Tuesday, March 17, 2009
China eyes buying up cancelled newbuildings
Keith Wallis, Hong Kong - Tuesday 17 March 2009
CHINESE bulk operators such as China Shipping Development and Sinotrans Shipping could be encouraged by Beijing to take on some of the vessels cancelled by foreign owners to support Chinese shipyards.
Macquarie Research analyst Jon Windham estimated that more than 50% of the vessels on order at Chinese shipyards are from European customers and are at significant risk of cancellation.
He said that China Shipping Development and state-owned shipping enterprises including Sinotrans Shipping “would be a potential conduit for the government to fund new ordering to offset foreign cancellations”.
Such a move “would be to facilitate the Chinese government’s stimulus effort for shipyards”.
The Chinese government’s shipbuilding aid package announced in February included extending tax rebates and other financial support to Chinese shipyards until 2012, and a push to scrap older
vessels.
Clarksons Asia managing director Martin Rowe said the idea that “China Inc would encourage Chinese owners like China Ocean Shipping (Group) or China Shipping to take on cancelled or abandoned newbuildings is something that’s gaining ground”.
Mr Rowe said that while he thought it was too early for Chinese owners to novate such newbuildings, he believed it was a real possibility later this year if cancelled orders became a problem.
Aside from the obvious benefit of aiding shipyards, owners themselves would be in a better position to operate the vessels through long-term contracts of affreightment, he said.
“Owners such as Cosco and China Shipping Development have tied up a number of such contracts with Chinese power producers.”
Pointing to Sinotrans Shipping specifically, Mr Windham said the company had a $1.4bn war chest with committed capital expenditure of $388m between 2009 and 2011 as it expanded its dry bulk capacity by 1.2m dwt, or 64%. The vessels comprise two 176,000 dwt and four 180,000 dwt capesize ships and four 32,000 dwt handysize vessels.
But he added that Sinotrans Shipping was also likely to make further acquisitions that would be a “combination of newbuild orders, secondhand vessel purchases and equity investments in related shipping companies” that could include ship chartering companies.
This could result in a further $547m being spent on newbuildings, including $273m earmarked for bulkers and $164m on tankers, along with $625m on secondhand ships split between $500m for bulkers and $125m on tankers, with $355m worth of equity investments. Such investments would increase the company’s dry bulk and tanker fleets by around 3m dwt.
Mr Windham said Sinotrans Shipping was “in a unique position” as a Chinese state-owned enterprise to take advantage of the financial crisis.
“A possible path forward is for Sinotrans Shipping to assume cancelled newbuild orders and match them with longer-term contracts with Chinese customers who continue to secure commodity ownership overseas. China Shipping Development has done similar long-term deals with large state-owned enterprise customers,” he said.
Based on current financial data, Macquarie forecast Sinotrans Shipping would generate a net profit of $87.3m this year on revenue of $271.1m. This would be followed by a net profit of $177m on revenue of $424m in 2010 and $153m in net profit with revenue of $410m in 2011.
But Mr Windham said that a strategic move by Sinotrans to assume ownership of cancelled vessels backed with more long-term charter deals would “lead to a substantial valuation uplift”.
0 comments:
Post a Comment