FSL – BT

FSL to grow assets by US$300-350m a year, says CFO

SINGAPORE’S First Ship Lease Trust (FSL) yesterday said that it aims to buy up to US$350 million worth of vessels a year and that borrowing costs remain reasonable despite the credit crunch.

This could double its portfolio within several years, as FSL aims to tap growing global trade and a trend of shipping firms leasing a larger portion of their fleet.

‘Going forward, we are looking at US$300 to US$350 million on an annual basis to grow our portfolio,’ chief financial officer Cheong Chee Tham told Reuters in an interview.

Borrowing costs remain ‘reasonable’ at around Libor (London Interbank Offered Rate) plus 120 basis points compared with Libor plus 100 basis points about a year ago, he added.

FSL, which leases liquid tankers, container ships and dry bulk carriers to firms such as Taiwan’s Yang Ming and Russia’s Rosneft, has acquired US$280 million worth of assets so far this year to boost earnings and revenue.

For the second quarter ended June 30, the trust’s revenue rose 71 per cent to US$20.7 million from a year ago while distribution to unitholders increased 28 per cent to 2.8 US cents a share.

FSL expects to pay a third quarter distribution of 3.05 US cents, Mr Cheong said, adding that the payout will remain at 100 per cent of surplus cash flow in the foreseeable future.

Mr Cheong said that the trust favoured smaller ships as these were easier to sell in the second-hand market or lease out once the original leases expired.

He said that he expects shipping firms to lease a larger proportion of their fleet to reduce capital expenditure and free up funds for other operations.

‘In terms of shipping, operating leasing is still relatively less mature than for aircraft,’ he said, noting that just 10-15 per cent of the total financing market for ships involved leases compared with 40-50 per cent for commercial aircraft.

He also said that FSL will likely borrow to pay for new acquisitions, or ask its main shareholder, First Ship Lease, to buy and ‘warehouse’ the ships on its behalf until conditions in equity markets improve.

FSL has a fleet of 22 vessels with another on the way once financing is completed.

The trust had a net book value of US$938 million as at end-June.

FSL and the other two Singapore-listed shipping trusts, Rickmers Maritime and Pacific Shipping Trust , currently trade at distribution yields of around 11 per cent compared with about 7 per cent for US-listed ship financiers such as Seaspan.

They offer higher yields than Singapore-listed real estate investment trusts (Reits), which currently yield around 5-6 per cent, because ships typically have a lifespan of 25-30 years.

Shares of FSL closed at $1.28, down 1.5 per cent after paring earlier losses.

The trust has gained around 8 per cent since the start of the year, beating the benchmark index’s 16 per cent fall. — Reuters