The Chinese government last week (6 August) ordered the two state shipping firms China Ocean Shipping Group (Cosco) and China Shipping Group to come up with a roadmap to merge, since both companies are struggling in a protracted industry slump,the South China Morning Post (SCMP) reports.
The mainland’s two largest shipping and logistics conglomerates together control 11 listed entities in Shanghai, Shenzhen, Hong Kong and Singapore.
China Cosco Holdings, China Shipping Development (CSD) and China Shipping Container Lines (CSCL), the three dually listed flagships, applied for a trading halt after the market close on Friday, the paper said. They told the Shanghai bourse that they were planning on “material matters”.
Their share prices shot up between 10 and 24 per cent on rumours of a merger.
But any such consolidation process is expected to be complex due to the web of stock listings of the two groups and their distinctive earnings records, the SCMP said. China Shipping’s offshoots have been outperforming its bigger rival since the shipping market slumped.
“Unlike the merger between China CNR and CSR, which took a bottom-up approach to pen a deal and were combined via an asset swap at the listed companies’ level, the shipping companies will have to study a top-down avenue, consolidating the parent companies first,” said one source who did not want to be identified.
China Cosco houses the group’s container and dry bulk shipping operations.CSD holds the dry bulk and tanker assets. CSCL is a pure container carrier.
China Cosco and CSCL rank as the world’s sixth and seventh largest respectively by fleet size, and sail similar networks. However, they also belong to different operational blocs with foreign partners.
China Cosco is a member of the CKYHE alliance, whereas CSCL has a pact with France’s CMA CGM and United Arab Shipping.
Combing their fleets will give rise to the world’s fourth-biggest container line, but such a plan is bound to face antitrust scrutiny in foreign jurisdictions, the SCMP said.
