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Daily Briefing October 30 2017

What lies behind Cosco Shipping's private placement?

Topics

What lies behind Cosco Shipping's private placement?

 

ONLY a few days after China Cosco Shipping Group chairman Xu Lirong revealed his takeaway from the Communist party congress - larger/stronger state-owned enterprises and their aims for greater global influence - his company seems to be beginning to make moves.

Cosco Shipping Holdings, the container shipping arm of the conglomerate, and Cosco Shipping Energy Transportation, the oil and gas shipping unit, have both halted trading in their Shanghai-listed shares on Friday, with plans for a private placement.

The plans were not yet certain, and more details could come over the next 10 working days, the two said on Thursday evening. But the timing of the announcement makes the results less cloudy. Behind Capt Xu's remarks are President Xi Jinping and his administrationís reaffirmed drive for the country's state owned enterprises mixed-ownership reform.

That includes the introduction of strategic investors, especially those in the private sector.

China Unicom, the state-owned telecommunications giant, has already unveiled its ownership reform scheme in late August. 

While the parent group is stake in its Shanghai-and Hong Kong-listed unit has dropped from 63.7% to 36.7%, the Chinese non-state owned internet behemoths -Tencent, Baidu, JD.com and Alibaba - have been brought on board, among other new investors.

Although Cosco Shipping's plans remain under wraps, having someone like Alibaba as a strategic stakeholder for its liner shipping sector is hardly a wild guess.

Alibaba has been revving up efforts to develop its logistics networks, as part the efforts to build its global e-commerce empire. It has already established co-operation with major container shipping carriers such as Maersk Line and Cosco Shipping in online slot booking, albeit with limited progress made.

Of course, there may be further thoughts behind the share issuance and the injection of fresh blood.

For Cosco Shipping Holdings, its $6.3bn purchase of Orient Overseas International Ltd looks to be going well, with all the approvals from the shareholders and government regulators obtained so far. Moreover, the company also needs to address two issues: OOIL is listing status and the money.

Huang Xiaowen, vice-chairman of Cosco Shipping Holdings, earlier said that the company was planning to bring in more minority investors, in addition to Shanghai International Port Group, to keep OOIL is shares listed on the Hong Kong bourse.

If a 100% takeover (including SIPG is 9.9%) materialises, Cosco Shipping Holdings can then sell part of the equity to its strategic stakeholders that might emerge soon.

While the move will ensure OOIL's listing status, it will also replenish Cosco Shipping Holdings coffers, particularly when talk has been swirling that the state-owned buyer is in discussion with its next acquisition target. So, the move could be killing two birds with one stone.

For Cosco Shipping Energy Transport, the picture is less clear, however.
Unlike the logistics and e-commerce business, the energy sector, regarded as a state strategic industry, remains gripped by the SOEs. Therefore, the new stakeholders are likely to be mostly companies and financial institutions owned or backed by the government.

But Cosco Shipping Energy Transport's attempt to buy an overseas tanker owner, according to sources close to the company, might be at least one good reason for its private placement.

As shown by Capt Xu, the ultimate goal of Chinese SOEs is global leadership. And before that is achieved, they need more funds and better corporate management. 

Nowadays, money comes easily. The hope is that Cosco Shipping will work harder on the latter. 

Full story


 

Top stories:

Is the EU Ship Recycling Regulation a lame duck?

ANY expectations of a swift shift away from dominant ship scrappers in Asia due to European regulations should be tamed. Viable yards remain limited and shipowners' can easily sidestep the rules. 

With around 95% of the worldís ship recycling facilities located in Bangladesh, China, India, Pakistan and Turkey, and with the IMO's Hong Kong Ship Recycling Convention unlikely to be ratified in the next year, shipowners and yards will first have to contend with the more stringent European Union Ship Recycling Regulation.

Under the EU regulation, shipowners of vessels carrying an EU flag at the end of their life will be required to send them for scrap only to those facilities included in the list, beginning on December 31, 2018 at the latest.

But early signs indicate that the list's clout will not be enough to change current ship recycling practices. 

The European Commission has said it could introduce financial incentives for shipowners to scrap at approved yards. But concerned stakeholders within the industry suggest that this would be an extremely cumbersome, unrealistic and unworkable scheme, with a number of problems including legality under World Trade Organisation rules, high administrative costs and other practical issues.

