China Merchants Group

Another shipping conglomerate born as Beijing approves merger of Sinotrans and China Merchants

PUBLISHED : Tuesday, 29 December, 2015, 9:22pm
UPDATED : Monday, 30 May, 2016, 5:09pm

Beijing has approved the merger of Sinotrans & CSC and China Merchants Group as part of wider restructuring of state-owned companies and consolidation of the shipping industry reeling from slowing global trade and overcapacity.

The two state-owned transportation and logistics majors’ merger proposal was cleared by the State Council, China’s cabinet, State-owned Assets Supervision and Administration Commission (Sasac) said in a statement on Tuesday.

“Sinotrans & CSC will be wholly merged into China Merchants Group and it will no longer be directly supervised by Sasac,” it said.

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The two groups have been in merger talks, financial media Caixin reported late month. Sinotrans and Sinotrans Shipping, the listed units of Sinotrans & CSC, had separately said their parent was planning a “strategic restructuring”.

Sinotrans & CSC chairman Zhao Huxiang had later said a merger would not immediately involve complicated asset swaps between listed units under the two groups, such as in the recent merger of China Ocean Shipping Group and China Shipping Group.

Daniel Meng, an investment analyst at CLSA, said the merger of Sinotrans & CSC and China Merchants Group could potentially enlarge Hong Kong-listed ports operator China Merchants Holdings’ (International) asset portfolio in the long term but since the latter’s management has not indicated that its parent has any imminent plans to inject Sinotrans & CSC’s assets into it, any potential impact cannot be assessed immediately.

Based on publicly available information, the book value of seven port-related units owned by Sinotrans & CSC at the end of 2013 amounted to around 6.6 per cent of China Merchants Holdings, and the seven units’ combined return on equity of around one per cent was much lower than the latter’s eight per cent in 2013, he said.

The seven units include port assets in Nanjing and Jiangyin in Jiangsu province, Dongguan in Guangdong province and Wuhan in Hubei province, whose proximity to inland rivers would complement China Merchants’ primarily seaborne traffic-handling ports and could enhance its overall cargo throughput volumes, he added.

Sinotrans & CSC’s business includes freight forwarding – by water, land and air – and dry-bulk, oil-tanker and container shipping.

While China Merchants Group focuses on ports, toll roads and oil and gas shipping, it also has major finance and real estate businesses.

China Merchants Group’s total assets at the end of last year exceeded 600 billion yuan (HK$726 billion), six times that of Sinotrans & CSC.

The cabinet earlier this month approved the merger of China Ocean Shipping Group and China Shipping Group to create the world’s fourth-largest container shipping line.

A reshuffling of assets will see the two group’s four listed entities focus on different lines of business, namely container shipping, shipping financial services, shipping terminals and oil and gas transportation.