China’s Two Largest Shipbuilders Set Stock Swap Terms For $38 Billion Merger

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China State Shipbuilding Corp. Ltd. offers 0.1335 shares for each share of China Shipbuilding Industry Corp.

China State Shipbuilding Corp. Ltd. (CSSC) and China Shipbuilding Industry Corp. (CSIC) on Wednesday announced a stock exchange proposal in their merger deal. Analysts said the proposed exchange terms are not favorable for shareholders of China Shipbuilding Industry.

The two largest state-owned shipbuilding conglomerates determined the exchange ratio at 0.1335 shares of CSSC for each share of CSIC.

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CSSC and CSIC announced a merger with an exchange ratio of 0.1335 CSSC shares for each CSIC share, deemed unfavorable to CSIC shareholders.
Post-merger, the new entity's market value will be approximately 270 billion yuan with a shipbuilding capacity of over 20 million tons, capturing 30% of the global market.
Analysts expect synergistic benefits, optimized production, and enhanced profitability, predicting net profits of 5.36 billion yuan in 2024, progressing to 11.75 billion yuan in 2026.

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Who’s Who

China State Shipbuilding Corp. Ltd. (CSSC): China State Shipbuilding Corp. Ltd. (CSSC) is a leading state-owned shipbuilding conglomerate in China. It is merging with China Shipbuilding Industry Corp. (CSIC), resulting in a new entity valued at nearly 270 billion yuan. CSSC's current market value is 156.1 billion yuan. The merger will enhance its global shipbuilding capacity to over 20 million tons, capturing 30% of the new ship market worldwide, and optimizing production and profitability.

China Shipbuilding Industry Corp. (CSIC): China Shipbuilding Industry Corp. (CSIC) is set to merge with China State Shipbuilding Corp. (CSSC) under a stock exchange proposal, with an unfavorable exchange ratio of 0.1335 CSSC shares per CSIC share. CSIC’s shareholders can opt for a cash payout at 80% of the average trading price. CSIC has a market value of 113.6 billion yuan, and its first-half 2024 net profit was 444 million yuan on 22 billion yuan in revenue.

GF Securities: GF Securities is an analyst firm that suggests the CSSC-CSIC merger favors CSSC shareholders. They note an arbitrage opportunity of approximately 7% and predict the merger will reduce expenses via shared resources and technology. GF Securities also anticipates optimized production capacities and increased profitability.

Huatai Securities: Huatai Securities views the merger between CSSC and CSIC as a deep integration of resources and estimates net profits for the new entity at 5.36 billion yuan in 2024, 9.04 billion yuan in 2025, and 11.75 billion yuan in 2026. The brokerage has maintained a "buy" rating for the new entity’s stock.

China COSCO Shipping Corp. Ltd.: China COSCO Shipping Corp. Ltd. is involved in a "100 Ship Plan" to expand its fleet amidst a surge in shipbuilding driven by factors such as the Red Sea crisis. This initiative is part of a broader trend where major shipping companies are placing large-scale orders to enhance their capacities and update their fleets.

China Merchants Group Ltd.: China Merchants Group Ltd. is a major shipping company involved in the current surge of shipbuilding activity. The company is promoting a "100 Ship Plan" to expand its fleet, responding to increased demand and rising prices for new ships.

Hudong-Zhonghua Shipbuilding Group Co. Ltd.: Hudong-Zhonghua Shipbuilding Group Co. Ltd. is identified as a premium asset of CSSC that will be integrated into the new entity formed from the merger of CSSC and CSIC. The integration process and management of such premier assets remain under discussion, focusing on enhancing profitability and streamlining operations within the new conglomerate.

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