Rickmers Maritime Trust

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I just quickly re read their 2012 financial statement. Their bank loan interest expense was only 13.7 million while the interest expense on their swaps was 20 million.

Their swap interest expense (a real cashflow) was twice their dividend payout last year!

So that's the bad news. The good news is when their swaps expire, their cashflow will rise by about 2.2 us cents per share (diluted). The problem is that RMT isn't revealing when.
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(30-07-2013, 08:50 AM)tanjm Wrote: I just quickly re read their 2012 financial statement. Their bank loan interest expense was only 13.7 million while the interest expense on their swaps was 20 million.

Their swap interest expense (a real cashflow) was twice their dividend payout last year!

So that's the bad news. The good news is when their swaps expire, their cashflow will rise by about 2.2 us cents per share (diluted). The problem is that RMT isn't revealing when.

Oh page 50

A derivative fi nancial instrument is initially recognised at its fair value on the date the contract is entered into and is
subsequently carried at its fair value. The method of recognising the resulting gain or loss depends on whether the
derivative is designated as a hedging instrument, and if so, the nature of the item being hedged.
The Group documents at the inception of the transaction the relationship between the hedging instruments and hedged
items, as well as its risk management objective and strategies for undertaking various hedge transactions. The Group
also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives designated
as hedging instruments are highly effective in offsetting changes in fair value or cash fl ows of the hedged items.

The carrying amount of a derivative designated as a hedge is presented as a non-current asset or liability if the remaining
maturity of the hedged item is more than 12 months, and as a current asset or liability if the remaining expected life of
the hedged item is less than 12 months.

Cash fl ow hedge – Interest rate swaps
The Group has entered into interest rate swaps that are cash flow hedges for the Group’s exposure to interest rate risk
on its borrowings. The interest rate swaps entitle the Group to receive interest at fl oating rates on notional principal
amounts and oblige the Group to pay interest at fixed rates on the same notional principal amounts, thus allowing the
Group to raise non-current borrowings at floating rates and swap them into fixed rates that are lower than those available
if it borrowed at fixed rates directly.

The fair value changes on the effective portion of the interest rate swaps designated as cash fl ow hedges are recognised
in other comprehensive income and transferred to profi t or loss when the interest expense on the borrowings are
recognised in profi t or loss. The fair value changes on the ineffective portion of the interest rate swaps are recognised
immediately in profit or loss.


Wouldnt the above imply that the interest paid on swaps should also be part of the interest Rickmers pay for their loans? If thats the case, there is nothing wrong with the interest on the swaps being twice the dividend paid. The dividend was cut down simply because the Rickmers needed to conserve cash at the Group level to maintain the VTL ratio requirement as a condition for the loans secured against the vessels.

(29-07-2013, 11:15 PM)opmi Wrote: If can be so chun on container shipping cycle, buy NOL or MISC liao. Better bet than RIckmers

NOL has 4billion in outstanding loans and cant pay dividends out of cashflow.
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if think container shipping cycle turning, then cashflow will improve greatly.

I am generalising only. never read up on shipping yet.
"... but quitting while you're ahead is not the same as quitting." - Quote from the movie American Gangster
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(30-07-2013, 09:08 AM)propertyinvestor Wrote: Wouldnt the above imply that the interest paid on swaps should also be part of the interest Rickmers pay for their loans? If thats the case, there is nothing wrong with the interest on the swaps being twice the dividend paid. The dividend was cut down simply because the Rickmers needed to conserve cash at the Group level to maintain the VTL ratio requirement as a condition for the loans secured against the vessels.

Please read the financial statement. It doesn't take a math genius to take the total interest expense and divide by the amount of loan. This will give you the effective interest paid on their debt. It is not 2% (LIBOR+1.75%), it is more like >5%.

Even with the high interest expense, RMT has more than enough cashflow to pay dividend and pay down loan principal. Hence, my use of "good news", "bad news".

RMT has not lied exactly, but has misdirected investors by trumpeting the low face value rates paid on their loans, and burying the swap expense in the footnotes. That's the bad news. To be absolutely clear : the bad news isn't that they can or cannot pay dividend. The bad news is that they weren't completely transparent.

The good news is that once the swaps expire (again I stress - RMT is not divulging when), investors stand to gain up to an additional 2 cents per share of cashflow, unless LIBOR rises to the level of about 3%+ (rather unlikely in the mid term I think). Hence, RMT the firm is unlikely to be negatively affected by any rate increases in LIBOR. Of course, Mr Market can be irrational and sell down RMT along with other stocks should the Fed take some public action.

(30-07-2013, 10:26 AM)opmi Wrote: if think container shipping cycle turning, then cashflow will improve greatly.

I am generalising only. never read up on shipping yet.

