Star Cruises looks to raise US$150m


By KATHY FONG

STAR Cruises Ltd, a 34% associated company of Resorts World Bhd, is seeking to raise US$150mil via an issue of convertible bonds to part-finance the acquisition of two new liners for its North American cruise routes. 

“We will be in a very stretched position if we don’t (raise the money),” Star Cruises senior vice-president Michael Lim was quoted as saying in a Bloomberg report yesterday. 

Norwegian Dawn - a vessel in Norwegian Corp Ltd fleet

According to the report, the bonds would be convertible into Star Cruises shares at HK$3.18 each. The shares were last traded at HK$2.50 in Hong Kong and 33 US cents in Singapore before they were suspending yesterday. 

Star Cruises, the third largest cruise operator in the world, had announced last month that it had contracted to buy two news ships for US$790.2mil. 

Currently, the group operates a combined fleet of 19 ships. There are eight vessels operating under Star Cruises' brand in Asia Pacific and 11 under its US wholly-owned unit Norwegian Cruise Lines (NCL). 

Analysts said the purchase was in line with the company's policy of adding one new ship to its fleet each year in order to compete with rival Carnival Corp in the American market. 

“The purchase of new ships will improve its competitiveness,” said an analyst with a foreign stockbroking firm. 

The fleet expansion is seen as a vote of confidence from the management in the group's business prospects. 

Star Cruises said it would arrange loan financing to cover 80% of the contract value of the new ships and use internal resources to finance the remaining sum. 

The US$150mil bond issue in Hong Kong, however, will cover only 19% of the purchase consideration.  

Hence, the group may need to source more funds in the future to meet the progress payments for the two ships. 

According to its announcement to Hong Kong Stock Exchange, Star Cruises has to pay US$55.1mil this year, US$239mil next year, US$356.4mil in 2005 and US$139.7mil in 2006. 

This has triggered speculation that Star Cruises might make another cash call just a year after it undertook a rights issue to raise US$152mil.  

Analysts concurred that a cash call was highly possible and may even be inevitable given that the cruise business is highly capital-intensive.  

“But I don’t see Resorts World's balance sheet would be stretched should there be a cash call by Star Cruises,” said a TA Securities analyst, adding that Resorts World had a strong operating cash flow from its casino. 

Analysts have a more positive view on the likelihood of a cash call by Star Cruises now than a year ago, mainly because the cruise market has shown nascent signs of recovery.  

They expect Star Cruises to recover to the pre-SARS level by the first quarter of next year. 

Furthermore, China is seen as large new market for the group to tap.  

Nonetheless, the pricing of the rights issue is an important element. 

Barring unforeseen circumstances, analysts say, the company is cruising in the right direction by expanding its fleet size to ride on the market recovery. 

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