Investors followed analyst sentiment today on the Hong Kong Stock Exchange giving the thumbs down to three of four listed vehicles controlled by Cosco and China Shipping. The pair had outlined how they intend to merge over the weekend and started trading today after a four month suspension pending the merger announcement.
Castor Pang, head of research at Core Pacific Yamaichi International Hong Kong, commented: “The entire reorganisation plan, while intended to help consolidate operations, is very complicated and unwieldy. It won’t be a year or two before effects are fully seen and understood.”
China Cosco Holdings, which will become a pure container play with its dry bulk assets being taken private, ended the day down a massive 28.14% on HK$3.55. China Cosco is the flagship listed vehicle of Cosco, China’s largest maritime conglomerate. It will take over the container shipping assets of China Shipping Container Lines (CSCL) post merger.
“The major problem lies in the container shipping outlook, which has substantially deteriorated recently. Demand is likely to surprise on the downside per our latest channel checks. Along with continued deliveries of mega vessels, its top-line weakness is highly likely to outweigh the positives from the restructuring,” noted Deutsche Bank in a note today.
Investors did not like the look of CSCL, shorn of its container assets, its share price sliding 26.05% during the day to close on HK$2.30. CSCL will become a financial leasing company when the two companies come together in the coming year.
“Letting go of the container liner operation is a welcoming move but taking on container leasing, manufacturing and banking does not inspire. We are not sure whether the deal will go through,” Jefferies noted, handing CSCL an underperform rating.
Cosco Pacific, set to be a pure port play post merger, was down $17.22% to close on HK$1.73. It is shifting its container leasing assets to CSCL while taking on port assets controlled by China Shipping.
“The potential transaction only offers [Cosco Pacific] more minority interests in port terminals at worse potential returns than container leasing that it lets go,” Jefferies commented, handing out another underperform notice.
The only company to end the day up was China Shipping Development, which will hand its dry bulk assets to Cosco Group, and take over Cosco Dalian to become the world’s largest tanker operator. Its shares closed up 8.2% at HK$5.94.
Citi Research commented: “We are most positive about China Shipping Development’s restructure plan as it will get rid of the money losing business and focus on the profitable oil shipping.”