NOL placement charters difficult waters

Singaporean shipping company receives a testing time from investors.

Neptune Orient Lines (NOL) completed a 236 million share placement yesterday (Tuesday) raising S$548 million ($308 million) to pay down debt. The deal was led by Credit Suisse First Boston, which beat about nine other banks that competitively bid for the transaction last Friday.

The investment bank is said to have pitched a 3% to 5% discount range to the stock's S$2.44 close on Friday and subsequently bought the deal over the weekend at a 5% discount, equating to S$2.32 per share. It is also believed to have been paid a 1% fee.

But once the stock was suspended on Monday morning and order books opened, the placement hit considerable resistance from investors. This prompted the lead to re-price the deal overnight on Monday at S$2.24 per share, representing an 8.2% discount to Friday's close.

At this point, there is said to have been a full order book, with participation from about 50 investors. However, no-one knows how much, if any, paper CSFB retained on its own books. This means it remains unclear whether there is still an overhang on the stock, what loss the investment bank will have to stomach, or whether it will eventually be able to trade out of its position at a profit.

When the stock resumed trading on Tuesday, it fell 14.8% to close at S$2.08.

Yet for many equity specialists, the deal's fate throws up much wider questions about the consistently poor handling of transactions by government-linked companies in Singapore. Prior to the transaction, NOL was 33% owned by the government's investment arm Temasek, which is developing a reputation for riding roughshod over investors.

Many find the government's attitude particularly strange given that it has a stated policy of trying to widen share ownership and needs to maintain a good relationship with investors if its extensive divestment programme is to continue running smoothly. Yet it never appears to learn its lesson and time and time again, Singapore GLC's bid deals out to competitive tender, thinking only of maximising proceeds and not of aftermarket performance.

Such is the competition for investment banking business in Singapore, that the winner invariably has to put in extremely aggressive pricing terms and needs a good prevailing wind in the market to execute them. In early October, Singapore Technologies adopted a similar tack with two exchangeables into ST Engineering and Capitaland. It received a lot of criticism, but just about managed to get away with pricing after underlying markets performed strongly the day after launch.

NOL has not been so lucky, with global equity markets falling on Monday. Across Asia as a whole, a number of recent placements have also prompted subsequent stock price weakness.

While investors continue to pile into IPO's in the hope that primary market momentum will generate strong aftermarket performance, they have been wary of listed companies diluting earnings by taking advantage of stock price appreciation with large placements. NOL is typical of this trend.

The stock is up just under 130% so far this year and the deal is large relative to the existing freefloat. It represents 19.9% of the company's enlarged share capital, 30% of the existing freefloat and 30 days trading volume.

A number of houses still have a buy recommendation on the stock, however, and the underlying story is positive. The placement co-incided with the announcement of third quarter earnings.

In the nine months to September, NOL recorded a net profit of $205.8 million compared with a loss of $28.5 million the same time last year. Profits did, however, include a one-time gain of $99 million covering proceeds from the sale of American Eagle Tankers in July.

Proceeds from the placement are being used to pay down debt, which will fall from $1.67 billion to $1.37 billion.

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