US$1.1b tanker joint venture to boost China's energy shipping capacity

PUBLISHED : Wednesday, 13 August, 2014, 1:11am
UPDATED : Wednesday, 13 August, 2014, 1:11am

Two state-owned tanker giants are setting up a joint venture in a US$1.1 billion deal that could pave the way for the world's top crude consumer to eventually become self-reliant in importing oil through ocean transport.

Shanghai-listed and Hong Kong-based China Merchants Energy Shipping (CMES) said in a stock exchange filing it was partnering with Sinotrans & CSC.

CMES is injecting its 19 supertankers and cash, taking a 51 per cent stake in the new venture. Sinotrans & CSC will pay US$565.9 million cash for its share of the venture.

The proposed entity will specialise in the operation of very large crude carriers, each capable of carrying 2 million barrels of crude.

Sinotrans & CSC, with its main energy shipping subsidiary Nanjing Tanker, is ranked as the world's ninth-largest VLCC operator by live fleet size, according to Clarksons Research Service. CMES is in 22nd place.

Opportunities for independent tanker owners will become really limited

The statement did not say whether the joint venture will take over 19 other VLCCs from beleaguered Nanjing Tanker, which was delisted from the Shanghai exchange in June after posting four consecutive annual losses.

If the merger comes to fruition, it will elevate the new company among the world's top three VLCC operators. The deal, subject to regulatory approval, is slated to be completed by September 30.

"Merging the two fleets is not unlikely. Going forward, any transaction is full of uncertainties and will be highly sensitive for both companies. An alternative would be to set up a tanker pool dedicated to China's crude imports," said an industry source.

Nanjing Tanker has been undergoing a court-led restructuring since last month. Most of its VLCCs are either mortgaged to banks or collateralised for outstanding loans.

"Considering the tanker order book and the current trend, China will then easily be self-sufficient for the transportation of its own oil imports soon," said Ralph Leszczynski, the Singapore-based research director at Italian shipbroker Bancosta. "If China becomes self-sufficient for its imports, the opportunities for independent tanker owners will become really limited."

China imported 281.9 million tonnes of crude last year, but less than half that were carried by the country's tanker fleet. Official statistics on the proportion of Chinese-owned vessels carrying crude imports are unavailable.

Sinopec, which controls trading vehicle Unipec, the world's largest VLCC charterer, said this year in an internal meeting that the four state-owned tanker companies shipped 47 per cent of last year's crude.

The US Energy Information Administration projects that China will become the largest importer of oil by the end of this year.