The rapid dry bulk fleet build-up by China Minsheng Trust has taken a sudden strategic turn into offshore.
TradeWinds has learned that the Beijing-based trust is behind the purchase from the open market of something under 20% of equity in Hong Kong-listed CMIC Ocean En-Tech Holding, an offshore manufacturer controlled by state-owned shipping and shipbuilding conglomerate China Merchants Group (CMG).
The deal is a helping hand for the shipyards of China Merchants Heavy Industry (CMHI) with an unsold jack-up rig inventory, much of it still on the books of CMG sister entities. But it is also an opportunistic play on asset appreciation in the troubled market.
The purchase of shares was done earlier this month through financial vehicle Tonghai Securities, but China Minsheng Trust general manager for shipping and offshore Zhu Yunrong (Emma Zhu) told TradeWinds that her company is behind the deal.
Secondhand purchases
China Minsheng Trust's move into corporate transactions in offshore comes after a series of purchases for secondhand vessels and resale dry bulk newbuildings in 2017 and 2018.
In those deals, China Minsheng Trust — as financial owner — rapidly assembled a fleet of bulkers from supramax to capesizes, placing them with vessel-operating partners such as Everest Shipping and Erasmus Shipinvest for commercial management.
But Zhu told TradeWinds last March that she had begun to focus on corporate transaction opportunities instead of vessel deals. This month's move into the offshore world is the first result of that strategy.
Zhu said the group has also remained active recently in both the sale and purchases of bulkers but without significant changes to the size of that portfolio. She declined to name individual vessel deals, saying the company prefers to have attention focused on corporate transactions going forward.
Before the transaction, the target company was not known as either CMIC Ocean En-Tech Holding or even as a rig owner. Under the previous name of TSC Group Holdings Ltd, it was until now an offshore manufacturer specialising in rig topsides, controlled by CMG.
The company currently plans to expand its operating business through potential acquisition of offshore drilling rigs and related rig charter business
CMIC Ocean En-Tech Holding
But with the investment by China Minsheng Trust, the former TSC has added rig ownership to its topsides manufacturing business. That vertical integration in the segment is supposed to position it for a possible upturn in the jack-up rig market, and also help its parent group find a solution for jack-up rigs manufactured by CMHI yards.
CMG-controlled entities remain the major shareholding group.
CMIC Ocean En-Tech Holding told investors its leverage and financial losses in the sector made it impossible to seek debt financing for its new strategy.
"The company currently plans to expand its operating business through potential acquisition of offshore drilling rigs and related rig charter business," CMIC Ocean En-Tech Holding wrote in a filing with the Hong Kong Stock Exchange, adding that it is looking to partner with established offshore drilling rig operators.
'Quicker recovery'
"The new operating model ... will help switch from reliance on downstream capital expenditure to operational expenditure, [where] the company sees signs of quicker recovery. At this stage, asset acquisition will also have room for appreciation in the long run."
Gross proceeds from the China Minsheng Trust's purchase of shares were expected to amount to HKD 662.92m ($84.47m), and 70% of net proceeds — or HKD 422.8m ($53m) — were earmarked for the purchase of its first two rigs.
These are the CMHI-built, 10,138-gt/350-foot SMS Mariam and SMS Faith (both built 2018). Indonesia's Bestford Offshore ordered the Liberian-flag, ABS-classed vessels as Bestford 1 and Bestford 2, respectively, at a reported price of $180m per unit as part of a six-rig series.
The new deal values them at well under half that — $150m for the pair.
The jack-ups were delivered last month on three-year bareboat charters to Adnoc Drilling at $42,000 per day with two-year renewal options.
The rig transaction and the corporate equity transaction are parts of an intricately choreographed structure in which CMG-controlled China Merchants Great Wall Ocean Strategy & Technology Fund initially bought the rigs from affiliated shipbuilder CMHI.
New rig owner CMIC Ocean En-Tech Holding and the fund then formed a joint venture, to which they respectively contributed cash and the two rigs.
CMIC Ocean En-Tech Holding then bought the rigs from the joint venture for $150m, using $50m from the China Minsheng Trust share purchase and a $100m loan from the CMG-controlled fund, according to financial filings.
More Minshengs
Despite the similar names, China Minsheng Trust is not part of China Minsheng Investment Group (CMIG), whose CMIG Leasing has recently been circulating ships for sale to help build equity as its parent group struggles with bond payments.
Entirely separate from both is China Minsheng Bank, parent of major shipowner Minsheng Financial Leasing. Nor do any of the above have anything at all to do with a fourth shipowner named Minsheng, liner and car carrier player Chongqing Minsheng Shipping.
