Or why it was sold
Charts from FT
So what else could Temasek do?
Or why it was sold
Charts from FT
So what else could Temasek do?
FT reported sometime in January
it was widely assumed that global trade would keep expanding. Until recently, this assumption did not seem unreasonable. In the decade before 2008, global trade rose by an average of 7 per cent a year, faster than global GDP growth, because countries such as China were booming and western businesses were creating a web of cross-border supply chains.
History, however, does not unfold in predictable ways. As the World Bank described in a sobering report last week, global trade growth has slowed down sharply in recent years to around 3 per cent, or roughly the pace of global GDP expansion, and it is slowing further now.
It kept ordering bigger ships. These ships when operated drove down operating costs, allowing Maersk to undercut NOL and orher shipping cos. Bit like employers using FTs.
Re the purchase of NOL at a hefty premium to undisturbed share price and close to book value by French family
the timing could prove smart. This looks a lot like the trough in the cycle: shipping rates, industry sentiment, and valuations have all crashed. That’s exactly when families like the Saades, which can take a longer-term perspective than public companies, should be pouncing. Though they are a family of shippers rather than truckers, they are still in it for the long haul.
Btw, one of those who forgot to sell my two lots of NOL at $5. But still above my cost.
S/o of JBJ ng kum guan he not aristocracy despite dad sending him posh ang moh private school http://sonofadud.com/2015/12/07/nol-another-case-of-value-destruction-by-our-natural-aristocracy/
In response to recent news that Neptune Orient Lines Ltd. is in acquisition talks withMaersk Group and CMA CGM SA, Moody’s Investors Service has warned A.P. Moeller-Maersk A/S not to pursue any acquisition, Bloomberg reports.
“Maersk Line could possibly derive some synergies from an acquisition, but Maersk Line is one of the few profitable companies in the sector and it could dilute margins initially,” Marie Fischer-Sabatié, a senior vice president at Moody’s, told BloombergBusiness.
“Real consolidation could be positive for the cost structure of companies involved, but it would likely take more than just one or two mergers to materially improve the overall market conditions in the container market.”
It would likely take more than just one or two mergers to materially improve the overall market conditions in the container market
Marie Fischer-Sabatié, senior vice president, Moody’s
Last month, Maersk cut its 2015 forecast underlying profit by 15 percent to $3.4 billion, and as part of a cost-cutting strategy it will also slash up to 4,000 Maersk Line jobs and reduce network capacity.
Although he noted that the group’s base strategy is to grow organically, Nils S. Andersen, chief executive officer for Maersk, said he would “welcome any consolidation – that would only be healthy for the container line industry.”
Fischer-Sabatié believes the group is more likely to pursue acquisitions for its oil unit “because it needs to increase its reserve levels.
“If they find the right acquisition target, it could have a positive impact on Maersk Oil’s business profile.”
Despite Maersk’s challenges, Anderson recently pointed out that the group’s 2015 showing overall “reflects good performance in very challenging oil and container shipping markets.”
Maersk, the Danish shipping and oil firm, said it will probably make $600m (£389m) less profit than previously thought, as global demand dropped.
The firm’s progress is seen as a good indicator of global trade, as shipping carries about nine tenths of the world’s trade, and Maersk Line is the world’s biggest container carrier.
Maersk will probably book $3.4bn in profit for 2015, it said.
Shipping companies were charging about $233 to move 20-foot containers from Asia to Northern Europe, a loss-making rate according to analysis by Reuters.
Maersk blamed the drop in earnings on slender container shipping margins. It makes about half its profit from running the Maersk Line.
“Maersk Line has been hit harder than expected by low capacity utilisation due to the low volume growth in the global container transportation market,” Sydbank analyst Jacob Pedersen said.
As Maersk Line consistently outperforms NOL (led by scholar, ex-SAF general and ex-Temask MD) does this mean NOL will capsise and sink without a trace when it reports results at the end of October?
“It’s almost like obituaries and eulogies without the flowers,” Transport Minister Lui Tuck Yew’s response to the flood of e-mail he has received since he said he was leaving politics.
He’s not the only ex-SAFer that consistently outperforms:
Maersk Shares Jump on Strong Results and Share Buy-BackShares in Denmark’s A.P. Moller-Maersk jumped as much as 8.6 percent on Thursday after the shipping and oil group reported second-quarter profits ahead of forecasts and started a $1 billion share buy-back program.
But NOL made only a tiny net profit in April-June after six straight quarters of losses.
NOL Group today reported a 2Q 2015 net profit of US$890 million. Excluding the US$887 million gain on the sale of its supply chain management business, NOL achieved a net profit of US$3 million in the second quarter of 2015, compared to a net loss of US$54 million in 2Q 2014.
(Update at 10am) Can we really be a meritocracy if Lui lasted so long in his post as minister of tpt and the CEO of NOL continues to run NOL?
Maersk Line the world’s largest container shipping business reported a jump in net profit to $714 million from $454 million, due largely to lower bunker fuel prices
Singapore-based container shipping firm Neptune Orient Lines Ltd said on Thursday its first-quarter net loss narrowed to USD$11 million (S$14.5 million) from $89 million a year earlier, aided by cost savings and lower fuel cost.
NOL reported revenue for the three months ended March 31 at $2 billion, down 13 per cent on the year, though it posted $30 million in core earnings before interest, taxes and non-recurring items, compared with a $65 million loss a year earlier.
The performance of NOL’s CEO (scholar, SAF general, Temasek MD) tells the truth about “intelligence” PAP style: it doesn’t work in the real world, only in S’pore.
During the Spring Festival, we had more evidence of how a scholar, army general and ex-Temasek MD is failing to refloat NOL which he steered onto the rocks. He had to sell the crown jewels to try to refloat NOL No need to remind readers that SMRT is run by a scholar and a retired SAF general. NOL today, the MRT ststem tomorrow.
Contrast NOL’s financial performance withwhat’s happening at Maersk Line.
