Neptune Orient Lines launches $996 million rights issue

The largest shipping and logistics company listed in Singapore, Neptune Orient Lines (NOL), yesterday launched a S$1.437 billion ($996 million) renounceable rights issue. The company, which is majority-owned by Temasek, intends to use the money to pay off debt and give its balance sheet a boost.

The fully underwritten deal consists of 1.1 billion rights shares being offered to existing shareholders at a ratio of three new shares for every four shares owned. The rights price is S$1.30 per share, which equals a 15% discount to Friday's closing price of S$1.53.

The rights shares come at a 9.2% discount to the theoretical ex-rights price (Terp), which is far tighter than other Asian companies with rights issues currently in the market. Golden Agri-Resources, which launched a $218 million rights issue last week, is selling shares at a 56.2% discount to Terp; while Pacific Andes International Holdings is seeking to raise $73 million at a 30.2% discount to Terp via a rights offering that was also announced last week.

Half the money raised by Neptune will be used to pay off debt. As of April 3, the company's total debt was $1.4 billion and the net gearing ratio was 0.45. Following the rights issue, the company's net gearing as of that date will drop to zero on a pro forma basis.

"The group's enhanced financial flexibility arising from a stronger balance sheet will provide the group with an important source of differentiation in the credit constrained environment," said the company in a written statement.

The remainder of the proceeds will be used for opportunistic investments and working capital.

As a company that derives much of its revenue from moving goods around the world, Neptune has been hit hard by the drying up of international trade. In May, it reported a record loss of $245 million, driven by a 36% year-on-year drop in shipping revenues. However, the worst might already be over.

"We are starting to see some signs of demand and rate stabilisation, albeit from low bases," said Credit Suisse in a research note released following Neptune's earnings. The Swiss bank cited the China Containerised Freight Index, which in April fell by only 1% month-on-month, and 26% year-on-year, compared to 27% in March. Also, a variety of factors -- such as the recovery in the US Institute for Supply Management Index and the China Purchasing Managers' Index, and a stabilisation in US retail sales -- could all prove near-term positives for the company.

Neptune's share price has recovered in the past couple of months and last week's close at S$1.53 marked a significant improvement from its March nadir of S$0.86. The company's shares were suspended from trading on Monday pending the rights issue announcement, but after the deal was announced, the stock went up a further 10.4% to close at S$1.69 yesterday.

Temasek, either directly or through its subsidiaries, owns 67.4% of Neptune and the Singaporean investment company has already announced that it will purchase all the shares that it is entitled to. Thus, Neptune joins many other companies in which Temasek has invested that have undertaken rights issues in the past six months. Among them are Standard Chartered Bank and DBS Group, in which Temasek owns 19% and 27.6% respectively, CapitaLand and Chartered Semiconductor Manufacturing. The Neptune deal is being underwritten by DBS Bank.

Out of the $3.5 billion raised year-to-date from Asian rights issues, 50% has come from Singapore, according to data from Dealogic. And Temasek is playing a large part: three of the four biggest Singaporean rights issues are companies in which the investment company has large stakes. Joint second on the Asian rights tables are Korea and Malaysia, which each account for 18% of the total volume.

In other rights issue news, Hong Kong-listed Pacific Andes International Holdings (PAIH) and its Singapore-listed subsidiary Pacific Andes Holdings (PAH), which concurrently launched two rights issues on May 22, shed some more light on the timetable for the deals. The PAIH offer will be open for subscription between June 3 and June 16 with completion expected at the end of June. The offer information statement for the PAH issue will be sent out on or before July 2 and subscriptions will be accepted between July 2 and July 16, with completion expected at the end of July. Both companies are involved in the supply and distribution of frozen seafood.

Meanwhile, Singaporean property company Keppel Land closed the books on its $478 million rights issue yesterday. No announcement has yet been made about how the deal went.