Singapore state fund Temasek Holdings is seeking to divest its majority 65 per cent stake in container-shipping company Neptune Orient Lines (NOL), which currently maintains a market capitalisation of S$2.3 billion ($1.692 billion), the Wall Street Journal reported citing peple familiar with the development.
Founded in 1968 as the city-state’s national shipping line, NOL is valued in excess of S$8 billion when debt is included, according to information from S&P Capital IQ.
Singapore corporate regulations require buyers purchasing a stake of 30 per cent or more to make an offer for all shares. Heavily indebted and with a negative income, the distressed Temasek unit is currently in talks with various shipping firms around the world, the report added.
NOL assets include 92 vessels servicing more than 160 ports globally, with a linear business that generated $7 billion in revenue for FY 2014. However, NOL has lost money for three straight years as freight rates have fallen amid an oversupply of shipping capacity.
The year 2014 saw NOL generate $260 million in losses, an increase from $76 million in 2013. Exiting NOL still leaves Temasek with major transportation infrastructure assets in Singapore, with its ownership of PSA International.
NOL has been engaged in merger discussions with various companies, including Germany’s Hapag-Lloyd AG and Hong Kong’s Orient Overseas (International) Ltd. With the shipping industry suffering excess supply of capacity, there is considerable pressure to consolidate.
However, NOL’s potential merger partners may be uninterested in acquiring NOL, given the recent industry developments.
Hapag-Lloyd, a German-Chilean company since merging with Chilean shipping firm Compania Sud Americana de Vapores and the world’s fourth largest container shipper, is planning an initial public offering (IPO) that could result in a valuation of more than $5.5 billion.
The recent trade sale of NOL’s logistics unit, APL Logistics, for $1.2 billion to Japan’s Kintetsu World Express in May 2015, has positioned NOL in a stronger position for divestment. The separation of the logistics and shipping operations allows for better pricing, due to attracting different buyers.
The 35 per cent stake traded on the Singapore Stock Exchange (SGX) as shares have underperformed, with a temporary spike in value when APL Logistics was divested. The price has declined since the divestment, amid continued concerns over global growth.