NOL has suffered three straight years of pre-tax losses in challenging industry conditions.
The buyer, Tokyo-listed Kintetsu World Express (KWE), has said it will keep APL Logistics’ headquarters in Singapore.
“In an increasingly competitive liner shipping sector, NOL believes that it is imperative to strive to have the most cost-competitive position, and the strongest financial position in order to have a better chance to thrive,” NOL said yesterday.
“Accordingly, NOL has decided to dispose of its logistics business and focus on improving its core liner shipping business.”
Mr Ng Yat Chung, NOL’s group president and chief executive, said: “The transaction will also strengthen our balance sheet and unlock value for our shareholders.”
NOL, which posted its fourth-quarter results last Friday, said operational cost efficiencies helped narrow its net losses to US$85.1 million from losses of US$137 million a year earlier.
Even our constructive, nation-building media was forced to show how desperate the CEO had become: he sold the crown jewels, cannabalising NOL
The move sees NOL selling the only profitable part of its business. APL Logistics posted a 5 per cent jump in fourth-quarter revenue to US$458 million and core Ebitda of US$20 million, while APL, NOL’s container shipping business, posted losses.
NOL said the purchase price represents a 15 times multiple to the APL Logistics group’s reported core Ebitda, a measure of profit, for the full year of 2014.
Since August last year, NOL has been mulling over a sale of APL Logistics and undertook a competitive bidding process.
Maersk Line, the world’s biggest container shipping line, continued its strong performance by boosting net profit to $2.3bn last year from $1.5bn in 2013.
Seen as a bellwether for global trade as it transports 15 per cent of all seaborne freight, Maersk Line said it expected container demand to grow 3-5 per cent this year, well below the pre-crisis levels of more than 10 per cent but in line with 4 per cent growth last year.
“We basically don’t expect a lot of change. The low oil price should give some changes in patterns,” said Mr Andersen, pointing to growth in Asia-US and Asia-Europe trade but declines in north-south routes to Africa and Latin America.
Maersk Line expects to post a higher underlying profit this year than in 2014. The conglomerate as a whole said it expected an underlying profit this year of slightly below $4bn, compared with $4.1bn in 2014.
At the end of October, NOL announced: that losses continued in the third quarter with the company $23m in the red compared to a net profit of $20m a year earlier, hit by port congestion in Southern California.
“We see a slowdown in emerging markets, partly driven by a lower need for raw materials from China. Europe – it’s very slow growth, if any, at the moment, and there’s no reason to expect a big change here,” said Nils Andersen,Maersk’s chief executive.
Revenues for the third quarter were flat at $2.06bn. For the first nine months of 2014 NOL lost $174m, compared to a $61m profit in the same period last year that included a one time gain from the sale of its headquarters building.
NOL claimed cost savings of $290m so far this year but these had been “largely offset” by lower rates, lower volumes and increased costs for port congestion.
But about a week later, FT carried this report: Denmark’s largest company by sales reported better than expected profits in the third quarter and lifted its profit outlook for Maersk Line, its container shipping business.
Maersk has bucked the trend in a container shipping industry dogged by overcapacity, losses and weak demand. Thanks to aggressive cost cutting and lower use of fuel, Maersk Line is by far the most profitable container group.
Maersk Line estimates its operating margin, which was 8.2 per cent in the second quarter, was 8.5 percentage points higher than the average of its rivals.
It lifted it again in the third quarter, posting an operating margin of 10.5 per cent, and leading Maersk Line to boost its guidance for the year for net profits to more than $2bn compared with $1.5bn previously. Net profit in the third quarter rose by a quarter to $685m.
“The days of rapid growth in containerised trade are over. We have to be happy as an industry that we are still growing . . . But we can still make good business,” said Mr Andersen.
But Maersk is more than just a container shipping group as the conglomerate has sought to emphasise its other businesses in recent years including oil exploration and production, port terminals and drilling rigs.
The Danish group, seen as a bellwether for global trade as it carries 15 per cent of all seaborne freight, said demand had slipped in the third quarter compared with the start of the year and was now expected to increase by 3-5 per cent this year, down from 4-5 per cent.
So having a scholar, ex-SAF general and ex Temasek MD hasn’t done any favours for NOL, or S’pore Inc. On his watch (to be fair in really bad weather, he crashed NOL onto the rocks. Still in charge despite that , he has repeadely failed to stop the water from coming in.
The red ink continues to flow with plans to sell its APL Logistics unit in a sale that could fetch at least US$1 billion (S$1.27 billion).
Btw, local broker calls NOL a buy: http://www.ihsmaritime360.com/article/15494/neptune-orient-lines-gets-buy-rating-on-cheap-valuation.
Below shows trade flows across the Pacific. Maersk btw is based in Denmark and its traditional strength is the Asia, Europe trade. But it still dominates global shipping.
The continuing contrasting tale of two shipping lines, one led by a scholar who attended elite ang moh uni ( also an ex-SAF chief and ex-Temask MD with a Stamford postgrad biz degree thrown in); and the other led by a graduate from Copenhagen University, who has an an MBA from IMD, Switzerland, who has only worked with one co. all his life.
NOL is still stuck on a reef, with water pouring in. Neptune Orient Lines Ltd said on 30th October that its net profit fell sharply in the third quarter as the container shipper battled weak demand.
Net profit fell to US$20 million in the three months ended Sept. 30, compared with US$50 million in the same period last year, Neptune Orient said in a statement to the Singapore Exchange.
Revenue fell 10% to US$2.06 billion, it said.
“This is one of the weakest peak seasons we have seen in recent years, characterized by depressed freight rates and industry overcapacity,” the statement quoted group chief executive Ng Yat Chung as saying.
It said general market conditions had not improved in the third quarter, resulting in a muted peak season, adding that the company expects volatile freight rates and overcapacity in the industry to continue.
