The yield indication, which refers to the annualised return for 2007 as a whole, gives a price range of S$1.41 to S$1.62 and a total deal size of up to S$444.4 million ($293 million), sources familiar with the offering say. Excluding the portion set aside for cornerstone investors, the offering will raise a maximum of $181 million.
Unusually, the yield range was set first (as opposed to the common practice of setting the price range first) to reflect the fact that dividends will be paid in US dollars and that the trust had been marketed to potential cornerstone investors with a mid-point annualised yield of 8.5% based on a US dollar price. The trust will be traded in Singapore dollars, however.
Based on a planned quarterly distribution of 2.14 US cents per unit, or 8.56 cents per year, the announced yield range implies a price of $0.93 to $1.07. This has then been translated into an equivalent price range in Singapore dollars, which may be subject to change should the exchange rate fluctuate during the marketing period.
At the upper end of the range, the yield will exceed that offered by First Ship Lease Trust (FSL) û a similar ship financing and leasing company which completed its own initial public offering just before Rickmers kicked off pre-marketing. FSL currently trades at a yield of 9.0% after falling three cents from its S$0.98 IPO price since its March 27 trading debut.
Rather than focusing on a simple yield comparison, however, the bookrunners for the Rickmers offering û Citi and Deutsche Bank - are said to be emphasising the differences between the two business trusts û especially with regard to their future growth strategies.
Being structured largely as an acquisition vehicle, Rickmers will distribute only about 75% of its income, compared with the 90% to 100% that FSL and SingaporeÆs third shipping-focused business trust, Pacific Shipping Trust, have committed to pay out. The rest will be set aside to pay for future acquisitions and to replenish its existing fleet as the ships age.
The aim is to make investments that will result in gradually increasing dividends as well as substantial asset growth.
Syndicate analysts project that Rickmers, which will have five ships in its portfolio at the time of listing and another five scheduled for delivery by March 2008, will seek to make 10-15 acquisitions per year.
Observers say they expect a lot of interest from US investors as they are already familiar with these type of listing vehicles and will appreciate the growth potential within the ship leasing industry in Asia, which is still a relatively new business.
ôIt will likely take more education to get a strong response from Asian investors, but the early indications are positive and hopefully some of that will be firmed up over the next couple of days,ö says a source close to the offering.
Rickmers, which is sponsored by Germany-based charter operator Rickmers Group, is modeled on Seaspan Corp, a US-listed business trust which applies a similar distribution/acquisition strategy. Since its IPO in August 2005, the US trust has increased its total fleet of container ships to 41 from 23 and as a direct result of that was able to increase its quarterly distributions by 5% in October last year. SeaspanÆs share price has also risen 29% to $27.18 from an IPO price of $21, which has pushed down the yield to about 6.6% from 8.1% at the time of the listing.
Among the potential risks, investors note the cyclical nature of the container shipping industry and some concern that the large supply of new ships coming on stream over the next few years may exceed the demand and put further downward pressure on charter rates. Rickmers also leases its ships on a time-charter basis, which means it is responsible for maintenance and operational costs and therefore exposed to price fluctuations for things like fuel and lubricants.
The trust is offering a total of 274.35 million new units, although only 169.7 million of those will be sold through the global offering. The remainder has been set aside for five cornerstone investors, which will hold a combined 27.5% of the trust at the time of listing. The public float will be 44.5% and the sponsor will retain 28%. There also a greenshoe of up to 33.9 million new units, or 20% of the total share sale excluding the portion going to cornerstones.
Of the total placement, 95% will go to institutional investors while 5% has been earmarked for Singapore retail investors through public offering arranged by DBS.
Rickmers started its official marketing in Singapore yesterday and will move to Hong Kong early next week before going on to Europe and the US. The final price is expected to be announced around April 23 to allow for a trading debut at about April 26.
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