On December 29, CSSC Technology Group Co., Ltd., a listed company under China State Shipbuilding Corporation, and CSSC Power Co., Ltd. respectively issued announcements on major asset restructuring. CSSC Power announced that in order to standardize the competition among diesel engine businesses under China State Shipbuilding Corporation, the company plans to jointly invest with CSSC Industry Group and CSSC Shipbuilding to establish a joint venture. After the completion of this transaction, CSSC Power will hold a controlling stake in the joint venture; CSSC Technology Group issued an announcement stating that it plans to issue shares to acquire part or all of the equity of CSSC Marine Engineering, CSSC Wind Power Development, Xinjiang Haiwei, Luoyang Shuangrui, and Lingjiu Electric, and intends to raise matching funds.
What is the global pattern of the shipbuilding industry? Is China State Shipbuilding Corporation choosing to carry out major asset restructuring at this time point in order to cope with the major cyclical explosion in the shipbuilding industry? Do domestic shipbuilding enterprises have made arrangements for high-end ships? How can they strengthen technological progress? Dr. Wang Xin, a global partner and President of Greater China at Frost & Sullivan (Frost & Sullivan, abbreviated as: Frost & Sullivan), was interviewed by Securities Daily, discussing the future development path of China's shipbuilding industry from the perspective of the major asset restructuring of 'China's Divine Ships'.
The major asset restructuring of 'China's Divine Ship' has kicked off.
On December 29, CSSC Technology Group Co., Ltd., a listed company under China State Shipbuilding Corporation, and CSSC Power Co., Ltd. respectively issued announcements on major asset restructuring. CSSC Power announced that in order to standardize the competition among diesel engine businesses under China State Shipbuilding Corporation, the company plans to jointly invest with CSSC Industry Group and CSSC Shipbuilding to establish a joint venture. After the completion of this transaction, CSSC Power will hold a controlling stake in the joint venture; CSSC Technology Group issued an announcement stating that the company plans to issue shares to acquire part or all of the equity of CSSC Marine Equipment, CSSC Wind Power Development, Xinjiang Haiwei, Luoyang Shuangrui, and Lingjiu Electric, and also plans to raise supporting funds.
With the disclosure of the aforementioned announcement, on that day, stocks in the CSSC group opened higher, among which CSSC HanGuang rose by 12%, closing at 18.29 yuan per share. China Coastal Defense Group hit the daily limit up, with CSSC Emergency Response Group surging by more than 7%. Zhongyongyang, China Power, CSSC Marine Engineering & Technology, and others followed suit.
Pan Helin, Executive Dean of the Digital Economy Research Institute at Zhongnan University of Economics and Law, said in an interview with a reporter from Securities Daily, "This asset restructuring is an optimization and integration of internal operations by CSSC. For example, the offshore wind business has been incorporated into CSSC Technology, and the oil rig business has been moved into China National Offshore Oil Corporation (CNOC). This promotes subsidiaries to focus on their main businesses, enabling them to concentrate their efforts on developing their core competencies, making business operations more focused, achieving larger-scale integration, and enhancing the company's global competitiveness."
Hu Qimu, chief researcher at the China Iron and Steel Economic Research Institute, said in an interview with a reporter from Securities Daily, "After the merger of CSSC and CRRC, internal business integration is a very urgent task. The realization of synergies is not simply about adding up scales, but about optimizing the structure through specialized integration to enhance advantages, share resources, and achieve ecological synergy."
Hu Qimu told the Securities Daily reporter, 'The restructuring of listed companies under China State Shipbuilding Corporation is just a step in internal business integration, indicating that the group's integration efforts will be gradually implemented.'
Focus on core business to enhance market competitiveness
Looking back at 2019, in order to deepen the reform of state-owned enterprises and further focus on the main business of ships, CSSC (China State Shipbuilding Corporation) and CSIC (China State Shipbuilding Heavy Industry Corporation), which are part of the same group, implemented a joint restructuring. On November 26th of that year, they held their founding meeting in Beijing, establishing China State Shipbuilding Group. For a time, the news of the birth of 'China's Divine Ship' spread throughout the market.
