Cosco clears US hurdle on Orient Overseas deal

Beijing

COSCO Shipping Holdings Co has pledged to sell a container terminal in California, helping to allay concerns of US regulators and clearing the way for its US$6.3 billion acquisition of Orient Overseas International Ltd announced last year.

The state-owned shipping giant signed a national security agreement with the US on July 6 to dispose of the Long Beach facility to a third party, according to a filing to the Shanghai stock exchange on Sunday. The Committee on Foreign Investment in the US, known as CFIUS, was reviewing the transaction, which would shift ownership of the Long Beach terminal to Cosco from Hong Kong-based OOIL.

With the sale agreement, CFIUS has notified parties involved in the deal that there are no unsolved issues linked to US national security, according to Cosco's filing, which didn't elaborate on a buyer or valuation.

Under the accord with the departments of Homeland Security and Justice, pending its disposal, the ownership of the terminal will be transferred to a trust, whose principal trustee must be a US citizen but not a shareholder of OOIL.

The transaction had won a nod from China's Anti-Monopoly Bureau about a week ago, removing the final obstacles to the creation of a container line that would become the world's No. 3 by capacity after AP Moller-Maersk A/S and Mediterranean Shipping Co.

Cosco's acquisition of OOIL is part of a sweeping consolidation within the industry that has struggled with overcapacity, a plunge in freight rates and widening losses.

OOIL has been operating Long Beach's Middle Harbor Terminal under a 40-year lease that started in 2012. It is one of the world's most automated shipping facilities and its redevelopment is due to be completed next year. Port of Long Beach, together with the adjacent Port of Los Angeles, is the largest shipping facility in the US. About 70 per cent of shipping volume at Long Beach is cargo from China.

The stepped up scrutiny of Chinese takeovers of US assets comes as trade tensions between the world's two biggest economies turned into a tariff war, with both the countries imposing levies on each other's goods last week. Since the Trump administration took office last year, at least 10 Chinese deals for US firms have collapsed.

Cosco also provides important logistics support to the Chinese navy, especially in support of its activities beyond the Chinese mainland, according to Timothy Heath, a senior international defence research analyst at the Rand Corp. BLOOMBERG