China Merchants Energy Shipping (CMES) has set its sights on raising CNY 4.1bn ($610m) to fund scrubber installations, fleet expansion and debt repayments.
The Shanghai-listed company said it may issue up to 1.2 billion shares via a private placement.
Parent China Merchants Group has committed to buy up to 592 million shares for no more than CNY 2bn. Shares of CMES have been traded above CNY 4 this month.
“The funds we raise will be used to enlarge our shipping capacity, so there can be further development of our business." CMES said in a filing.
"We would be able to improve our ability in managing risks and enhance market position.
“We will also be able to reduce our financing costs and shore up our balance sheet.”
According to the filing, CMES plans to spend up to CNY 338m to install scrubbers on 10 of its VLCCs to meet the IMO 2020 rules. CNY 200m from the equity sales will be used to fund this project.
So far, CMES has ordered scrubbers for four VLCCs in a $5.58m deal with a China Shipbuilding Industry Corp subsidiary.
“We are installing the scrubbers to reduce our operational risks, as there is a certain degree of uncertainty over the price spread between high-sulphur fuel oil and IMO 2020-comliant fuel,” CMES said.
Moreover, Shenzhen-based CSC Roro Logistics, a CMES subsidiary, plans to order two 3,800-ceu ro-ro ships for up to CNY 250m apiece for delivery from 2021.
CNY 480m of the raised funds will be used for the upcoming vessel orders.
“We have six coastal ro-ro ships aged more than 26 years, of them two are already 32 years old. By the end of 2025, all of our vessels of 1,000 ceu or below will need to be scrapped due to national age limits,” the filing said.
“In anticipation of a significant reduction in our shipping capacity, we need to invest more in newbuildings.”
CMES is to use CNY 1.56bn from the equity sales to fund four newbuilding VLCCs and CNY 660m to fund two Valemaxes on its orderbook. All of the vessels will be delivered within 2019.
The remaining CNY 1.2bn will be used to repay short-term loans with its parent group.
CMES, the world’s largest VLCC and Valemax owner, recorded cash reserves of CNY 4.49bn and short-term debts of CNY 5.97bn as of 30 September 2018.
