Published September 11, 2008

FSLT's bold move to woo US investors

By VINCENT WEE
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WITH shipping trusts caught between the devil and the deep blue sea trying to boost volume while fighting investor ignorance, First Ship Lease Trust (FSLT) has embarked on a brave overseas foray to quote American Depository Receipts (ADRs) on the US-based International OTCQX trading platform in a bid to raise interest and unit price.

It's a bold move and - should it prove successful - one that may be emulated by the other two shipping trusts wallowing on the Singapore Exchange (SGX). The theory is that exposure to the more mature US market will improve liquidity and expand the base of unitholders over the long term, according to trustee-manager FSL Trust Management's president and CEO Philip Clausius.

FSLT certainly needs help. The trust has never regained its IPO price of 98 US cents or about $1.50 at the prevailing exchange rate. It hit a low of $1 in January and is now languishing around $1.10. There is a large dividend yield gap - that is, its units are underpriced - between FSLT (13-14 per cent yield) and US peers such as Seaspan Corp and Danaos Corp (7-8 per cent yield), which the trust hopes to close as more investors take up its units.

'US investors tend to have a better understanding of shipping stocks due to a critical mass of shipping companies listed there,' UOB KayHian Research said in a note last week.

While maintaining that FSLT has no regrets about choosing to list on SGX, senior vice-president and CFO Cheong Chee Tham hopes to appeal to this better knowledge of US investors through the ADR quotation.

He is keen to reach out especially to institutional and boutique investors who, due to their mandates, may not have been able to invest directly in FSLT units on SGX. 'By doing this ADR programme, we are exposing the company to this particular group of investors or others who may not have heard of us,' he said.

Both analysts and FSLT stress that it's important to get a critical mass of investors interested in shipping trusts for the sector to take off. And Mr Cheong certainly hopes the US move will jumpstart this process. It is hoped that with greater coverage, more shipping trusts will choose to list on SGX.

But this may be too simplistic. Both Seaspan and Danaos have market capitalisations of more than US$1 billion, which dwarfs FSLT's $550 million. And whether notoriously parochial US investors take notice of a small Asian-listed shipping trust is debatable.

Asian investors have not been impressed so far. 'Liquidity for the trusts is not there. If it's a down-cycle, why do you want to be in shipping and if up-cycle, then you should be in something more leveraged,' said an analyst.

The few research houses that cover the trust, such as DBS Research and UOB KayHian, have 'buy' calls with target prices of $1.65 and $1.61 respectively. But others point to the chicken-and-egg factors of lack of choice and liquidity for staying away. These were the same reasons given for the laggard performance of real estate investment trusts when they were first listed back in 2002. Yet over the past six years or so, they have taken off and are seen as a viable investment option.

Perhaps shipping trusts will slowly gain popularity in the same way. But more may need to be done to nudge the process along. Actively reaching out to foreign companies may be one idea. For example, Lloyd's List reported that Indian shipping companies will need as much as US$18 billion by 2012 for fleet replacement and will need to find ways to raise cash. These companies could be encouraged to come here to set up shipping trusts to raise funds.