France's CMA in exclusive talks to buy NOL

NOV 22, 201512:31 PM

[SINGAPORE] France's CMA CGM SA is in exclusive talks to buy Singapore's Neptune Orient Lines Ltd., as global shipping companies grapple with ways to revive earnings amid a glut of new vessels, shrinking demand and declining prices.

A deal would bring together the world's third-largest container company with Southeast Asia's biggest container shipper. CMA CGM has until Dec. 7 to complete a due diligence review and negotiate the definitive agreements for the offer, Neptune Orient said in a statement Saturday. The Singapore-based liner is 67 percent-owned by state investment company Temasek Holdings Pte.

"Temasek has been looking for a buyer for a while now, so if somebody comes along with a price they and NOL are comfortable with, consolidation may be good," said Song Seng Wun, an economist at CIMB Private Banking in Singapore. "It's a very tough environment in terms of global demand and shipping rates - they have been bleeding." Liners have idled about 5 percent of the global fleet, slashed costs, sold assets and cut employees in an attempt to stem years of losses as sluggish global growth and an over- supply of vessels eat into shipping rates, which fell to a record low in the week ended Nov. 19. Supply growth is expected to outpace demand for dry-bulk and tanker markets in 2016 and companies have been searching for ways to make money.

Losses, Debt Neptune Orient, which helped cement Singapore's status as a global trade hub, attracted takeover interest after simplifying its structure this year by shedding its $1.2 billion logistics unit. The company, created in 1968, ran up $1.2 billion of cumulative losses in the previous four years. Its net debt in the period almost doubled to more than $4 billion.

The company's shares have risen 7.2 percent in the past two weeks after it disclosed separate talks with CMA CGM and Danish conglomerate A.P. Moeller-Maersk A/S on a possible sale. Singapore's benchmark Straits Times Index lost 3.1 percent over the period.

Acquiring Neptune Orient would help consolidate CMA CGM's position in the global container market along with Maersk and Mediterranean Shipping Co. Neptune Orient's APL container unit has a 2.7 percent market share, while CMA CGM controls 8.9 percent of the market, according to data from industry consultant Alphaliner.  Among 40 peers, Neptune Orient was the world's sixth- biggest transporter of U.S. exports between January and September last year and had a market share of 5.3 percent, according to JOC Group Inc. data. Mediterranean Shipping Co. led with 13 percent.

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