Is China Planning a Shipbuilding Mega-Merger?

CSSC Guangzhou Shipyard. Photo: China State Shipbuilding Corporation

By Bloomberg News (Bloomberg) — China’s government is working on a plan to combine its two biggest shipbuilders to create an industrial giant that would dwarf its South Korean rivals, according to people with knowledge of the matter.

The state council, China’s cabinet, has given its preliminary approval to merge China State Shipbuilding Corp. with China Shipbuilding Industry Corp., the people said, asking not to be identified as the information isn’t public. The two companies have combined revenue of at least 508 billion yuan ($81 billion) making products ranging from aircraft carriers for China’s navy to vessels to carry containers, oil and gas for commercial companies.

Representatives at State-owned Assets Supervision and Administration Commission of the State Council, CSSC and CSIC didn’t respond to faxed or emailed requests for comments.

Shares of China CSSC Holdings Ltd. jumped 10 percent in Shanghai, while CSSC Offshore & Marine Engineering Group Co. climbed 6.7 percent. In separate exchange statements, the two CSSC units said their parent hasn’t received any government notice about a merger and has no discloseable information. CSIC unit China Shipbuilding Industry Co. said in a statement that its parent hasn’t received any written documents from the government about a merger or held talks with CSSC or its listed subsidiaries.

The giant resulting from the merger will have more than twice the combined annual revenue of South Korea’s Hyundai Heavy Industries Co., Daewoo Shipbuilding & Marine Engineering Co. and Samsung Heavy Industries Co., the world’s three biggest shipbuilders by market value. Shares of the three companies declined in Seoul.

CSSC and CSIC were formed in July 1999 under a plan to increase competition and efficiency among the country’s defense companies. A merger of the two groups could still be subject to changes as many details need to be ironed out by ministries and regulators, the people said.

The two groups, including their units, had 10.4 million compensated gross tons in order backlog as of February, equivalent to about 13 percent of the market. That compares with 7.72 million tons at South Korea’s Hyundai Heavy, according to the latest report by Clarkson Plc.

While the two are engaged in designing and building the Chinese navy’s fleet of aircraft carriers, CSSC also has plans to design and build a cruise ship.

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China Shipbuilding Industry Co., the CSIC subsidiary that owns shipyards and other firms involved in the sector, climbed as much as 5.4 percent in Shanghai trading.

Hudong Zhonghua Shipbuilding (Group) Co., part of CSSC, was the first shipyard in China to build liquefied natural gas carriers. CSIC was the first shipbuilder to build a very large crude carrier, or VLCC.

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