Singapore Freight Transport Report Q4 2009

Singapore-based Neptune Orient Lines (NOL) in late May announced a rights issue worth SGD1.44bn (US$1bn). BMI analyses the reasons behind the move, which follows news of a US$245mn net loss for the group in Q109. A total of 1,105,081,798 shares will be offered to existing shareholders at the discounted price of SGD$1.30, while a statement released by the group underlined the motives behind the shares issue. Half of the proceeds from the issue are expected to go towards current debt repayments, while the rest is aimed at increasing working capital and covering future debt payments.

The group also hinted at the potential for using some of the capital raised for investment opportunities. NOL CEO Ron Widdows said: 'Asset prices are depressed and will probably remain so for some time. It's certainly an area that we would look at as opportunities develop.' BMI notes that NOL reported a net loss of US$245mn for the first quarter of 2009, following decreased revenue from its core container shipping and terminal operating businesses. Falling income has resulted in rising debt levels with the company reporting net debt of US$1.044bn as of April 3 2009 - an increase of US$228mn from the previous quarter. The rights issue is expected to bring the group's net debt 'close to zero'. While NOL's financial situation remains finely balanced with the company expecting to report a full-year loss in 2009, BMI believes the timing of the rights issue is based on renewed investment appetite for shipping stocks, with NOL's share price having risen by 54% in 2009 after falling in value by approximately 75% in H208.

BMI's newly released Singapore Freight Transport Report concludes that because of global economic cooling, the country's maritime freight volume will rise by an annual average of only 0.5% throughout the 2009-2013 forecast period. Our shipping forecast is based on a number of factors. Our forecast for Singapore's average GDP growth over 2009-2013 now stands at 1.3%, largely because of the sharp contraction this year. NOL and other Singapore-based companies have established themselves as worldclass players. We expect them to be significantly affected, but manage the global downturn reasonably well and position themselves for eventual recovery, despite the growing competitive challenge from Chinese ports. Other transport modes will all be affected by the recession. We are forecasting 1.9% annual growth in air freight over the next five years. Overall, we now expect average annual growth in freight tonnage across all modes to total 0.7% in the 2009-2013 period. With an aggregate score of 60.2 out of a theoretical maximum of 100, Singapore scores well in BMI's freight ratings for the Asia Pacific region, coming out comfortably above the regional average. Its strong rating stems from low long-term political and economic risk and a strong regulatory environment, as well as a moderate, but healthy rate of infrastructure growth.

For the 2009-2013 period, we expect the transport and communications sector to be on a par with the economy as a whole in value terms, with both forecast to achieve average annual growth of 1.3%. The total value of transport and communications GDP will rise to US$22.8bn in nominal terms by 2013, representing 12.1% of Singapore's GDP.