China approves second shipping-related merger this month

[HONG KONG] China has approved another strategic restructuring of two state-owned shipping-related conglomerates, the second such move this month as the government steps up efforts to shrink industries plagued by overcapacity and create globally competitive businesses.

Sinotrans & CSC Holdings Co will become a wholly owned subsidiary of China Merchants Group Ltd and will cease to be directly controlled by the State-Owned Assets Supervision and Administration Commission, the agency known as SASAC said on its website  Tuesday. The two holding companies had combined sales of more than 160 billion yuan (S$35 billion) in 2013, according to their websites and data compiled by Bloomberg.

"The reorganization aims to achieve economies of scale and synergies, in particular in the areas of logistics, energy and bulk shipping, property development, ports and marine and off-shore engineering between the two groups, to speed up the development of an internationally competitive leading enterprise," logistics provider Sinotrans Ltd said in a filing to the Hong Kong Exchange.  The announcement comes after SASAC on Dec 11 approved a reorganization of China Ocean Shipping Group and China Shipping Group, with combined revenue of more than US$40 billion. Shipping companies in other countries also are exploring mergers and acquisitions amid a slump in global freight rates.

The move is part of China's push to streamline its state-owned sector and create national champions that can compete globally. In May, CSR Corp and China CNR Corp combined to create CRRC Corp, a train equipment maker that challenges European rivals Siemens AG and Alstom SA. China Minmetals Corp, the country's biggest metals trader, agreed earlier this month to buy China Metallurgical Group Corp, a government-owned engineering and mining group.  China also has set a two-year deadline for loss-making enterprises owned by the central government to improve performance, with firms that make continued losses liable to be closed.

No financial details of Tuesday's deal were provided, and calls to China Merchants Group and Sinotrans & CSC after office hours were not immediately answered. Sinotrans Ltd said it will become a listed subsidiary of China Merchants Group, with Sinotrans & CSC Holdings remaining its controlling shareholder.

While the holding companies are unlisted, both have listed entities. Shares of Sinotrans Ltd, which has a market value of HK$19.6 billion, were unchanged Tuesday. Sinotrans Shipping, which mainly operates dry-bulk vessels, has a market value of HK$6 billion and its shares rose 0.7 per cent to HK$1.50. Shares of the two companies jumped in September on initial reports of a potential merger, while Tuesday's SASAC announcement came after the stock market closed for trading.  State-owned China Merchants Group, whose interests range from transportation to financial services, controls China Merchants Bank Co, China Merchants Holdings International Co and China Merchants Property Development Co. Shares of China Merchant Bank, with a market capitalization of HK$527 billion, rose 0.9 per cent Tuesday to HK$18.42.

China Merchants Group is applying to the Hong Kong Exchange to confirm it's not obligated to make a mandatory general offer for all Sinotrans Ltd shares, and is doing the same to the Shanghai Exchange for Sinotrans Air Transportation Development Co, Sinotrans Ltd said in its filing.

BLOOMBERG