With an enterprise value of over $1 billion, MISC's acquisition of AET from NOL sets a new record. The largest Malaysia-Singapore M&A ever?
financeasia.com By Steven Irvine 30 April 2003
It is the largest transportation M&A globally in 2003 and bankers suspect it is the biggest ever M&A between Malaysia and Singapore - two countries that are not known for selling assets to each other. Petronas-controlled MISC has paid Singapore's NOL $445 million for American Eagle Tankers (AET), an asset that will fuel MISC's global shipping pretensions.
The size of the deal goes above $1 billion if you include debt assumed and measure the strict enterprise value. Bankers close to deal are ecstatic that such a deal could get done in the midst of SARS and such turbulent markets.
"In these challenging markets it's good to see that companies are still taking steps to address strategic issues," says Richard Seow, Citigroup's head of Southeast Asian investment banking, and whose firm advised MISC.
"This is definitely a win-win deal for both companies," acknowledges Todd Marin, head of M&A at JPMorgan.
His firm was appointed by NOL to dispose of AET in the fourth quarter of last year. NOL has actually been trying to dispose of AET for some time.
In July 2001 it tried selling 30% of the company in a US IPO with Singapore Depositary Receipts attached. This $130 million deal - which valued the company at $433 million - however was pulled due to turbulent market conditions by then lead manager, Salomon Smith Barney.
In spite of two Asian companies being involved, however, this is less of an Asian asset than one might assume. Indeed, it is really a US company.
American Eagle Tankers has three main operations: lightering, voyage chartering and long-term chartering. The first involves the transfer of crude oil from long-range large tankers to smaller tankers capable of entering shallow water ports.
Voyage chartering involves the transportation of oil from loading port to discharging port, and long-term chartering involves leasing company's tankers on a pay per-day basis. American Eagle gets 69% of its revenues from the Atlantic basin but had recently signed the so-called Bitor contracts with Venezuela which saw the firm transporting oil from the Gulf of Mexico to Asia.
The deal will provide MISC with 29 Aframax tankers and two very large crude carriers. With the acquisition the Malaysian company will have the second largest combined Aframax fleet in the world. It will also have the youngest Aframax fleet with an average age of 7.5 years.
Analysts explain that the main benefit of having such a young fleet lies in the premium rates oil companies are willing to pay to avoid the embarrassment of environmentally damaging oil spills. MISC will be transformed to become one of the leading tanker operators globally.
MISC is paying 1.45 times book value for the company, but will allow NOL to keep a $75 million dividend from this year and will also allow NOL to share some upside via an earn-out structure based on actual cargo rates versus projected cargo rates for the next two years.
From Citigroup's perspective, this is the second M&A deal closed for Petronas group companies in as many weeks. It also recently closed the $1.7 billion sale of Edison's Egyptian oil assets to Petronas.