NOL urged to sell terminals and liner business separately

Singapore

NEPTUNE Orient Lines (NOL) should carve out and sell its terminals in the US and Asia to a third party, say PSA International, instead of selling its business as "one whole package", said a former key executive of the company.

This would enable its controlling shareholder, Temasek Holdings, to fetch top dollar or a "premium" in its planned sale of NOL, said shipping veteran and former NOL deputy chief executive Lim How Teck.

Over a week ago, Singapore-listed NOL said that its largest shareholder, a wholly-owned unit of Temasek, has begun exclusive talks with the world's third-largest container shipping company, France's CMA CGM, for a "pre-conditional voluntary general offer".

The parties have until Dec 7 to whip up an agreement on what is possibly the largest buyout in the container shipping realm in recent years.

"Temasek has many choices. While NOL's book value is S$1.38 (as at third quarter 2015), this valuation fails to take into consideration the mark-to-market value of the terminals," Mr Lim told The Business Times.

"I think many parties will be interested in the terminals. The terminals are a prize catch and of strategic interest for PSA. If CMA is interested but is not going to offer mark-to-market price for the terminals, NOL can sell them to PSA."

NOL owns five terminals - two in Japan (Kobe and Yokohama), one in Taiwan (Kaohsiung), and two in the US (Los Angeles and Dutch Harbour).

According to Mr Lim, who was with the NOL group from 1979 to 2005, the most valuable terminal is the one in LA as "the area has no new ones coming up due to environmental issues". It also has a railway that goes right into the terminal which is "very rare" and makes it "very efficient".

No doubt, NOL's terminal portfolio is a valuable asset, but the Singapore-based director of shipping research firm Drewry, Rahul Kapoor, reckons that "the issue is that there will not be many buyers left for standalone liner business".

Mr Lim, the man credited for playing a key role in NOL's buyout of a bigger rival, the US's APL back in 1997 and currently a director of several public listed companies, thinks otherwise.

"There will always be buyers for standalone liner businesses since there are cost synergies, geographical expansion advantages and deeper dominant sectors on acquisition - with or without terminals," he said.

In fact, he pointed out, NOL had nearly bought out Hapag-Lloyd, Germany's biggest container line, in 2008 - the deal got scuppered over concerns of loss of a strategic national asset - and Hapag had no terminals then.

"Having a terminal asset is the exception rather than the norm - most liner companies do not own terminal assets," Mr Lim added.

Meanwhile, NOL has made no mention of an indicative price in relation to the takeover talks, but its stock price has been reinvigorated since the news broke, jumping 9 per cent to S$1.22 a week ago and finishing not far from that 52-week high at S$1.21 on Tuesday.

The NOL counter has done better than the Straits Times Index so far this year - it is up 1.7 per cent while the market benchmark is down 15 per cent.

Still, there are analysts who are doubtful that the deal can indeed be pulled off, given the low valuations of stocks in the shipping container sector which is fraught with overcapacity and slipping freight rates and liner volumes.

On its part, NOL has stressed that there was no assurance that the discussions would culminate in a definitive offer.

However, fuelling hope that a deal is on the cards is the fact that the parties are engaged in "exclusive" talks - a sign, according to corporate specialists, that there is a price on the table that is palatable to the seller.

Mr Lim agrees: "Nobody gives exclusivity if the price offered is far from what a seller wants. It wouldn't make sense.

"The tacit understanding under such circumstances is that the seller is happy with the price (range), subject to details."