China places ship order valued between $5 billion and $10 billion

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March 15, 2011

BRUSSELS (Dow Jones)–China ordered 50 to 100 new container, tanker and dry-bulk ships Monday under a deal financed by a private-equity consortium led by Carlyle Group. Valued at between $5 billion and $10 billion, it’s the biggest private-sector shipping deal ever, analysts said.

The new joint venture, which will lease the vessels to China, foreshadows a shipbuilding boom across Asia. Denmark’s A.P.-Moeller-Maersk A/S recently ordered a fleet of the 10 biggest container ships ever built, 400-meter behemoths each capable of carrying 18,000 20-foot containers, from a yard in South Korea.

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But the latest big order is about more than just shipping. It signals Beijing’s booming confidence in its ability to keep its formidable export machine humming and its appetite for oil and gas, which tankers carry, and coal and other commodities, which are lugged around by low-lying “dry-bulk” ships with voluminous cargo holds.

And, with banks having difficulty lending at the moment, it is private equity’s biggest foray yet into the world of shipping. Carlyle Group, which controls almost $100 billion in assets, will partner with Hong Kong-based Tiger Group Investments, a private-equity group specializing in the maritime sector that has more than $7 billion in assets, and Hong Kong-based Seaspan Corp. The joint venture will use $900 million in equity capital in the next five years and borrow the rest.

“There is a compelling opportunity to serve Asia’s continuing growth in demand for shipping capacity,” said Yi Luo, managing director for Carlyle’s Asian buyout group.

The consortium will be led by Gerry Wang, the chief executive of Seaspan, one of the world’s largest independent owners and lessors of container ships. “We’re already the biggest shipping partner for China,” Wang said in a phone interview. “They wanted to work with us because of our expertise.” Seaspan will be able to bring Chinese shipbuilders, banks and “state-owned companies” to the table, he said. “It’s a strategic investment for China; 65% of iron ore and 40% of aluminum are going to China.”

State-owned companies in China, he said, have an “increasing desire” to “control the ships that transport their goods around the world.” Chinese government officials weren’t available for comment.

The deal means a boom for China’s shipbuilding sector, which suffered during the global trade bust in 2009. “The timing is good,” says Philip Damas, an analyst for London-based Drewry Consultants Ltd. “These ships will be ready just as we’re done seeing the arrival of the new ships ordered before 2009.” Ships generally take 18 to 24 months to build, he said. Buying mobile assets like ships is less risky than buying shipping companies, he added.

The deal will likely consist of one-third container ships, one-third tankers and one-third dry bulk vessels, to be delivered over the next four years. The container ships will have a capacity of around 10,000 20-foot containers, or equivalent units. They won’t be any bigger so they can pass through the Panama Canal, Wang said.

The ships will be chartered out on long-term leases to companies like container-shipping line Cosco Group and oil giant Cnooc Ltd.

As with Maersk, the business emphasized the environmental friendliness as a driving force behind a new type of design for the ships. “That’s the catalyst for new designs,” Wang said. Typically, two-fifths of costs is fuel, so it will also save money, he added.

(c) 2011 Dow Jones & Company, Inc.

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