Full story

DSME shares will resume trading in South Korea on Monday

KOREA Exchange has decided to let Daewoo Shipbuilding & Marine Engineering stay listed on the bourse, and will resume trading its shares from October 30.

This comes more than a year after the shipbuilder's shares were suspended after it was found guilty of accounting fraud.

DSME was found guilty of inflating its accounts in 2013 and 2014 to the tune of Won5.5 trn ($4.6bn), in order to obtain new funding from creditors and investors. After regulators ordered a revision of statements, it turned out the shipbuilder had incurred losses over five consecutive years between 2012 and 2016.

DSME is currently two years into a five-year restructuring programme, which has seen it sell 30% of its dry dock capacity to date. It plans to sell another two floating docks in the next two years.

It has agreed with its board to slash human resources costs, including cutting wages.

Full story

Bullish GoodBulk is about to acquire up to 13 capesize bulkers

GOODBULK, the new dry bulk owner and operator led by John Michael Radziwill, is buying up to 13 capesize bulkers from CarVal Investors.

The deal is worth about $180m in stock and cash for the first seven vessels, the minimum number that GoodBulk will acquire, and that amount could almost double if the full CarVal capesize fleet is taken over.

GoodBulk, which was launched less than a year ago, currently controls nine capesize vessels, one panamax and two supramaxes, and with the initial seven vessels from CarVal the fleet will rise to 19 bulkers, including 16 capesizes, with an average age of nine years.

It will have the option to acquire up to an additional six capesize vessels.
"I am very bullish on the capesize market," Mr Radziwill told Lloyd's List.
He described the deal as "a win for all".

Full story


  

Markets:

Capesize earnings lose steam after tropical storm hits Chinese ports

THE recent rally in the capesize market might have fizzled out, but the index has not yet started falling as it is still being largely supported by the Brazilian and South African markets.

Tropical storm Khanun hit Chinese discharge ports this month, creating vessel delays and leading west Australian shippers to find substitute vessels.

That created strong demand for spot tonnage, leading freight rates to increase sharply to above $9 per tonne at the beginning of the week. But as soon as the spot requirement was covered and weather conditions improved, sentiment changed, with freight rates falling to around $8 per tonne.

An interesting development in the market came from China's biggest coal-producing region, Shanxi, which decided to close an additional nine coal mines by the end of the year.

That was mainly to meet Beijing's promise to suspend or slow the construction of 12m tonnes of new coal production capacity.

Whether this will be sufficient to spark increased demand for seaborne coal remains to be seen.

Meanwhile, Stifel noted in its weekly report that the outcome of the Chinese Communist party congress was not good news for the long-term outlook of dry bulk demand growth.

"Reducing emissions, reducing excess production capacity, and shifting to more sustainable economic areas unquestionably means less coal and likely means less iron ore imports," the consultants said.

Full market report

Relief at last for Asia-North American carriers, but supply overhang suggests that rate rises will be short-lived

CARRIERS serving the Asia-North America trade have finally been offered some respite from an ailing spot market with a successful price push expected to drive rates north over the coming week.

Transpacific spot rates have maintained a downward trajectory since the middle of last month despite reports of a boom in Asian imports, as the US and Canadian economies thrive.

Indeed, the latest figures published by US and Canadian ports point to record throughput numbers this year.

As to why carriers have until now been unable to drive additional revenues in light of this uptick in demand has raised questions over whether they have prioritised market share over increasing rates.

However, the latest Shanghai Containerised Freight Index, a yardstick for rates negotiated in the week ahead, suggests that carriers have moved towards securing the latter, gaining traction from general rate increases effective November 1.

Full market report


 

Analysis:

Shippers, shoppers and how a port can create a market

TRADITIONALLY, container ports were regarded as fairly passive links in the supply chain, restricted by the fixed geographic location of their assets.

Those days are long gone, with ports and terminals actively marketing beyond their traditional client base to their customers' customers - the cargo owners. 

If a port can persuade a shipper or forwarder that time and money can be saved by moving merchandise through a particular facility, shipping lines will come under enormous pressure to call there.

Our executive editor Janet Porter has been out in Dubai's mammoth Jebel Ali complex, looking at how DP World showed that markets can be created that will generate cargo volumes by demonstrating to shippers and forwarders the commercial benefits of calling at ports that may be of little interest to shipping lines initially. 

