China CSSC Holdings to Absorb China Shipbuilding Industry Corp for $158.2 Billion Amid Disputes Over Share Swap Price (AI Translation)

中国船舶拟以1152亿元吸收中国重工 换股价格有争议

China State Shipbuilding Corporation (CSSC) has announced a merger plan for its two key platforms: CSSC Holdings Limited and China Shipbuilding Industry Corporation (CSIC), with a combined value exceeding 100 billion yuan. The merger will be conducted via a stock swap, with CSIC shares being converted into CSSC shares at a specified ratio. Shareholders who disagree with the swap plan have the option to cash out. [para. 1] [para. 2]

CSSC will issue A-shares to absorb CSIC. By the merger's completion, CSIC will no longer be a listed entity, and CSSC will assume all of CSIC's assets, liabilities, and obligations. Post-merger, the combined market value of the new entity will be approximately 270 billion yuan. Analysts expect the entity’s shipbuilding capacity to exceed 20 million deadweight tons, capturing about 30% of the global new shipbuilding market share, thus becoming the largest shipbuilding company worldwide. [para. 3] [para. 4]

Both companies' stocks will be suspended from trading starting September 3, 2024, to resume on September 19, following significant declines in their stock prices. Financial industry professionals expressed that the merger may not be favorable for CSIC shareholders as they would benefit more from selling CSIC shares in the secondary market rather than participating in the stock swap. [para. 5] [para. 6]

Guangfa Securities stated that the restructuring would help the companies reduce expense ratios due to shared resources, technological development, and optimized production. Huatai Securities projected the merged entity to achieve substantial net profits over the next few years and rated the new company as a "buy." [para. 7] [para. 8]

The merger is also aimed at reducing order competition between the two shipyards, allowing each to focus on their specialty areas, thereby improving profitability. The integration might include deeper cooperation between different shipyards for optimized operations. [para. 9]

The merger has ignited considerable discussion within the capital market, but the shipbuilding cycle remains a core factor influencing future profitability. Despite this, the current shipbuilding market is in a dividend period, benefitting from rising new ship prices. Industry insiders noted that the merger happened sooner than expected and highlighted several post-merger issues that need resolution. [para. 10]

Historically, CSSC, also known as "South Ship," was the primary shipbuilding platform in southern China, while CSIC, known as "North Ship," handled northern operations. CSSC and CSIC initially separated but re-merged in 2019 to address intra-industry competition. Since then, CSSC has announced several asset restructurings aimed at consolidating its various operations and improving overall efficiency. [para. 11] [para. 12] [para. 13]

Globally, the demand for new ships has surged, partly due to geopolitical issues and the need to replace aging fleets, causing new ship prices to climb. China has captured nearly 70% of global new ship orders, with some shipyards fully booked until 2028-2029. This high demand has resulted in various Chinese and international companies placing large orders, contributing significantly to the industry’s growth. [para. 14] [para. 15]

Private shipbuilding enterprises, like New Times Shipbuilding and Yangzijiang Shipbuilding, have begun constructing new docks to expand capacity, signaling a resume in capacity expansion after over a decade of downturn. The number of active shipyards globally has decreased significantly compared to the peak in 2008, emphasizing a shift in the industry's structure. Authorities are cautious about overexpanding new capacity, focusing more on enhancing production efficiency and securing high value-added orders. [para. 16] [para. 17] [para. 18]

Thus, the merger between CSSC and CSIC marks a significant restructuring within the Chinese shipbuilding industry, aiming for enhanced global competitiveness and efficiency in operations.