Temasek-linked shipping company Neptune Orient Lines (NOL) on Tuesday agreed to sell its logistics business APL Logistics to Japan’s Kintetsu World Express for $1.2 billion.
The loss-making shipping company has been battling a cyclical downturn and the sale will enable it to strengthen its financial position and repay borrowings, halving its net gearing from 2.25 times to 1.08 times.
In a statement, NOL said the divestment followed a robust and highly competitive process and that the divestment would allow APL Logistics to “realise its full potential."
NOL is 65.4% owned by Singapore’s state investment firm Temasek Holdings. Sources with dealings with the Singaporean state investment firm said it had been looking at its portfolio companies with an eye to improving the way things are run.
“There’s a bit of housecleaning on the government linked companies going on,” said one of the sources. “There is a recognition that not all these companies are performing well. They have been given a chance to perform better and it hasn’t happened. We may see some more activity and it could take the form of rationalisations," he added.
Temasek is exiting loss-making semi-conductor firm Stats Chippac, which is being bought out by Chinese company Jiangsu Changjiang Electronics Technology. The latter last year submitted a non-binding proposal to acquire all the shares in Singapore's Stats ChipPAC for $780 million.
CitySpring Infrastructure Trust and Keppel Infrastructure Trust, both backed by Temasek Holdings, are in the midst of being merged to create the country's biggest infrastructure focused business trust. The merged entities will not compete with each other for assets.
Singapore industrial landlord JTC and Temasek are also merging four companies they own, namely Ascendas, Singbridge and Jurong International and Surbana International Consultants, to create a broader platform to expand overseas.
NOL had hired Citi and HSBC to look at options for APL last year, including a trade sale or an IPO. The auction process saw bids from a mixture of strategic investors and sponsors including KKR, Bain, CVC and CJ Korea Express.
The $1.2 billion bid meant that APL was valued at a multiple of 15 times its core Ebitda for the financial year 2014. By comparison in 2013, Kerry Logistics listed at an enterprise value to Ebitda multiple of 9.8 times, which implied a valuation of $800 million for APL, based on that multiple.
Kintetsu was picked from a group of about five to seven final bidders. In a presentation, NOL said that Kintetsu was the preferred buyer as it submitted the highest bid and has the best closure certainty.
According to one source familiar with the matter, the complex nature of APL's business meant that strategic investors were quicker to move.
"APL is a global and diverse business, with operations in the US, China, India and Southeast Asia," he said. "You have to be comfortable to put down a meaningful bid and the strategic investors were able to move more quickly," he added.
Japanese companies have also been flush with liquidity and have been able to access corporate loan markets cheaply, which has helped them in recent acquisitions. Nomura advised Kintetsu.
APL Logistics and its subsidiaries contributed to $1.7 billion in revenue and $80 million in core earnings for the financial year ended December 2014, representing 19% and 25% of NOL’s consolidated revenue and core Ebitda for FY2014.
Kintetsu, a global logistics company, was established in 1948 and is headquartered in Tokyo. It has total assets of $1.4 billion, with revenue of $2.4 billion and net income of $81 million.
NOL acquired APL Logistics, formerly known as American President Lines, for $285 million in 1997 and the company will record a $900 million gain as a result of the sale.
The deal is subject to NOL shareholders approval and is expected to close in middle of 2015.