FSL Trust defends sale of vessels for US$52.5m each to Libyan state-owned firm's nominees

THE trustee-manager of First Ship Lease (FSL) Trust has cited weaker earnings prospects as the rationale for its decision to sell two LR2 product tankers, in response to queries from the Singapore Exchange (SGX).

The trustee-manager also revealed that the FSL Trust is selling each vessel at US$52.5 million to nominees of a Libyan state-owned shipping firm. FSL Trust had paid US$97.6 million in total for the construction of the vessels, as disclosed in 2018.

In a Friday bourse filing after the market close, FSL Trust's manager said that SGX had raised questions over the reasons behind the firm's Feb 17 announcement regarding the sale of the two vessels. Back in December 2018, FSL Trust had said that it was acquiring those vessels to renew its ageing fleet, SGX noted in its query.

In response, FSL Trust's trustee-manager said that the earnings prospects for LR2 product tankers have "fundamentally weakened" in the short term due to the adverse impact of the pandemic on the oil and oil products trade. Its medium- to long-term prospects are also affected by the transition to carbon-neutral, cleaner fuels.

"The next generation of vessels will likely use alternative fuels to reduce greenhouse gas emissions and meet environmental targets; and the trust intends to prioritise such considerations in the future strategy. The trustee-manager has therefore concluded that it is beneficial to the trust to sell the newbuildings and limit the exposure to the current market and regulatory risks," it said in the filing.

The trustee-manager also disclosed that the agreed selling price was US$52.5 million per vessel. Back in 2018, FSL Trust had disclosed that the vessel acquisition amounted to US$97.6 million. The carrying value of both vessels in aggregate as of end-2020 was US$43.6 million.

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It also unveiled the buyers as being guaranteed nominees of General National Maritime Transport Company, a state-owned Libyan shipping company.

FSL Trust's trustee-manager said that the following factors influenced the selling price: the cost of building the vessels; the current and expected charter market environment and earnings prospects for the vessels; and the expected economic lives and residual values.

Other factors included the supply of and demand for comparable vessels and potential prices otherwise achievable for the vessels in the current market. FSL Trust received advice from a third party ship-broker during the negotiations for the sale.

Units of FSL Trust closed at S$0.085 on Friday, down 1.16 per cent.