Malaysian International Shipping Corporation (MISC), the largest shipping company in Malaysia, may take advantage of the current down cycle in the industry to acquire smaller units or subsidiaries of “troubled” shipping companies at lower prices. An Am Research analyst told StarBiz that MISC would be doing relatively well if a small acquisition took place despite the gloomy environment that had affected trade, the lifeline of the sector.
“MISC has stable revenue from its liquefied natural gas (LNG) tankers business with 70% to 80% of the vessels on long-term contracts where the earliest will expire only in 2013,” he said, adding that the global downturn had an insignificant impact on these secured contracts.
MISC is the world’s largest single owner-operator of LNG tankers with a fleet of 27, which is expected to expand to 29 this year.
MISC’s offshore business and huge order book from its heavy engineering division via subsidiary Malaysia Marine and Heavy Engineering Sdn Bhd (MMHE) will keep the group busy for the next 12 to 30 months.
According to a recent report by the research house, these three divisions now collectively account for 100% of the company’s pre-tax profit.
Also, the analyst said, MISC had secured a credit line of about US$1bil last year to part-finance its fleet growth and other purposes. MISC’s underperforming businesses are in the container shipping and chemical tanker divisions.
The report said MISC would likely take over a unit of a financially-troubled shipping company similar to the American Eagle Tankers (AET) acquisition in 2003. MISC bought AET at a 10% discount when Neptune Orient Lines Ltd auctioned it due to its high debt level and loss-making operation.
AET, now a wholly-owned subsidiary of MISC, was purchased at an equity consideration of US$445mil, or US$1.1bil inclusive of net debt.
“Although MISC’s gearing immediately rose to 66% post-purchase of AET, natural de-leveraging from healthy free cash flow brought the gearing down to 17% in 2006,” said the report.