Singapore-based Neptune Orient Lines (NOL) is selling its supply chain management business APL Logistics to Kintetsu World Express (KWE) of Japan for US$1.2 billion.

In a transaction jointly announced by the two companies on February 17, NOL says the divestment of APL Logistics follows a robust and highly competitive process, and that the net proceeds of the sale will be applied to strengthen its financial position, including to repay its borrowings. It further says the disposal will allow APL Logistics to realize its full potential.

The purchase price represents a 15x multiple to the APL Logistics group’s reported core Ebitda (earnings before net finance expense, tax, depreciation and amortization) for financial year 2014. APL Logistics and its subsidiaries contributed about US$1.66 billion in revenue and US$80 million in core Ebitda, representing 19% and 25%, respectively, of the consolidated revenue and core Ebitda of the NOL group in FY2014.

On proforma basis, the transaction will reduce the NOL group’s net gearing ratio from 2.25x as at December 26 2014 to 1.08x.

“This is a strategic move that will allow us to focus on improving our liner shipping business, while at the same time enabling APL Logistics to grow,” says NOL president and CEO Ng Yat Chung in a statement. “The transaction will also strengthen our balance sheet and unlock value for our shareholders.”

Ng points out the proposed transaction with KWE is expected to provide APL Logistics with the opportunity to expand its business with the backing of a company with strong fundamentals and a commitment to grow in the logistics space. “We believe that KWE has the ability and the ambition to continue APL Logistics’ growth strategy,” he adds.

NOL believes that in an increasingly competitive liner shipping sector, it is imperative to strive to have the most cost competitive position and the strongest financial position to have a better chance to thrive.

KWE group president and CEO Satoshi Ishizaki says KWE intends to retain the APL Logistics headquarters in Singapore and run it as a separate unit. “Since 2013, we have laid out a strategy to strengthen our international presence especially in the US and Asia,” he says. “This transaction fits right into our strategy.” He gives his assurance that when the transaction is completed, KWE will continue to invest in and expand APL Logistics’ services to serve its customers better.

Citi and HSBC acted as the financial advisers to NOL for the transaction, which is subject to NOL shareholder and relevant regulatory approvals, while Nomura Securities advised KWE.

The announcement of APL Logistics’ divestment came a few days after NOL reported a bigger net loss of US$260 million in FY2014, compared with US$76 million in the previous year. The total revenue fell slightly from US$8.83 billion to US$8.62 billion during the same period.