Published June 3, 2009

NOL joins Temasek wave with $1.44b rights issue

It's the sixth Temasek-linked company to take the rights route this year as it changes course from its earlier stance

By VINCENT WEE AND JAMIE LEE

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(SINGAPORE) Neptune Orient Lines (NOL) yesterday announced plans to raise some $1.44 billion through a rights issue, reversing course from its earlier stance that no such proposal was on the cards.

The three-for-four rights issue at $1.30 apiece - a 15 per cent discount to last Friday's closing price of $1.53 - is also the sixth from a Temasek-linked company (TLC) since the start of the year.

Including the $4 billion rights issue from DBS last December, TLCs have raised a staggering $10.5 billion from rights issues thus far.

Other TLCs that have done so include CapitaLand, which raised $1.84 billion, as well as its subsidiaries CapitaCommercial Trust and CapitaMall Trust.

Chartered Semiconductor Manufacturing also raised US$300 million from a rights issue to improve its debt position.

Strong market talk of a rights issue by NOL surfaced on March 10 when a Dow Jones report said NOL might, like its fellow TLC Chartered, be raising more than US$250 million in a rights issue.

The company did not comment on the market speculation on March 10 but said three days later that it was 'not undertaking a rights issue'. It added that it would continue to evaluate all options 'to improve its performance and strategic position'.

That invited a public reprimand from Singapore Exchange (SGX) the following week for not being 'sufficiently frank and explicit', prompting questions by industry players over how disclosures on rights issues and other pertinent announcements should be made.

In what could be read as an added step of caution, the national shipping line halted trading for the whole of Monday before making the announcement at about 7:30am yesterday.

After the trading halt was lifted, NOL shares surged as much as 17 per cent before ending at $1.68, up 9.8 per cent. It was among the 20 most actively traded stocks, with some 62.6 million shares changing hands.

The company said it was raising the money to repay debts, strengthen the balance sheet and enhance its financial flexibility.

About half of the net proceeds of about $1.4 billion will be used to repay debts, while the balance will be used for possible investments, working capital purposes and further repayment of debts, NOL said.

With the rights issue, net gearing on a pro forma basis as at April 3 would be reduced to nearly zero from 0.45 times.

The group has gross debt of about US$1.4 billion, said CFO Cedric Foo.

'Current stockmarket conditions are conducive to a rights issue,' said chief executive Ron Widdows at a briefing before the market opened yesterday morning.

Chairman Cheung Wai Keung added that it would be 'prudent' to strengthen the company's balance sheet while market conditions allowed them to do so, pointing out that the cash will help NOL seize investment opportunities. However, he did not elaborate on what these investments might be, other than saying that these would be within NOL's core container and logistics business.

Mr Foo said the issue size of around $1 billion 'is not excessive' and added that the company's capex projections at its quarterly briefing were just estimates and it is uncertain when and what kind of opportunities will arise.

CIMB-GK analyst Raymond Yap said in a research note that he was positive on the rights issue as the funds could be invested in ships or shares of companies at rock-bottom prices.

'The dilution to book value per share should only be 14 per cent, which is a small price to pay for enhanced growth prospects,' he said, adding that he is reviewing his 'underperform' rating on NOL.

Temasek, through its subsidiaries Lentor and Startree Investments Pte Ltd, will subscribe its pro-rata entitlement of about 67.4 per cent and mop up any unsubscribed rights shares.

DBS, another fellow TLC, is the sole underwriter for the deal.

As one of the directors of NOL, Simon Israel, is also an executive director at Temasek, which owns part of DBS, NOL said 'Mr Israel (had) recused himself from the deliberations and decisions of the board in relation to the rights issue'.