NOL eyes $5-$7 billion loan, likely for Hapag-Lloyd: sources

SINGAPORE Mon Jun 23, 2008 6:48am EDT

SINGAPORE (Reuters) - Singapore's Neptune Orient Lines, the world's eighth-biggest container shipping firm, is looking to raise $5-$7 billion in loans, banking sources said on Monday, the clearest sign yet it will bid for Germany's Hapag-Lloyd.

The merger of the two companies could potentially create the world's number three container shipping group, behind Danish shipping group A.P. Moller-Maersk (MAERSKb.CO) and privately-owned Mediterranean Shipping Co.

The talks come as German tourism group TUI (TUIGn.DE) Chief Executive Michael Frenzel tours Asia to market his company's container shipping business, Hapag-Lloyd, which analysts value at around $7 billion, including debt.

NOL (NEPS.SI) has a market value of $3.5 billion and several analysts have said any merger will require the financial support of its major shareholder, Singapore sovereign wealth fund Temasek Holdings TEM.UL.

"This certainly looks like a merger in the works," said a fund manager at a European investment firm, who asked not to be named because he cannot publicly talk about individual stocks.

Analysts in Germany said the possible financing highlights NOL's seriousness in pursuing the bid.

"NOL is a potential bidder for Hapag-Lloyd," said Jochen Rothenbacher, an analyst at German brokerage Equinet. "It should be seen positive for TUI that NOL is in talks to take up $5-$7billion."

A spokesman for NOL declined to comment, but in April NOL Chief Executive Thomas Held, who is a German national, said NOL was looking at a merger with Hapag-Lloyd as an option for growth.

A Citigroup analyst in Hong Kong said raising the debt will not be an issue for NOL because of their relationship with Temasek, but warned that purchasing Hapag-Lloyd at a time when the container shipping industry is weakening could be tricky.

"The container shipping industry is going into a period of weakness where cost management is key, and trying to integrate an acquisition makes that a tougher thing to do," said Vincent Fernando, a Citigroup analyst who covers NOL and has a sell rating on the stock.

The shipping firm is in talks with Singapore's three local banks -- DBS Group (DBSM.SI), Oversea-Chinese Banking Corp (OCBC.SI) and United Overseas Bank (UOBH.SI), as well as with some foreign banks for the loan, three bankers with direct knowledge of the deal told Reuters.

Reuters Basis Point named BNP Paribas (BNPP.PA), Citigroup (C.N), HSBC (HSBA.L), the corporate banking unit of Mizuho Financial Group (8411.T), Royal Bank of Scotland (RBS.L) and the banking unit of Sumitomo Mitsui Financial Group (8316.T) among the other banks in the race.

"Yes, there have been informal talks," the banker told Reuters. "The sum is northwards of $5 billion. The range is $5-$7 billion."

The banks expect to receive a formal proposal for the loan this week, said the banker, who declined to be identified because the deal is not public.

Reuters Basis Point said the financing could be in the form of bridge loans and dwarfs the $3.42 billion loans taken by Singapore's PSA International Pte Ltd in 2006. That facility helped fund PSA's purchase of 20 percent of Hutchison Whampoa (0013.HK) portfolio of ports for $4.38 billion.

SIGNIFICANT UNDERTAKING

The loan would be a significant undertaking for NOL, which had $636 million in debt by early April and a low gearing ratio --- which measures how much a firm's activities are funded by equity versus debt -- of 0.23 times, according to its balance sheet.

Shares of NOL ended 2.7 percent lower, hit by the financing news, outpacing a 0.8 percent fall in the broader market

.FTSTI.

TUI's Frenzel was set to meet NOL in Singapore during his tour in Asia, a source said earlier this month.

NOL, which is about two-thirds owned by Temasek, has already been in talks with TUI on Hapag-Lloyd and is seen as one of the top potential bidders, a German source told Reuters last week.

TUI, which is hiving off Hapag-Lloyd to focus on tourism, has forecast Hapag-Lloyd's sales to rise 19.8 percent this year to $9.7 billion and reach $11.7 billion by 2010.

Frenzel was also prepared to meet container ship operator Orient Overseas (0316.HK), in Hong Kong, one of the sources said, while in Tokyo he was slated to meet with Japanese market leader Nippon Yusen KK (9101.T).

Shipping experts have said the group of potential bidders from Asia could include China Shipping Container Lines (601866.SS) (CSCL), Cosco (0517.HK), STX Pan Ocean (028670.KS) and Hyundai Merchant Marine HYGR.UL.

In Europe, world market leader Maersk, Switzerland's MSC and France's CMA CGM are considered possible suitors.

(Additional reporting by Peter Starck in Frankfurt, Melanie Lee in Singapore and David Lau at Reuters Basis Point; Editing by Tony Munroe and Anshuman Daga)

(saeed.azhar@reuters.com; Reuters Messaging: saeed.azhar.reuters.com@reuters.net; +65 6403-5664)) Keywords:

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