On July 1, 2021, nine listed companies under China State Shipbuilding Corporation (CSSC) collectively issued an announcement. CSSC obtained 100% equity of CSSCIC and CSSC Heavy Industry Corporation through the gratuitous transfer of state-owned shares, thereby becoming the actual controller of the nine listed companies. This has officially put forward the agenda for CSSC to resolve the issue of horizontal competition among its listed companies.
According to the announcement released by China Power this time, in order to further regulate the competition among diesel engine businesses under CSSC Group, the company plans to jointly invest with CSSC Industry Group and CSSC Shipbuilding to establish a joint venture. The target assets for investment are the shares held by all parties involved in the transaction, namely CSSC Power, CSSC Marine Diesel, Shaanxi Diesel Heavy Industry, and Hebei Diesel Heavy Industry.
China Power stated that after the completion of this transaction, it will hold a controlling stake in the joint venture.
Zhang Linxiang, a staff member of the Power Securities Department of China, told the Securities Daily reporter, 'From a regulatory perspective, this asset restructuring is conducive to solving the problem of inter-industry competition. From a business development standpoint, after this restructuring, the diesel engine business has been further coordinated and developed, reducing internal competition and enhancing the company's bargaining power and market voice. In addition, low-speed engines are mainly used on large ocean-going ships. With the recovery of the shipbuilding industry this year and riding on the wave of the industry's momentum, the company's business is expected to see further development.'
CSIC Technology announced on the same day that its indirect controlling shareholder, CSSC Group, is currently planning major matters related to the company. The matter is expected to involve issuing shares to acquire 100% equity of CSSC Offshore Container Containers Co., Ltd., 88.58% equity of CSSC Wind Power Development Co., Ltd., 100% equity of Xinjiang Haiwei Co., Ltd., a minority stake of 44.64% in Luoyang Shuangrui Co., Ltd., and a minority stake of 10% in Lingjiu Electric Co., Ltd., as well as plans to raise matching funds.
Hu Qimu told reporters, 'This asset restructuring will inject wind power assets and diesel engine assets into two specialized companies respectively. In fact, it is about creating two major professional operation platforms for wind power and diesel engines. This is conducive to the specialized integration of resources such as R&D, production, and channels in these business chains, focusing on the main business to enhance market competitiveness.'
On December 29th, CSSC issued a notice stating that CSSC Group Co., Ltd. is planning the merger of CSSC Industry Corporation Limited, CSSC Industry Co., Ltd. (hereinafter referred to as 'CSSC') with CSSC Heavy Industry Group Power Co., Ltd.
In response, someone familiar with the company told the Securities Daily reporter that this restructuring will further highlight the main responsibilities and businesses, and promote high-quality development.
Search for breakthroughs in the high-end ship sector
With the integration and development of China State Shipbuilding Corporation, China's shipbuilding industry has been making visible progress towards high-precision and advanced fields at an accelerating pace, moving towards the goal of becoming a strong shipbuilding nation from a major shipbuilder.
Judging from the public data,In the first half of this year, China's international market share in three major shipbuilding indicators remained above 40%. The volume of completed shipyards, new orders received, and on-hand orders accounted for 44.9%, 51.0%, and 45.8% of the world total respectively, measured by deadweight tonnage. Meanwhile, the global shipbuilding industry is structured with China, Japan, and South Korea standing in a tripartite confrontation, and the trend towards a split between China and South Korea is becoming increasingly evident.
According to data from the Shipbuilding Industry Association, from January to November this year, the country's shipbuilding completed 35.88 million deadweight tons, a year-on-year increase of 7.9%. It received new ship orders worth 63.64 million deadweight tons, a year-on-year increase of 182.6%. By the end of November, there were 96.39 million deadweight tons in hand, a year-on-year increase of 35.9%.
