CMA CGM takeover allows sovereign wealth fund to exit loss-making business.
French line CMA CGM’s proposal to acquire Singapore’s Neptune Orient Lines will enable the Southeast Asian city-state’s sovereign wealth[ds_preview] management firm Temasek Holdings to offload a loss-making business. NOL insiders told HANSA that when the company posted its second annual loss in 2012, Temasek began looking for buyers. For the third quarter of 2015, NOL incurred a 96mill. $ loss, its worst quarterly result in six quarters. From 2011 to 2014, the company had more than 1.2 bn $ of losses.
While Temasek’s head of portfolio management Tan Chong Lee said the deal would enable NOL to grow as part of a larger entity, CIMB Securities analyst Raymond Yap opined that without 20,000TEU ships, the company would be unable to compete effectively globally. The biggest ships that NOL has are only up to 14,000TEU, while players like Maersk Line, Mediterranean Shipping Co and CMA CGM have much larger vessels.
With 1.8 bn $ in equity and debts totalling 7.3 bn $ as of 31 December 2014, NOL’s debt-to-equity ratio is more than 400%, making it difficult for the company and Temasek to undertake further capital investments.
Yap said, »Without this deal, we expect NOL’s share price to collapse to a 20-30% discount to below its book value of 1.35 SGD per share, not just because of the persistent weakness of the container shipping industry, but also because without 20,000TEU ships, NOL is unprepared for the future.«
In December 2015, CMA CGM announced it would buy NOL, which operates a container shipping business under the APL brand, for 2.4 bn $, or 1.30 SGD (0.90 $) per share. The amount is a 33% premium to the average price of NOL’s stocks for the three months up to July 2015. In February the same year, NOL sold the logistics arm APL Logistics to Japan’s Kintetsu World Express for 1.2 bn $.
Temasek Holdings, which holds a controlling 67% stake in NOL, has agreed to sell all its shares to CMA CGM. The deal must still pass anti-trust clearance in the European Union and the US. Before agreeing to sell to CMA CGM, Temasek was also in talks with Maersk Line.
The transaction was viewed with dismay by many people in Singapore, which is a maritime hub in Asia. NOL was established in 1968, three years after Singapore’s independence, as the city-state had to develop its economy.
»Amid a slowing world economy and structural overcapacity, the container liner industry is on its knees. Despite NOL being Singapore’s national line, Temasek, being a sovereign wealth fund, has to maximise returns for its shareholders and it’s uncertain when profitability will return,« said the NOL executive.
APL, formerly American President Lines, was acquired by NOL in 1997. Through this, NOL has built up considerable market share in trans-Pacific trades. Buying NOL would thus enable CMA CGM, which is dominant in Asia-Europe routes, to expand its trans-Pacific services.
NOL CEO Ng Yat Chung said, »The combined market presence delivered by the transaction would achieve the scale needed to enhance competitiveness for NOL’s operations and offer a clear and sustainable long term direction for the combined entity.«
Zeng Xiaolin
