New Issue Review : Neptune Orient Lines 4.4% NOL 7Y NC 5Y
Cannibalisation is not my favourite word and I cannot see any good news in a new issue that sells itself against its predecessors.
Let us be cognizant that there was a failed attempt just earlier this year to bring out a perpetual which they quickly replaced with a 5Y senior carrying this fabled Change of Control clause of a 1.5% step up if Temasek ceases to be a major shareholder. The other 2 issues floundered immediately as the clause was not retrospectively applied.
Do not hold me responsible for this graph of the NOL 4.65% 09/2020 price (source prices not verified). But it is highly possible that this happened when they started exploring the possibility of a perpetual earlier this year.
I wrote about NO ! NO ! NOT NOL ! back in April and I like to think once bitten, twice shy.
The bankers are sending out the other NOL issues as comparables now.
NOL 4.25 04/2017 101, 4%
NOL 4.65 09/2020 101.375, 4.44%
NOL 4.40 06/2021 99.83, 4.42%
I do not know where they are getting their levels from and if, indeed, the levels are correct, it would be an excellent idea to sell their old issues and buy the new one. Particularly the 2020 and 2021 issues which are not covered by the Change of Control clause. And this reeks of cannibalism.
But upon examining this issue up close, there is in fact pretty little of value in it if you factor in the 2 call options you sold to them in year 5 and 6 ie, 100+ cpn/2 and 100+cpn/4 respectively.
A portfolio manager I just spoke to says the 2017’s are probably the best value of the lot. Yet, their spread keeps widening. Every new issue keeps coming up better than the previous one.
NOL 2021 came out SOR+280, current spread SOR+295 bp.
NOL 2020 (10Y) came out SOR+308, current spread SOR+339 bp.
NOL 2017 (5Y) came out SOR+308, current spread SOR+315 bp.
New NOL 2019 (7y) is coming out at SOR+320 bp. Makes the rest look bad.
Facts :
1. NOL said on Oct. 25 it expects to post a full-year 2012 loss after losing money in the first two quarters. In fact, it has lost money 2 out of the last 3 years. CIMB Securities has cut their expectations to underperform, citing expectations for 2013 to be a dismal year.
2. NOL has just disposed of their HQ building for $380 million to Fragrance group.
3. For an unprofitable company, their long term liabilities have TRIPLED in the past 5 years (in fact, more if you count 2012). What do they need the money for ? They are burning cash.
I stand by my view in April. I have no loyalty to a company that has no loyalty to their bondholders and I know because of the NOL 2008 issue that was stuck for a long time. And now, as I hear that the books are in excess of SGD 300 million, I shall save sympathy for the more deserving. Because now we are at three times bitten and, still not shy.
After a long 2.5 years in the military as a “Yes man” (NS), I have my reservations for corporates headed by ex chiefs of (defence force, army, navy and air force). To me, this is one big factor that deters me from buying into such companies. There is absolutely no doubt in their capability as administrators. They are very smart people who have lots of [paper] qualifications. But that connection with the corporate world ends there. They are merely adminstrators. Very good ones, I got to admit. But as a leader for a profit driven company, more have to be done. If they decide to turn those shipping vessels into air craft carriers to market to foreign buyers, there might be some hope in the company as that is the leaders’ capability. Haha. No offence intended to anyone.
As for the new issues, “fairly” priced given how the rest are trading in such an illiquid market place. But, to buy into a loss making company with little light at the end of the tunnel is pure silliness. Price are merely supported by the fact that there is 67% ownership by Temasek. BUT does that make buying into NOL a wise decision?
I laughed at the fact that they sold their HQ building (second time in history for the same building) with the intention of buying back if that can improve shareholders’ value. By the local trend, I rather buy property [than selling] and sell ship to add value.
Any thoughts?
The only saving grace is that you are buying the bond and not the stock.
Yet their debt has ballooned in the past 5 years. Will you get paid ? Is 1.5% enough step up if Temasek leaves ?
Cynicism and leadership issues aside, fact is that all shipping companies are facing tough times now. Too many ships and not enough cargos. Doesn’t take a much to realize that global trade is stagnant at best.
The best NOL or shippers can do is to stay solvent, horde cash and let the weak players fail. If NOL has enough cash, they would probably pull through. Like what tradehaven mentioned, the bond would be a better bet.
They can’t horde enough cash cos the super tankers are coming (read CIMB equity report). Just like Chartered Semi was always 1-2 chip cycles behind.
Only national pride and the old Temasek promise of air, telco, sea and chartered industries.
I know cos I was there in 2001 when we brought out the first NOL 7y.
Agreed. I should clarify that I don’t agree with what they are trying to do, it is what they are doing to stay afloat.
If the bosses of NOL had foresight, they should have sensed this is coming.
I really want to learn what you are talking about here but too many technical terms for a beginner like me. How do I start? Terms such as cpr, SOR etc sounds like a foreign language to me LOL : )
Hi Aaron
SOR is our local version of Libor. Every country has their own. Because 5y, 10y and any long end derivative interest rate is derived from this basic building block, which in our case, is the 6 month Swap Offered Rate.
It helps us compare between the credit spreads between tenors, if we hedge but it doesn’t make hedgers superior to the ordinary buy to hold person because the hedgers lose out on interest rate changes, if rates go lower(so prices go up).
I don’t think you mean CPR but CoC ? Change of control.
I don’t know all the other terms too. But, like you, I ask as well.
Hope it helps.
If for whatever reason anyone need to invest in a high operating leveraged geared company in a cut throat ” taxi” industry, I would suggest focus on management who has a proven track record of protecting stakeholders. Hint hint- isn’t it ironic that spore can run its air taxi so well but the water taxi so badly? To think we started off as a port.
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