Merger talk heats up between China’s top shipbuilders in wake of Korean yard consolidation

Merger talk heats up between China’s top shipbuilders in wake of Korean yard consolidation
Jason Jiang February 1st, 2019 https://splash247.com/merger-talk-heats-up-between-chinas-top-shipbuilde...

With news from across the Yellow Sea yesterday of the merger of two of the world’s largest shipbuilders, DSME and Hyundai Heavy, speculation continues to mount that Beijing will merge its two main shipbuilding arms, China State Shipbuilding Corporation (CSSC) and China Shipbuilding Industry Corporation (CSIC).

CSSC and CSIC were spun off from the same group company by the central government in 1999, with the Yangtze River serving as the demarcation line. Currently there are three listed companies under CSSC Group while CSIC controls five listed companies.

In March last year, it was reported that the State Council gave preliminary approval to merge the two major shipbuilders, however, there haven’t been much progress regarding the matter in the past year.

Despite having secured most of the major newbuilding orders and considerable amounts of state subsidies in the past few years, both CSSC and CSIC are suffering from profitability issues.

CSSC’s listed platform completed several asset sell-offs in the past year in order to avoid three years of consecutive losses, which would result in a delisting, while CSIC only appears to have remained profitable in the past few years thanks to a large number of naval orders.

DSIC Offshore, the offshore unit of CSIC’s flagship yard Dalian Shipbuilding Industry, went into court receivership this week due to its inability to pay its debts.

When contacted by Splash, a senior official at CSIC said that according to the instructions by the central government, this year is very likely to see a series of consolidations in the shipbuilding industry, both in mergers and internal restructurings.

“The State-owned Assets Supervision and Administration Commission of the State Council (SASAC) has been working on the possible consolidation plans for quite a long time, involving CSSC, CSIC, and the shipbuilding assets of Cosco and China Merchants, however, we don’t know any of the plans yet,” the official said.

“The potential merger would no doubt be a complex one, as it involves assets and interests in many sectors, especially military projects,” he added.

This week, CSSC celebrated the signing of up to 40 newbuilding contracts worth a total of around RMB10bn ($1.48bn). Lei Fanpei, president of CSSC said at the ceremony that CSSC will spend more effort in reforming its business through both technology innovation and internal restructuring. When asked about the likely merger with CSIC, Lei revealed he recently attended a SASAC work meeting for state-owned enterprise leaders, but no concrete merger plans have been brought onto the table.

In January, SASAC announced that the government plans to have another round of consolidation in several sectors including shipping and shipbuilding through mergers and acquisition, asset swaps and strategic alliances, following the merger of Cosco Group and China Shipping Group in 2016 and China Merchants and Sinotrans & CSC in 2017.

The mergers have seen Cosco and China Shipping integrate their shipbuilding operations into Cosco Shipping Heavy Industry, and China Merchants and Sinotrans are currently integrating their shipyard assets too.