On 13 November, A.P. Moeller-Maersk A/S’s container-shipping line, the world’s largest, reported an 11 percent increase in third-quarter profit after cost cuts countered a decline in freight rates.
Maersk Line’s third-quarter net income rose to $554 million from $498 million a year earlier, the Copenhagen-based company said today in a statement. Its parent, A.P. Moeller-Maersk, raised its full-year forecast and said net income rose 23 percent to 6.36 billion kroner ($1.14 billion), beating the 6.14 billion-krone average estimate in a Bloomberg survey of nine analysts. (http://www.bloomberg.com/news/2013-11-13/maersk-line-profit-advances-as-cost-cuts-counter-rate-decline.html)
True most shipping lines are struggling to reach break-even amid volatile freight rates, and even Maersk has warned of a much weaker fourth quarter, following a 12% drop in container cargo rates in recent weeks. Freight rates “deteriorated significantly during the quarter and hence the seasonally low fourth quarter 2013 has started with low freight rates, which will result in a significantly lower fourth quarter result” than in the third quarter, Maersk Line said. Still, the result for 2013 will be “significantly above” the $461 million profit in 2012, it said.
But hey tot scholars and ex-SAF chiefs are paid serious money because they are S’pore’s finest? Juz like ministers like Raymond Lim, Mak Bow Tan and Yaacob. Remember ex-SAF chief Kee Chui said juz like XO carrot cake is more expensive ’cause of the taste, scholars and ministers deserve higher pay ’cause they better?
BTW, our constructive, nation-building media have failed to report Maesrk’s gd results, even though BT reported that NOL’s CEO grumbled that giant ships are undercutting NOL’s freight rates. Maersk owns these ships.
This NOL CEO gives scholars like TRE’s Richard and NSP’s Hazel and Tony a bad name. But then VivianB is a scholar.
(Or “Food for tot for PM as scholar, ex-SAF chief, & ex-Temasek MD again under-performs a shipping man?”)
Skip right to the end if you want to read the political and financial implications of this performance in relation to PM’s rally speech . No it’s not a rant against scholars.
According to DBS in early August, NOL reported a net loss of US$34.6m in 2Q13, and after adjusting for gains on sale of assets and realized gains on financial hedging instruments, results were largely in line with expectations of a US$64m net loss in 2Q13. – See more at: http://sbr.com.sg/shipping-marine/news/nol-suffered-us346m-losses-in-2q13#sthash.VZFIoR8g.dpuf. If truth be told, DBS, like other brokers got it dead wrong: NOL’s losses were 46% lower than expected. Only in stockbroking is such a discrepancy in line with expectations.
On 16th August, Maersk Line, the world’s biggest container shipper, reported a US$439m profit for the second quarter of the year, up from US$227m million a year earlier. Again this was unexpected by analysts, who tot it would only make half the amount. “Maersk Line has made strong and consistent progress and is now an industry leader in terms of profitability,” its CEO said.
It now expects earnings to be “significantly” more than last year’s US$461m rather than simply “above” them as it had stated before. NOL posted a half year net profit of US$41 million compared to a loss of US$371 million last year, and its CEO says “The Group’s results demonstrate that we are on target in our strategy to deliver a better performance through cost management. We will continue in our efforts to strengthen the company’s competitiveness for the long term.”
Analysts say the volumes of goods being shipped around the world is continuing to rise following the recessions that affected many of the world’s big importers. http://www.bbc.co.uk/news/business-23722423
Note Maersk Line is run by a true blue shipping man*, while NOL is run by a scholar, and former defence chief, and ex-MD at Temasek. But Maersk is the largest container shipping co, while NOL is a distant 8th. It (and the Taiwanese) shippers decided in the late 1990s and early noughties not to fight Maesk for market share, instead focusing on profits. But profits were elusive for all because of overcapacity.
In yesterday’s rally speech, PM rightly warned that the increase in welfare and social spending has to be met by cuts in other bits of the Budget or by increased taxes. Defence is a Budget sacred cow, taking about 25% of the budget or 4ish% of S’pore’s GDP. Given NOL’s relative unperformance under the tenure of an-ex-defence chief, PM should direct Ng Eng Hen to look at the operational cost effectiveness of the SAF. Could S’pore more bang for a smaller buck?
*Another characteristic of any good CEO, is their ability to understand fully the often complex scope of their company’s operations.
It is a challenge which can be made easier by a manager gaining as much experience as possible while climbing the promotion ladder. http://www.bbc.co.uk/news/business-23681605
It’s only number 8 (middle chart) in an industry where size matters (APL is NOL) and where there is serious overcapacity. It’s way behind the top 3 (all ang mohs). At one time, Evergreen (Taiwan) and NOL were right up there, challenging Maersk.
Another problem is the drop (and volatility) in freight rates.
Then there is slowing growth rates in shipping. Maersk’s CEO said in FT recently that Maersk will to adapt to annual growth seaborne container trade of 4 to 5% in the years ahead, compared with levels close to 10%.. For 2013, Maersk expects 0nly 2-4% growth. Maersk’s CEO says he is not going for market share but focusing on costs, something NOL has been doing for yonks.
With the fundamentals of the industry against it, having a CEO who is ex-scholar, ex-SAF chief, and ex-Temasek MD doesn’t help esp since NOL is a very efficient company.
Related post https://atans1.wordpress.com/2012/08/16/maersk-sails-to-profit-while-nol-loses-another-mast/. If you’ve wondering why no 2013 update, it’s the same old story. Maersk keeps doing better.
What NOL has in its favour is that it is not heavily geared.
When NOL is listed as the least preferred Asian container line?
When NOL annced its turnaround last week and a sale of its building, I tot “Waz wrong?”: boast turnaround yet indulge in financial engr for short term gain. Didn’t have to wait long to find out.
This is what BT, part of the constructive nation-building, 30-pieces-of -silver(?) SPH wrote earlier this week
NEPTUNE Orient Lines has disappointed some analysts with its third-quarter numbers even though it fought its way into the black with US$50 million in net profit, its first after six consecutive quarters of losses.
