Singapore Corporate News - 26 Mar 2008

Cosco (S) plans to raise stake in unit

COSCO Corp (Singapore), the shipbuilding and repair unit of China's largest shipping company, may increase its controlling stake in unit Cosco Shipyard Group, president Ji Hai Sheng said.

Cosco plans to buy 19 per cent of Cosco Shipyard from parent China Ocean Shipping (Group) Co, adding to its 51 per cent holding, Mr Ji said in a phone interview yesterday, without providing financial details. 'We will make a decision pretty soon,' he said. 'We expect more orders in marine engineering and plan to convert vessels from single hull to double hull or from oil tankers to bulk carriers.'

Cosco will focus on conversions as the process uses less steel than building new vessels, helping offset higher steel costs. The company is expanding its marine-engineering business to benefit from increased oil exploration because of the higher prices of the commodity.

Cosco shares rose 5.2 per cent to $3.44 in Singapore, gaining for a fifth day and closing at their highest since March 7.

'Possible share price catalysts include stronger offshore contract momentum, completion of the acquisition of 19 per cent stake in Cosco Shipyard Group at attractive valuations and clearer management strategy on input cost management,' JPMorgan Chase & Co analysts led by Winnifred Heap wrote in a note dated Monday.

Ms Heap, who maintained her 'overweight' rating, cut the stock's 12-month target price by half to $4.20, citing reduced net margin estimates from higher steel and labour costs.

CLSA Asia-Pacific Markets analyst Caroline Maes downgraded the stock to 'outperform' from 'buy' in a report dated Monday, citing a higher risk premium and margin pressures from steel and labour costs. She also trimmed her share price target by 36 per cent to $3.65 from $5.70.

Cosco said on Monday that its financial controller, Teo Chuan Teck, resigned because of personal reasons. 'There are no accounting irregularities,' Mr Ji said.

'I am happy with Mr Teo's performance. I tried to persuade him to stay but he needs to take care of his sons. We already have a candidate to replace him,' he added, without disclosing details.

The company expects profit to increase in 2008 as it concentrates on offshore business while expanding capacity, Mr Ji said.

Cosco's profit last year rose 64 per cent to a record $336.6 million.

Mercator to charter vessel to Chinese firm for three years

DRY bulk shipping specialist Mercator Lines (Singapore) has secured a long- term contract to charter out an upcoming gearless post- Panamax vessel to a new Chinese customer.

The customer, Hong Kong-based shipping company Refined Success Ltd (RSL), is a subsidiary of China shipping conglomerate Cosco (HK) Shipping (CHS).

The 92,500 dwt, post- Panamax vessel will be chartered to RSL, guaranteed by CHS, for a period of about 35 to 37 months, at a fixed daily time charter equivalent rate of US$39,500. The contract is expected to generate about US$42 million of gross revenue for Mercator over the next three years.

The charter period for the vessel is expected to start between May 1, 2009 and Sept 30, 2009. The vessel was undertaken by Mercator on a time charter-in basis of US$25,300 per day for a period of five years and is expected to be delivered around next June.

'This new charter is in line with our objective to progressively diversify our customer base outside India,' said Mercator managing director and chief executive officer Shalabh Mittal.

'We are pleased to say that working with Cosco not only expands our growing list of blue-chip customers with whom we have strong business relationships, the fact that it is based in Hong Kong also allows us to extend our expertise to serve a larger and more diverse base of customers in Hong Kong and China,' he added.

The charter is not expected to have any material impact on Mercator's net tangible assets per share, earnings per share and operating results for the current financial year.

MBK's AsiaPharm offer is final in absence of rival bid

PRIVATE equity firm MBK Partners' takeover offer for AsiaPharm Group at 72.5 cents a share is final - unless a rival bid arises to force it to make a review.

The offeror said yesterday that it does not intend to revise the offer price but reserves the right to revise the price if a 'competitive situation' arises.

In a separate announcement last night, MBK said its voluntary conditional cash offer for AsiaPharm has turned into a mandatory unconditional cash offer. It said that as at 7pm on March 25, the number of shares owned, controlled or agreed to be acquired by it and parties acting in concert came to 346.5 million shares, or a stake of about 70.32 per cent. This included the 44.17 per cent stake pledged by controlling shareholders including chairman Liu Dianbo.

MBK, which on Monday extended the closing date for the $357 million bid by one week to March 31, has now extended it to April 14.

It faces an uphill task in its bid to take the Chinese drug company private. Templeton Asset Management, which owns about 4 per cent of AsiaPharm, had rejected the offer, saying that it substantially undervalues the group and does not reflect the long-term growth prospects. BT understands that Templeton still stands by this view.

Templeton also challenged Mr Liu's undertaking to sell his shares. It said that a shareholders agreement disallowed him from doing anything that will 'result in him holding less than 30 per cent shareholding interest in the capital of the company' without its consent. Mr Liu later responded that the shareholders agreement 'will not prevent the fulfilment of his obligations' to LuYe, the vehicle through which MBK is making the offer.

Analysts' recommendations may provide some push for MBK's bid. Daiwa Institute of Research has given an 'underperform' rating for AsiaPharm shares, while DBS Vickers suggested that shareholders accept the offer.

MBK's offer of 72.5 cents is 1.4 per cent higher than AsiaPharm's closing price of 71.5 cents yesterday.

Stratech plans notes issue to fund growth

STRATECH Systems yesterday unveiled a growth strategy to commercialise its technological innovations and announced that it plans a $60 million convertible notes issue to fund these growth plans.

The group plans to issue the unsecured non-interest bearing notes due in 2011 to Pacific Capital Investment Management (PCIM), a UK-based boutique investment fund. Stratech has worked with PCIM before and had previously had an agreement to issue it $20 million of similar notes. PCIM has, however, only subscribed for $10 million of the notes so far. In view of the new issue, Stratech intends to terminate these initial notes.

'We are pleased that PCIM has reaffirmed its confidence in the company and further endorsed our 'po-wered by Stratech' strategy,' said executive chairman David Chew.

The issue proceeds will be used to fund product and market development for Stratech's intelligent Vision components, which include its award-winning iFerret vision-based runway surveillance system, and as working capital.

Stratech is placing great faith in a slew of technological innovations of which Mr Chew said the iFerret system holds the most potential.

The market for runway surveillance and foreign object and debris detection systems is worth US$4 billion, Mr Chew said. He revealed that while a $12 million contract to deploy iFerret at Changi Airport was announced last month, the system is at the pilot stage at Chicago's O'Hare Airport.

Roxy-Pacific to acquire Telok Kurau site

ROXY-Pacific Holdings intends to acquire a land parcel at Lorong N Telok Kurau in Singapore for about $21.97 million, inclusive of development charges. It will build homes for the mid-tier market on the parcel.

GIC in JV with Host Hotels

GIC Real Estate, through its affiliate Reco Hotels JV Private Ltd, has entered into a joint venture with Host Hotels & Resorts Inc to explore investment opportunities in Asia and Australia.

They will invest up to $600 million of equity in the joint venture. This, combined with the anticipated leverage, provides total investment potential of $1.5 billion to $2 billion. Host will own 25 per cent of the venture.