Published June 2, 2009

NOL primed to make major announcement

Trading halt called while theories do the rounds

By VINCENT WEE

	Email this article
	Print article
	Feedback

(SINGAPORE) Neptune Orient Lines (NOL) unexpectedly requested a trading halt yesterday pending an announcement that should be on its way this morning.

The NOL board then retreated for a meeting until late last night even though the results were not disclosed. The developments, however, created a buzz and there was market talk that NOL may be reviving the idea of a rights issue. The other conjecture is that a divestment of either a strategic stake or an asset is in the offing.

Talk of a rights issue first emerged in mid-March when a slew of Temasek-linked companies conducted fund-raising exercises. NOL initially declined to comment and after several days, during which the share price plunged as much as 13 per cent, the company finally clarified that it is not undertaking a rights issue, bringing the price back to its original level. It was reprimanded by the regulator for lack of disclosure.

The latest prompt action has got the market guessing.

For one, NOL has long been keen to divest its terminals business. In the midst of one of the previous big downturns in 1999, the group sold its shares in its North American stack train business for a net profit of US$167 million at the time. It said then that the proceeds were to reduce debt and for investment in the logistics business.

NOL's previous CEO Thomas Held last said it was not planning on selling the business in August 2007. At the time it was estimated the terminals might be worth as much as US$1.9 billion.

Another theory doing the rounds is that Temasek, which owns nearly 70 per cent of NOL, may be choosing this juncture to reduce its stake. NOL's share price has risen around 80 per cent from its lows and this may be seen as a good opportunity to liquidate.

'First thing that comes across our mind is a possible rights issue,' said CIMB's Raymond Yap in a report released yesterday. 'After all, the share price has risen 80 per cent from its low of 85 cents, and market sentiment is still positive.'

He calculated: 'Assuming NOL raises US$500 million (22 per cent of current market capitalisation) at 92 cents (40 per cent discount to last close), NOL will need to issue 543 million shares, which will take the share base from 1,475 million shares to 1,975 million shares. Effectively, this is a one-for-three rights issue that will dilute EPS by around 30 per cent.'

The liner shipping business continues to suffer from low volumes and low freight rates. NOL's container business APL recently announced a freight rate increase on the Asia-Europe trade but along with indications from the other lines, there are doubts if this rate hike is sustainable.

NOL shares closed six cents higher at $1.53 on Friday.