US$6.3b Cosco-OOCL deal will see power shift: analysts

Singapore

THE US$6.3 billion merger and acquisition (M&A) deal between China's Cosco Shipping Holdings Co and its Hong Kong-based shipping rival, Orient Overseas Container Line Co (OOCL), will create the world's third-largest container line by shipping capacity, which spells a rebalancing of power in the vessel-sharing Ocean Alliance.

Beyond the power shift in the shipping alliance in which Marseilles-based CMA CGM had exerted a commanding presence, analysts also pointed to a possible slowdown in M&A activity in the container-shipping space with fewer available acquisition targets on the horizon.

Cosco Shipping looks set to complete the acquisition with the family of Hong Kong's first chief executive, Tung Chee-hwa, as controlling shareholders having accepted the offer pegged at HK$78.67 per share.

OOCL's shares have since gained 12 Hong Kong cents over its previous close to last trade at HK$72, still below the offer price from Cosco Shipping.

The M&A deal remained subject to regulatory approvals and consent from Cosco Shipping's shareholders.

It will create what Ocean Shipping Consultants' director Jason Chiang described as the world's third-largest container line in terms of standing slots available on the combined fleet of more than 400 vessels held by the two entities.

The merger of Cosco-OOCL will also witness the emergence of a second, very large member shipping line in Ocean Alliance after CMA CGM, which also bulked up after buying out Singapore-based APL. Alphaliner executive consultant Tan Hua Joo said the combination of Cosco and OOCL will tilt the balance of power in the alliance in Cosco's favour.

Mr Tan noted though that this "will not significantly impact" the shipping alliance, which also counts Taiwanese carrier Evergreen Line as a member. But he noted that Cosco-OOCL will emerge the third-largest carrier on the Asia-Europe trade.

Cosco-OOCL will also be the largest carrier on the Asia-North America trade, the largest long-haul route for container shipping.

The clash between allied titans Cosco-OOCL and CMA CGM-APL, if it does materialise, may centre on two major trades. Mr Chiang said direct competition between the two large Ocean Alliance members may heat up in Intra Asia and Transpacific trades.

This is an inevitable consequence though, as the Ocean Shipping Consultants' director observed a trend among container lines seeking to "bulk up" through M&As ahead of an expected market recovery.

Both Mr Chiang and Mr Tan share the consensus, however, that leading container lines seeking inorganic expansion face the uphill challenge of identifying feasible acquisition targets.

Still, Mr Tan noted that few takeover targets that are attractive or politically unencumbered are available in the market. He cited Singapore-based Pacific International Lines (PIL) as one example.

"PIL will become the ninth-largest container shipping line in the world after all current consolidation moves as completed," he said. "However, with a market share of only 1.8 per cent, PIL lacks the scale to compete effectively against its larger competitors and it could seek to capitalise on a recovery in the container shipping markets to make an exit."

A call to a senior PIL executive was not answered as The Business Times understands the person could be away from Singapore.

Shares in Hong Kong-listed Cosco Shipping Holdings Co surged 22 Hong Kong cents or 5.41 per cent during Monday trade to settle at HK$4.29 as at press time.

Cosco Shipping International (S) Co advanced to an intra-day high of S$0.315 before closing flat at S$0.305. Over 10.26 million shares changed hands in the Singapore-listed counter.

Cosco Shipping International (S) was queried on June 22 by Singapore Exchange (SGX) on unusual price and volume movements in the counter's shares. The SGX query coincided with news breaking then on a potential M&A in the works between Cosco Shipping and OOCL.

Analysts have cautioned against punting on the Singapore-listed counter benefiting from the M&A deal between the container shipping entities. Mr Chiang remarked: "Anyone who wants to take advantage of the M&A news should buy into Hong Kong-listed Cosco Shipping instead of its Singapore-listed affiliate."

Asked to comment on the business restructuring plan flagged up for the now shipbuilding-focused Cosco Shipping International (S), Mr Chiang said: "It is still difficult to see what assets (China's) Cosco group will inject into the Singapore-listed affiliate."

Mr Tan described the stock price movements of the Singapore-listed counter as "purely speculative". He clarified his position: "The Cosco-OOCL deal has no impact on the Singapore entity as it is not involved in the container shipping activities of the Cosco Group."

READ MORE: Purchase price offers OOCL shareholders some comfort