News analysis

Good ship NOL deserves final berth in safe harbour

It has done well to put Singapore firmly on global maritime map


On Aug 22, 1969, the Neptune Aquamarine set sail, the first of many journeys that would mark the growth of Singapore's small merchant fleet.

The Aquamarine was Neptune Orient Line's first new ship and represented both a determination of a new country to survive, as well as its aspirations to conquer the world beyond its shores.

More than 40 years after that historic first voyage, the journey looks set to end, with NOL about to be sold to a French company.

But tears are unlikely to be shed because, on most counts, the deal makes sense.

To start, the $1.30 per share offer from CMA CGM is unlikely to see much opposition from NOL shareholders.

Singapore investment firm Temasek Holdings, which holds about 67 per cent of the company, has thrown its weight behind the offer, which values NOL at about $3.38 billion.

At $1.30 a share, the offer price is nearly 50 per cent higher than the share price before the takeover offer was announced.

The offer also means CMA CGM is paying nearly par value for the underlying assets of the company.

"The offer is more than fair given the context of other comparable offers and in the context of the industry," said Credit Suisse analyst Timothy Ross.

NOL is being sold at a time when the industry is facing tremendous pressure, from record low freight rates to massive over-capacity.

Over the past decade, NOL has been profitable for only five years. The last four years saw it log more than $1.5 billion in losses.

In fact, despite a series of major cost-cutting exercises in recent years and the sale of its logistics business earlier in the year, there just was no stopping the bleeding.

The main reason - and also the reason CMA CGA decided to pay a premium for NOL - is that shipping liners need scale to compete effectively.

Since the start of this decade, there has been a wave of consolidation in the industry as shipping liners bought each other out to achieve economies of scale and press down costs.

NOL itself knew this.

In 1997, it merged with a larger American competitor, which gave it critical mass to push the company to the next level.

In 2008, NOL made an ambitious US$7 billion play for German liner Hapag-Lloyd, which was twice its size. The bid failed mainly because of its timing - just as the financial meltdown began and the industry was heading into one of its worst periods.

Today, scale is as relevant as before, and NOL just does not have the heft to compete effectively.

Another ambitious reach for a bigger competitor is out of the question. With NOL facing continued losses, shareholders would not be likely to readily stump up billions of dollars with no guarantee that the investment would yield positive returns.

But there is also the view that NOL is more than a shipping firm - it is also a Singapore icon.

NOL chief Ng Yat Chung has acknowledged that there is an attachment to the firm as a national symbol. But while it may be true that NOL was set up to spearhead Singapore's push to become a maritime hub in the early days, he said, a change in ownership will not impair the nation's ambitions to become a global maritime hub.

In fact, CMA CGA has said it "remained committed to Singapore", and will base its regional headquarters here.

CMA CGA vice-chairman Rodolphe Saade said the company will retain all of NOL's business in Singapore and could even add volume in the future.

Still, this might not satisfy those who believe it may seem insensitive to abandon this trustworthy ship just because it seems to have lost its way.

But to label the deal as such will be to negate the great success NOL has had over the decades. Instead, perhaps the better thing is to acknowledge that NOL has come a long way. It has sailed all around the world, completing its objective of putting Singapore firmly on the global maritime map.

And for that, it deserves a final send-off.

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A version of this article appeared in the print edition of The Straits Times on December 08, 2015, with the headline Good ship NOL deserves final berth in safe harbour. Subscribe