gsg_stock discussion

Some thoughts on Singapore first listed Business Trust- Pacific Shipping Trust

If anyone of you follows Singapore Shipping Corporation Ltd listed in Singapore Exchange, you will know that the boss Ow Choo Kiat sold all its container ships and make Singapore Shipping a very cash rich company, it looks like a smart thing to cash out as it is probably at the peak or very close to the peak Now a while after cashing out, we have samudera issuing profit warning and NOL's profit on the decline and people start to talk more clearly abt the down cycle.......

Probably the best time to invest in container shipping assets opportunistically will be to watch Ow Choo Kiat, if he ever gets back into container ships (he has mentioned he will be focussing on car-carriers, but if he ever decides to buy container ships, we will know there are money to be made)

This may not be the best time to invest in container shipping assets, but PST may be suitable for some (but make sure you know what you are getting into and not focus too much on the yield)

I will not subscribe to it as I think there will be better time to buy into PST for the following reason:
a. I do not think that 4% over US$ risk free rate is adequate
b. shipping cycle is clearly not on PST side, even though 8 years of charter already fixed
c. IPO priced above NAV of US$0.43
d. Container ships is not exactly a good store of value in the current environment as supply is theoretically unlimited since ships are movable and shipyard will keep churning out ships (unlike real estate, which is a better store of value as there is a limit to the supply and immovable)

Also I would like to make an distinction between Government Link companies, like Capitaland & Keppel Land and those owner-managed companies like UOL & Citydev

Even though launching REITs will surely improve the share price of UOL or CityDev, they are not willing to do so, as the owner do not care abt their share price but more on the value they will get for their properties on REITing them, this is as opposed to manager-managed companies, whose incentives may include options and performance shares and bonus somewhat indirectly linked to share price, profit on sales, etc

In my view, no right and wrong, but companies like UOL & CityDev will be more willing to REIT their properties asset closer to the peak of the property cycle

To a certain extent it is a zero sum gain, the investors of UOL and CityDev's REITs if they ever do a REIT will not have much of an upcycle to ride

It may or may not be an coincidence that PIL, a privately-owned company, took this step of list PST at this juncture

Some additional useful information on PST, wonder if 4% management fee is the typical fees in overseas shipping trust, I also wonder how 4% is arrived at for the service of the trustee-manager, which manages a business trust that bareboats out all its container ships:

Certain Fees

The following is a summary of certain fees payable by PST in connection with the establishment and on-going management and operation of PST:

Payable by PST Amount payable
(a) Trustee-Manager’s trustee fee 0.02% per annum of the value of the Trust Property subject to a minimum fee of US$10,000 in each calendar quarter.
(b) Trustee-Manager’s Management Fees 4.0% per annum of the Charter Income in the relevant calendar year. The Trustee-Manager may elect to receive the fees in cash or Units or a combination of cash and Units (as it may in its sole discretion determine), subject to the Trust Deed.
(c) Any other substantial fee or charge (i.e. 0.1% or more of PST’s asset value)
(i) Acquisition fee (payable to the Trustee-Manager) 1.0% of the acquisition price of the vessel acquired directly or indirectly through one or more special purpose vehicles, pro-rated if applicable to the proportion of PST’s interest. The Trustee-Manager may elect to receive the fees in cash or Units or a combination of cash and Units (as it may in its sole discretion determine), subject to the Trust Deed. No acquisition fee is payable for the acquisition of the Vessels.
(ii) Disposal fee (payable to the Trustee-Manager) 0.5% of the sale price of the vessel disposed, pro-rated if applicable to the proportion of PST’s interest.

Not sure if the management fee payable is high or not, but for full year 2007, charter income is US$34.5mil, mgmt fee at 4% will be abt US$1.4mil for a trustee-manager, which currently directly employs 4 full-time employees

Also notesworthy is one of the many risk factors:It is more difficult to remove a trustee-manager of a registered business trust than a director of a public company

The BTA requires the removal of a trustee-manager of a registered business trust to be by way of a resolution approved by not less than three-fourth of the voting rights of all the unitholders of the registered business trust present and voting. In comparison, the Companies Act requires the removal of a director of a public company to be by way of an ordinary resolution approved by more than 50.0% of the voting rights of all the shareholders of the company present and voting.

As the Sponsor will hold more than 30.0% of the Units upon Listing, it may be difficult for the Trustee-Manager (being a wholly-owned subsidiary of the Sponsor) to be removed.

posted by gsg @ 11:01 PM