NOL, which owns the world’s seventh largest container line APL, fell 2.5 cents yesterday to end at $1.145.
“It underperformed just about everyone’s expectations. I’m not sure if people were expecting profit of that magnitude when the street’s view was about US$150 million,” said Timothy Ross, Credit Suisse head of transport research, Asia-Pacific. NOL is now among the least-preferred counters among Credit Suisse’s basket of seven Asian container companies.
Joining Credit Suisse in a dimmer view of NOL was CIMB, which downgraded NOL to “underperform” from “neutral”.
The problem with comparisons as distinct from Hard Truths (like Scholar is “betterest” for anything) is that they are so inconvenient that shumetimes the constructive, nation-building media must report them. Even thouh, ST has made him out to be a genius on par with the North Korean leaders who advise experts on how to do their work, BT had to report the facts saw them.
Hope this ex-general and Temasek MD doesn’t run NOL aground! The gd thing abt NOL is that it is lightly ge as the analysts sred, unlike other container lines. FTR, I got few lots. Better yield than FD.
But there are times when having scholars in senior posts helps. NSP used to hibernate between general elections. With two scholars on the executive commitee (Hazel and hubbie), NSP has decided not to indulge in its usual hibernation. It is actively walking the ground, and is finally planning a mone online. More next week.
(Or “Scholar, & ex SAF chief & Temasek MD runs Temasek aground”)
No need to try to do detailed study of Maersk line’s results vis-a-vis NOL.
Maersk Line, operator of the world’s largest container ship fleet, steamed to a profit of US$227m after losses of US$95m a year earlier and US$599m in the previous quarter. NOL “on underlying earnings” made US$7m. Actually “Net loss for the three months ended June 29, 2012, stood at US$118 million, which widened from a net loss of US$57 million for the same period a year ago. This result – which marks the sixth straight quarter of losses – missed market expectations of a net loss of US$67.6 million, a Bloomberg poll of six analysts showed: by 76%,” earlier post .
And Maersk Line is expecting to be profitable this financial year, while NOL says “outlook is uncertain”. And our guy’s a scholar, general, ex SAF chief and ex Temasek MD. Interestingly Maersk turned around despite the problems in Europe. For historical reasons, most of its revenue comes from ships sailing to Europe, unlike NOL which depends on revenue from ships sailing to the US, which is in better shape than NOL.
Sure hope this CEO is not from RI.
Last week, NOL posted a larger than anticipated bigger net loss (by 76%) for the second quarter compared to a year earlier, dragged down by one-off expenses linked to impairment losses and restructuring charges, it said.
Net loss for the three months ended June 29, 2012, stood at US$118 million, which widened from a net loss of US$57 million for the same period a year ago. This result – which marks the sixth straight quarter of losses – missed market expectations of a net loss of US$67.6 million, a Bloomberg poll of six analysts showed: by 76%. Loss per share for the second quarter stood at 4.57 US cents, against a loss per share of 2.21 US cents.
Excluding these charges, NOL would have registered a turnaround for its core earnings before interest and taxes (Ebit) over the year on higher freight rates and cost savings, NOL claims. It said that market conditions remain uncertain.
Funnily our constructive, nation-building media didn’t remind us of its CEO’s credentials for becoming CEO: great experience except in shipping, a specialist industry. He ain’t even a navy man.
When, Maesk’s container division reports its latest results, I’ll compare its performance (boss is a true blue shipping man) to scholar’s performance at NOL. Last time, he did badly https://atans1.wordpress.com/2012/05/25/with-ex-general-scholar-at-helm-nol-still-underperforms-maersk/.
Wonder how the soldier boy going to be SMRT’s CEO will perform? As a ex-SAF chief, the trains should run on time, and safely: unlike when a retailer ran it. Also train depots would be secured against vandals and terrorists. But can he improve its financial numbers, something the NOL CEO (another ex-general) failed to do at NOL.
Update on 16 August at 1.06pm: How the constructive, nation-building BT on 14 August reports CEO’s achievement of making US$7m on its core earnings. Sounds a story from a celebrity magazine or from the North Korean media on its new leader.
I was looking forward to comparing the 1Q results of NOL (world’s 6th largest container shipping co) and Maersk’s container division (largest in the world) because as a holder of a few NOL shares (“peanuts” but gd yield) I was interested in seeing how ex-defence chief Ng Yat Chung (and ex-Temasek senior MD) would perform. Mr Ng took over as CEO on I January 2012. He was made made executive director in April 2011. The retired CEO, a shipping man thru and thru, is now an adviser to the CEO.
At the time I asked, “Wonder what relevant experience he brings to the shipping co? I can only think of the experience in a managing big complex organisation. But then I couldn’t think of any reason for his becoming a senior MD at Temasek.”
Well NOL, and Maersk’s container division both came out with unexpectedly very bad sets of results, showing that the container shipping industry is in worse shape than expected with a weak global economy, expensive fuel and plenty of capacity coming on-line.
But NOL’s numbers were still worse than Maersk despite its focus on moving stuff between East Asia and the the US. Maersk also moves a lot of stuff to from East Asia Europe, in addition to the US. As readers will know, the US economy has performed better than the European economies in 1Q 2012.
Maesrk’s revenue was up 7% to US$6.31bn, while NOL’s revenue fell 3% to US$2.38bn. As to losses, NOL lost US$254m, while Maersk lost US$537m. Simplisticly, if Maersk had NOL’s revenue, it would have lost US$203m, i.e. 20% lower. But then along the same lines, NOL shld have made money, not lose money (US$10m) in 1Q2011.
Whatever it is, having a scholar, ex-senior MD from Temasek, and retired general as CEO of NOL, is of no benefit whatsoever when it comes to shareholder value. SIGH.
Let’s hope it’s different in the cabinet, where we have as newbies one ex-admiral and one ex-general, both of whom are scholars.
