On NOL 3-for-4 rights issue

NOL announced a renounceable 3-for-4 rights issue this morning, of 1,105m shares at a rights price of S$1.30, to raise S$1.4bn (US$1bn). The share base will expand 75% from 1,475m shares to 2,580m shares. The rights price is at a 15% discount to last market close.

Half of proceeds will be used to repay debt, with the remaining half deployed in this way: (1) investments (if opportunities arise), (2) working capital, and (3) further debt repayment.

We are positive on the rights issue, as NOL is taking advantage of the improved market sentiment to opportunistically raise cash. We expect NOL to be actively engaged in M&A discussions or scour for vessels selling at distress valuations. The book value dilution of 14% is a small price to pay for long-term growth.

However, we retain our SELL recommendation and target price of S$1.30 (0.7x P/BV) for now. This is premised on the current fundamentals of the container shipping market continue to deteriorate, albeit with a slightly higher volume of trade. Nevertheless, we recognise that NOL has the opportunity to transform itself via inorganic growth in the months/years ahead.

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