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Saturday, 26 April 2008

First Ship Lease Trust - Some updates

Issue on technical default on one of their debt covenants by PT Berlian Laju Tanker (BLT).

I chanced on Musicwhiz's article about the recent First Ship Lease Trust (FSLT)'s
AGM. According to him, someone queried the management on the technical default on one of their debt covenants by PT Berlian Laju Tanker (BLT). If this issue could affect the least payments by BLT, FSLT's DPU could be jeopardized. Hence, I am not pleased to note that there is not official announcements on this matter.

I decided to do a bit of investigation on my part. First on FSLT, no recent announcement on this issue. Next, I turn my attention to BLT, from their company website, the closest match I could find was a clarification on the notice of of breach for company bonds :

The Board of Directors of PT Berlian Laju Tanker Tbk wishes to clarify various news circulating in the public regarding the Company’s breach of the financial ratios following the issuance of the notice of breach for the Company’s IDR Bonds from PT Bank Niaga Tbk (the “Trustee”) dated 17 March 2008

To me, my main concern is how FSLT is going to be affected by this. I went on to email them. To my pleasant surprise, they replied my mail. (I tried emailing Food Empire and Multichem before on other issues, no repies)

My question to FSLT (in red) and their replies (in blue) can be summarized as follows:
Given the issue on technical default, how will it affect its lease payments?

To date, BLT have not defaulted any of their lease payments and have been a prompt payer. FSLT have been proactive in risk management, both pre and post acquisition. After acquisition, they will monitor the lessee's financials periodically and get in touch with them if necessary.

Given that BLT contributed 21% in revenue to FSLT, will the recent purchase of crude carriers be able offset the lost in revenue from BLT if the latter default on their payments?

Post acquisition, BLT now account of 17% of FSLT's revenue while newly added Geden contribute 18%.

As far as this issue is concerned, I can say I am pretty pleased with FSLT's reply and their promptness. My mail was sent on Thu, 24 Apr 2008 23:19:11 +0800, their reply was received on Fri, 25 Apr 2008 07:14:21 -0500.



Blogger musicwhiz said...

Hi Market Uncle,

FSLT has very good IR, that much I can vouch for. I called them up once (the IR) and they took down my name, gave me a personal email address I could email to and even put me on their mailing list for FSLT related news.

When I asked a few questions on the Trust, the IR person was polite enough to even attempt to arrange for a meeting with the CEO or Director ! According to them, the Management is very willing to explain to unit holders who may have any doubts on the structure and function of the Trust, and they are going all out to clear doubts. Even during the AGM, the CEO and CFO stayed behind nearly an hour taking various questions from shareholders.

I have seen some forum comments saying that FSLT's IR is "glossy" and that sharp investors can "see through" their marketing and hype and that the Trust is really just a mediocre investment. While I cannot directly dispute their opinions, all I can say is that Management is aligning their interests with unit-holders (they get paid higher fees if DPU is higher) and so it's a win-win situation.

As to whether yield compression will eventually occur, that's up to Mr. Market to decide.

Thanks for the post, and cheers.


27 April 2008 at 23:55  
Blogger Market Uncle said...

Hi Musicwhiz,
I fully agree FSLT have very good IR.

I do not know whether FSLT is just marketing and hype, but I do know that in order for them to raise equity after their debt-to-equity hit 1X, they would have to push up their unit prices.

If they find their current unit prices too low to their liking, they'll have to do all they can to push it up. One way of course is continue improving the DPU for shareholders, another is to continue to market themselves. No point having a good product that nobody knows.

Anyway, at our vested prices, I firmly believe we got it at a decent discount.

28 April 2008 at 22:38  

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