HONG KONG: Talks between state-owned giants Cosco and China Shipping will continue into the new year, the groups said in exchange filings, six months after trading in shares of their listed subsidiaries was suspended.
The lengthy negotiations over “asset consolidation,” widely accepted by the industry as merger negotiations, were extended to Jan. 10, according to announcements to the Hong Kong and Shanghai bourses.
There is very little to be gleaned from the exchange filings, although with the shares suspended, there seems to be no reason for such secrecy, which has annoyed smaller investors unable to either offload or buy stocks since Aug. 10.
While the groups are state owned, minority investors not controlled by Beijing hold about 45 percent of Cosco, 53 of China Shipping Container Lines and 59 of China Shipping Development.
“After analysis and negotiation with the parties concerned, the controlling shareholder is planning the assets consolidation of related business segment of associated companies, which involves the company’s material asset reorganization. So far, the relevant matters are still under research and analysis,” was the filing by China Cosco. This was matched by CSCL and China Shipping Development.
As outlined in an earlier report on JOC.com, the sheer scale and complexity of both state-owned giants will make any merger a difficult, if not impossible task. This was highlighted in a note to customers by investment bank Jefferies, which said the groups had two options: Consolidation under one listed platform, or a series of asset swaps to create multiple listed entities each with a focused business line.
Neither format looks attractive. “The former could be simpler but too pricey for the parent while the latter may be too complicated to be executed,” Jefferies said.
The combined Cosco-CSCL container line would have about 8 percent market share, still not enough to crack the top three ranking, and would barely be half of the size of Maersk Line and Mediterranean Shipping Co., cutting down on any scale benefits. This would not serve the new line well in the current market.
In the container shipping segment, Cosco and CSCL together own about 73 percent of the PRC-flagged tonnage and charter at least half of the rest, according to Jefferies data. The combined coastal container line entity would dictate pricing, which has seen freight rates halved since 2013.
