(12-06-2011, 11:56 PM)tanjm Wrote: [ -> ]Undoubtedly my quick and dirty calculation can be improved on. But I should remind you that the purpose of conducting a valuation exercise is to find valuation mismatches between mr market and the valuation exercise. So saying that "the price is the price" is a null statement.
By the way I said 609 million assumed the 49 million was converted. Hence the share dilution. Either dilution or debt but not both
The total bank loan is US$656 million. The convertible loan is another issue altogether.
Bank Loans: US$656 million
Convertible Bond: US$49 million
Total Interest Bearing Loans: US$705 million
Like you, I assumed conversion as well.
The bank loans are secured by the fleet with its VTL ratio being reduced to 100% for the next 2.5 years. After which, it reverts back to 125%. RMT doesn't reveal the charter-free valuation of its fleet so I have no idea what the current VTL ratios are. In any case, it should improve as de-leveraging efforts continue.
I am not saying that RMT is correctly (or incorrectly) valued at the moment. I am just voicing my opinion that book value figure matters little in valuing the shipping trust - instead distributions and its payout ratio matter more (together with gearing etc). A healthy shipping trust should exhibit stagnating (100% earning payout) or a growing book value (< 100% payout ratio). In RMT case, NAV should rise dramatically as it only pays out 27% of its profit to unit-holders (based on 1Q figures). In other words, the NAV should exceed the current value of 86 US cents by 2015 (assuming no conversion) by a wide margin due to the growth in retained earnings ! This also assumes no impairment charges will be done on the vessels.
However, historically (and even today), the market has rarely allowed any shipping trust to trade at a premium to its NAV. Even PST with its growing fleet and stable DPU trade at 20% discount to its NAV and yet a decent 9% yield. Generally, I noticed yield tend to determine the price while the book value figure seems to be ignored.
An extremely good example would be FSLT and its unit price performance for the past 1 year. In Oct 2010, the Management revealed that the charter-free valuation of its fleet amounted to US$700.3 million. This means that the valuers assumed all of the counter-parties defaulted on the charter and FSLT sold its vessels in open market at that time, it would have gotten US$700.3 million. Using this figure to replace the book value of the fleet in its B/S in 3Q 2010, I would attain NAV of US$254 million or 43 US cents yet the unit price rarely traded above 43 SG cents over the past 12 months. I think this is due to the yield since investors purchase FSLT for income rather than in the hopes of liquidation. FSLT units were priced based on its distribution yield rather than its 'worst case NAV' and I think this applies to most shipping trust. Again, this is my own view so feel free to disagree or point out any incorrect assumptions made.
A significant portion of its cash-flow will go to debt amortization to repay its loans (most of it due in 2017 and 2019). Unless they can push the maturity dates back for another 3-5 years, it will be difficult to increase the cash-flow available for distributions. Since it is unlikely RMT will improve on its DPU for the next few years without loan refinancing, I don't expect any improvement in the unit price barring any unforeseen circumstances (like a major shipping revival). I could be wrong - if you believe DPU will rise in the next few years, I would like to hear your views.
I am not vested in any shipping trust at the moment but I am always interested in learning more about yield stocks