SGX RegCo orders FSL Trust to seek unitholders' approval for vessel sale

THE Singapore Exchange Regulation (SGX RegCo) has ordered First Ship Lease Trust (FSL Trust) to seek unitholders' approval for a sale of two product tanker newbuildings.

FSL Trust had announced on March 1 that it had completed the sale of the two vessels, realising a total net gain of about US$500,000 and total sale proceeds of US$103.8 million. It did not seek unitholders' approval as it deemed the sale to be in the ordinary course of business.

However, SGX RegCo has ordered an undertaking from FSL Trust's sponsor not to dispose of its units in the trust until an extraordinary general meeting seeking unitholders' approval has been conducted, among other directives.

In a letter published in full by FSL Trust on Wednesday, SGX RegCo said it is believes that the sale of the vessels would constitute "short-term trading", which would go against FSL Trust's main objective of deriving a stable income stream from its portfolio of lease assets, as stated in the trust's initial public offering prospectus.

The regulator noted that the vessels were sold "immediately" upon the completion of construction, "even before deployment by the trust".

SGX RegCo also pointed out that FSL Trust had completed a three-for-two rights issue to raise net proceeds of US$31 million to finance the acquisition of the vessels, and had apparently stated that the net proceeds of the rights issue would be used, among others, for "fleet renewal by way of the newbuilding acquisition".

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"Clearly, the disposal of the two new vessels deviates from the original objectives of the acquisition and rights issue, which was to renew the trust's ageing fleet," said SGX RegCo.

And, even if the Covid-19 pandemic has affected the earnings prospects for the tankers in the short term, it does not change the basis of determining whether transactions are in the ordinary course of business, the regulator noted.

In response, FSL Trust Management, the trustee-manager of FSL Trust, said it remains of the view that the disposal, "as well as the other disposals recently announced and future disposals", was made in the ordinary course of business.

Firstly, it noted that the definition of authorised businesses in the deed of trust constituting FSL includes the disposal of vessels.

Also, keeping the vessels, which were "reasonably expected" to create losses as a result of the pandemic, would have run counter to FSL Trust's objective of generating stable income, the trustee-manager said. Disposing them for an "extraordinarily high" price in the current market environment was therefore in the best interest of all unitholders.

However, the trustee-manager said that it will comply with SGX RegCo's directives nevertheless. Among others, it has submitted a written undertaking from FSL Trust to SGX RegCo that it will seek unitholders' ratification of the sale by April 30.