FInAnCe
Investors need more trust L
Lack of trading volume remains an issue
acklustre interest from institutional investors and limited capital will continue to be the
constraining factors for business expansion plans of the three Singapore-listed shipping trusts. FSLTrust, Pacific ShippingTrust
(PST) and Rickmers Maritime are facing similar challenges in trying to win the hearts of investors, as they continue to trade below their IPO prices since their debuts on the Singapore Exchange just a few years ago. FSL will venture into the offshore vessels
market if it can overcome the arduous task of securing sufficient capital for vessel acquisition, according to its president and ceo Philip Clausius. “Our offshore plans have been around for a while now, and it would be a desirable diversification for us,”Clausius says. “Having a greater portfolio of assets and
lessees is one of our top priority, but not at the expense of excessive credit or asset risks,” he says. FSL's portfolio of 23 vessels consists of product
tankers, container ships, chemical tankers, crude oil tankers and dry bulk carriers from seven shipping companies or lessees. Its current available capital of $50-60m is only enough to make one vessel
acquisition.The trust has not acquired any vessels since October 2008.“The fact that we have not been doing any acquisitions for a while has nothing to do with not looking at any transactions,”Clausius highlights. “We have learned from the (2008-09) crisis to
be disciplined, as it is sometimes better to not do something.”He explained that the complex and lengthy tasks involved in vessel acquisitions mean
the hit rate is typically one successful transaction out of ten. Despite the hiatus in acquisition,
FSL's portfolio has a remaining contracted revenue of $597.3m with an average remaining lease term of 7.2 years as at 31 December 2010. “We have a very significant
revenue certainty over the next few years. Frankly, not many businesses allow you to predict your revenues
over the next seven years.Hence this is very good visibility for us,”Clausius says. He pointed out that all the shipping trusts have
managed to hold up very well during the worst shipping crisis in 2008-09 since the 1980s. FSL has lost just 10% of revenue during the 2008-09 crisis. “That [10% lost in revenue] in the shipping context is absolutely
nothing.Companies that are truly exposed in the shipping market cycle have lost 40-50% of their revenues,” he says. In 2010, the trust was also hit by a 10.9% year-
on-year drop in net cash generated due to the termination of bareboat leases on the two product tankers,which are now temporarily deployed in the spot market since July 2010. In January FSL announced a fourth quarter
distribution of $5.7m or $0.95 per unit to its unit
holders.The distribution per unit (DPU) of $0.95 is unchanged from the third quarter, representing an annualised tax-exempt yield of 10.2%. Despite good yields of about 10% a year, better
than 5-6% from real estate investment trusts (REIT), the trust's business model remains fairly unfamiliar among investors. Lim Sim Keat, ceo of PST, is confident that with
better investor education and increasing investor appetite for yield, the trust's trading volume will see improvement this year. PST will be looking at diversification into
every major sector of the shipping industry instead of restricting itself to any particular sector, thereby leaving its options open to any deals that come, according to Lim. “There will always be deals on the table and options for PST to consider.However, the mix of asset price and charter rates, as well as strong and reputable counterparties, must always make sense for PST and its unitholders,” he says. “We will continue to look at
diversification of asset class and widening of our charter base.”
PORT TRUST MEGA-IPO
HutchisonWhampoa took advantage of the business trust model for the Singapore Exchange’s (SGX) largest ever initial public offering (IPO) in March this year. HPHTrust raised $5.45bn in
the IPO with the trust’s units debuting on SGX on 18 March. The offer was oversubscribed by about three times. “This is a key milestone for
the Hutchison group and we are very excited to list the first container port business trust in Singapore,” says Canning Fok, chairman of the Hutchison Port Holdings Management. Although the trust fell in its
first afternoon’s trading Fok was confident about its outlook.“Considering the situation I think it’s an excellent result.We got excellent support in the roadshow and I am very positive about whole thing,” he told reporters shortly after the units started
trading.Markets had taken a hit that week due to the earthquake and tsunami in Japan and the growing unrest in Libya. Fock SiewWah chairman of
PSA International says:“PSA International is pleased to be associated with the Hutchison Port Holdings (HPH)Trust as a significant investor.We are confident that the terminals under the capable management of the HPHTrust management team will continue to develop and expand to support the well established and still growing manufacturing, logistical and other economic activities at the Pearl River Delta in South China.”
Seatrade Singapore Report 2011 27
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