Published June 3, 2009

NOL's rights sails into smooth waters

By SIOW LI SEN

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WHAT a difference a few months make. Neptune Orient Lines is now able to raise about US$1 billion, four times more than what it was reported to be seeking back in the dark days of early March.

A market punch drunk on liquidity yesterday rewarded the shipping giant's 3 for 4 rights issue announcement a sharp rally. NOL's shares surged to an intra-day high of $1.79, up 17 per cent.

By contrast, in March, news that NOL was looking to raise US$250 million sent the stock crashing, wiping out $200 million in market value over three days before the company categorically denied a rights issue was being planned, after an earlier holding statement that was more vague.

NOL was subsequently rapped by the regulator for flip flopping on the matter.

Analysts say a rights issue was on the cards for NOL and it is just a matter of timing, as cash calls typically are.

So with sentiment having done a 180 degree turn and markets now sweet on rights issue, NOL is making an opportunistic issuance, said Andrew Lee, Nomura analyst.

'(Though) I was surprised by the size of it,' he added. But it makes sense for NOL to take advantage of the strong liquidity driven market to raise a bigger amount so there will be no funding overhang, in case of potential acquisitions, he said.

NOL said half of the money raised will be used to pay off debt while the balance will be used for investments if opportunities arise, general use and or further repayment of debts.

Not much clarity then on how it will use about half-a-billion US dollars which is a lot of money to be fuzzy about.

For the first quarter this year it reported a loss of US$244.6 million and said it expects a 'significant' full-year loss. Some analysts are predicting up to US$1 billion loss for 2009.

Mr Lee has a bearish rating on NOL noting that freight rates are at loss making levels.

'Rates continue to decline,' he said.

It is therefore puzzling why the market has gone to town over the loss making company.

Perhaps it's to do with parent Temasek Holdings' support for NOL. After all NOL is a strategic holding for Temasek which tried to take it private in 2004, and ending up with its 68 per cent stake. The conjecture then was that Temasek's takeover attempt was a precursor to a potential acquisition.

Adding to the positive glow surrounding NOL is a market trying to guess what Temasek's chief executive designate Charles Goodyear will stir up when he takes over officially in October.

For a company mired in losses, it sure is exciting times.