NOL surges on merger talks but eases on divided views

Singapore

SHARES in Neptune Orient Lines surged to a high of S$1.125 on Monday, up S$0.08 from the previous close, but ended the day at S$1.055, as the market remains divided in its response to merger talks between Singapore's largest listed container shipping entity by market capitalisation and two leading players, AP-Moeller-Maersk and CMA CGM.

Industry watchers are split on their views of NOL's anchor shareholder, Temasek Holdings' reaction to the approaches from Maersk and CMA CGM.

Speaking to The Business Times on the condition of anonymity, an industry veteran argued that the Singapore investment company may grab the opportunity to divest its NOL stake, given that the "ability to sell (even) during a downturn can be perceived as a plus".

The industry expert, who has spent decades in ship finance, said that given NOL's recent divestment of its crown jewel - its profitable APL Logistics - to Kintetsu World Express, the timing is ripe for Singapore's flagship maritime counter to seriously consider acquisition offers from third parties.

The ship finance expert also remarked that the reported involvement of AP Moeller-Maersk could force CMA CGM to up its eventual acquisition offer.

Between the two suitors, the expert considered CMA CGM as benefiting more from an extension of geographic footprint through a potential take-over of NOL. It also requires tonnage from vessel additions to secure its position as the third largest container shipping against AP Moeller-Maersk and Mediterranean Shipping.

Regardless of which shipping company were to take over NOL, the expert believed however, a major "revamp" would have to be on the cards and a lot of work will go into business integration.

Meanwhile, weak container freight rates - hurt by renewed pressure from sliding seaborne trade volume - are exerting downward pressures on valuations of shipping equities.

Citing the Hapag-Lloyd's initial public offering which was pegged at a price to book (P/B) ratio of about 0.5 times, an OCBC Research note suggested Temasek, which owns about two-thirds of NOL, may be unwilling to sell its stake given the current low valuations in the market.

Hapag Lloyd's, which went public in Frankfurt on Nov 6, was forced to reduce its target IPO proceeds after AP Moeller-Maersk downgraded its profit forecast in October.

Temasek may seek a minimum P/B ratio of 0.8 times before it is willing to offload its stake in NOL, taking into account the past dividends and returns of capital disbursed to the shareholders of the shipping counter, according to OCBC Research. NOL's book value as at the end of Q3 2015 is about S$1.38.

Based on its latest annual report, Temasek owned 65 per cent of NOL's shares as at March 31 2015.

NOL's total market capitalisation was S$2.74 billion at market close on Monday as its share price surged on merger talks.

The group posted a third-quarter net loss of US$96 million, compared to US$23 million a year ago. The Temasek-invested shipping counter, which has been in the red for the last three years, has been long rumoured to be a takeover target.