Rickmers prices business trust IPO off the top

The final price for Rickmers Maritime results in a deal size of $284 million and puts the yield below the Singapore comps at 8.2%.
Rickmers Maritime has fixed the price of its Singapore initial public offering close to the top of the range at S$1.57 per unit for a total deal size of S$430.7 million ($284 million).

Excluding the portion set aside for five cornerstone investors, the offering totaled $176 million. At the final price, the trust offers an annualised 2007 yield of 8.23%, which is a significant step up from the Singapore 10-year risk free rate that currently stands at 2.9% but slightly below the yield paid by the other two business trusts in the market.

Those two - First Ship Lease Trust and Pacific Business Trust - have, however, shown lacklustre form since listing, which meant Rickmers had to overcome a somewhat dented sentiment for these types of vehicles. But continued gains by Seaspan Corp, its closest comparable in the US, during the 11-day roadshow helped to boost interest, sources say. This was particularly true in the final 48 hours before the books closed when the subscription ratio picked up and the price sensitivity, which had been evident earlier in the process, was largely removed.

The institutional portion of the deal, which accounted for 95% of the total placement (excluding cornerstones), attracted just under 100 investors and was about three times covered at the final price, they say. The retail tranche, which was arranged by DBS, was about 11 times subscribed.

Asian investors accounted for about half the total demand, while US players ordered about 30% of the deal and European investors 20%. Those numbers are slightly skewed, however, by the fact that the cornerstone investors were largely Asia-based.

The container ship leasing company, which is sponsored by Germany-based charter operator Rickmers Group, initially offered the units with a yield between 8.0% and 9.2%, implying a price of $0.93 to $1.07 per unit. This was then translated into the actual price range in Singapore dollars of S$1.40 to S$1.62. Because of a slight movement in the exchange range, the bottom end of the range was adjusted lower by one Singapore cent (compared with the earlier announced range) at the launch of the roadshow.

The inclusion of an unofficial price range in US dollars was due to the fact that dividends will be paid in US dollars. Rickmers plans a quarterly distribution of 2.14 US cents per unit, or 8.56 cents per year.

Because of the limited price sensitivity, Rickmers and its two bookrunners, Citi and Deutsche Bank, could have priced the deal at the top of the range, but in the hope of ensuring a better after-market activity they decided to leave five cents on the table. The decision was said to have been partly due to the fact that there had initially been price sensitivity around the middle of the book, suggesting this was the preferred valuation by a lot of funds even tough they were willing to pay more.

ôGiven the structure of this business trust as a growth vehicle, they will obviously have to come back to the market to raise more funds. It would therefore have been important to embrace this initial set of shareholders so that when the company comes back in 12 or 18 months time, they have a favourable taste in their mouths,ö notes one observer.

The growth focus is evident as Rickmers will distribute only about 75% of its income, while setting aside the rest to pay for future acquisitions and to replenish its existing fleet as the ships age. This makes it different to SingaporeÆs other two business trusts û First Ship Lease Trust (FSL) and Pacific Shipping Trust û which have committed to pay out 90% to 100% of their distributable income.

Syndicate analysts project that Rickmers, which will have five container 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. According to the company, the aim is to make investments that will result in gradually increasing dividends as well as substantial asset growth.

Its closest comparable is seen to be Seaspan Corp, a US-listed business trust which applies a similar distribution/acquisition strategy and which has in fact served as a model for RickmersÆ entire structure. Since its IPO in August 2005, the US trust has increased its total fleet of container ships to 41 from 23, which has allowed it to increase its quarterly distributions. However, as the share price has also risen 34% to $28.24 from an IPO price of $21, the yield has been pushed to 6.3% from 8.1% at the time of the listing.

Seaspan gained 7% in the first four days of Rickmers' roadshow, but fell back slightly in the second half after pricing a share offer of its own. Over the offer period as a whole it added 2.4%.

In Singapore meanwhile, FSL trades at a yield of 9.1% after its unit price has edged 4.1% lower since the late March IPO at $0.98. Pacific Business Trust is trading flat versus its IPO at $0.45 in May last year for an annual yield of 9.5%.

Rickmers offered 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 the cornerstone investors, which comprise Fidelity Investments Management, Bennelong Asset Management, Citigroup Global Markets, Templeton Asset Management and UOB Asset Management. They 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 is also a greenshoe of up to 33.9 million new units, or 20% of the total share sale excluding the portion going to cornerstones, which could boost total proceeds to S$484 million ($320 million).

Rickmers leases its ships on a time-charter basis, which means it provides the ships with crew and all. It is also responsible for maintenance and operational costs.

The units will start trading on May 4.
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