INTERVIEW-UPDATE 1-First Ship to grow assets by $300-$350 mln/yr

* Aims to buy up to $350 mln worth of vessels a yr * Cost of borrowing funds remains "reasonable" * Distribution to remain at 100 percent of cash flow (Adds quotes, details)

By Kevin Lim and Charmian Kok

SINGAPORE, July 25 (Reuters) - Singapore's First Ship Lease Trust (FSL) (FSLT.SI) said on Friday it aims to buy up to $350 million worth of vessels a year and that borrowing costs remain reasonable despite the credit crunch.

This could double its portfolio within several years, as FSL aims to tap growing global trade and a trend of shipping firms leasing a larger portion of their fleet.

"Going forward, we are looking at $300 to $350 million on an annual basis to grow our portfolio," Chief Financial Officer Cheong Chee Tham told Reuters in an interview.

Borrowing costs remain "reasonable" at around Libor plus 120 basis points compared with Libor plus 100 basis points about a year ago, he added.

FSL, which leases liquid tankers, container ships and dry bulk carriers to firms such as Taiwan's Yang Ming (2609.TW) and Russia's Rosneft (ROSN.MM), has acquired $280 million worth of assets so far this year to boost earnings and revenue.

For the second quarter ended June 30, the trust's revenue rose 71 percent to $20.7 million from a year ago while distribution to unitholders increased 28 percent to 2.8 U.S. cents a share.

FSL expects to pay a third quarter distribution of 3.05 cents, Cheong said, adding that the payout will remain at 100 percent of surplus cash flow in the foreseeable future.

Cheong said the trust favoured smaller ships as these were easier to sell in the second-hand market or lease out once the original leases expired.

Looking ahead, Cheong said he expects shipping firms to lease a larger proportion of their fleet to reduce capital expenditure and free up funds for other operations.

"In terms of shipping, operating leasing is still relatively less mature than for aircraft," he said, noting that just 10-15 percent of the total financing market for ships involved leases compared with 40-50 percent for commercial aircraft.

He also said FSL will likely borrow to pay for new acquisitions, or ask its main shareholder, First Ship Lease, to buy and "warehouse" the ships on its behalf until conditions in equity markets improve.

FSL has a fleet of 22 vessels with another on the way once financing is completed. The trust had a net book value of $938 million as at end-June.

FSL and the other two Singapore-listed shipping trusts, Rickmers Maritime (RIMT.SI) and Pacific Shipping Trust (PFST.SI), currently trade at distribution yields of around 11 percent compared with about 7 percent for U.S.-listed ship financiers such as Seaspan (SSW.N).

They offer higher yields than Singapore-listed real estate investment trusts, which currently yield around 5-6 percent, because ships typically have a lifespan of 25-30 years.

Shares of FSL were trading at S$1.28 at 0850 GMT, down 1.5 percent after paring earlier losses. The trust has gained around 8 percent since the start of the year, beating the benchmark index's 16 percent fall. (Editing by Neil Chatterjee)