The COSCO Group of Chinese shipping companies plans to shuffle its holdings in China International Marine Containers (Group) Co. Ltd. (CIMC), the world's largest maker of shipping containers.
COSCO Pacific has entered into a conditional agreement to sell its 21.8 percent indirect interest in CIMC for $1.2 billion to Long Honor Investments Ltd., which today has a small 0.95 percent stake in the company.
CIMC said the equity interests and percentage of shareholding in the company held by China Ocean Shipping (Group) Co., the ultimate holding company of both COSCO Pacific and Long Honor, will remain the same after completion of the transfer.
COSCO Pacific said the deal will enable it "to focus resources on the development of its core terminal and container leasing operations, thereby reinforcing its leadership as a top global terminal operator." The company noted on its Website that it's the fifth largest container terminal operator and its Florens Container Holdings Ltd. subsidiary is the third largest container leasing company in the world.
COSCO Pacific said its board believes its stake in CIMC "does not synchronize with its well-established long-term strategy. This investment was originally planned to increase the group's exposure in container manufacturing and sales businesses. Nevertheless, as CIMC has implemented a business diversification development strategy in recent years, its non-container business segments (such as energy, chemical and food equipment business) have developed rapidly. Besides, COSCO Pacific just holds a 21.8 percent stake in CIMC and is not its single largest shareholder. Therefore, it cannot actively take part in CIMC’s management." CIMC's Website said China Merchants Investment Ltd. is a 24.82 percent shareholder.
"By disposing of its interest in CIMC, the group can realign resources to expand its core operations, i.e., terminals management and investment as well as container leasing operations. It will thus be able to create greater investment value to shareholders in medium to long term," COSCO Pacific said.
"Besides, the disposal will generate substantial cash flow to the group. Not only will its financial position be further strengthened, the group will obtain additional resources to acquire quality terminal assets and improve profitability of all terminals. Its core terminal business will thus grow stronger and bigger, laying a solid foundation for the group’s sustainable business growth. Moreover, Florens Container Holdings Limited (“Florens”), a subsidiary of COSCO Pacific specializing in container leasing business, has achieved outstanding performance in recent years. Given the strong financing capability and cashflow generation of container leasing business, the proceeds from the disposal can be used to further enhance Florens’ operations," the company added.
The information service Alphaliner published a diagram earlier this year of the web of interests of Chinese shipping companies
and also said "China COSCO faces the prospect of being delisted if it posts a third consecutive annual net loss in 2013, based on Chinese stock exchange rules."
The Wall Street Journal
reported today that the sale of the CIMC stake "was expected by analysts, who have earlier said that the disposal could help shore up China COSCO's profitability.
COSCO Pacific said "in line with its long-term strategy to focus on the development of terminal business, the group has constantly been exploring and evaluating different investment and/or acquisition opportunities in terminals in China, South East Asia, North America and Europe. It has been in preliminary discussions with various third parties on pursuing potential projects that are expected to derive reasonable return and long term value on the investments. Up to date, the group is still in active discussions with them and no legally-binding definitive documentation has been entered into yet."
In the first four months of this year, COSCO Pacific Terminals handled 19.2 million TEUs, 10.8 percent more than in the first four months of 2012.
COSCO Pacific said it will hold a meeting on June 13 for deliberation and approval of the transaction. - Chris Dupin