China Shipping drops lease plan
Controversial vessel deal is scrapped after close scrutiny
China Shipping Development (CSD) has cancelled part of a controversial 15-vessel leasing deal with its parent after the transaction came under close scrutiny.
In a rare case of a listed company backing away from a controversial related-party transaction, the bulk and oil shipping arm of the state-owned China Shipping Group terminated a deal involving four handymax-sized dry bulk cargo vessels, citing an 'improved shipping market' for the decision.
The Hong Kong-listed vehicle cancelled the one-year deal with firms wholly owned by the group, less than three months after the December 23 deal was disclosed to the stock exchange by CSD which said it was worth 'approximately' HK$56.94 million.
Independent valuations from leading shipbrokers put the value of the deal - for the sister ships Yong An 1, 2, 3 and 4 - closer to 241.98 million yuan, or about four times the stated value.
The group's connected transactions have come under increasing scrutiny since last month when it announced it would try to raise US$2 billion through a Hong Kong listing of its dedicated container shipping arm, China Shipping Container Lines.
Pre-marketing for the initial public offering was to have begun yesterday but has been delayed a week and the group has reportedly scaled back its earnings target to as low as US$1.3 billion.
CSD again defended the December deal yesterday to the exchange as 'fair and reasonable and in the interest of [CSD] and its shareholders taken as a whole'. Nevertheless, the company 'terminated' the portion of the six-part deal that independent brokers commissioned by the South China Morning Post found to be the most undervalued, and therefore controversial.
Those four vessels can now be put back in the open market where they will conservatively fetch US$28,000 a day - making the deal worth HK$318.8 million at today's prices - according to a leading broker yesterday.
CSD also questioned the veracity of the valuations put forward by the brokers solicited by the Post for articles on December 25 and March 1 in yesterday's statement to the exchange.
'As [CSD] is not aware of the identity of the relevant valuers and the detailed particulars of the 'independent valuation' allegedly made in the article, [CSD] is not in a position to verify or even comment on the allegations made in the articles about the independent valuations allegedly carried out,' the company said.
The group has never disclosed the names of the 'independent' valuers it originally used in the December statement.
China Shipping Group is the second-largest charterer of vessels in the world, which is why brokers solicited to undertake the Post's valuations were reluctant to be named.
'Commercially, I shouldn't get involved with this valuation,' one of the brokers said in December. 'But my conscience tells me I have to.'