GSL: A second update for 2022

Back in early March 2022, I provided an update on Global Ship Lease (GSL)

More than a few developments in the interim.
I had indicated I would try and update the GSL fleet valuation. I did look at the 20F and did not really agree with many of their vessel values. I understand that, legally, GSL cannot just adjust the book value of the fleet. But the company could (like some of their shipping peers e.g SFL) offer an opinion on their fleet valuation. Even with conservative adjustments, I think the vessel valuation is a lot higher than what is on their Balance Sheet.

GSL’s fleet (per 6/30/22)
Modern vessels (under 15 yo, have not completed 3 dry-dockings) 28 vessels
Non-modern vessels 37 vessels
slicing slightly different
i. < 15 yo - 28 vessels
ii. 16-20 yo - 17 vessels
iii. over 20 yo - 20 vessels

Regarding values
i. $1654M
ii. $467.92M
iii. $205.76M*
or $2327.68M for the fleet.

  • scrap value calculated at $500/LDT (low for SE Asia yard, high for Turkish yards)

A couple of notes

  1. I was updating the valuation in Aug-Sep 2022. With the container sector starting a retreat in the late July time frame, there might be an additional affect on vessel valuation.
  2. Valuation was done based on recent transactions, size category and age. In some size categories, there have not been a lot of transactions, So, it became more of a “best estimate”

When I first suggested GSL, I pointed out three positives.

  1. Revenue growth - This has continued in 2022. Per end of Q2 2022, GSL had contracted backlog of $1.91B across about 3 - 4 years. In late Aug 2022, the company added a major forward contract on 6 ECO ships adding over $490M ofrevenue. (more on this during the Risks discussion)
  2. Improved capital structure - Major clean-up of capital structure in 2021. In 2021, 4th largest container liner company CMA CGM was both a major charterer of GSL vessels and its largest shareholder. Things have changed in 2022. CMA CGM sold most (all??) of its GSL stake in the Q3 time-frame. GSL has a $40M share buyback authorization in place. GSL has a stronger cash position than comparable Q last year, and/or end of 2021.
  3. Credit rating - Double rating upgrade in 2021. Another upgrade in 2022. Company just completed a $350M refinancing that takes care of significant layers of high cost debt and unencumbers 5 vessels. Overall, its interest rate has come down.

Okay, this one gets shuffled.

  1. I am going to move the Macroeconomic angle of global recession/slow-down as a big risk. Whether it be post-Covid blues, inflation, energy costs, China economy slow-down, or some combination of the factors, the Asia - US West coast port routes has seen a significant downturn in activity the last few months. Add in the impact of Ukraine-Russia War, and energy costs in Europe, and one has lower volume on the Asia-Europe routes too. Acknowledge the item as a major risk, but will wait for the liner companies and the container lessor companies to provide the insight in Q3 results soon. That said, for now, I think GSL’s contracted backlog tempers this risk slightly (for now)
  2. Age of fleet. As noted earlier, a majority of GSL’s vessels are NOT in the modern category (< 15-yo).
    By itself, age has an impact on maintenance costs. But, combined that with #3. Environmental regulations, then GSL will likely feel the impact more, especially on the larger size vessels. There is a large orderbook of new larger vessel category that delivers starting in 2023. So GSL will start feeling the impact on the larger sizes more than the smaller vessel categories.
  3. Environmental regulations - IMO regulations take effect in 2023. Impact is somewhat of an unknown at this time. Many vessel owners have suggested slower vessel speeds will partially address the issue. Ok,
    but will that be a solution in year 2 or year 3? Will liner companies still want to charter an older, less efficient vessel?

To wrap up, and taking the data from the start of the analysis, how would I value the GSL fleet?
For an Aug-Sep 2022 time-frame, combining the vessel values, debt and cash position, I would value GSL at $24/sh - $34/sh. I do think GSL’s contract backlog is helpful here. However, unlike a number of
SeekingAlpha authors or pundits, I don’t see those contracts as guaranteed backlog. Near term, I think GSL receives the contracted rate on most of its vessels. But, if a major worldwide recession hits, some
of those contract rates & lengths will get reworked or canceled. Also, given recent developments in container shipping sector, I do see a more challenging vessel charter environment in 2023. The current
revenue run-rate can support the dividend (quarterly $0.375/sh). I think GSL can cover some contracts being reworked. But, again, it bears monitoring.

Q2 2022 Earnings

Increased GSL stake from Mar 2022. But, with a plan to lower my cost basis in 2022.


Probably should have looked at this link on GSL’s website for additional clarity on charters

Perusing the link, GSL has a total of 10 vessels rolling off charter during some period in 2023. Of the 10, only Anthea Y is a somewhat large-ish vessel, and GSL Christen is a medium size vessel. The rest are smaller vessels. As noted earlier, the newbuilds are weighted towards the larger capacity vessels


#2 Container shipping entity, AP Maersk, reported earlier this week. As with other container shipping entities reporting their July-Sep 2022 results, stats generally were good, but management provided caution looking ahead.

The data is relevant for GSL, as the company has 21 of 65 vessel lease arrangements with Maersk This includes 7 20-year old vessels acquired from Maersk in early 2021, each with a firm 3-year charter, plus two 1-year options. Each side benefits
a. Don’t have to worry about vessel disposal issues.
b. Monetize on an older set of assets
c. Offer the company future options (to my knowledge, Maersk can pick and choose on any of the options)
d. Have an easier time with EEXI/CII standards

a, Fleet additions (in 2021)
b. Increased earnings. GSL earn $29M in annual EBITDA from the 7 vessels for the firm period (the 3 years)
c. Optionality, in a different sense from the Maersk case. GSL has to wait for Maersk to make a decision after the firm period. Will there still be a market for those vessels after 2024? If so, the lessor may or may-not-be Maersk

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Fellow container vessel lessor, peer and/or competitor, Danaos Capital (DAC) reported yesterday (11/08). Currently, the two companies have a similarly sized fleet (DAC - 71 vessels + 6/7 newbuilds, GSL - 65 vessels). Comments from DAC mgmt –

  1. No pricing pressures on existing charters (yet)
  2. Renewals, in particular, on smaller vessels, are for shorter duration - 6 months. Slightly larger might get a year.
  3. When queried about the newbuilds, suggested they could likely get 3 - 5 year deals (though no discussions had yet for the vessels slated for 2024 deliveries)
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GSL Q3 2022 results were announced on 11/09/22.

Overall, good results in the quarter that the container shipping market started to ease off due to various forces. Although GSL did not identify the vessel involved in about 50% of the unplanned off-hire days, I’d venture to guess it was an older vessel. But even if it was not, I still think the 338 days of unplanned off-hire days during the first 9 months of 2022 is impacted by the age of the fleet. Share buy-backs a big plus in Q3