China's two biggest shipyards, which count the People's Liberation Army Navy among their customers, are set to merge their resources to heed the government's instruction to streamline their operations, strengthen management and accelerate the industry development.
China CSSC Holdings said it plans to issue yuan-denominated shares to take over China Shipbuilding Industry Company (CSIC), they said in a Shanghai Stock Exchange filing on Tuesday, without disclosing the merger terms. Both stocks slumped before trading was halted for the announcement.
Both listed shipyards are subsidiaries of China State Shipbuilding Corp, the world's largest shipbuilding conglomerate with one-third of the global market based on shipbuilding orders.
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The impending merger will create a shipyard with combined annual sales of 122 billion yuan (US$17.1 billion/HK$133.1 billion), almost double the size of South Korea's Hyundai Heavy Industries. The merged entity would be capable of building a variety of vessels, from warships like aircraft carriers to commercial ships like container carriers, very large crude carriers and even passenger liners.
Guangxi, China's Type 075 Landing Helicopter Dock LHD. Photo: People's Liberation Army Navy alt=Guangxi, China's Type 075 Landing Helicopter Dock LHD. Photo: People's Liberation Army Navy>
"A consolidation will help optimise their business structure with strengthened capability to take orders for more advanced vessels," Man Zaipeng, an analyst at Sinolink Securities, said in a note to clients. China's increasing share of the global shipbuilding market "bodes well for earnings of the new entity," he added.
The shipyard merger will complete China State Shipbuilding Corp's restructuring of its key manufacturing assets to drive new growth, from the construction and maintenance of large vessels to marine engineering. China is now the world's largest builder of merchant ships, aided by a boom in global trade since its accession to the World Trade Organization in 2001.
Hyundai Heavy Industries, the world's largest shipyard, built this 10,000-TEU-class container carrier for China's COSCO in 2007. Photo: EPA/STR alt=Hyundai Heavy Industries, the world's largest shipyard, built this 10,000-TEU-class container carrier for China's COSCO in 2007. Photo: EPA/STR>
The Beijing-based conglomerate had earlier merged with China Shipbuilding Industry Corp in 2019 as China consolidated the two state-controlled shipbuilders. Before 2019, they operated separately with the former covering the eastern and southern regions, while the latter focused on the northern and Western regions.
They have built hundreds of military vessels over the past few years as the Chinese navy seeks to modernise rapidly. These included aircraft carriers, Type 055 destroyers, Type 075 amphibious assault ships and Type 094A nuclear submarines.
China CSSC Holdings plunged 9 per cent to 34.9 yuan before the trading halt on Tuesday, giving the shipyard a market capitalisation of 156 billion yuan. CSIC is worth 113.5 billion yuan, after its shares tumbled 6.4 per cent to 4.98 yuan.
Assuming a full stock-based purchase, CSSC would need to issue 330 million new shares to acquire 100 per cent of CSIC, enlarging its capital base by 42 per cent based on current market prices.
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