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FSL Trust: Private placement.

Thursday, June 9, 2011

On 2 June, I blogged about FSL Trust's acquisition of a vessel and I was wondering if it would be a positive catalyst for its unit price since distributable income would likely increase.  Read blog post here.

Fast on the heals of that acquisition is another one. This time, "the acquisition will be fully funded by the drawdown of US$23 million from the trust's existing revolving credit facility and US$23 million in cash - with around US$15 million to come from a private placement of up to 57 million new FSL Trust units." Read full article here.

So, although distributable income would likely increase, distribution per unit might not increase much since there is a private placement involved. The new units would be issued at a discounted price of 35c/unit and represent 8.6% of the total number of units in issue after the placement exercise is concluded.

Read announcement here.


Anonymous said...

Hi AK,

I did some rough calculations to predict the DPU haha -

It used US$23 million backed by US$23 million debt to purchase a 2006 built product tanker vessel which would generate US$4.7 million lease revenue annually. Since this is a bareboat charter, I cannot compare the return with the latest acquisitions from PST. Assuming 6% interest rates on the loans (1.4 mil) and management fees of US$0.2 mil and loan amortization of US$2 mil a year, the Trust would generate positive cash in-flow of US$1.1 mil annually. Since the other vessels have similar contract terms albeit lower revenue, I would estimate cash-inflow of US$2.2 mil. This assumes that the Management retains cash-flow from depreciation to repay loans (which isn't an official FSLT policy). The potential new DPU might be = (US$5.7+ US$2.2) mil / 655.6 mil units = 1.2 US cents per quarter.

This implies i) FSLT would trade at 14% yield based on last traded price ii) FSLT repays US$48 million worth of loans annually iii) The 2 vessels on spot charter do not lose cash and iv) No charter default.

(Not Vested)


AK71 said...

Hi Nick,

Thanks very much for this. I was wondering if I should do an estimation of the new DPU after these recent acquisitions but, honestly, I was half hoping you would do it for me and you did not disappoint. Much obliged. ;)

Anonymous said...

Hi AK,

I was reviewing my notes on FSLY and realized I made an error in my computation. The cash in-flow from the 2 vessels which amounts to US$2.2 mil (estimated) is for an annual basis.

New Computation: = (US$5.7 X 4+ US$2.2) mil / 655.6 mil units = 0.953 US cents per quarter.

Personally, while the numbers looks good, the deal overall is a poor move. The Management should have used the cash raised in the previous placement to repay corporate loans or repurchase units which would have boosted its DPU. If the Management used US$30 million to repurchase all of its units in 2010 at US$0.40 per unit, it could have cancelled 75 million units thereby reducing the outstanding unit float to 523.7 million units which would raise distribution to 1.08 US cents without additional loans !

Unfortunately, only TCT and MIIF have turned to unit buy back as a means of raising the DPU and unit price. TCT share price has appreciated by over 10% since the buy back started in May while MIIF DPU might increase if they keep buying back units.


AK71 said...

Hi Nick,

Thank you very much for the update. Much obliged. :)

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