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Business Model/ Tax Benefits

If you have specific question which is not found in this FAQ, please email us at investors@firstshiplease.com

Business Model/ Tax Benefits
  1. How is FSL Trust different from a shipping company?
  2. How does FSL Trust minimise its exposure to the cyclical risks of the shipping industry?
  3. How do falling prices for shipping vessels impact FSL Trust's business?
  4. How is FSL Trust different from other shipping trusts in the market?
  5. Why is FSL Trust's financing solution attractive to maritime operators?
  6. What is FSL Trust's business/growth strategy?
  7. Will FSL Trust take advantage of depressed vessel prices to acquire assets for subsequent sale when the market improves?
  8. What tax benefits does FSL Trust enjoy?
  1. How is FSL Trust different from a shipping company?
    • FSL Trust was formed to own and lease out vessels on a bareboat charter basis to international shipping companies. Basically, FSL Trust is not a shipping company but a ship financing trust that provides alternative financing solutions to the shipping industry.
  2. How does FSL Trust minimise its exposure to the cyclical risks of the shipping industry?
    • FSL Trust's business is based on long-term bareboat charters of its vessels, from which it generates long-term lease rental revenue. As a bareboat lessor, FSL Trust is not involved in the operation of the vessels. Hence, it does not bear the operating risks and expenses nor the technical performance risk of the vessels.

      The lease rental rates of its lease contracts are generally fixed and non-negotiable for the tenure of the lease terms and therefore not correlated to the cyclical shipping rates in the spot markets. Further, FSL Trust's lease contracts stipulate that the lessee is contractually obligated to continue lease payments to FSL Trust throughout the lease term regardless of the lessee's business circumstances and the prevailing economic and market conditions.

      To further mitigate the risk exposure to shipping cycles, FSL Trust has also exercised prudent risk management measures that include:

           a. Staggering out the maturity of its leases, thereby, ensuring not all of its leases will expire at the same time;
           b. Maintaining a diversified portfolio of vessels of different shipping sub-sectors; and
           c. Maintaining a diversified portfolio of lessees.

      FSL Trust believes that its long-term bareboat charter business model, tight contractual standard of its lease contracts as well as its robust risk management measures help to minimise its risk exposure to the cyclical nature of the shipping industry.
  3. How do falling prices for shipping vessels impact FSL Trust's business?
    • Shipping is a cyclical industry where asset values of ships will rise and fall. FSL Trust's business model is predicated on its ability to structure leases whereby the bulk of the investment in a vessel acquisition is recovered through the collection of lease rentals over the lease term, thus leaving the Trust with a reasonably conservative residual value of the vessel at the maturity of the leases. Hence, FSL Trust's economic returns on the transactions are relatively insensitive to the volatility in ship values associated with the shipping cycle.
  4. How is FSL Trust different from other shipping trusts in the market?
    • Unlike time charter lessors or ship operators, FSL Trust is a long-term bareboat lessor and does not operate the vessels. Therefore, it has no exposure to vessel operating expenses such as crew, bunker, maintenance, insurance etc. for the entire tenure of the lease. It also does not warrant the performance of vessels.

      Secondly, FSL Trust's lease portfolio is diversified across five shipping sub-sectors including containerships, chemical tankers, product tankers, crude oil tankers and dry bulk carriers. It is also possible for FSL Trust to further diversify into other sectors such as the offshore vessels in the future. The diversified portfolio and the potential for further diversification is a key differentiating strength of FSL Trust relative to its shipping trust peers.

      Lastly, FSL Trust places heavy emphasis on risk management as compared to its peers. The trustee-manager, FSLTM, has a Chief Risk Officer who oversees a team of credit analysts dedicated to extensive credit reviews, due diligence, constructing and stress-testing cash flow models of its lessees and risk monitoring on an on-going basis.
  5. Why is FSL Trust's financing solution attractive to maritime operators?
    • FSL Trust offers maritime operators a financing alternative which is typically not available from commercial or public capital markets. The key value propositions to our customers include:

      • FSL Trust's lease structure offers 100% financing for the vessel whereas commercial ship mortgage loans typically offer financing of 80% or below. Hence, maritime operators need not seek additional financing (eg. equity) for the remaining amount whilst still able to operate the vessel to generate income.

      • FSL Trust offers flexible and customised lease structures that cater to the maritime operator's specific needs which include long lease tenure, purchase option and lease extension option.

      • Allows off-balance sheet treatment for the asset which lightens the maritime operator's balance sheet. This is especially beneficial to listed maritime operators.

      • Leasing cost is attractive vis-à-vis the operator's weighted average cost of capital.

      • Provides funding diversification for the maritime operator.
  6. What is FSL Trust's business/growth strategy?
    • The business/growth strategy of FSL Trust is based on the following:
      • Drive growth and diversification of the lease portfolio via acquisitions of vessels with leases
      • Focus on long-term bareboat charters
      • Maintain a high quality and modern asset portfolio
      • Maintain a disciplined approach to portfolio and risk management
      • Maintain a conservative capital structure
      • Asset redeployment strategy according to prevailing market conditions
  7. Will FSL Trust take advantage of depressed vessel prices to acquire assets for subsequent sale when the market improves?
    • No, FSL Trust's business model is fundamentally focused on long-term bareboat charters that generate stable cash flows. FSL Trust is not in the business of opportunistic asset trading and it does not acquire vessels on speculative basis without accompanying leases.
  8. What tax benefits does FSL Trust enjoy?
    • FSL Trust has been awarded Approved Ship Investment Enterprise (ASIE) status under Singapore's Maritime Finance Incentive (MFI) scheme for a period of 10 years beginning 22 February 2007.

      As an ASIE, FSL Trust enjoys Singapore income tax exempt status on current leases and future leases that are structured as finance or operating leases for the remaining life of the respective vessels it acquires during the incentive period of 10 years.
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Important Notes:

These FAQs may contain forward-looking statements that involve risks and uncertainties. Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements as a result of a number of risks, uncertainties and assumptions. Representative examples of these factors include (without limitation) general industry and economic conditions, interest rate trends, cost of capital and capital availability, competition from other companies, changes in operating expenses, trust expenses and governmental and public policy changes and the continued availability of financing in the amounts and the terms necessary to support future business. Investors are cautioned not to place undue reliance on these forward-looking statements, which are based on current view of management on future events.