http://infopub.sgx.com/FileOpen/First%20...eID=446902
FSL has released its annual report with a few highlights:
1) The chairman is concerned on the values of the vessel. As of now FSL has made impairments to " 5 container ship,2 crude oil tanker (FSL Shanghai & Hong Kong) & 1 product tanker" . In my opinion, there may be more impairments from the other product tankers because of declining MR rates. So expect net profit to be zero this FY; no need pay tax to agencies like IRAS again
. If i was smart, I would space out my impairments over a few years to match the lease expiry, so that my net profit will always be zero with positive cash flow
2) This leads to the issue of loan valuations. As of 31 March 17, outstanding loan is US$190, one question i will ask is what is the current LTV ratio? This may shed light on the actual value of all its 22 vessels. Also, it seems last year's talk on getting a loan renewal was untrue as FSL mgmt is still trying to get debt refinancing.
<vested>
Thanks boon. Actually i was trying to make the impairment as a joke- by suggesting to stagger impairments to avoid paying taxes.
Building on your 50% BBCE fall in revenue due to the tanker segment downturn, it made me think deeper about FSL's trust cash generation ability. I built on this assumption: i) interest expense 5%, ii) dry docking and other cash outflow of 4mil & iii) its BBCE for container will not be affected until FY2020
For FY 16, FSL total BBCE was 72.8 mil. With 20.8 coming from its 3 Yang Ming containers, we can actually "agar" that if the remaining BBCE takes a 50% cut, new BBCE revenue will be 26 mil. As these effect will occur from 2018. I can roughly plot the cash flow.
2017: Total cash inflow about 40 + 20.8 (from container) - 4 = USD 56.8 mil
2018: 26 + 20.8- 4 = USD 42.8 mil
2019: 26 + 20.8- 4 = USD 42.8 mil
2020: 26 + 10.4 (assumed half BBCE for container) - 4 + (4.5*3) scrapping of the 3 container ship = USD 43.9mil
2021 to 2026 : USD 24 mil each year (assumed the 2 feeder containers are also scrapped)
Total Cash flow generation: USD 316mil by 2026.
From this projection, it seems it will take FSL until 2021 to clear its total debt. And from 2022 until 2026 (about the 20th year of the fleet), will the cash flow be for unit holders. This works out to be about s$158 mil for shareholders and 16 tankers for scrapping (assume s$34 mil). At current market capitalization of s$ 83 mil, the implied return for a 10 year wait is about 8.7% per annum.
Perhaps it may be good for a rights to be done to alleviate some of the the interest expense which will work out to be about USD28.2 mil (s$40 mil)
As one will notice, the value of fsl varies greatly upon the assumptions we make to it's cash flows
Hi CY09,
This scenario should be pretty close to yours.....................
Too conservative, perhaps ?
FSL Charter Profile: (total = 22 vessels):
1 product tanker (MR) in pool with Hafnia
2 feeder containership in pool with HANSE
3 chemical tankers in pool with Nordic tankers
2 product tankers expiring in 2021 (on fixed rate bareboat charters to Fisher)
3 containerships with leases expiring in 2020 (on fixed rate bareboat charters to Yang Ming)
2 product tankers (LR2) with leases expiring in 2018 ; TORM
7 product tankers with leases expiring in 2017, of which 5 have option for lease renewal.
2 crude oil tankers (Aframax) with leases expiring in 2017.
In summary :
=> 5 vessels with leases expiring in 2020/2021 (with current BBCE revenue ~ USD 22 m per year)
=> 11 vessels with leases expiring in 2017/2018 (FY2016 BBCE revenue ~ USD 37 m)
=> 6 vessels in “pool” (FY2016 BBCE revenue ~ USD 14 m)
BBCE revenue reduction assumptions:
=> No reduction for the 5 vessels until after 2010/2021. From 2020, apply a 50% reduction. => - 11 m reduction per year
=> For the 11 vessels with leases expiring in 2017/2018, apply a 50% reduction from 2017 => - 18.5 m reduction per year
=> For the 6 vessels in “pool’, apply a 50% reduction from 2017, => -7 m reduction per year.
Expenses assumptions:
Dry docking = USD 2 m per year
Trust operating expenses (TOE) = USD 5 m per year.
