Temasek unit leading consortium to rescue PIL

Singapore

A CONSORTIUM of investors led by Heliconia Capital Management, the investment firm owned by Temasek Holdings, may soon come to the rescue of struggling Singapore boxship operator Pacific International Lines (PIL).

PIL, which is struggling to stay current on its charter payments and has been divesting assets to shore up cash, confirmed on Tuesday that it is in exclusive talks with Heliconia for a potential investment.

Negotiations are at a preliminary stage, so the parties have yet to decide on how much cash to inject into PIL, and whether the funds will be raised by the issuance of equity, debt, convertible bonds, or a mix.

There is no certainty that a deal will be struck either, PIL said in a filing to the Singapore Exchange: "As discussions with Heliconia progress, the board will make further announcements as and when there are any material updates or developments. Until such time, neither the company or Heliconia will make further comments on this matter."

PIL is the world's tenth biggest container shipping line, helmed by former Nominated Member of Parliament Teo Siong Seng, better known as SS Teo.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

The struggle to remain profitable has challenged global boxship operators for more than 10 years now.

PIL reported a net loss of US$35 million in the first half of 2019. As at June 30 last year, it owed a total of US$1.89 billion in loans and notes payable, and carried US$1.97 billion in lease liabilities, with a cash pile of just US$154 million.

PIL said on Tuesday: "In light of the significant challenges facing the container shipping industry, PIL has made significant progress towards rationalising our service offerings and reducing asset costs. However, despite the company's best efforts, the persistent Covid-19 pandemic has caused the situation to worsen over the past month."

PIL has since commenced discussions with 15 of its financial lenders to seek their support for a "debt re-profiling plan". PIL prefers to use this term because its original intention was to defer payment obligations without creditors taking any haircuts, The Business Times understands. There is also a stigma attached to the term "debt restructuring" in China, where PIL is active.

So far, lenders representing around 97.6 per cent of PIL's total bank debt have given their in-principle approval for a deferral of principal and interest payments until Dec 31, 2020, PIL said.

These lenders have also expressed support for a formal standstill on enforcement actions until the end of the year, or until a formal debt re-profiling agreement is entered into.

Two financial lenders representing the remaining 2.4 per cent of PIL's bank debt have not expressed their support, and PIL continues to be in discussions with them, it said.

One of the two lenders had issued a letter of demand to PIL on May 11 for US$12.6 million to be paid within 10 business days.

DBS Group is one of PIL's biggest secured lenders, with an exposure of around US$260 million, followed by Bangkok Bank with an exposure of around US$220 million, sources told BT. Maybank is the next largest lender, followed by OCBC Bank, which is owed around US$90 million secured on vessels, sources said. Representatives from DBS and OCBC Bank declined to comment.

Two entities linked to Temasek are also on the creditor list. SeaTown Lionfish, an independent subsidiary of Temasek, together with Broad Peak, a hedge fund in which Temasek is said to be an investor, are owed about US$140 million, secured on vessels and PIL's shares in Singamas, BT further understands.

A spokesperson for Temasek declined to comment, noting that the debt does not sit in Temasek's books.

PIL owns a 41 per cent stake in Hong Kong-listed container manufacturer Singamas, and some of these shares have been pledged to SeaTown and Broad Peak as collateral for loans since 2018.

Separately, PIL has also entered into a number of sale and leaseback agreements with lessors, and these lessors hold the titles to some of PIL's vessels.

PIL is in talks with a group of its finance lessors with a view to concluding a "re-profiling" of certain lease agreements, it said.

PIL is privately owned by the Teo family, but it has often tapped the debt markets for refinancing in the past, and has an outstanding S$60 million tranche of 8.5 per cent notes that will mature on Nov 16.

PIL cautioned that events of default will likely arise under the notes terms, since it has sought creditors' approval for a moratorium on enforcement actions against it. PIL said it will convene informal meetings with note holders to discuss its proposals for a debt re-profiling plan.

Trading in the notes is illiquid and their latest indicative bid pice was 85.4 Singapore cents to the dollar, according to FSMOne.

While the identities of the parties that will be investing alongside Heliconia has not been revealed, the emergence of Heliconia as a potential white knight for PIL has taken some industry watchers by surprise.

Tan Hua Joo, chief analyst at shipping consultancy Alphaliner, told BT that Heliconia's sudden interest in PIL may have been motivated by similar financial aid provided by the governments of South Korea, Taiwan and France to shipping lines.

But the argument that governments have a strategic interest in container shipping is generally not well grounded, he said. "Commercial shipping services are readily available in Singapore. Singapore is not just the second busiest container port in the world but also the second highest ranked port in terms of connectivity, just behind China.

"PIL has a global market share of less than 2 per cent and contributes less than 3 per cent of total container volumes in Singapore, based on my estimates. It is hard to justify having an ownership stake in the carrier."

Indeed, shipping is not on many people's to-buy lists these days. Fierce competition has also triggered consolidation moves, including Temasek's sale of Neptune Orient Lines (NOL) to France's CMA CGM in 2016. That said, NOL did turn profitable under the French shipping line after the sale.

As for Heliconia, it has previously focused on smaller, growth-oriented companies in its investments. But this will not be its first attempt at distressed investing. Back in 2018, Heliconia had considered taking a punt on insolvent shipbuilding and charter firm Marco Polo Marine, though other investors ultimately beat them to it.

Heliconia chairman Lim How Teck is also a shipping veteran, having been with NOL from 1979 to 2005 where he held various positions including chief financial officer, chief operating officer and group deputy chief executive.

Evercore Asia is advising PIL on its strategic and capital raising initiatives, while PwC is advising PIL on its debt re-profiling. WongPartnership is the legal adviser for PIL.