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HSBC and UBS are the front runners in race to lead the share sale of Cosco unit

State-owned China Ocean Shipping Group (Cosco) is close to appointing bankers to guide the listing of its dedicated container-shipping arm through the increasingly turbulent waters for China plays.

Sources close to the  talks said UBS and HSBC had been provisionally selected to lead Cosco Container Lines' (Coscon) share sale, but the mandate remained unsigned.

'Some of the banks put forward proposals for listing a diversified company and some put forward a strategy based around the container line,' said a source with knowledge of the deal. 'It appears the container line strategy has won out.'

UBS and HSBC  would not comment on  Coscon's listing plan.

The disappointing listing of China Shipping Container Lines (CSCL), the liner division of  state-owned China Shipping Group, appears not to have deterred Cosco from  seeking capital for its container shipping division.

Banking sources said it still intended to float its shares on the Hong Kong main board before the end of the year.

Ranked the world's No9 container shipping company by  teu (20-foot equivalent units) capacity by BRS-Alphaliner, some market watchers believed Coscon could  raise at least US$1 billion from its share sale.

Rival CSCL, which ranked No 10, tapped US$985 million from its share sale after originally targeting  $2 billion.

However, a Shanghai-based spokesman for Coscon said it was still selecting bankers and had not decided what assets to list.

'It's too early to talk about the size or the timetable yet,' he said. 'Whether we list just the container lines or choose to include other assets is undecided.'

Also determined to list is the mainland's No 3 carrier, Sinotrans, which has aggressive plans to raise US$1 billion before the end of this year.

Credit Suisse First Boston was the sponsor of the Sinotrans deal, with BOC International trying to win a role, sources said.

CSCL  was disappointing in its first two days of trading last week with the price of the stock plummeting 16.53 per cent by the close on Friday from its pre-listing offer of $3.175.

However,  maritime experts say Cosco and CSCL have significantly different valuations and business strategies.

'CSCL and Cosco Container Lines are seen as leading China-owned container lines with the general view being that Cosco has focused on improving quality of service while China Shipping has focused on growth,' said Charles deTrenck, the head of regional transport research for Citigroup Smith Barney, in a June 15 report.

Hong Kong exporters put container shipping lines into three  groups in terms of service quality, with the top group able to command service premiums. This group comprises  industry leaders such as Denmark's Maersk Sealand.

While CSCL remains firmly entrenched in the bottom group - reflected by its revenues per box carried, the lowest among international carriers covered by Mr deTrenck - Cosco, through its efforts, has joined the middle pack.

CSCL's debt - projected by the carrier to reach 12.5 billion yuan by the end of next year as it doubles its fleet in three years - scared off some key investors; CSCL was only 1.4 times oversubscribed in the institutional tranche.



Coscon nears deal on IPO mandate