China Merchants Group (CMG) chairman Li Jianhong has proclaimed the offshore shipbuilding industry is bottoming out after one of his group affiliates signed a four-rig deal with Shelf Drilling.
“While the market has been volatile since last year in line with oil prices and there is still large uncertainty, I think the worst for offshore shipbuilding is over, totally,” Li told state-linked shipbuilding media Chinashipnews during China’s annual parliamentary meetings.
“We’ll see a gradual recovery after some more volatility near the bottom.”
Li’s optimism has come after a joint venture established by CMG affiliates agreed to sold two newbuilding CJ46 jack-up rigs to Oslo-listed Shelf Drilling for $174m last month.
Wealthy Marvel Enterprises, half owned by CMIC Ocean En-Tech Holding and half by China Merchants & Great Wall Ocean Strategy & Technology Fund, will receive $150m in cash and $24m in new shares issued by Shelf Drilling.
The venture has also agreed to bareboat charter another two same-type rigs to Shelf Drilling at $15,000 per day each for three to six years, and the Dubai-headquartered rig operator will have the options to purchase those rigs at $90m-$95m per unit.
“The offshore shipbuilding industry is struggling, so we have to adjust and optimise our structure,” Li said.
China Merchants & Great Wall Ocean Strategy & Technology Fund became the controlling shareholder of CMIC Ocean via a share acquisition last year when the Hong Kong-listed company was still named TSC Group. Earlier this year, asset player China Minsheng Trust acquired a 20% stake in CMIC Ocean.
Originally an offshore facility manufacturer, CMIC Ocean is widely expected to expand its rig-owning and leasing business by taking over some of the abandoned offshore assets from CMG’s main shipbuilding subsidiary China Merchants Heavy Industry (CMHI). The four units involved in the Wealthy-Shelf deals, due for delivery this year, are expected to be from CMHI.
Upstream, a sister publication of TradeWinds, reported CMHI was believed to have a backlog of 15 completed rigs abandoned by the companies that ordered them as of last September.
The medium and long-term goal for the offshore shipbuilding industry is to “reduce the inventory” of completed orders, according to Li. Aside from riding on the recovering demand in the offshore market, state conglomerate CMG—which has assets across the maritime and banking sectors--is looking to integrate its financing and manufacturing assets, Li said.
That way, CMG would be able to help reduce its clients’ financing costs and win more business. “If we think from the clients’ angle…and develop the products people demand, we would be able to create a market and improve our competitiveness,“ he said.
