China takes lead in Pacific shipping after $6.3bn deal

Bloomberg

China is the new leader of shipping trade to the Americas. State-owned Cosco Shipping Holdings Co.’s $6.3 billion offer to buy Orient Overseas International Ltd. would create an entity that’s the biggest shipping company moving boxes to the North American continent from Asia, beating Copenhagen-based A.P. Moller-Maersk A/S and France’s CMA CGM SA. The takeover, announced in Hong Kong, would also create the biggest sea-box carrier through the Pacific Ocean.
The consolidation may help raise container rates on the Americas route — the second-busiest in the world — a critical piece in the survival of the shipping industry that has been
battling slumping charges and overcapacity.
Earlier this year, Maersk and Hyundai Merchant Marine Co. said that they managed to get higher fees from customers on their annual rate-negotiation talks on the trans-Pacific routes. Moving goods to Europe from Asia is the world’s biggest shipping trade route.
The Cosco-Orient Overseas combination would have the capacity to move a weekly average of 77,208 containers between Asia and North America, based on end-May data from Alphaliner, a shipping data provider. In the Asia-Europe trade lane, the combination will become only the third biggest.
Shares of Orient Overseas surged 20 percent to HK$72 on Monday in Hong Kong, the biggest gain in eight years. Cosco shares jumped 5.4 percent following Friday’s 11 percent advance.
The mainland shipping company will receive bridge loans from Bank of China to help fund the purchase, Chief Financial Officer Deng Huangjun told reporters in Hong Kong on Monday. Officials also said Cosco has no plans for further acquisitions and has no timeline on when it expects to get all the regulatory approvals needed to complete the transaction.
“There’s a very good chance we will get all the regulatory
approvals because we always comply with all rules,” Cosco’s Executive Director Xu Zun-
wu said at a press conference
in the city.
Cosco’s offer to buy Orient Overseas was a 49 percent premium, based on the average
20-day trading price before the announcement. That is the biggest for a major container-shipping deal since 1997, the year Hong Kong passed from British hands to China. In the same year, Singapore’s Neptune Orient Lines Ltd. bought APL Ltd. for $833 million, offering a premium of 57 percent.
The controlling shareholders of Orient Overseas have accepted Cosco’s offer at HK$78.67 a share. The family of Tung Chee-hwa, the first chief executive of Hong Kong, holds about 69 percent of the shipping line.
The deal was announced a little more than a week after China’s President Xi Jinping visited Hong Kong as the former British colony marked the
20th anniversary of the handover. Tung, currently a vice chairman of China’s top political advisory body, Chinese People’s Political Consultative Conference, was hand-picked by Beijing in 1997 for the top job in the financial hub and has been advising the central leadership on foreign policies especially China-US relations.
The purchase could also stoke concerns the city’s role as a major shipping and financial hub is diminishing amid further inroads by state-owned companies and the rise of other centers on the mainland such as Shenzhen, Guangzhou and Shanghai.