China Merchants Energy Shipping (CMES) has agreed to take over the dry bulk and LNG assets of former Sinotrans & CSC group firms as part of the intra-group restructuring of state conglomerate China Merchants Group.
Since China Merchants Group acquired Sinotrans & CSC to create China’s second-largest shipping group in 2017, there had been talks of further integration to limit intra-group competition but actual progress was slow.
On Monday, Shanghai-listed CMES said its board approved the acquisitions of 75 bulkers and interests in five Yamalmax LNG carriers owned by Sinotrans & CSC group firms, and their respective shipmanagement firms, for a total of CNY 6.57bn ($957m).
The transactions are pending on the final nod from the Chinese central government.
“These deals are important measures for us to integrate shipping assets and create a common platform for our shipping business. We would be able to enhance competitiveness and profitability in a sustainable way,” according to an exchange filing from CMES, the main shipping subsidiary of China Merchants Group.
CMES will acquire a fleet of 41 owned and 34 chartered-in bulkers currently operated by Sinotrans Shipping for CNY 1.6bn, while absorbing their associated debts totalling CNY 3.82bn, the filing said.
The capesize, panamax and handymax vessels are expected to join CMES’ 57 bulkers totalling 8.69m dwt, including 14 Valemaxes.
In addition, CMES agreed to purchase Sinotrans Ship Management Ltd, the bulkers’ shipmanager, for CNY 56.7m.
“Our company competes with Sinotrans Shipping in international bulker business. The deals can sort out the issue,” CMES said.
“We will have a much larger dry bulk shipping capacity and that can help us increase market share.”
Separately, CMES will pay CNY 645m for another former Sinotrans & CSC firm that owns 25.5% interests in five LNG carriers that ship from the Yamal LNG project, namely the Boris Vilkitsky, Fedor Litke (both built 2017), Georgiy Brusilov, Boris Davydov (both built 2018), and Nikolay Zubov (built 2019).
The company will also take on their associated debts totalling CNY 442m and commercial shipmanagement unit for CNY 6.08m.
CMES has stakes in a total of 11 Yamalmax vessels, including those five, via its 50:50 joint venture China LNG with Cosco Shipping Energy Transportation.
The company plans to fund those acquisitions with its own cash and bank loans. “After the transactions, we will have a higher debt ratio in the short term. [But] we predict the net margins of our assets and our earnings per share will increase,” CMES said.
CMES' share price closed at CNY 7.23 on Monday, up 4.63% from last Friday.
A write-down of 14 ships
The company has also announced it booked impairments totalling $54.8m for seven capesize bulkers and $23.4m for seven general cargoships towards the end of 2019.
The bulkers were built between 2010 and 2012, while the cargoships were constructed between 2005 and 2013.
“The book values of the capesize vessels were obviously higher than similar vessels in the market,” said CMES. “The demand for the cargoships is weak and their book values were too high.”
CMES is due to release its 2019 report on 30 April.
The company posted net profits of CNY 723m during the first three quarters of last year, compared with net profits of CNY 440m for the same period of 2018.
