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SCMP Reporter

ONE of the largest and most significant orders ever in the container business is expected to be confirmed shortly by Hong Kong shipping group Orient Overseas International Ltd (OOIL).

   Expected to top US$500 million in value, it is almost certain to be placed with Japanese or South Korean yards and will be for six ships, each capable of carrying 4,800 containers.

   The announcement will mark a symbolic end to the struggle for survival on which OOIL chairman C.H. Tung has been engaged since the company appeared doomed to die on a reef of debts nine years ago.

  Its future as a going concern depended on Mr Tung being able to convince the banks they should offer a life-belt to the group, started by his father, but which was in danger of sinking under US$2.7 billion of debt.

   In the summer of 1986, Mr Tung and the board of the group, then known as C.Y. Tung, were sweating under threats of winding-up orders, liquidation proceedings and possible legal actions.

 Eventually, the board was able to convince the banks that the company was worth more alive than dead, but it still had almost a decade of work ahead to bring it back to health.

   During that time Mr Tung decided that actions spoke louder than words, and was rarely available for comments on the progress the company was making.

  But now he feels it is time to take the wraps off the group's strategy, and outline the strengths that have been built up.

  ''Restructuring gave us the foundations from which we have built ourselves. Today we have a balance sheet which is probably one of the stronger ones in the container shipping industry,'' he said yesterday from his office in Harbour Centre.

  The story he has to tell is of a group which has learned its lessons from unrelated diversifications and has largely retreated to its core business of running a container business.

  Largely, but not totally - for the company is already involved in non-shipping activities in China.

   It is part of a consortium involved in major property development in Beijing. Who the other members are, Mr Tung prefers not to say, but the names are big, he says reassuringly.

   The group has also moved into the beverage business in Shanghai, and is looking at projects in the trading and services sector.

  This will not, however, be part of a major diversification which would mean spreading too thinly the management team which he has built up.

   Inside the company no one reckons that non-shipping activities will contribute more than 20 or 30 per cent of pre-tax profits in the medium term.

  Mr Tung emphasises that improving the container capability of the group will be the main priority, with the six new ships bringing in a new era of economies of scale and operations.

   The ships will be too large for the Panama Canal - which in itself says a lot about the changing patterns of world trade.

  They will enable the group to phase out some of its older vessels from its 25-strong fleet, but its total capacity will rise from about 56,000 twenty-foot equivalent units to 80,000, reflecting the larger size of the newcomers.

  In a notoriously cyclical industry, new container ships could once have gone from the shipyard to lay-up. But while admitting there will be a possible over-supply in the market as new fleets are built up at OOIL and elsewhere, the long-term demand will bring the equation back to equilibrium, reckons Mr Tung.

   The rationalisation taking place at OOIL had also been occurring throughout the whole sector, Mr Tung said.

   He said: ''The industry has been through a lot of consolidation and that means weaker smaller companies have been merged or disappeared in a severe competitive environment.

  ''Japan had six, now three, the US is down to two, the UK down to basically one, and Scandinavia, which had many lines, is now down to Maersk. There may be a bit more consolidation to go on a macro basis.''   He said ''1992 and 1993 were difficult years, but there were companies which consistently made money''.

   Shortly, shareholders in the group - which is ranked around the sixth largest by turnover in Hong Kong - will find out whether OOIL was one of them.

   With the announcement imminent, Mr Tung was giving no clues, but the after-tax losses of US$5.4 million in the six months to the end of June last year, and which compared with losses of $5.9 million, suggest the company has been edging towards profits.

   However, the upcoming results will be thoroughly searched for signs that the group is on course for black ink again.

   Where the financial picture has dramatically improved, thanks to the judicious sales of disposable assets, is in the group's balance sheet.

   The millstone of billions of US dollars of debts has now been reduced to a manageable $540 million, while it had cash and marketable securities of $482 million, and its net debt-to-equity ratio was a lean 0.2 per cent.

  One move which strengthened its balance sheet was the sale of holdings in Hongkong International Terminals (HIT) - booking HK$748 million last December on the sale of a four per cent stake in the terminal operator.

  ''HIT is a very good company, run very efficiently,'' said Mr Tung. But like most predators he is concerned about the territory's capacity.

   ''Hong Kong now ranks No 1 in the world as a container port, and I think it will continue to do so for a long time to come. The big worry is that by 1996, we could run out of container facilities if they are not expanded. I would hope that ultimately CT9 (container Terminal Nine) would go ahead,'' he said, reckoning the odds were in favour.

  For OOIL, the odds also look in favour of a return to a stock market recognition - which once looked as if it had gone for ever.



Major investment marks symbolic end of container company's struggle for survival