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Sinotrans and China Merchants Group Approach Merger

Sinotrans
File photo

Published Nov 13, 2015 10:05 PM by The Maritime Executive

Following the recent announcement of a potential mega-merger between sixth-largest container line Cosco and seventh-largest China Shipping Container Lines (CSCL), two more Chinese transportation conglomerates are closing in on a potential deal.

Sinotrans & CSC, ranked number 39 for container volume, and China Merchants Group, the parent company of China Merchants Energy Shipping, have received preliminary approval to join forces.

Sinotrans is “the biggest comprehensive logistics service supplier in China with world-wide businesses in integrated logistics, shipping and shipbuilding industry,” according to the company. Both Sinotrans and China Merchants Group are state-owned enterprises.

The two companies already operate a joint venture, China VLCC, which operates a fleet of 31 tankers.

Sinotrans primarily serves eastern China and Hong Kong, and offers breakbulk freight shipping in addition to container routes. Besides shipping, the two companies operate a variety of enterprises, including trucking, port operations and freight forwarding.

The government's State-owned Assets Supervision & Administration Commission (SASAC) has recently given preliminary approval to the merger. News of the talks broke in August 2015 with an announcement that Beijing wanted the two enterprises to join.

Potential headwinds face a merger of the bigger state-owned shipping giants Cosco and CSCL. Trading in shares is suspended for the seven companies held by these conglomerates, and analysts say that management may have difficulty getting minority shareholders of every subsidiary to go along with a deal.

Analysts add that Cosco and CSCL are so large and complex that managing an integration could prove a challenge.

They also compete as members of different shipping alliances - Cosco with CKYHE Alliance (with K Line, Yang Ming, Hanjin, Evergreen) and CSCL with Ocean Three Alliance (with CMA CGM and UASC).

Analysts forecast a net annual loss for Cosco's shipping division for 2015. CSCL posted a net loss of $160 million for the first nine months of the year.