According to the financial data disclosed by CSSC from January to September this year, the group's operating revenue, new contracts received, total industrial output value, net profit, and total profit increased by 9.3%, 34.5%, 12.3%, 26.1%, and 22.9% year-on-year respectively, laying a solid foundation for achieving the annual target tasks. The operation of the shipbuilding and maritime industry has continuously made new breakthroughs, with its international market share remaining at the top among global shipbuilding groups.
Is the choice by China State Shipbuilding Corporation to carry out major asset restructuring at this time point in order to cope with a major outbreak of the cyclical boom in the shipbuilding industry?
Hu Qimu said, 'The focus of the major asset restructuring of CSSC this time is on power generation, which is actually about industrial upgrading rather than capacity expansion.'
"From an industry perspective, in 2020, there were approximately 400 shipyards globally. The world's shipbuilding industry generally maintained a competitive landscape of 'three giants' (China, South Korea, and Japan), while Europe and America still possess advantages in the construction of military ships and luxury cruise ships. Vertically, the global shipbuilding industry has been deeply integrated, with frequent emergence of shipbuilding giants. With the deep integration of new-generation information and communication technology with shipbuilding technology, the influence of labor costs on the transfer of the shipbuilding industry has relatively weakened, and the importance of technical factors has become increasingly prominent." Wang Xin, Global Partner at Frost & Sullivan and President of Greater China, told the Securities Daily, "In recent years, our country has continuously made progress in high-end ship types. The first large luxury cruise ship has started construction at Waigaoqiao Shipyard, and Hudong Zhonghua has also signed an order for a large LNG vessel worth 20 billion yuan. In the future, it is expected that China and South Korea will continue to engage in fierce competition around high-end ship types."
Wang Xin told reporters, 'With the deep integration of information technology and manufacturing, and as international maritime affairs put forward higher requirements for ship environmental protection, shipbuilding will develop towards greener and more intelligent products and a higher-end product structure. High-tech and high-value-added ships need to rapidly improve the design and construction levels of LNG ships, large LPG ships, and other products, creating high-end brands; break through technical difficulties in the design and construction of luxury cruise ships; and actively carry out research and development of Arctic new shipping routes ships, new energy ships, etc.'
"In the future, we should fully rely on local talent policies to attract high-quality talents from home and abroad, encourage industry-academia integration, and apply what has been learned. At the same time, we must continuously strengthen industrial layout adjustments, promote rational resource allocation, drive the development of the entire industrial chain, continue to deepen reforms, optimize the industrial structure, and enhance independent innovation capabilities." Wang Xin said."
In addition to continuously advancing asset integration, CSSC is also implementing asset securitization within the three-year action plan for state-owned enterprise reform.
As CSSC Technology, a listed company under China State Shipbuilding Corporation, plans to issue shares to acquire partial or all equity of CSSC Marine Engineering, CSSC Wind Power Development, Xinjiang Haiwei, Luoyang Shuangrui, and Lingjiu Electric, as well as raise matching funds, the asset securitization of CSSC Corporation has taken an important step forward.
The 'Three-Year Action Plan for State-Owned Enterprise Reform (2020-2022)' proposes that state-owned enterprises should become market entities with core competitiveness. The mixed reform, restructuring and integration of state-owned enterprises, as well as the reform of the state-owned asset supervision system, will enter a new stage of rapid and substantial progress, with more than 70% of the total tasks completed by the end of 2021.
Chen Dingru, an analyst at Zhongtai Securities, said that the 'Three-Year Action Plan for State-Owned Enterprise Reform' is about to enter a critical year, and reform dividends are expected to be released more rapidly. The mixed-ownership reform of state-owned military enterprises is an important part of state-owned enterprise reform.
*This article is reprinted from 'Securities Daily', with reporters Jiao Yue, Shi Lu, and Zhang Xiaoyu. The original title was 'The Integration of 'China's Divine Ship' Breaks Ice, with Listed Companies Under It Taking the Lead in Reorganizing'.
