We met up with the management of Rickmers Maritime (RMT) yesterday and discussed the funding of US$712m capex due in 2010 relating to the purchase of four 13,100 TEU containerships to be chartered out to Maersk for 10 years at a daily time charter rate of US$56,491 in 2H10.
Four possible options on the unfunded capex. They are: a) equity/debt funding, possibly on 30:70 basis, b) selling the vessels, c) sale and leaseback and d) settlement with Rickmers Group, the original owner of the four vessels. A total deposit of US$40m (5.6% of vessel cost) for the vessels is payable to RMT’s parent company Rickmers Group one year before the expected delivery date ie. Jul-Sep 09. The balance amount of US$672m (94.4%) will be paid upon delivery of the vessels in 2H10.
Penalty charges include the deposit and interest payment of 2% above US$ LIBOR. According to RMT’s circular released in Apr 08, the company will be liable for a penalty charge of 2% above US$ LIBOR p.a. on the unpaid amount of the vessel cost if it is late in payment upon delivery of the vessels. Should RMT default on the vessel payment for more than five business days after the due payment date, the deposit of US$10m each for the four Maersk vessels and interest charge of 2% over 3-month US$ LIBOR p.a. on the unpaid amount shall be forfeited to Rickmers Group.
Asset deflation might have breached LTV covenants. RMT’s management has guided containership prices without charter contracts have fallen about 30-50% from the peak in 2008 and only expects the shipping market to pick up in two years’ time. We do not rule out a breach in RMT’s loan-to-value (LTV) covenants of 90% in view of the recent collapse in ship values. That said, the trust is in discussion with its bankers on the possible waiver of the LTV covenants. Should asset prices continue to fall and RMT is unable to obtain a waiver of its LTV covenants, bankers may require the trust to reduce its dividend payout in order to partially pay down its loans or levy a higher cost of borrowing on the company.
Renegotiation of charter rates by the charterers. While RMT’s charterers are top liner companies such as A.P. Moller–Maersk, CMA CMG, Mitsui O.S.K. Lines, Hanjin Shipping and Italia Marittima, there is always the possibility that some charterers may renegotiate charter rates in view of the lack of sharp fall in cargo shipment demand and an oversupply of containerships in the shipping market.
RMT’s share price has risen 53% ytd and we forecast DPU yield of 19.6% and 17.6% for 2009 and 2010 respectively. While our fair price of S$0.76 is 28% above its current share price, we maintain our HOLD call in view of its unfunded US$712m capex due in 2010. However, we see a re-rating in RMT should the trust manage to resolve its financing hurdle. Our fair price of S$0.76 is based on 2010 P/B of 0.4x, a shade below US peer Danaos’ P/B of 0.5x as RMT would have a similarly very high gearing of 4.0x, assuming debt financing for US$712m capex.
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