Maybe relevant, related post?
Billionaire Wilbur Ross is betting that the slump in shipping which drove oil-tanker returns to a 14-year low is ending.
Ross & Co manages about US$10bn in assets, is part of a group (including China Investment Corp, China’s SWF) spending US$900 million on 30 ships hauling gasoline, diesel and other refined products. It is Mr Ross’s first shipping investment and deploying ‘another few hundred million’ in the industry ‘is certainly easy to do,’ he said in interviews in August.
That outlook contrasts with the pessimism of John Fredriksen, founder of Frontline Ltd, the biggest operator of the largest crude carriers. The 67-year-old billionaire said in May that it would probably be another year or two before ship values collapse and he can start adding to his fleet.
So can we imitate Ross by buying SGX counters? NOL and Samudera have container fleets. So do Pacific Trust and Rickers Maritime. BerlianLaju has the world’s 3rd largest chemical tanker fleet, more than 93 of them, but they are not the ships Ross and friends are buying.
But there is FSL. It has a fleet of 16 tankers and seven container vessels. Of the 16, 11 are product tankers (what Ross is buying), two crude tankers and three chemical tankers (presentation August 2011). But this is a tricky company to analyse, so do yr homework. It is also a shipping trust and such trusts are yield plays.
CLSA initiates coverage with a S$1.70 target price, calling the stock “Underperform”.
CLSA says, trading at 1X P/B, “NOL is neither expensive with an average 2012 to 14 ROE of 10.3 per cent nor compelling with past earnings slumps offering investors trough-0.4X P/B as a cyclical entry point.” Earnings forecasts remain materially below consensus in 2011 to 2012, “so until expectations are reset, NOL will underperform.” On NOL’s recent vessel purchase, it says “the fleet renewal provides NOL with an opportunity to remain relevant on European trade, as well as significantly reduce its unit costs”.
For the record, there have been mgt changes over the last few months with experienced mgrs leaving and an ex-general from Temasek joining.
In June NOL had its third executive resignation in less than two months, when Eng Aik Meng, president of APL – NOL’s liner arm – resigned. He will leave APL on Sept 1 and take a new position “outside the transportation industry”. Mr Eng will be replaced by Kenneth Glenn, who is currently based in Shanghai as president of APL’s North Asia region. Mr Glenn has been in the industry for 32 years and joined APL in 2000.
This change comes days after the stepping down of Bob Sappio – head of the shipping line’s Pan- American Trades It is also the second leadership change following news of the replacement of Mr Widdows, with Temasek executive Mr Ng, in April.
NOL executive director Ng Yat Chung will become chief executive officer of NOL when Mr Widdows retires at the end of the year. He is a ex-general, not admiral, from the SAF.
Ron Widdows, a shipping veteran, who is the CEO of Neptune Orient Lines Group, will be replaced by ex-defence chief Ng Yat Chung when the former retires at the end of this year. Mr Widdows will stay on as senior adviser and Mr Ng will take over as CEO on I January 2012.
Ng is presently a senior MD at Temasek.
Wonder what relevant experience he brings to the shipping co? I can only think of the experience in a managing big complex organisation. But then I couldn’t think of any reason for his becoming a senior MD at Temasek.
A leading global private equity firm has a venture with a leading owner of container ships to buy container ships. They must believe that rates will rise. The brave hearts may want to try their luck with Samudera and those shipping trusts that have fleets of container vessels.
Carlyle Group formed a joint venture with Seaspan Corp, the Washington Family and the Tiger Group to buy more than US$5 billion worth of vessels with. Seaspan and Washingtonwould invest solely in container vessels purchased by the newly formed firm. Seaspan charters container ships to shipping lines and is one of the biggest players in this market segment.
“We believe there is a compelling opportunity to serve Asia’s continuing growth in demand for shipping capacity.” The joint venture will invest equity capital of US$900 mill ion in the next five years, buying container, dry bulk, tanker vessels and other shipping assets.
NOL’s and other container lines’ shares are in demand, with the recovery in world trade expected to lift freight rates despite the surplus of ships. “[M]ore than a tenth of the vessels that transport the world’s manufactured goods in containers are idle. For most, orders to sail will not come for some time.”
(Aside, NOL tried not order new ships when David Lim returned to NOL, after a stint as an acting minister. He tot the other liners were crazy to order new ships despite a surplus. But in the end, NOL too joined in because the ordering frenzy continued. Sadly, it did so juz before the market turned, but didn’t order as many ships as its bigger competitors, though as it ordered late, it paid higher prices.)
Buy into NOL because of its operational gearing into a recovery, not because it is a highly geared financial play into shipping (it isn’t) or because it can buy cheapish assets and gear up (it’s not a buccaneer).
Short of plans to buy assets, NOL did not need the S$1.4b in raised last year. NOL, which had then S$400m in cash reserves, would have almost less than 2% net debt (45% of equity at the end of 1Q of 2009) against container sector average between 60 and 6 then
NOL intended to use about S$700m for investments and working capital, the remainder to repay debt.
So NOL was in a good position to buy ships at bargain prices from highly leveraged shippers in distress, and shipyards. And increasingly its gearing again in the process.
Imagine going into the next cycle with cheaply acquired ships and a gearing of 45%. Wow Bam. This didn’t happen. NOL is one of the most conservative container lines and took a higher proportion of its ships out of service than other lines to tackle over-capacity.
Moral of story –.
And one hopes it doesn’t try to fly by buying ships in a rising market.
There are the Greeks and Chinese buccaneers out there too on the prowl for ships. The only problem is they are geared above the safety lines on the sides of their ships. But in a rising market, they can borrow more. And a rising market means ship-owners and shipyards will be reluctant to sell.
(Writer has some NOL shares in his CPF portfolio.)
For a preview of what I will be writing about below are some pieces I did in mid June for two weeks for a project that did not take off. They are in chronological order.
