In stock exchange filings Monday, China's two giant state-owned shipbuilders finally confirmed a long-rumored megamerger. The tie-up will give them new scale to match Hyundai Heavy Industries' proposed acquisition of South Korea's Daewoo Shipbuilding and Marine Engineering.
"CSSC is planning a strategic restructuring with China Shipbuilding Industry Corporation Co., Ltd.," CSSC's publicly-listed arm wrote in a stock exchange filing. "It is determined that the plan also needs to be approved by the relevant authorities. In order to ensure timely and fair disclosure of information and safeguard the interests of investors, it is now announced."
CSSC spun off CSIC in 1999, giving the newly-formed entity control of government-owned yards in northern China. CSIC's assets include Dalian Shipyard, Bohai Shipyard, Wuchang Shipyard and a wide variety of associated suppliers, manufacturers and research labs. It had annual sales in the range of $50 billion as of 2017. CSSC owns Shanghai Waigaoquiao Shipyard, one of the nation's most advanced shipbuilders, along with Jiangnan Shipyard and Hudong-Zhonghua Shipbuilding. It took in about $30 billion in sales in 2017. Together, CSIC and CSSC would have more sales volume than all Big Three South Korean shipbuilders, according to Bloomberg, and a larger backlog than any other shipbuilding conglomerate.
CSSC has been undergoing a series of management changes and restructurings over the past year, leading to rumors that it could be preparing for a merger. In March 2018, it appointed a new leader, CPC Central Committee member Lei Fanpei. In March 2019, it launched a plan to restructure the finances of three of its largest shipyards- Jiangnan, Huangpu Wenchong and Guangzhou - in a debt-for-equity plan with new share issuances. CSIC merged two of its largest yards - Dalian and Bohai - the same month.
The mega-merger is the latest element of a yearslong consolidation drive for China's state-owned enterprises, many of which have been plagued by overcapacity. Industries already affected include steel production, electrical power, rail, agribusiness, shipping and port operations. The giant mergers are a way for Beijing to rein in capacity, reduce debt and increase economies of scale among its sprawling industrial holdings. The central government's enterprise supervision bureau, SASAC, has said that it wants to consolidate its existing state-owned enterprises into just 80 firms, down from about 100 at present.
