This morning, I was at Capital Tower for the annual general meeting of Rickmers Maritime.
The AGM started with presentations by the CEO, Mr Thomas Preben Hansen, and the CFO, Mr Ban Huat Quah.
There was a period for Q and A by the unitholders before the resolutions were passed. These were some of the questions asked as well as the replies from the Board of Directors of Rickmers Maritime. The questions and replies have been edited for brevity.
Page 12 AR - The IPO forecast of basic earnings per unit is US$0.0281 but the forecast distribution is US$0.0564. How is that possible?
Under a shipping trust, we are allowed to distribute from our cashflow. The earnings are reduced by some items like depreciation, which doesn’t affect the cashflow.
Page 13 AR - There is a earnings forecast for 2007. Since that means it is possible to calculate the forecast, can you provide us with the forecast for FY2008 as well?
Laughter. The forecast is actually provided during IPO in the prospectus. If you look at the prospectus, you can see the forecast going up to 2009 based on the ten vassels we have got. It doesn’t include the thirteen additional vassels.
Page 18 AR - Based on the graph, what happens to the revenue stream after that? Will it drop?
The graph only shows revenue pertaining to secured charters. Don’t forget that after the charter expires, it can be renewed, which will (depending on market rates at that time) more or less restore the revenue.
Page 36 AR - There is about $50 million of defered income under non-current liabilities. Can you elaborate on it?
When we purchase any new vassel that has already a charter in place, there are two components to the cost: the value of the vassel and value associated to the secured charter. The second component is reflected as the defered income. It is a non-cash item and will be amortised over the length of the charter.
Page 37 AR - Can you explain this item cash flow hedge - fair value loss?
The objective of this trust is to achieve stable and growing distribution for investors. The main part of our cost is actually the cost of capital. At IPO, we had certain loan facilities in place which would be drawn down to pay for vassels. To prevent exposure to movements in the interest rates (and to secure the income), we had actually purchased interest-rate swaps to fix the interest rates.
As it turned out, the interest rates went down. The hedging reserve as a result of the mark-to-market interest rate swap is reflected under this. It is a non-cash item.
Page 50 AR - Under the loans to subsidiaries, there’s a loan that bears interest while the rest of the loans do not have any interest. Why is there a difference in the treatment?
We lend money to the subsidaries for them to purchase vassels. For the initial five vassels, it was money from the equity raised. So we do not charge them interest. Otherwise, we will incur tax on it. For the other loans, we match the interest that we borrow the money on to the money we lend to the subsidary.
What is the maximum debt-equity ratio the trust can reach?
Unlike REITS, we have no restriction. We can go up to even 90% debt. However, banks will always have their own cap in mind when you approach them to borrow more money (Other factors they will consider is the strength of our charterers and our secured staggered contracts). An ideal ratio for us would be about 75% debt, 25% equity.
The fact that we can secure a credit line of US$627.5 million so easily in such market conditions shows the banks’ confidence in our group.
Also, we have no need to access the equity market for the next two years.
The trust is focusing on containerships. Are there plans to diversify into more types of ships like other shipping trusts?
The large containership business is one we are comfortable with. There are a few benefits to this approach:
- Strong growth potential compared to the other classes, outperforming tankers and bunkers.
- This is the segment of shipping where we get long term charter agreements.
- We get some of the best names as the charterers for our ships. This makes it easier for us to get financing and there is also less default risk.
- We have a critical mass size which means we can do better and bigger deals.
Having said that, we don’t rule out the possibility that we won’t go into another segment in the future.
Since we are on a time charter basis and not a bareboat charter, how would rising costs affect the revenue?
We have a long experience in managing the ships. With a time charter, we have greater flexibility for the lease agreements at the end of the lease agreement. We can choose whether to extend the lease, sign another lease or sell the ship based on the option that is favourable to us.
For a bareboat charter, it is less flexible as they usually comes with an option for the leaser to buy back the ship at the end of the lease period.
We do get a higher rate to compensated for the operating cost. The manpower cost is a very small component of the overall cost.
We are protected against the rising cost of crude oil as fuel is paid by the charterers.
The downtime of the ships is very low. Going ahead, what will the numbers be like?
Downtime is unavoidable as we must set aside time to do maintainence on the ships. We project 1day/quarter/ship to be set aside for this.
After the Q & A, the acting chairman, Dr Moritz Mittelbach, went through the different resolutions and all of them were passed by the unitholders who were present.
We were given a parting door gift and this was followed by the standard food reception.
