NEPTUNE Orient Lines (NOL) surprised the market yesterday with news that it is planning a huge $1.44 billion rights issue to pay off debt and re-stock its war chest after its worst quarter in at least seven years.

STRENGTHENING POSITION 'We are undertaking this rights issue not because our balance sheet is under strain but, in this uncertain economic condition, it is prudent to strengthen our capital position to enable us to seize investment opportunities as they arise.' NOL chairman Cheng Wai Keung ... more RELATED LINKS  CASH CALLS

The world's seventh largest container shipping company will be the sixth Temasek-linked company to make a cash call since last December.

NOL will issue three rights shares for every four existing shares. The 1.1 billion shares issued will be priced at $1.30 each, about 15 per cent below the closing price of $1.53 last Friday. It suspended its shares on Monday.

After costs of $36 million, the firm will spend about half of the $1.4 billion net proceeds to repay debt. The rest will be used for investments, working capital or further repayment of debt.

NOL chief financial officer Cedric Foo said the company has US$1.4 billion (S$2 billion) in debt and about US$400 million in cash holdings.

'If all the proceeds go to repaying debt, the company will be more or less debt-free,' he said.

NOL chairman Cheng Wai Keung said yesterday: 'We are undertaking this rights issue not because our balance sheet is under strain but, in this uncertain economic condition, it is prudent to strengthen our capital position to enable us to seize investment opportunities as they arise.'

The rights issue was also larger than analysts had expected.

Nomura analysts called it an 'opportunistic move' by NOL, justified by the positive reaction of its stock price.

Read the full report in Wednesday's edition of the Straits Times

chanckr@sph.com.sg

See also: Three firms make cash calls in a day