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. 

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Is the EU Ship Recycling Regulation a lame duck?

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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.

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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.

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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.

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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.

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

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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.

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Analysis:

Shippers, shoppers and how a port can create a market

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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.

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OOCL's third-quarter volumes and revenues are up

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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.

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