Neptune Orient Lines considers sale or spin-off of logistics unit
Singapore-based container shipping operator looks into sale or spin-off of APL Logistics in move seen aimed at freeing up capital to repay debt
Neptune Orient Lines, a Singapore-based container shipping and logistics company, is looking to sell or spin off its profitable subsidiary APL Logistics (APLL), in a surprise move that seems to indicate an attempt to generate capital to repay its debt.
"These considerations are preliminary and exploratory in nature. There is no assurance that any definitive transaction for the sale or an IPO of NOL's logistics business will be concluded," said the firm, which also owns APL, the world's 10th-largest container shipping line by fleet size, according to Alphaliner.
The move would quench the company's thirst for cash and help it trim some debts as NOL, like many of its rivals, has reported losses due to a protracted downturn in the container shipping market.
NOL is 67 per cent owned by Temasek Holdings, the Singapore government's sovereign wealth fund.
"The plan did come as a surprise, a positive one. Over the past two years, NOL has expressed its intention to invest more into APL Logistics," said Rahul Kapoor, equity research director at maritime consultancy Drewry.
"The sale will leave NOL with volatile earnings in container shipping, but will also meet the company's capital needs and help reduce its leverage ratio."
Geoffrey Cheng, head of transportation and industrial research at Bocom International, echoed those views.
"The primary motive should be to replenish capital needs for debt repayment. It remains to be seen whether or not NOL would retain the controlling or minority stake or divest completely," he said.
As of the end of June, NOL's net gearing ratio stood at 216 per cent, up from 182 per cent at the end of last year.
APLL, which owns 20 million square feet of warehouse space, has a presence in 260 locations and 73 countries, providing multimodal transport and door-to-door freight delivery. Accounting for 17 per cent of revenue, the logistics arm generated an average of US$67 million in core earnings before interest and taxes per annum between 2011 and 2013, during which time the shipping business was awash in red ink.
The planned divestment of APLL is not the first time that NOL has shed assets in return for capital gains, and may not be the last.
In October 2012, NOL sold its headquarters building in Singapore for US$201 million in a deal that helped it stay in the black for the first quarter of last year.
"NOL is likely to look to do more value unlocking with likely divestment or spin-off of its terminal business as well," Kapoor said.
APL operates nine container terminals in six countries.