2016:
BBCE Revenue = 73 m
Cash = 43 m
Debt = 223 m
2017:
BBCE Revenue = 73 – 18.5 – 7 = 47.5 m
Dry docking = - 2 m
TOE = - 5 m
Interest exp = 4.5% x 223 m = - 10 m
Debt repayment = - 44 m
Cash = 43 + 47.5 – 2 – 5 – 10 - 44 = 29.5 m
Debt = 223 – 44 = 179 m
2018:
BBCE Revenue = 47.5 m
Dry docking = - 2 m
TOE = - 5 m
Interest exp = 4.5% x 179 m = - 8 m
Debt repayment = - 44 m
Cash = 29.5 + 47.5 – 2 – 5 – 8 - 44 = 18 m
Debt = 179 – 44 = 135 m
2019:
BBCE Revenue = 47.5 m
Dry docking = - 2 m
TOE = - 5 m
Interest exp = 4.5% x 135 m = - 6 m
Debt repayment = - 44 m
Cash = 18 + 47.5 – 2 – 5 – 6 - 44 = 8.5 m
Debt = 135 – 44 = 91 m
2020:
BBCE Revenue = 47.5 m – 11 m = 36.5 m
Dry docking = - 2 m
TOE = - 5 m
Interest exp = 4.5% x 91 m = - 4 m
Debt repayment = - 34 m
Cash = 8.5 + 36.5 – 2 – 5 – 4 - 34 = 0
Debt = 91 – 34 = 57 m
2021:
BBCE Revenue = 36.5 m
Dry docking = - 2 m
TOE = - 5 m
Interest exp = 4.5% x 57 m = - 2.5 m
Debt repayment = - 27 m
Cash =0 + 36.5 – 2 – 5 – 2.5 - 27 = - 0
Debt = 57 - 27 = 30 m
2022:
BBCE Revenue = 36.5 m
Dry docking = - 2 m
TOE = - 5 m
Interest exp = 4.5% x 30 m = -1.5 m
Debt repayment = - 28 m
Cash = 0 + 36.5 – 2 – 5 – 1.5 – 28 = 0
Debt = 30 -28 = 2 m
2023:
BBCE Revenue = 36.5 m
Dry docking = - 2 m
TOE = - 5 m
Interest exp = 4.5% x 2 m = 0 m
Debt repayment = - 2 m
Cash = 0 + 36.5 – 2 – 5 – 0 - 2 = 27.5 m
Debt = 0
2024:
BBCE Revenue = 36.5 m
Dry docking = - 2 m
TOE = - 5 m
Interest exp = 0
Debt repayment = 0 m
Cash = 27.5 + 36.5 – 2 – 5 – 0 – 0 = 57 m
Debt = 0
2026:
Debt = 0
Cash = 57 + (36.5 – 2 – 5) x 2 = 116 m = USD 18 cents per share
Note:
gzbkel, CY09 and I have been trying to find a conservative “floor” value in viu and I must admit it is not an easy endeavor. Each analysis is only as good as its underlying assumptions. What seems to be a conservative assumption today may not look so in the future if charter rates were to decline further going forward………………………
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(09-04-2017, 08:31 PM)CY09 Wrote: [ -> ]Thanks boon. Actually i was trying to make the impairment as a joke- by suggesting to stagger impairments to avoid paying taxes.
Building on your 50% BBCE fall in revenue due to the tanker segment downturn, it made me think deeper about FSL's trust cash generation ability. I built on this assumption: i) interest expense 5%, ii) dry docking and other cash outflow of 4mil & iii) its BBCE for container will not be affected until FY2020
For FY 16, FSL total BBCE was 72.8 mil. With 20.8 coming from its 3 Yang Ming containers, we can actually "agar" that if the remaining BBCE takes a 50% cut, new BBCE revenue will be 26 mil. As these effect will occur from 2018. I can roughly plot the cash flow.
2017: Total cash inflow about 40 + 20.8 (from container) - 4 = USD 56.8 mil
2018: 26 + 20.8- 4 = USD 42.8 mil
2019: 26 + 20.8- 4 = USD 42.8 mil
2020: 26 + 10.4 (assumed half BBCE for container) - 4 + (4.5*3) scrapping of the 3 container ship = USD 43.9mil
2021 to 2026 : USD 24 mil each year (assumed the 2 feeder containers are also scrapped)
Total Cash flow generation: USD 316mil by 2026.
