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Ship fund with 6% yield offers boarding pass to new investors

Tufton Oceanic Assets (SHIP), London’s only listed shipping fund, is looking to raise more money after deploying most of the $91 million (£67 million) it raised last December.

Ship fund with 6% yield offers boarding pass to new investors

Tufton Oceanic Assets (SHIP), London’s only listed shipping fund, is looking to raise more money after deploying most of the $91 million (£67 million) it raised last December.

The Guernsey-based company has had a good start to life on the stock market waves, investing 85% of its flotation proceeds in six second-hand container ships and carriers.

At $1.06 the shares trade at a 6% premium above net asset value (NAV) reflecting the demand from pension funds and other income investors looking forward to the 5-7% dividend yields the investment company aims to offer from chartering out its ships to commercial operators.

In a statement this week the company said: ‘The investment manager has identified an attractive pipeline of second-hand vessels and in order to capitalise on these opportunities and grow the portfolio, the company intends to raise further capital through an issue of C shares, by way of a placing and offer for subscription, to be accompanied by a 12-month placing programme.’

Like the initial public offer (IPO) that brought SHIP to market, the C – or ‘conversion’ share – offer will only be available to professional and institutional investors. The shares will convert to the existing ordinary shares once the money raised is fully invested. More details are expected later this month.

Final results published last week show the company grew its NAV by 1.61% in the period from launch until 30 June. Last month it declared its first quarterly dividend of $0.015 per share putting it on track to deliver a 5% dividend yield for its original investors who bought in at $1 a share. At the current price the shares offer a prospective yield of 5.7%.

As income from its ships ramps up the company aims to increase its dividend yield to founding investors to 7% as part of a long-term total annual return of 12% after fees and expenses.

Commenting on their market fund managers Andrew Hampson and Paulo Almeida stated their belief that the portfolio was ‘largely insulated from geopolitical and macro shocks’ given the average charter length for its ships ranged between 4.3 and 4.9 years.

While the growing trade war between the US and China is a threat to economic growth, the managers cited research which found increased tariffs between the two superpowers were likely to ‘affect only 1% of global seaborne trade’.

Tufton Oceanic believes capital availability for shipping continues to be constrained, and the supply side recovery is continuing and driven by an order book near a 20-year low. It also said second-hand prices in many shipping segments continue to be significantly below depreciated replacement cost.

Indeed, it said new-build prices had begun to increase over the past year. Meanwhile, new and prospective environmental regulation would lead to increased ‘scrapping of older, less efficient ships and restrained new orders for vessels while technological standards are uncertain and yet to be established’.

Tufton said it would look to focus on containerships with time charters of at least two years. It would also continue to acquire product, chemical or gas tankers from, as well as general cargo ships to bareboat charter, and lease back to 'good counterparties'.

 

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