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Neptune Orient States Interest in Germany's Hapag-Lloyd

Singapore's Neptune Orient Lines has formally expressed its interest in buying Germany's Hapag-Lloyd to create what would be the world's third-largest container shipping firm, two sources briefed on the deal said on Tuesday.

Shipping containers lay stacked on a cargo ship docked at the Ensenada International Terminal port facility on Wednesday, March 8, 2006 in Ensenada, Mexico. In March 2005, the facility acquired two additional cargo cranes, seen in the background, bringing the total to four. Mexico and some of the world's largest retailers and shipping interests are bolstering Pacific ports south of the border, hoping to catch future runoff as an increasing tide of Asian cargo sails toward already clogged ports i
David Maung
Shipping containers lay stacked on a cargo ship docked at the Ensenada International Terminal port facility on Wednesday, March 8, 2006 in Ensenada, Mexico. In March 2005, the facility acquired two additional cargo cranes, seen in the background, bringing the total to four. Mexico and some of the world's largest retailers and shipping interests are bolstering Pacific ports south of the border, hoping to catch future runoff as an increasing tide of Asian cargo sails toward already clogged ports i

"It is an expression of interest which they have submitted and it is not binding," one of the sources told Reuters on condition of anonymity.

But NOL faces competition from a group of Hamburg-based investors that said on Monday it had made a "competitive" offer that would keep Germany's top shipping group under German control. Analysts estimate that Hapag's price could be more than $7 billion.

Hapag-Lloyd is a unit of Germany's TUI.

Under structure proposed by NOL, Singapore state investor Temasek Holdings, which owns 66 percent of NOL, would remain the largest shareholder in the combined entity, the second source said.

NOL spokesman Paul Barrett declined to comment, while noone at Temasek was immediately available.

NOL's container shipping unit APL is the world's seventh-biggest, while Hapag-Lloyd ranks fifth.

The combination would create the third-biggest container shipping firm behind Denmark's A.P. Moller-Maersk and privately held Mediterranean Shipping Co.

Banking sources had told Reuters on July 15 that NOL, 66-percent owned by Singapore sovereign fund Temasek Holdings, is seeking up to $7 billion in loans to finance a possible bid for Hapag-Lloyd.

NOL shares are currently down 1.86 percent at S$3.16.

Analysts saw risks in the deal given uncertainty for the shipping industry in view of an economic slowdown.

"In our view, deteriorating industry fundamentals magnify the risk associated with the potential acquisition of Hapag-Lloyd," said Macquarie analysts Jon Windham and Winnie Guo wrote in a note to clients on Monday.

"Weakening industry fundamentals increases the possibility that NOL will overpay for the assets while declining pricing power increases integration risk as it leaves little room for execution error."