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Should Temasek have stuck it out with NOL?
IT IS what it is. Strictly based on entry-exit price dynamics, one loser in the sale of Neptune Orient Lines (NOL) to France's CMA CGM, will likely be Temasek Holdings.
No one quite knows how big (or small) the losses are but it's safe to assume that the sale of NOL to CMA CGM for S$3.4 billion will be a blow to the Singapore investment company's gut, never mind the fact that it's a well-fed one with S$266 billion worth of assets.
But let's cut Temasek, which has explicitly provided its full backing for the sale, a little slack.
Temasek has held the baby for 40 years - in human terms, that's way past the child-parent dependency cycle - and so it may be trite to begrudge the firm the leeway of deciding when enough is simply just that - enough.
In fact, if Temasek were intent on jealously guarding its control over NOL, the largest container shipping firm in South-east Asia and dubbed a national icon by sentimentalists - this even though it has spent half of the last 10 years in the red - investors may be less thrilled.
NOL investors who spent much of this year cheering the stock's remarkable rise on news of a possible sale of liner would have to contend with the stock being in the region of 30 per cent lower than current levels, where it stood exactly a year ago.
Then what? Wait it out while NOL continues to lose money at the mercy of a brutally competitive container shipping industry it clearly has not managed to navigate effectively in recent years?
Indeed, a true-blue pride-evoking deal would have been one where Singapore's NOL gobbled up a formidable player to scale up and better compete with the stalwarts.
But that too is a been-there done-that moment for NOL whose planned buyout of Hapag Lloyd, a German liner ranked number five in the world, failed to take off seven years ago.
There is very little that NOL's team led by group president and chief executive Ng Yat Chung hasn't done, including off-loading its logistics arm to bulk up its balance sheet, to revive NOL's fortunes.
Lest one forgets, Temasek had itself launched a S$2.8 billion general offer for 70 per cent of NOL shares at S$2.80 apiece in 2004, back when the container shipping business was booming with robust volumes and higher sea-freight rates. The exercise raised its stake from 30 per cent to 68.6 per cent.
Fast forward over a decade and the past four straight years of losses for NOL, and Credit Suisse analyst Timothy Ross says Temasek must feel relieved now to "cut loose the albatross" with the successful conclusion of talks with CMA CGM.
Not least because, in Mr Ross' own words, CMA CGM will be paying a "pretty full price" for NOL at 0.96 time its last reported book value given the prevailing operating environment and recent capital market events (Hapag Lloyd's initial public offering in Frankfurt last month had priced the shares at around 0.5 time book value).
Temasek had two choices - hang on to NOL awhile longer and possibly throw more good money for it to survive amid a volatile environment or hive off the liner to a credible buyer with a fair price on the table and allow it to be part of the world's third largest operator.
Whether the sale price of S$1.30 per NOL share may seem like a bargain for CMA CGM three to five years down the road is an argument best left to clairvoyants given the lack of visibility on when the cycle could turn. Who knows?
Selling NOL to CMA CGM is less likely to threaten Singapore's cherished status as a maritime hub given its chief value propositions - location, logistics and infrastructure quality and breadth and depth of maritime services. It in fact could help boost volumes at Singapore's PSA International with the French line's commitment to set up a regional head office and promise to shift businesses from other hubs to PSA.
There are many more listed national champions in Temasek's stable namely Singapore Airlines, DBS Group Holdings, Keppel Corp, CapitaLand and Singtel to name a few. One less ailing firm which stands a better chance of survival out rather than in Temasek's portfolio may just be a good thing.