Full story

 


 

In brief:

Attica Group inks deal to acquire Grimaldi state in Hellenic Seaways

GREEK ferry owner Attica Group is poised to consolidate its hold over Hellenic Seaways (HSW), the country's largest domestic ferry line, after striking a deal to buy out Italyís Grimaldi Group, which owns more than 48.5% of the company.

Added to the stake of just over 50% it agreed in August to buy from Piraeus Bank, the acquisition will bring Attica's ownership of HSW to more than 98%.

Attica already owns Blue Star Ferries and Superfast Ferries and its swift move to take control of HSW, which has long been a subject of wrangling between Grimaldi and Greek ferry interests, would represent the Greek ferry sectorís most dramatic consolidation yet.

However, both tranches of the HSW acquisition are subject to ratification by the country's competition commission.

Full story

North American ports are having a record-breaking year

NORTH America's port majors are set to achieve record throughput figures in 2017, with volumes through the first three quarters of the year accelerating at breakneck speed.

The burgeoning US economy is driving imports across the countryís docks at ports on both the Atlantic and Pacific seaboards. 

Canadian container terminals too are benefiting from this surge in demand, as US shippers continue to make use of cheaper landside tariffs in the north of the continent to fulfil cargo consignments. Canada's domestic traffic is also experiencing a revival amid the resurgence of its economy on the back of two successive years of sluggish growth.

Full story

MPC Container Ships has snapped up another two vessels as part of fleet expansion strategy

NORWAY-based MPC Container Ships has continued its fleet expansion plans with the purchase of two more vessels. The 2008-built, 2,564 teu Petulia and 2003-built, 1,200 teu Frida were bought for a total of $18.4m, according to the company. The vessels are scheduled for delivery in November, when they will increase MPC Container Shipsí fleet to 25 vessels.

The Münchmeyer Petersen Capital offshoot told Lloyd's List back in June that it planned to boost its fleet size to as many as 50 vessels within the year and subsequently explore the possibility of listing in the US, according to managing director Constantin Baack.

Full story

OOCL's third-quarter volumes and revenues are up

HONG Kong-based Orient Overseas (International) Ltd has reported a 5% increase in total volumes for the third quarter at Orient Overseas Container Line, as revenues rose by over a quarter to $1.5bn.

On its main transpacific trade lane, liftings were up 14% on the same quarter a year ago to 474,794 teu. For the first nine months of the year OOCL's volumes were up 20% on the corresponding period last year to 1.4m teu.

The increasing revenues and volumes will come as good news to Chinaís Cosco Shipping, which is in the middle of a $6.3bn acquisition of OOCL.

Full story

Vale revenues are up but Chinese environmental policies have obscured the outlook

BRAZILIAN iron ore giant Vale saw third quarter revenues increase fourfold to $2.23bn, on the back of improved steel production in China.

The increase in profits was mainly due to the growth in iron ore shipments during the quarter and higher prices for the raw material used in steelmaking.

Higher steel production in China was supported by a resilient demand growth from both property and infrastructure investments and a continued healthier profitability of steel mills, Vale said. The country's push towards more environmentally-friendly practices has seen steel mills using higher-quality ore and less coke.

On the other hand, although Vale benefited from sustained higher demand from China's steel mills for iron ore during the period into early October, the miner said that stricter environmental controls in the country put a dampener on the current optimism.

Full story

Samudera Shipping is offloading ships thanks to Indonesian vessel restrictions

SINGAPORE-listed Samudera Shipping has sold off one of its older tankers and a containership amid regulations that prevent it from acquiring newer Indonesia-flagged vessels.

Current Indonesian shipping laws have restricted the group from owning or registering newer Indonesia-flagged ships, which prevents it from replacing its older fleet, it said in a statement.

As such, it intends to eventually scrap or sell all its Indonesia-flagged ships and subsequently stop providing services on domestic routes.

Full story

GasLog Partners has raised dividends for fourth consecutive quarter, with more increases likely

GASLOG Partners has reported record profits for the third quarter of 2017, helped by the $211m addition of tanker GasLog Geneva.

It also declared its fourth consecutive quarterly dividend increase to $0.5175 per unit, thus growing the cash distribution per unit by 8.3% on an annualised basis.

Andrew Orekar, chief executive of GasLog Partners, sounded optimistic about the partnershipís ability to further grow the dividend, based on the dropdown pipeline and a favourable market outlook.

Full story

 

 

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