Sunday, June 13, 2010

FSL Trust -- Some thoughts

FSL trust recently suffered a drop in share price due to bad news from Groda defaulting on their ships, coupled with Daixin Petroleum arresting two of their ships because Groda used them as collateral for buying fuel.

Background of FSL Trust:
FSL is a provider of leasing services on a bareboat charter basis to the international shipping industry. It has a modern, high quality and diverse portfolio of 23 vessels consisting of 7 containerships, 9 product tankers, 3 chemical tankers, 2 dry bulk carriers and 2 crude oil tankers. The average age of the ships is around 5 years.

My quick calculations of their possible dividend yield after taking into account Groda's default:

1Q 2010 1Q 2010
without Groda
Net cash from operations16,32912,664
Repayment of Secured Bank Loans(8,000)(8,000)
Income available for distribution8,3294,664
Units at end of quarter ('000)598,665598,665
Distribution per unit (cents) per quarter1.390.779

I did not take into account the additional gain due cash from previous quarter, resulting in an actual DPU of US1.5 cts. But that isn't really as important here.

From the presentation slides, Groda accounts for 15% of total revenue. Taking that 15% away, and assuming ceteris paribus, we could expect a dividends of about US0.779 cts.

Let's take US0.77 cts DPU, and a poor exchange rate of US 1 to SGD 1.35.

For the following unit prices, this would be the yield:

Unit Prices (SGD Cents)Estimated Yield

Yield wise, I will be happy to purchase at around 35 to 36 SGD cts, if it reaches there. For the debts and risks, I would think the nearer to 12%, the more willing I will take the risks to purchase 10 lots.

FSL Trust NAV and Liquidation Value
According to reitdata.com, FSL Trust's NAV is about 60 cts per share. According to gm89, the liquidation value is about 46 cts per share.

FSL also has about roughly 9.3 cents per share in cash waiting.

Buying at 35 cts (if it reaches there) would be buying at 34% below liquidation value.

Debts and repayment

At the moment, FSL is attempting to repay US$8mil of loan every quarter to pare down it's debt. This is about US$32 mil per annum. Given debts of about US$480 mil, this will take about 15 ~ 20 years to finish paying all debts, assuming ceteris paribus.

How does this sound to me? Given the ships' average age of around 5 years, and industry ship lifespan about 25 years, we have another 20 years ahead before the ships are done for. The repayment of US$8mil would be just nice.

Assuming (yet again :x) that nothing else changes for the next 20 years, no new ships purchased, etc, FSL would be debt free, and with all ships scrapped, in 20 years time. This is much like COE in Singapore; you pay 10 years worth of COE, and spread monthly instalments to 10 years, to use a vehicle that will be scrapped in 10 years. At least to me, FSL will not have to finish depreciating and scrapping the ships when debts are still around.

The above are just my preliminary thoughts. I might buy in at 35~36 cts, if it does touch these prices. The only thing stopping me for now is because selling pressure is still strong.


  1. Hi JW,

    I share your sentiments having done an updated analysis on this same counter yesterday:


    I am now relying on TA to give me a signal to go long again. :)

  2. Hi AK71,

    Grandmaster89 sent me a pm on CNA forum on this blog post.

    I'm sharing here:


    I wish to point out that FSLT did not take up a loan amortization structure. Only PST has such a loan structure. FSLT's loans mature at 2012 and 2014 (half each). The US$8 million quarterly loan payment is not done so voluntarily - it is part of the LTV waiver agreement which ends in June 2011. The waiver was granted in 3Q 09 after FSLT breached the required 145% LTV ratio and faced an immediate risk of default.

    FSLT loans is similar to the ones taken up by RMT - there is a bullet payment at the maturity date and the vessels secured by loans must be valued at 145% of the total loan amount. FSLT owes US$477 million in total and if it continues to pay down US$8 million till the end of 2Q 11, it will owe a total of US$440 million. This means that the fleet must attain a valuation of US$640 million (current valuation is US$623 million) by then. Alternatively they can use their 100% equity financed vessel(s) acquired in the future and place it under the secured portfolio of vessels. Currently all 23 vessels are secured by loans. FSLT has ear-marked US$28 million for acquisition and is currently in the final stages of acquiring its vessel. So this will used as a last resort to pass the LTV test on June 2011.

    Assuming it attains such a figure, the LTV waiver agreement will expire and FSLT pays a lower interest expense and is no longer required to repay the US$8 million/quarter. This brings up another problem - where is FSLT going to find another US$220 million from ? If the shipping sector recovers by late 2011, refinancing might be possible and FSLT gets away scott-free (and take up a loan amortization deal). But if the shipping sector remains anemic, there is no way FSLT will be able to refinance the loans without harsh penalties from the various banks (look at RMT's DPU cap). Equity financing is out of the question if its unit price is trading below NAV and at double digit yields.

    Hence, I conclude that the biggest risk in investing in FSLT is simply the state of the shipping sector at 2011/12. If the shipping recovers, DPU can easily exceed 2 US cent/quarter and you would have gotten yourself a super high yielding stock. But if it doesn't, FSLT will be trading at a much lower price. This is why I have always considered FSLT as a high risk-high gain bet on shipping recovering by 2012.

    In light of how this high risk bet easily turned against me, I am reluctant to take on any more turnaround bets. I shall stick to strictly high yield or lightly geared growth stories.


  3. Hi JW,

    Raising more funds through share placements or rights issue is actually an option even if the share price is way below NAV and yield is at double digit. It is not out of the question. Look at MI-REIT's experience (the current day AIMS AMP Capital Industrial REIT).

    It is good the GM89 is now singing a more realistic song with regards to FSL Trust. This is a marked change from when he first talked about it (when the unit price was higher than it is today) and people were jumping on the bandwagon. However, his realism is now marked with extreme risk aversion and pessimism as well. Big swings.

    Looking at the fundamentals of a business, some risks could be seen and some could not. We can only price in the former and try to hedge against the latter, deriving an entry price with a margin of safety.

    FSL Trust's downtrend is intact even with the little bounce up in price this morning. I will wait for reversal technical signals to go long again. If I don't see such signals, I will hold my horses. :)


Please Comment >>