Singapore’s Neptune Orient Lines Appears Ripe for Takeover After APL Logistics Sale

By Joyce Koh, Angus Whitley and Kyunghee Park

(Bloomberg) — The delivery firm that helped cement Singapore’s standing as a world commerce hub could also be shaping up as a takeover candidate.

The enchantment of Neptune Orient Lines Ltd. has elevated after it agreed to promote its logistics unit final month for $1.2 billion to chop debt. Analysts undertaking the corporate, which strikes items globally, will profit from the U.S. financial restoration and return to revenue in 2015 after 4 straight years of losses.

“They are a cleaner play on the expected rebound in global trade,” Nicholas Teo, a market analyst at CMC Markets in Singapore, mentioned by cellphone. “It’s definitely a good point in the cycle” to purchase a delivery firm.

A sale might assist Temasek Holdings Pte, the Singapore state funding firm that controls Neptune Orient, bolster returns. The $1.9 billion container line’s pure companion could be Orient Overseas International Ltd., managed by the household of Hong Kong’s first post-colonial chief, in keeping with Credit Suisse Group AG.

Shares of Neptune Orient at the moment climbed 6.9 %, probably the most since January 2013, to S$1.01 on the shut of buying and selling in Singapore. The benchmark index climbed 0.2 %.

Neptune Orient, created in 1968 and now Southeast Asia’s largest container line, ran up $1.2 billion of cumulative losses up to now 4 years as a worldwide surplus of vessels ate into container charges. Its web debt within the interval nearly doubled to about $4 billion.

Weighing Options

On Feb. 17, simply days after reporting its newest quarterly loss, Neptune Orient mentioned it could promote APL Logistics, its provide and freight-management division, to Japan’s Kintetsu World Express Inc. The firm mentioned on the time it could take into account all choices for its liner enterprise.

Temasek, which owns 67 % of Neptune Orient, has beforehand explored a merger for the delivery firm, individuals with data of the discussions mentioned. Those talks broke down over points together with worth and construction of a mixed entity, in keeping with the individuals.

The APL Logistics transaction simplifies Neptune Orient and means a sale of the corporate may very well be resurrected, mentioned one of many individuals aware of earlier makes an attempt to strike a deal. The individual requested to not be recognized as a result of the talks have been by no means made public.

A consultant for Neptune Orient mentioned in an e-mail that the corporate doesn’t touch upon market hypothesis, and plans to deal with returning its delivery enterprise to “sustained profitability.” A consultant for Temasek additionally declined to remark.

Stanley Shen, a spokesman for Orient Overseas, responded to an e-mailed request for remark by replying, “How can you expect us to comment on rumors and speculation.”

More Focused

A mixture with Orient Overseas, which has a market worth of $3.8 billion, is smart partly as a result of it, too, has tightened its deal with delivery after promoting property, mentioned Timothy Ross, Singapore-based head of Asia-Pacific transport analysis at Credit Suisse.

“Now would be a good time for a deal,” mentioned Ross. “Scale is indubitably rewarded by profitability in the liner business.”

While Temasek has been a Neptune Orient shareholder since 1974, the strategic significance of its stake has pale because the state funding firm broadened its holdings, mentioned Carmen Lee, head of analysis at OCBC Investment Research Pte in Singapore.

“Times have changed and they are also into other growth areas like tech, health care, consumer sectors,” Lee mentioned. “Shipping was viewed as a lot more strategic in the past.”

Valuable Routes

Japanese delivery firms reminiscent of Mitsui O.S.Okay. Lines Ltd. and Nippon Yusen Okay.Okay. would even be amongst logical consumers as regional rivals, mentioned Teo at CMC Markets.

Representatives for Mitsui and Nippon declined to remark.

Among 40 friends, Neptune Orient was the world’s sixth- largest transporter of U.S. exports between January and September final 12 months and had a market share of 5.3 %, in keeping with JOC Group Inc. knowledge. Mediterranean Shipping Co. led with 13 %.

Neptune Orient might enchantment to a European suitor reminiscent of Hapag-Lloyd AG, Germany’s largest container delivery line, due to its trans-Pacific routes to the U.S., mentioned Suvro Sarkar, an analyst at DBS Group Holdings Ltd. in Singapore.

“Temasek may want to dispose of it in due course,” he mentioned. “I wouldn’t discount the idea, but the likelihood is still on the lower side.”

A consultant for Hapag-Lloyd mentioned the corporate doesn’t touch upon hypothesis.

Labor Standoff

After the sale of its logistics enterprise, Neptune Orient seems extra like a purchaser of property than a takeover goal, mentioned Rahul Kapoor, a Singapore-based director at Drewry Maritime Services Pvt. Neptune Orient has change into a logo of the Singapore delivery trade and an exit by Temasek may be very unlikely, he mentioned.

Temasek in 2004 paid S$2.80 a share to lift its Neptune Orient stake to about 69 % from 30 %.

All the identical, Neptune Orient’s outlook improved final month when U.S. west coast dockworkers resolved a nine-month labor standoff that contributed to losses final 12 months. Neptune Orient is projected to put up annual earnings by means of at the very least 2017, knowledge compiled by Bloomberg present.

Shipping Symbol

Singapore’s authorities final month posted its first finances deficit because the monetary disaster and mentioned it’s ready to dip into Temasek’s capital features for further funding. The state funding firm’s complete shareholder return was 1.5 % for the 12 months ended March 31, down from 8.9 % within the earlier 12 months and a median of 16 % a 12 months since its inception in 1974.

In Temasek’s 2014 assessment, Neptune Orient was one in all solely three main investments to put up unfavourable returns within the earlier five-year interval. The firm’s shares have climbed 13 % this 12 months.

About 75 % of the Bloomberg Intelligence international marine delivery peer group is anticipated to generate optimistic earnings per share in 2015, up from 51 % in 2014. With prospects trying higher for Neptune Orient, a merger involving the corporate is extra possible, mentioned Ross at Credit Suisse.

“Now is probably a time you get people coming to the table,” he mentioned. “I see Temasek now being prepared to be commercial, to find someone who has a track record better than their own in driving the business.”

–With help from Kiyotaka Matsuda in Tokyo, Richard Weiss in Frankfurt and Clement Tan in Hong Kong.