DBS Vickers has downgraded First Ship Lease Trust (D8DU.SG) to Fully Valued from Hold, citing risk to cash flow following recent seizure of two of its vessels by Singapore-based Daxin Petroleum, which claims it hasn’t been paid for bunker supplied to both ships, according to Dow Jones.

DBS Vickers notes FSL has to pay US$4.8 million ($6.8 million) as security to get ships released, incur legal fees to settle Daxin’s claims. Cuts target price to $0.36 from $0.55 after lowering DPU estimates for FY10 by 19%, for FY11 by 9%.

“Unless further clarity emerges in this evolving situation, we believe it would be advisable to avoid the stock, though it appears potentially cheap in terms of dividend yield.”

Stock +1.3% at $0.40.