And we so value your informed opinion. Wonderful stuff you post.
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Financial Statements: http://infopub.sgx.com/FileOpen/Announce...eID=260562

Press Release: http://infopub.sgx.com/FileOpen/RM_3Q201...eID=260563

Presentation Slides: http://infopub.sgx.com/FileOpen/3Q2013_R...eID=260566


Quote:
3Q2013 HIGHLIGHTS
- Charter revenue stable at US$36.6 million
- Net profit surged 59% year-on-year to US$13.1 million
- Achieved vessel utilisation rate of 99.9%; Kaethe C. Rickmers’ charter extended for a further six months
- Distribution per unit of 0.6 US cent to be paid on 27 November 2013

(not vested)
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The problem for Rickmers is that 2014 sees four long term charters expiring (the company currently only has one ship on short term charter) and 2015 sees another five expiring. The current long term charters pay about USD 24-25,000 a day but the spot market is only around USD 6-7,000. The company will still be fine in 2014 but 2015 will see a major impact on cashflows unless there is a strong market recovery. Although old ships are increasingly being scrapped, there are still plenty of newbuilds scheduled for delivery so the shipping container market continues to be in imbalance.
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(23-10-2013, 07:51 AM)GreedandFear Wrote: The problem for Rickmers is that 2014 sees four long term charters expiring (the company currently only has one ship on short term charter) and 2015 sees another five expiring. The current long term charters pay about USD 24-25,000 a day but the spot market is only around USD 6-7,000. The company will still be fine in 2014 but 2015 will see a major impact on cashflows unless there is a strong market recovery. Although old ships are increasingly being scrapped, there are still plenty of newbuilds scheduled for delivery so the shipping container market continues to be in imbalance.

Indeed. In addition, my understanding from my logistic acquaintance is that the whole container shipping industry is undergoing a transformation and reorganization in terms of how goods are moved.

As a result small container ships are rapidly falling out of favor. Rickmer's ships are all quite small <5,000 TEU if I'm not wrong. This doesn't bode well.
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(23-10-2013, 10:33 AM)mobo Wrote:
(23-10-2013, 07:51 AM)GreedandFear Wrote: The problem for Rickmers is that 2014 sees four long term charters expiring (the company currently only has one ship on short term charter) and 2015 sees another five expiring. The current long term charters pay about USD 24-25,000 a day but the spot market is only around USD 6-7,000. The company will still be fine in 2014 but 2015 will see a major impact on cashflows unless there is a strong market recovery. Although old ships are increasingly being scrapped, there are still plenty of newbuilds scheduled for delivery so the shipping container market continues to be in imbalance.

Indeed. In addition, my understanding from my logistic acquaintance is that the whole container shipping industry is undergoing a transformation and reorganization in terms of how goods are moved.

As a result small container ships are rapidly falling out of favor. Rickmer's ships are all quite small <5,000 TEU if I'm not wrong. This doesn't bode well.

Maersk Monster Ships Create Capacity Glut to Clip Kuehne
Bloomberg 15 Oct 2013

http://www.bloomberg.com/news/print/2013...wdown.html

A.P. Moeller-Maersk A/S (MAERSKB)’s fleet of 1,300-foot container ships has worsened a capacity glut that’s depressing freight rates and eroding earnings, Kuehne & Nagel International AG (KNIN), the No. 1 sea-freight forwarder, said today.

The three Triple-E class ships, the largest in the world, are exacerbating the effects of slowing demand on routes linking Asian exporters with consumers in Europe, Kuehne & Nagel Chief Financial Officer Gerard van Kesteren said in an interview after the company’s third-quarter profit missed analyst estimates.

Maersk has ordered 20 Triple-E vessels as the Copenhagen-based company seeks to cut operating costs per container and grab a bigger slice of a market that’s struggled to recover from the global slump and European debt crisis. Kuehne & Nagel, whose stock fell the most since March on the profit figures, is among companies most exposed to the capacity glut as it buys deck space from Maersk and its competitors to consolidate shipments.

“There is structural overcapacity, and now the 18,000-container ships are being put into production by Maersk, creating extra overcapacity,” van Kesteren said. “Shipping lines are trying to get business back. It’s cutthroat competition.”

Shares of Schindellegi, Switzerland-based Kuehne fell 4.3 percent, the steepest intraday decline since March 4, and were trading 4 percent lower at 113 francs as of 4:02 p.m. in Zurich.
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In view of the continuous depressed shipping outlook and freight charter rates, I don't expect the LTV covenants to be withdrawn any time soon. With the LTV covenants in play, together with 4 long-term charters expiring next year, I will not surprise if Rickmers raises further capital again by either private placement or right issue. Somehow I just don't understand why the management could be so positive and generous to pay 10% dividend a year, if you look at their loan repayment schedule, it is obviously Rickmers is facing significant cash flow issue. I recalled that Rickmers promised to continue with distribution USD0.6c per quarter for the year 2013, but this should not happen in 2014 unless the charter rates get healthy again.

(not vested)
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ESTABLISHMENT OF S$300,000,000 MULTICURRENCY MEDIUM TERM NOTE PROGRAMME

http://infopub.sgx.com/FileOpen/RM_SGX_A...eID=265083

Maybe this could be used to refinance the secured debt or finance acquisitions of new vessels ?

(Not Vested)
Disclaimer: Please feel free to correct any error in my post. I am not liable for anything. Do your own research and analysis. I do NOT give buy or sell calls and stock tips. Buy and sell at your risk. I am not a qualified financial adviser so I do not give any advice. The postings reflects my own personal thoughts which may or may not be accurate.
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