Winning whatever the price of oil
Last week, it was announced that PetroChina (subject to Chinese regulatory approvals) would buy from Keppel its entire stake of 46% in SPC for S$6.25 a share.
Immediately one thought of 2003, when Keppel sold a 28% in SPC to Hong Kong-based (but Indonesian owned) Kapital Asia for S$1.50 a share, and said it was considering divesting its entire stake.
In 2004 the price of oil took off and Keppel decided to keep the refiner to expand its oil and gas production in SE Asia. Could Keppel be repeating its mistake of selling SPC shares, just before the oil market takes off? It could.
But Keppel shareholders (especially Temsek) should not complain. In the announcement of the deal, it was said “PetroChina and Keppel also plan to explore opportunities in the offshore oil industry and in other areas of mutual benefit as such opportunities become available”.
Things like this are usually to be ignored as fluff. Maybe not in this case.
PetroChina is one of China Inc’s two flagship oil companies, tasked with developing oil and gas resources globally to meet China’s energy needs. The Chinese have been active recently making oil-for-loan deals with national oil companies of Brazil, Russia and Kazakhstan, all very good for the likes of PetroChina.
Keppel’s off-shore rig business, is only one of two world-class companies in Singapore Inc’s local portfolio. Should the value of SPC explode upwards, then Keppel has, at the very least, the goodwill of PetroChina when it bids to build rigs for projects where PetroChina has an interest.
And should the price of oil collapse, Keppel and its shareholders will have S$1.47 billion in the bank to fund the rig business.
And if anyone thinks that it is a no-brainer to buy SPC because PetroChina said it could serve as a platform for future transactions, suggesting it might try to use SPC to make takeovers that it would be blocked from making directly — think again.
There would still be concerns of takeovers by Chinese state-run firms, done directly or indirectly, through a Singaporean subsidiary.
Managers turn swashbucklers? Can pigs fly?
Short of plans to buy assets, NOL does not need the S$1.4b. NOL, which has S$400m in cash reserves, would have almost less than 2% net debt. (45% of equity at the end of 1Q) against container sector average between 60 and 65.
NOL intends to use about S$700m to repay debt, the remainder for investments and working capital.
But the prognosis for the entire shipping industry for 2009 and early 2010 remain gloomy, so likewise does NOL operational gearing.
Buying into NOL (its shares have risen from 0.85 in early March to 1.68 yesterday) is to believe that NOL’s management can use its great financial gearing into something tangible. EG buying ship at bargain prices from highly leveraged shippers in distress, and shipyards.
And increasingly its gearing again in the process.
Imagine going into the next cycle with cheaply acquired ships and a gearing of 45%. Wow Bam. This is an unproven thesis. NOL is one of the most conservative container lines and has taken a higher proportion of its ships out of service than other lines to tackle over-capacity.
Can cautious managers turn into swashbuckling asset buyers? There are the Greeks and Chinese buccaneers out there too on the prowl for ships.
Writer has some NOL shares in his CPF portfolio.
Looking a gift horse in the mouth or Why new SAT shareholders should be grumpy
On May 14, SIA announced that it was going to distribute to its shareholders its 81% stake in SATS by way of a dividend in specie. Since then share price is up 5%. This comes after SATS has become cash poor.
In January 2009, SATS launched a takeover bid for its Temask stable-mate SFI. According to the takeover documents, the pro-forma balance sheet as at September 2008 would have shown that the net cash position of the SATS (including SFI) group deteriorated to minus S$21 from S$528. In particular, cash in fixed deposits would have fallen from S$573 million to S$64 million.
But SATS needs cash because “SATS is committed to growing its 2 core businesses of airport and food services”.
It could borrow big-time, pro forma net gearing is 0.04% from (0.35)%. But in Singapore, where debt is a dirty word in GLCs (NOL comes to mind), a rights issue is reasonably probable.
Temasek as the new controlling shareholder of SATS has $356 million from its sale of SFI shares to fund any rights issue. But do other new SATS shareholders have the cash?
Finally, looks like MM Lee gets his way. In 2004, he said SIA should divest itself of SATS and SIAEC. SIA’s management demurred.
Will SAEC be divested despite SIA mgt saying last night that the SAEC holding is strategic? Stay tuned.
Backward into the Future
November 8, 2009 [OK I did get this wrong, but it could still happen]
SIA announces that it is proposing a dividend in specie to its shareholders of the Company’s entire shareholding in SIA Engg.
“Distributing shares through an in specie dividend will unlock shareholder value by giving SIA shareholders direct ownership of SIA Engg at no cost to them.”
“The proposed distribution will allow SIA to concentrate on its airline business,”something advised by MM Lee in 2004.
“SIA Engg will be able to independently pursue opportunities to aircraft maintenance, repair and overhaul businesses. The Proposal will improve trading liquidity of SIA Engg shares, potentially enhancing value.”
May 14, 2010
SIA Engg announces Acquisition of 100% of ST Aerospace from ST Engg
“Acquisition consistent with SIA Engg previously announced long-term strategic plan”
ST Aerospace is the “Largest aircraft MRO company by commercial airframe man-hours” and has “Strategic partnership with RSAF”
Rights issue with Temasek taking up its entitlement and prepared to subscribe for shares that other shareholders don’t want.
Remember you first heard it here. But based on the companies’ past performance, SIA Engg should only buy ST Aerospace, if the price paid reflected Aeo’s lower margins. SIA Engg’s margins are consistently better than those of Aero. EG In financial yr ending Dec 2008, Aero’s turnover was S$1.9b with PBIT of S$272m, while SIA Engg turnover was S$1.1b but PBIT of S$301m.
But what price another national champion? And financial engineering by Temasek?
Temasek’s recently revised investment priorities R SGX Listcos
Yes this was Temasek week, and we will end the week by looking to see which non-Temasek SGX-listcos fit into its recently revised investment priorities:
What about the following?
