06, or US$0.76, this translates to an attractive yield of 11.2%. In comparison, the Singapore 10-yr government bond yields 2.24%. RMT’s yield is also on par with the other shipping trusts listed on SGX, despite RMT retaining more than 25% of its cash income (net income + non-cash charges like depreciation) for capex. Note that non-USD investors would see their distributable income
subject to forex fluctuations.
Relatively lower asset yields. The shipping trusts’ vessels can be judged on their earning prowess – or their asset yield (annual lease income to acquisition cost of asset). We estimate that RMT’s vessels feature relatively lower asset yields, net of time charter expenses, versus the other listed peers.
Big plans for growth. RMT is growing at the fastest pace and magnitude of all the shipping trusts. RMT has already grown its portfolio from five vessels at its May 2007 IPO to ten by January this year. It is contracted to purchase another 13 ships over 2008-2010 for a total consideration of about US$1.35b. This will boost its fleet capacity by 3.2x, from 40,910 TEU currently to 131,560 TEU.
Leverage will spike. When RMT listed, it was entirely equity-funded. At 31 Dec 2007, its debt-to-equity ratio was 0.58x. To support its US$1.35b worth of acquisition plans, RMT would have to raise new equity eventually. However, the trust’s debt-to-equity could increase to 3x before the next tranche is raised. This is a double-bet, as RMT is focusing solely on the market for containerships, which is driven by the trade of manufactured goods.
Target price S$1.22. Our DCF value of the unitholders’ share in the trust is US$0.90 per unit. Based on OCBC Treasury’s view of a 1.35 SGD/USD exchange rate by end 2008, we set our target price at S$1.22, a 15% upside from the current price. Our valuation assumes the acquisition of another seven vessels for about US$500m over 2008-2012. With limited
clarity on RMT’s future distribution policy, we assume it continues to retain about 25-30% of its cash income. This still translates to high yields of 12.2% in FY08 (9.33 US cents DPU) and 14.4% in FY09 (11.01 US cents DPU). We are initiating coverage on RMT with a BUY rating.
Rickmers – UOBKH
4Q07 Distributions in line with management guidance
Rickmers Maritime (RMT) announced net profit of US$20.6m for FY07. This was 25% higher than what we had forecasted due mainly to higher negative goodwill on business combination and amortization of unfavourable charter rates (US$9.148m vs. US$6.116m) than what we had provided for. Bear in mind that these two items are accounting items and non-cash items and have no impact on distributable cash. Charter income for the period was about 1.2% higher than our forecasts mainly due to early delivery of two vessels in Dec 2007.
Distributable Cash Per Unit higher on early vessel deliveries. Distributable Cash Per Unit (DCPU) for the period came in at 6.5 US cents about 2% higher than what we had forecasted. This can be attributable to slightly higher charter income due to the early delivery of two vessels in December 2007. Distribution Per Unit (DPU) announced for FY07 was 5.64 US cents, in line with management’s guidance, but slightly lower than our expectations of 5.77 US cents as management has retained a larger portion for future acquisitions. For 4Q07, DPU paid will be 2.14 US cents and will be paid out on 27 March 2008. RMT units will trade ex-Distribution on 12 March 2008.
Maintain BUY: Target price unchanged at US$1.19 (S$1.68). We believe that the sell down in RMT’s shares is unjustified given the defensive nature of the earnings and distributions, due to its vessels being chartered out on long term fixed timecharters, with an average duration of nine years. Furthermore, RMT focuses on only the top liner companies in the world and its customers include Maersk Lines, CMA CGM, Italia Marittima, Hanjin Shipping and Mitsuit O.S.K. Lines. The shipping trusts in the US have rebounded following the fall in global equities in Nov 07 and are currently trading at distributions yields of about 6.0 to 6.5%. RMT is currently trading at an attractive distribution yield of 12.2%. We reiterate our BUY recommendation on RMT, with a target price of US$1.19 (S$1.68).