From this projection, it seems it will take FSL until 2021 to clear its total debt. And from 2022 until 2026 (about the 20th year of the fleet), will the cash flow be for unit holders. This works out to be about s$158 mil for shareholders and 16 tankers for scrapping (assume s$34 mil). At current market capitalization of s$ 83 mil, the implied return for a 10 year wait is about 8.7% per annum.
Perhaps it may be good for a rights to be done to alleviate some of the the interest expense which will work out to be about USD28.2 mil (s$40 mil)
As one will notice, the value of fsl varies greatly upon the assumptions we make to it's cash flows
Looks like your prediction on the rights issue may come true.
I notice the below paragraph was mentioned in the Chairman's Letter to Unitholders in the latest AR2016 on page 5.
The highest priority for the Board is to secure a refinancing of the outstanding debt, and to this end we are considering a variety of strategies.
As a Board, we are committed to improving the structure of the Trust’s balance sheet in a manner that enables unitholders to benefit. This will require the balance sheet to be strengthened and we are considering various options in this regard. As part of these considerations we are requesting Unitholders to approve a general mandate to issue pro-rata renounceable rights of up to 100% of the Trust’s capital.
(not vested)
Hi boon,
that's the problem. We really cant predict the future trend for charter rates. I tried it with Penguin and failed miserably.
Just curious are you an investor of FSL. It is highly likely I will attend its AGM on 28 April 17 at Suntec, maybe can see you there
(12-04-2017, 11:16 PM)Boon Wrote: [ -> ]If it is solely for the purpose of replacing its debt, it makes no sense, as cost of equity is almost always higher than cost of debt - there must be a better reason for it.
“To strengthen the Trust’s balance sheet in a manner that enables unitholders to benefit.”
What exactly does it mean?
Is rights issue the only option available to strengthen the Trust’s balance sheet in a manner that enables unitholders to benefit ?
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Boon san
I wonder about that too.
In fact, I find the Chairman's statement very puzzling:
1. In the results announcement in Feb 2017, the management was asked about the refinancing. They appeared to be pretty confident and said that it would be completed by 2Q/3Q17. AFAIK, the market for boat charter would have been firmer or at least no worse from Feb 2017.
2. In the power struggle between Hatton and Reid, Reid quoted Hatton => "That the Board’s priority was to give it more control over executive functions, rather than focus on refinancing plans, and was rejecting viable refinancing plans." Reid
DID NOT REFUTE the point by Hatton that there were indeed viable refinancing plans. But now, Reid appears to be putting all the blame on Hatton on the refinancing delay.
One other possibility for fund raising is that FSL wanted to buy more ships.
If FSL were to buy them from related parties, that would amount to asking unitholders for an indirect bailout.
Unitholders cannot vote against ship acquisitions but surely, they can vote against the rights issue.
(12-04-2017, 11:16 PM)Boon Wrote: [ -> ]“To strengthen the Trust’s balance sheet in a manner that enables unitholders to benefit.”
What exactly does it mean?
Is rights issue the only option available to strengthen the Trust’s balance sheet in a manner that enables unitholders to benefit ?
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"Enable unitholders to benefit" --> so that this group of people can continue to HOPE for dividend payout down the road.
Lets see what are other options to raise capital:
1) Sell assets
It will be seen as a fire sale and don't expect good prices. If thats the route they want to take then might as well liquidate the whole thing and distribute whatever is remaining to unitholders.
2) Financial institution loan
Under the current sentiment in the shipping industry, getting more loans will be difficult. FSL will be happy if their current loans dont get recalled back early.
3) Private placement
FSL can find 3rd party investors. But i am sure they will ask for a big discount so ultimately will dilute the holding of current unitholders. Not seen as unitholder friendly.
4) Issue bonds
The problem is not issuing bonds. But only a very high coupon rate will attract investors. And bondholders will rank ahead of unitholders for any amount of money FSL can distribute.
5) Issue rights
Option that makes sense and with the least resistance. Current unitholders are already in all this mess. So easier to milk them for more.
Those who disagree can sell their shares. The remaining ones need to fork out more $$ to maintain their holding proportion. And most importantly, everyone can continue to HOPE.