China State Council has given the go-ahead for country's two largest shipping conglomerates to merge, continuing a trend in the industry to trim down state-owned enterprises, reports Caixin Media.
The China Ocean Shipping Co. (COSCO Group) and China Shipping Group Co. have been working on a deal since August. The listed subsidiaries of the two firms are expected to make separate statements on their next step on December 11, the executive said.
Meanwhile, WSJ reported that the shipping companies plan to issue details of their long-expected multibillion-dollar merger plans as early as Friday, quoting people with knowledge of the matter.
The proposed merger will combine the two companies’ container-shipping operations to create the world’s fourth-largest container-shipping line, after Denmark
's AP Moller Maersk Group, Switzerland's Mediterranean Shipping Co and France
's CMA CGM SA.
The two shipping giants are looking to merge their tanker, dry bulk and port operations, and the merger could be worth upward of $20 billion, according to a recent report in The Wall Street Journal.
The plans could also cover other business divisions that include commodities shipping, port and logistics operations and oil-tanker operations, sources said.
"It will be messy for these state-owned giants to consolidate," said Jiang Ming, an analyst from Essence Securities, "but if they don't, they will face more difficulties."
A five-member working group headed by China Shipping chairman Xu Lirong has been set up for implementing the merger plan, the executive said. The new entity to be headquartered in Shanghai will be called China COSCO Shipping Group.
Consolidation has been the overwhelming theme for the Chinese shipping industry as it has been hit badly by the economic slowdown and weakening global demand. This also makes the industry an opportune candidate for reforms, said industry sources.
Since the shipping industry is facing stiff competition worldwide, the government is becoming less tolerant about the losses of the State-owned shipping companies, said Jiang Ming, an analyst with Essence Securities Co, a Beijing-based brokerage.
The global freight market is at a three-decade low and many shipowners are fighting for survival, according to Basil Karatzas, president of Karatzas Marine Advisors & Co, a New York-based shipping finance
and advisory firm.