Taylor Maritime will provide exposure to a fleet of second-hand ships that are well-placed to profit from the boom in charter rates following the resumption of trade after the coronavirus pandemic.
The company is hoping to raise $250m for a new internally managed investment trust that will use the proceeds to buy a diversified portfolio of cargo ships that will then be leased out or ‘chartered’. These sorts of vessels have typically generated average yields of more than seven percent per annum and are currently available below their long-term average prices.
A seed portfolio of 23 ships has been identified, which is expected to result in the IPO proceeds being fully committed shortly after the shares are admitted to the market. The vessels are all fully operational and have an average age of 11 years with an estimated remaining life of 17 years.
Once fully invested the fund will target NAV total returns of 10% to 12% per annum with an initial prospective dividend yield of seven percent and quarterly distributions. The managers have identified a $500m pipeline of further deals with the prospectus for the new fund expected to be published later this month.
The Guernsey-based investment trust will be managed by Taylor Maritime, an unlisted ship-owning and management business that was founded in 2014. Its executive team, which is based in Hong Kong and London, have a track record of buying over $1.3bn of the sort of vessels that the fund intends to hold.
Because it is an internally managed investment trust there will not be any management fees, although the annual costs, including the salaries of the executives and directors, are expected to equate to up to 1.2% of NAV. It is understood that about $100m of existing Taylor Maritime investors’ funds will be rolled into the fundraising.
According to CEO Edward Buttery: “Our internal management structure ensures we are fully aligned with investors with no external management, performance or acquisition fees, whilst our long-term ungeared capital structure will support sustainable returns for investors over the long-term.”
Battle for the high seas
The new fund will provide some competition for the $270m Tufton Oceanic (LON:SHIP), which is the only other investment trust operating in this area. Its shares sold off sharply last year in response to the fall in global trade during the pandemic, but they have since recovered and are valued close to the 2017 issue price and current NAV with a yield of seven percent.
Taylor Maritime is likely to have a greater emphasis on Handysize ships than the Tufton fund. These are a smaller class of vessel with more flexibility in terms of the goods they can carry and the ports they can enter.
Shipping funds like these are obviously a highly specialist area, so you wouldn’t want to bet the house on them, but the seven percent yield will appeal to income investors, who can reduce the risk by holding them as part of a balanced portfolio.