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Merger of CSIC and CSSC may be completed ‘in one year’

Merger of CSIC and CSSC may be completed ‘in one year’
A potential merger of China’s two largest state-owned shipbuilding groups may happen within the next one year, driven by the ongoing consolidation of the country’s shipbuilding sector, according to Ren Yuanlin, executive chairman of Yangzijiang Shipbuilding.

Talks have surfaced in the market of the merger of China Shipbuilding Industry Corporation (CSIC) and China State Shipbuilding Corporation (CSSC) when senior executives at the respective corporations swapped positions in March this year.

“The merger will happen. This will bring about a clear advantage for China in terms of global competitiveness. All along, China wants to complete on the global stage,” Ren told Seatrade Maritime News.

“In the domestic market, they will have outright monopoly but we are not concerned. In fact shipyards like us can better compete in the monopolised market where prices will be more expensive,” Ren believed.

He added that the CSIC-CSSC merger is not expected to be a complex and difficult process and it could happen within the next one year. “Unlike the merger of China Cosco and China Shipping Group (CSG), the coming together of the individual yards of the two shipbuilding groups is a rather straightforward process,” he said.

State-run China Cosco and CSG are currently believed to be in the process of consolidation, and their listed units have suspended their shares trading since 10 August. Similarly, China Merchants Energy Shipping (CMES) and Sinotrans & CSC Group are also reported to be in merger talks. “The CMES-Sinotrans & CSC merger may materialise earlier than that of Cosco-CSG,” Ren predicted.

The shipyards of CSIC are located in northern China, and the group is the country’s largest builder of military ships. The group subsidiaries include Dalian Shipbuilding Industry, Bohai Shipbuilding Heavy Industry, Qingdao Beihai Shipping Heavy Industry, and Shanhaiguan New Shipbuilding Industry.

CSSC shipyards, on the other hand, are scattered over southern China, and its subsidiaries include some well known names like Shanghai Waigaoqiao Shipbuilding, Jiangnan Heavy Industry and the rebranded CSSC Offshore & Marine Engineering Company (Comec).

The likely tie-up between CSIC and CSSC came against the backdrop of a prolonged recession in China’s shipbuilding market since end-2008, marked by surplus yard capacity amid declining newbuilding orders and prices, tightening cash flow, rising business and material costs, among others.

Ren pointed out that the severe consolidation will continue and the sector will witness more shipyards shutting down over the next three years, potentially leaving China with around 30 shipbuilding enterprises.

“More and more yards are not gaining access to bank loans and not landing new orders – they simply cannot continue operations,” he said.

Yangzijiang has remained profitable in the challenging market by maintaining its price competitiveness and not accepting any loss-making contracts. But for the group to achieve a high or even comfortable margin has not been easy, Ren admitted.

“We are now fighting to win contracts for large containerships of up to 14,000 teu and bulk carriers such as the 400,000 dwt VLOCs. There’s little interest for us to bid for 20,000 teu and above boxships as not many ports can accommodate them as yet,” he explained.

Recently, Yangzijiang won its first order to build two 84,000 cu m VLGCs for Shanghai Zhenrong Energy, making it the second Chinese yard after CSSC-controlled Jiangnan Shipyard that also builds such mega gas carriers.

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