China’s two biggest shipyards plan to merge to create the world’s biggest builder

China’s two largest shipyards, which count the People’s Liberation Army Navy among their clients, are set to pool their resources to heed the government’s instructions to streamline operations, strengthen management and accelerate industry development .

China CSSC Holdings said it plans to issue yuan-denominated shares to take over China Shipbuilding Industry Company (CSIC), they said in a filing to the Shanghai Stock Exchange on Tuesday, without disclosing the terms of the merger. Both stocks fell before trading was halted for the announcement.

Both listed shipyards are subsidiaries of China State Shipbuilding Corp, the world’s largest shipbuilding conglomerate with a third of the global market based on shipbuilding orders.

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The impending merger will create a shipyard with combined annual sales of 122 billion yuan ($17.1 billion/US$133.1 billion), nearly double the size of South Korea’s Hyundai Heavy Industries. The merged entity would be able to build a variety of vessels, from warships such as aircraft carriers to commercial vessels such as container carriers, very large crude carriers and even passenger ships.

Guangxi, China LHD Type 075 Landing Helicopter Dock. Photo: People’s Liberation Army Navy alt=Guangxi, China LHD Type 075 Landing Helicopter Dock. Photo: Navy People’s Liberation Army>

“A consolidation will help optimize their business structure with a strengthened ability to take orders for more advanced vessels,” Man Zaipeng, an analyst at Sinolink Securities, said in a note to clients. China’s growing share of the global shipbuilding market “bodes well for the new entity’s earnings,” he added.

The shipyard merger will complete China State Shipbuilding Corp’s restructuring of its key manufacturing assets to drive new growth, from large shipbuilding and maintenance to marine engineering. China is now the world’s largest merchant shipbuilder, helped by a boom in global trade since it joined the World Trade Organization in 2001.

Hyundai Heavy Industries, the world’s largest shipyard, built this 10,000 TEU class container carrier for China’s COSCO in 2007. Photo: EPA/STR alt=Hyundai Heavy Industries, the world’s largest shipyard, built this 10,000 TEU container carrier for China’s COSCO in 2007. Photo: EPA/STR>

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The Beijing-based conglomerate previously merged with China Shipbuilding Industry Corp in 2019, when China consolidated the two state-controlled shipbuilders. Prior to 2019, they operated separately, with the former covering the eastern and southern regions, while the latter focused on the northern and western regions.

They have built hundreds of warships in recent years as China’s navy tries to modernize rapidly. These included aircraft carriers, Type 055 destroyers, Type 075 amphibious assault ships and Type 094A nuclear submarines.

China CSSC Holdings fell 9 percent to 34.9 yuan before the trading halt on Tuesday, giving the shipyard a market capitalization of 156 billion yuan. CSIC is worth 113.5 billion yuan after its shares fell 6.4 percent to 4.98 yuan.

Assuming a full share-based acquisition, CSSC would need to issue 330 million new shares to acquire 100% of CSIC, expanding its capital base by 42% based on current market prices.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

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