UPDATE 5-NOL enters race for top German shipper Hapag-Lloyd
(Adds analyst, companies, detail)
By Kevin Lim and Saeed Azhar
SINGAPORE, July 22 (Reuters) - Singapore's Neptune Orient Lines (NEPS.SI) has submitted an indicative bid for Germany's Hapag-Lloyd, estimated to be worth over $7 billion, to create the world's third-biggest container shipping group.
Ending months of speculation, NOL said on Tuesday the bid for the shipping arm of Germany's TUI (TUIGn.DE) was non-binding and it was premature to say whether it would lead to agreement. It did not give the value of the proposed offer.
The Singapore firm, 66 percent-owned by sovereign wealth fund Temasek Holdings [TEM.UL], faces competition from a group of Hamburg-based investors which says it has made a "competitive" offer to keep Germany's top shipping group under German control.
"Now it depends on how interested the city of Hamburg will be in keeping Hapag-Lloyd on board in Hamburg," said analyst Heino Ruland at Frankfurt Finanz. "Purely from a wealth standpoint, it should be Neptune (that offers more)."
A combination with NOL would create the world's third-biggest shipping container group, behind Denmark's A.P. Moller-Maersk (MAERSKb.CO) and privately held Mediterranean Shipping Co. Hapag-Lloyd is now the world's fifth largest.
"Any agreement would be subject to, among other steps, due diligence, acceptance of final bid, regulatory approvals and NOL shareholders' approval," NOL said in a statement.
NOL owns the world's seventh-biggest container shipping unit, APL.
A source close to the deal told Reuters that under the structure proposed by NOL, Temasek would remain the largest shareholder in the combined entity. Banking sources told Reuters on July 15 that NOL was seeking up to $7 billion in loans to finance a possible bid.
Soaring fuel costs and a slowing world economy are dampening growth in the industry, and could spur further consolidation. Maersk Line expects container shipping to grow by 7-8 percent globally this year, down from about 10 percent last year.
"We will be looking at more consolidation or alliances in future," said Quah Ban Huat, chief financial officer at Rickmers Maritime (RIMT.SI), a Singapore-listed shipping trust managed by Germany's Rickmers Group.
CHOPPY WATERS
NOL is going ahead with the deal despite recent leadership changes. Thomas Held, a German who could have been a key player in talks with TUI, resigned abruptly earlier this month.
Most analysts expect new chief executive Ronald Widdows, a 28 year veteran of NOL's container business, to pursue the bid.
But analysts say the industry outlook is uncertain.
"Weakening industry fundamentals increase the possibility that NOL will overpay for the assets while declining pricing power increases integration risk as it leaves little room for execution error," Macquarie analysts said in a note on Monday.
Size is also a concern. NOL's market capitalisation of $3.5 billion is less than half what analysts estimate Hapag is worth.
Other Asian shipping groups have expressed scant interest in the unit. China Shipping Container Lines (601866.SS) said the deal is overvalued, while Korea's STX (011810.KS) and Hyundai Merchant Marine (011200.KS) said they are not interested.
"We are already talking about a recession worldwide, we are even taking about growth in China under pressure. This is certainly not an environment where you would be selling a shipping line," FrankfurtFinanz's Ruland said.
He said NOL will probably offer around 5 billion euros, as much as 1 billion euros less than if it had sold the unit earlier this year.
TUI investor John Fredriksen, a Norwegian shipping tycoon, has urged TUI to hive off the unit into a separately listed company. TUI wants a sale to bolster its finances.
NOL shares closed 2.2 percent weaker in Singapore, underperforming the wider index .FTSTI while TUI was 0.7 percent lower, outperforming Germany's DAX index .GDAXI. (Additional reporting by Daryl Loo, Fang Yan in Shanghai, Marie-France Han in Seoul and Sylvia Westall in Frankfurt; Editing by Lincoln Feast and Quentin Bryar)
