First Ship Lease Trust (DMG)

First Ship Lease Trust: Acquisition of product tanker and new unit placement

The news: First Ship Lease Trust (FSLT) announced that it has placed out 56m new units at issue price of S$0.35/unit. The new units represent ~9.4% of total units FSLT prior to the placement and ~8.6% of FSLT’s enlarged share capital (post placement). Net proceeds from the placement amount to ~S$18.7m and FSLT intends to use all the net proceeds for the proposed acquisition of MT TORM Marine which was announced on 9 Jun 2011. In the event that the propose acquisition fail to go through for any reason, the net proceeds will be used to acquire other vessels with leases or companies holding such vessels.

Our thoughts: In a short space of two weeks, FSLT has acted swiftly and proposed to acquire two product tankers worth a total of US$92m. Including the latest addition, FSLT’s vessel size will be increased to 25 (11 product tankers, two crude oil tankers, three chemical tankers, seven containerships, two dry bulk carriers). The latest acquisitions are FSLT’s first two acquisitions since Oct 2008. We view FSLT’s change in stance towards more aggressive expansion as signal of management’s more bullish outlook. Currently, FSLT is trading at 15% FY11 Bloomberg consensus dividend yield. We do not have a rating on this counter.