Bayan, Creative and RE are run by home-grown and-bred entrepreneurs. What better way of encouraging the growth of entrepreneurs with global ambitions, then by supporting these three companies? We will keep you posted as we trawl through SGX listcos.
This continuing series will help us fill the gaps on those days when we wake up late or have nothing more interesting to say.
Whither the markets?
Fund managers, analysts, traders and media pundits are struggling to contain their confusion at what global equity markets have been doing since March.
The markets’ upsurge defies all rational explanations: just ask Temasek’s scholars and foreign-talent MBAs.
The conventional view is that this is a bear market rally. There will be a double-dip recession – a so called “W” recovery, where there is a steep fall, followed by a steep recovery and then another fall before another recovery finally appears which becomes more sustained.
Pundits pont out that, while not widely reported in the regular news, the bond markets had a mini crash in May. There’s talk of the ending of the multi-decade bull market in bonds, what with all the debt that governments have to raise.
My views on whether we are in bear market rally are just as irrelevant as anybody’s else.
But I heard something interesting on the FT (my second favourite newspaper) website a few weeks ago.
The strategist, from CLSA, belived that we are in the midst of a bear market rally. Nothing new here. But unlike other pundits, he said this rally could run for another two years before collapsing. He cited what happened after the dotcom bubble bust in 2000/ 2001.
He said, with hindsight, it was clear that the recovery from 2003 to 2007 was a bear market rally. Bottom line: A bull run or bear market rally can only be predicted in hindsight. Seating tight and doing nothing is not an option for a fund manager unless he is Warren Buffett.
Another reason to remain invested in Singapore mkt?
Could the plans to celebrate big-time the 50th anniversary of self-rule be a signal that the PM wants to calls a GE in the first half of next yr?
Remember that 50 years of self-independence coincides with 50 years of PAP rule, something that the celebrations are sure to link.
Have a good time tonite. And the next insight will be on tues morning.
Tempting the shorts
“China’s property market has been bouncing back over the last several weeks,” reports a FT publication. “Statistics from the China Real Estate Index System showed that residential property sales in 30 large cities increased by 11.42% April from March and transaction prices for new residential developments were up 3% week on week to the highest level this year between May 11 to 17.”
So it was not surprising that the CEO of CapitaLand over the weekend implicitly reminded investors that CapitaLand is NOT a Singapore property play but a China (property) play, “In 2008, our China operations accounted for about 26% of total group assets and contributed approximately 45% of the group’s earnings”.
The target is for China to make up 40 or 45% of assets in the next few years and for more than 45% of earnings. (Incidentally, if China assets are at 45%, then China earnings should be at 90%)
Is he reminding himself how big a bet CapitaLand is putting in China?
CapitaLand has just secured a S$5b three-year credit line with Bank of China and Industrial and Commercial Bank of China. What this means is that CapitaLand is gearing up just after completing a rights issue a few months back. It had reduced its net debt from S$5.6b to S$4.6b, a 18% improvement. Its net debt to equity had fallen to 0.32 from 0.47.
Now, making an assumption on drawdown by end FY2009, it will have net debt of S$9.6b and net debt to equity of 0.67. All very good if the Chinese property continues its bull run
But if it implodes (note that China super bull, Jim Rogers, is avoiding recommending property to investors: in 2008 he was negative about Chinese property) and CapitaLand has not sold assets before the downturn: another rights issue?
Hedge funds who are negative on China property could do worse than start to build up short positions in CapitaLand.
The perils of buying NTA
The share price of United Engineers is falling after its high of S$2.37 on 29 May. This illustrates that buying a counter at a deep discount to its NTA can be problematic, if there is no catalyst to unlock value. To recap. As part of an asset rationalising swap, Straits Trading and its controlling privately-owned shareholder swapped assets.
12% of UE was sold to Tecity at around S$1.52 a share, and 7% of WBL Corp was sold to ST as part of the asset swap. ST ended up with 19% of WBL. BTW WBL has another 10% of UE.
There was speculation that Tecity had immediate designs on UE. UE’s shares are at a deep discount to its published NTA of S$3.43. They remembered Tecity’s bid for ST which ended with Tecity paying S$6.70 for assets (revalued) worth S$6.52 a share. What is forgotten is that Tecity busy coping with the consequences of having spent S$1.1bn to own 82% of ST; is not likely to want to reward other UE shareholders at Tecity’s expense.
Assuming it bids at published NTA, it would have to spend S$679m. And if, the other major shareholder, GE Life starts a bidding war, the cost could escalate, like in ST. In early 2008, there were estimates that UE’s NTA could be S$6. And if it did bid at NTA or more, any time soon, ST’s minority shareholders would rightly cry foul.
TeCity’s founder, the deceased Tan Chin Tuan, would spin in his grave hearing his heirs being accused of being unfair to minorities.
Incidentally the cost of selling UE’s assets are likely to be very high.
Maybe future UE annual reports should give an estimate of the costs of selling these assets to unlock the published NTA. And maybe advisers to the independent directors of a target company; and the acquirer should subtract the costs of liquidating the assets when toying with NTA values in their reports.
If this had been done in ST, Tecity could have got away with a lower bid.
What price growth?
Bharti’s proposed acquisition of a 49% stake in South African MTN would give SingTel (at 30% Bhart’s biggest shareholder) exposure to markets in Africa and the Middle East, where there are a lot more mobile phones than people. Australia and Singapore (its biggest markets) are the opposite.
But the complex deal involving cash and a cross-shareholding by MTN into Bharti would mean that SingTel’s share of Bharti would drop to 19%. SingTel has indicated that it wants to rebuild its stake back up to 30%, if the deal goes through. At current prices, this means coming up with about US$5.3bn or S$7.7bn.
It has net debt of S$6.5bn and net gearing of 24%. But raising net debt to S$14.2bn and net gearing to 52% is not an option in a GLC, though it could make sense in any other telco that has stable underlying cashflow. Qwest (albeit it is now trying to reduce debt) has a ratio of 110%. (more debt than equity).
