Thursday, 7 May 2020

Asian Pay Television Trust

Recently Asian Pay Television Trust (APTT) announced an issue to raise cash at a ratio of 1 new share for every 4 shares owned.

The aim is to pay off an offshore debts which is charging at a high interest rate.

Dividend Cut

In addition, APTT announced its quarterly dividends will be cut from 0.3 cents to 0.25 cents. In my view this is because APTT wishes to maintain the amount it is distributing as cash for dividends. Hence increasing the share base by 25% and reducing dividends by 17% will maintain the current annual cash outflow.

This brings to the next question. Is the current outflow of cash as dividends sustainable?

Sustainable Cashflow?

Based on APTT 2019's financial cashflow, APTT's dividend of 0.3 cents is indeed sustainable. However, there was little cash remining(nett of income tax and dividends)for APTT to repay debts. That to me signals APTT might have trouble reducing its debts. As of now, APTT debts stands at s$ 1.6 billion.

There is an announcement made that APTT is reducing its capex cash outlay over the next few years. Given that APTT's cash outflow in CAPEX was only s$91 million in 2019, even if there is a reduction of 50% in capex, translating to APTT having excess cash of s$45 million to repay debts annually. It will take 35 years to repay its debts.

Hence I believe it is unlikely APTT will repay all debts but instead roll over some.

Leverage Ratio of APTT

The current gearing of APTT is about 53.1%. It is way higher than a lot of REITs which keep to a 40% leverage ratio. 

Taking a simplistic approach of pro rating dividend yield to leverage ratio, the current yield of APTT is 7.8%. Assuming the trust is to function at 40% leverage ratio, we can guess that APTT is similar to a REIT yielding 5.85%. While other smaller REITs are now yielding between 6.5-8.0% based on last year's dividends, it is highly likely their this year distribution will be reduced by 20-30%; pro rating this, their expected dividend yield is 5 to 5.6%. 

This means APTT might have some upside but just slightly more only.

At a leverage ratio of 53% and dividend yield of 7.8%, there might be a slight upside of APTT as compared to its current price of 12.7 cents. Hopefully the trust can continue working towards reducing its debts further. Personally, I might take interest in APTT if it is successful in reducing its debts further to 45%. This means needing to clear about s$300 million more in debts.

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