Singapore: NOL unit clinches S$383m Venezuelan job

straitstimes.asia1.com.sg Rebecca Lee

With the deal in the bag, American Eagle Tankers could fetch a higher price if ailing NOL decides to sell it, say analysts

AMERICAN Eagle Tankers (AET) - Neptune Orient Lines' (NOL's) only profitable subsidiary, of which it is looking to divest - has clinched a US$220 million (S$383.46 million) contract to transport fuel from Venezuela to Asia.

The shipping line, which last week unveiled record losses of US$330 million, yesterday said that it had won the tender to transport orimulsion for Bitor, a unit of Venezuela's state-owned oil company, Petroleos de Venezuela.

Orimulsion is a bitumen-based fuel used for electricity generation.

AET will deliver the fuel to Singapore power company Power Seraya for seven years, starting from next year, with an option to extend the contract for another three years, NOL said in a statement.

The deal will require a fleet of five Very Large Crude Carriers (VLCCs), of which three will be new ships to be delivered from the end of next year to the beginning of 2005.

In shipping parlance, VLCCs are oil tankers with a capacity of 200,000 to 320,000 deadweight tonnes (dwt).

'We negotiated with Far Eastern shipyards last year to book capacity to build an additional three VLCCs with the possibility of winning this tender in mind,' NOL chairman Cheng Wai Keung said.

AET's president and chief executive officer, Mr Joseph Kwok, also highlighted the fact that the contract made use of otherwise unused capacity in the backhaul - or return route - transportation leg from the Americas to Asia.

'We are able to fully utilise capacity on both legs of the journey, so instead of returning empty back to Asia, the vessels will be earning revenue,' he said.

Analysts yesterday agreed that the deal was welcome news for troubled NOL.

Kim Eng Ong Asia analyst Ong Seng Yeow upgraded the stock to a 'trading buy' from 'market perform', saying in a research report yesterday that the announcement was 'positive for NOL as AET is a wholly owned subsidiary'.

He said: 'We anticipate that AET will continue to be a major beneficiary of rising crude prices, which are correlated to charter rates.

'As of December last year, 12-month Aframax charter rates stood at US$19,000 a day, and there is still more upside considering the historical peak of more than US$30,000 a day,' he said.

An Aframax carrier is an oil tanker of about 80,000 to 120,000 dwt.

DBS Vickers transport analyst John Casey also pointed out that the new deal would mean that AET could fetch a higher price if NOL indeed decided to sell it.

NOL said last week that it would complete its ongoing review of its investment in AET by the end of this month.

It had said previously that it would not sell AET for less than its book value of US$400 million.

Malaysian International Shipping Corp - the shipping arm of national oil corporation Petroliam Nasional - is formulating its bid for AET after a lengthy due diligence process, said Mr Casey.

Yesterday NOL's stock closed up 1.5 cents at 90.5 cents with 2.2 million shares changing hands.