So if the Bharti/ MTN deal goes through, a SingTel rights issue will be necessary.
As to how dilutive this will be — S$7.7bn works out to only Singapore 48 cents a share, or 16% of its market capitalisation based on yesterday’s closing price of S$2.95.
Not too dilutive for exposure to fast-growing markets where there are more people than phones.
Long short pair
DBS Research’s economist issued a report suggesting Asia is on its way to an economic recovery because the region’s production is rebounding in a V-shaped fashion. “Asia is perched on a recovery path at the moment … we do not expect a W-shaped path in the near term.”
DBS Vickers Securities raised its 12-month target price for the stock of Singapore Exchange (SGX) to S$9.10 – the highest now among the target prices of 20 analysts polled by Bloomberg.
But does how does SGX look in the medium term vis-a-vis its rival, HKSE? Remember HK would benefit from a V-shaped recovery too.
Traditionally, an important measure of the success an exchange vis-a-vis its peers is the new IPOs it attracts According to Dealogic, some US$1.6bn has been raised this year through eight listings in Hong Kong. And the outlook is improving By contrast, Singapore raised US$12.5m from 3 IPOs all second board (sorry “Catalyst”) IPOs: with gloom pervasive, “2009 may be the worst year in memory for the IPO market”.
Funnily this just when FT reports that “Asia is expecting a strong pick-up in market listings in the second half of this year thanks to a steady flow of flotations in Hong Kong and amid growing expectations that Beijing could soon allow domestic listings for the first time in almost a year.”. It quoted Dealogic’s Ken Poon, “Given the strong liquidity flows into the region, I would expect 2009 IPO volumes will exceed 2008 … As Asian IPO volumes in 2008 was US$23bn while in the first half of 2009, it’s less than US$2bn … That would mean a really surprising second half. Sentiment is strong and liquidity is there to support new issues.”
And Hong Kong can look forward in 2010 to the AIA listing, the $5bn-plus IPO of AIG’s Asian life insurance unit This IPO is set to be the world’s largest IPO since 2007, when incidentally thanks to the Chinese, more money was raised in HK than in New York. So shouldn’t hedgies be thinking of shorting SGX, and buying HKSE? Even though SGX’s forecasted PE is below 20x, while that of HKSE is closer to 30x.
SIA’s Investment Prowess
If SIA were not such a great airline operationally and financially, I should be worried about its: “still keeping an eye out for possible acquisitions in China and India, despite the current economic downturn”.
The last time it went on a buying spree between 1999 – 2001, it showed that investing in airlines was not a core competency.
In April 2000, SIA purchased a 25% stake in Air New Zealand for 426 million New Zealand dollars (352 million Singapore dollars), or NZ$3 a share. Yes it was the usual “strategic” investment. SIA also participated in a subsequent rights issue, paying an additional S$51 million, to avoid diluting its 25% stake. The original purchase plus rights amounted to S$403 million.
SIA in 2001 tried to invest more, failing only because the NZ government was dilatory in approving an increase in its stake in Air NZ. Phew!
When 100% owned subsidiary Ansett failed in late 2001, pulling AirNZ down with it, SIA’s unapproved offer of NZ$1.31 a share was still on the table.
And in late 1999, a cash-strapped Richard Branson sold a 49% stake in his airline, Virgin Atlantic, to SIA for £600m (US$960m), a very good price for Mr Branson. SIA still has the stake and the much talked about synergies have been quietly forgotten.
There were also rumours of rows between Mr Branson and SIA on Branson’s plans to muscle-in on SIA’s lucrative UK to Oz route. So has the idea of selling the stake, what with valuations of airlines falling.
But let’s be fair. The then CEO of SIA has moved on to become chairman of OCBC, not bringing with him his deal-making enthusiasm: for that OCBC shareholders should be happy.
And recently SIA kept its nerve and refused to up its offer for a stake in China Eastern Airlines, which is now in financil difficulties. So maybe SIA is a more disciplined investor.
But being disciplined has its perils. Ask PSA which refused to outbid the Arabs for a stake in a choice HK terminal, only to have play catch-up on a second-rate terminal.
Things might not be as they seem
Consoling yrself that higher petrol prices are the price to pay for a V-shape recovery? The Western and Chinese economies are on their way to recovery, and rising oil and commodity prices are foreshadowing this recovery.. Think again because this NYT article http://www.nytimes.com/2009/06/11/business/economy/11commodity.html?ref=business reports that growing evidence suggests that a sizable portion of this buying has been to build stockpiles in China, and may not be sustainable.
Core competency of new Temasek CEO
Could the new CEO of Temasek finally sort out the strangeness of Temasek having
Surely the national interest could be served by merging these and creating national champs. Yes, these have discussed inside before, but nothing happened. Gossip says that the bosse at the helms of TLCs are protective of their turfs: bit like Chinese lawlords throughout history. It always took a great leader to unify China over and over again.
But this is unlikely to be his priority. Neither is going into natural resources.
When he was hired to be CFO of Melbourne-based miner BHP in 1999, the “Big Australian” had lost its way. In the 1990s, it did a series of ill-conceived acquisitions and failed projects, amid historically low commodity prices.
The former investment banker was one half of an American duo. The other was CEO Paul Anderson, who came from Duke Energy.
In their first two years, BHP got rid of 2,000 jobs and A$6.9bn worth of assets. They then merged BHP with Billiton, createding the world’s biggest miner.
Goodyear then became CEO and a key legacies, analysts say, is the financial discipline he brought to BHP. He ensured it grew fast enough to capitalise on the commodities boom while avoiding the ill-conceived spending of the past; and all the while, returning cash to shareholders.
Shortly after he took charge as CEO, it was announced that BHP would increase its capital management programme by more than four times to US$13bn, beginning with a US$2.5bn off-market return in Australia.
With the Singapore government tapping the reserves, someone with a track record of returning cash to shareholders while growing the portfolio is needed.
There is no Singaporean with these skills.