China Shipbuilding to list equipment units
China Shipbuilding Industry Corp, the mainland's second-largest shipbuilder, said yesterday it would spin off its ship equipment divisions in the A-share market.
The firm had planned to go public for some time, but a poor market in Hong Kong and the suspension of initial public offerings on the mainland prevented that. Now the company plans to go ahead with the spin-off despite a slump in demand in the shipping industry.
China Shipbuilding's equipment divisions make diesel engines, deck machinery for civilian vessels and missile-launchers and navigation systems for warships. Non-marine facilities contribute some revenue.
'The company is the major supplier of warship equipment on the mainland, possesses the key technology for naval weapons and ancillary facilities for warships,' it said in a listing document filed with the China Securities Regulatory Commission on Thursday.
Jack Xu, a transport analyst at Sinopac Securities, said: 'The orders for military-related products will be more resilient than the civil products, because the government will place orders regardless of the economic downturn.'
The company does not provide a breakdown of the income derived from naval products. However, the ship ancillary machine division, which includes naval products, accounted for 28 per cent of operating profit last year.
Among the few military-related firms listed on the A-share market are Xian Aircraft International Corp, Long March Launch Vehicle Technology and Aerospace Science and Technology Holdings.
The global economic crisis has wiped out nearly all the new orders for vessels at mainland shipyards this year. In the first five months, they received only 1.18 million deadweight tonnes of new orders, down 96 per cent from a year earlier.
Mainland shipyards completed 203 billion yuan (HK$230.3 billion) of orders in the period, up 39 per cent, while ship equipment factories completed 45 per cent more orders than a year earlier. However, the growth slowed 6.3 percentage points in shipbuilding and 45.6 percentage points in ship equipment from the same period last year.
Profits at the proposed spin-off company, China Shipbuilding Industry Corp Holding, increased 51.73 per cent to 1.22 billion yuan last year, while sales jumped 40.78 per cent to 16.06 billion yuan. Nearly 67 per cent of its sales came from the ship engine division, 20 per cent from ship ancillary machines and the remainder from non-marine products. The spin-off said it would distribute 30 per cent of its earnings to shareholders. It proposed issuing up to 1.995 billion shares, representing 30 per cent of its enlarged share base.
About 6.44 billion yuan of the net proceeds would be used to expand its capacity in the ship automotive and ship ancillary machine divisions. The total investment planned by the company in the next three years would top 11.26 billion yuan.
A CSRC hearing on the listing will be held on Monday.