China State Shipbuilding Corporation plans to absorb and merge with China National Heavy Industry Corporation. This merger is part of Xi Jiping's logic of consolidating China's global leadership in civil shipbuilding and transforming the PLA into a “world-class” force by the mid-21st century
On the evening of September 2, China Shipbuilding Industry Corporation (600150) and China Heavy Industry (601989) simultaneously announced China Shipbuilding's intention to merge with China Heavy Industry through the issuance of A shares to all China Heavy Industry shareholders through share exchange and absorption.
On the same day, the two parties signed the “intention to absorb merger agreement.”
According to the announcement, this transaction constitutes a related transaction, which is expected to constitute a reorganization of core business, as stipulated by the Administrative Measures for the Reorganization of Core Businesses of Listed Companies, and this transaction will not lead to a change of the actual controller of the company.
As the transaction is still in the planning stage and the matter is still uncertain, in order to ensure proper disclosure of information, safeguard investors' interests, avoid causing abnormal fluctuations in the company's share price, according to the relevant provisions of the Shanghai Stock Exchange, China Shipbuilding and China National Heavy Industry will be suspended from the opening of the market on Tuesday, September 3, 2024, and are expected to be suspended for a period not exceeding 10 trading days.
At the close of trading on September 2, China Shipbuilding reported RMB 34.9/share, with a total market value of RMB 156.1 billion, while China Heavy Industry reported RMB 4.98/share, with a total market value of RMB 113.6 billion.
This planned merger between the two state conclomerates fits into Xi Jiping's logic of both consolidating China's leadership in civilian shipbuilding as well as transforming the PLA into a “world-class” force by the mid-21st century.
Public information shows that China's heavy industry is a leader in ship design and manufacturing, with core business covering marine defense and marine development equipment, marine transportation equipment, deep-sea equipment, ship repair and conversion, mechanical and electrical ship support equipment, strategic emerging industries, and five other sectors.
China Shipbuilding's main business includes shipbuilding (military and civilian), ship repair, marine engineering and electromechanical equipment, etc. It is the largest listed shipbuilding company with the largest scale, most advanced technology and most comprehensive product structure in China.
CIC is 34.53% owned by China Shipbuilding Industry Corporation (CSIC) and China Shipbuilding 44.47% owned by China Shipbuilding Industry Corporation (CSIC), while both CSIC and CSIC are 100% owned by China Shipbuilding Group Corporation (CSGC).
Ship assembly, as the main activity of China Shipbuilding Group's military and civilian shipbuilding business, is mainly carried out by China Shipbuilding and China Heavy Industry, listed companies belonging to the former two groups.
After years of development and work, China Shipbuilding and China Heavy Industry have formed a production and manufacturing system of shipyards, ship maintenance, mechanical and electrical equipment covering the ship assembly industry chain, for maritime security, deep-sea scientific research and resource development and other strategic tasks, continuing to launch the world's leading military and civilian products.
The announcement also states that the absorption of the merger is aimed at further focusing on the main national strategies and responsibilities of the military, accelerating the high-quality development of the ship assembly business, standardizing competition in the same field, and improving the quality of the listed company's operations.
In the first half of 2024, the shipping market grew at a high level under the influence of the Red Sea crisis and other factors; in addition, factors such as cyclical capacity turnover and green changes in the maritime industry continued to drive strong demand in the shipping market, and the shipping industry maintained a high degree of prosperity.
According to Clarkson's data, in the first half of 2024, 1,247 new ships and 77,248,000 dwt were sold globally (an increase of 24.4 percent from the previous year); 1,282 ships and 47,515,000 dwt were delivered (an increase of 1.8 percent from the previous year); by the end of June 2024, there were 6,388 ship orders on hand and 314 million dwt (an increase of 18.5 percent from the previous year).
In the first half of the year, newbuilding prices approached their all-time peak. In June 2024, the Clarkson Newbuilding Price Index closed at 187.2 points, up 3.8 percent from the beginning of the year and only 2.3 percent lower than the 2008 peak, the second highest since 2008.
Chinese defense industry
Most of the defense sector is composed of state-owned conglomerates, and there are numerous government agencies as well as military offices to oversee the fulfillment of PLA procurement needs. The top ten defense SOEs still fulfill traditional roles, supplying weapons and equipment to the military services. Many defense SOEs consist of dozens of subsidiaries, subcontractors and subordinate research institutes.
In shipbuilding, mention should be made of the China State Shipbuilding Corporation, which builds frigates and small ships for surface warfare as well as commercial ships, and the China Shipbuilding Industry Corporation which builds destroyers and commercial ships.
Toward a modern, computerized, global military
In remarks delivered before the 19th CPC National Congress in October 2017, Xi Jinping pledged to transform the PLA into a “world-class” force by the middle of the 21st century. He added that the army would become a fully mechanized force with a significant increase in “strategic capabilities” by 2020 and a “substantially modern” by 2035. His ambitious goal is to complete a transformation of the PLA and People's Armed Police into a “world-class force by 2049, the 100th anniversary of the founding of the PRC.”
The People's Liberation Army Navy (PLAN) is the largest navy in the world, with about 350 surface ships and submarines, including 3 aircraft carriers, with the latest inaugurated in June 2022.
Under Xi Jinping, the defense industry has demonstrated a significant ability to rapidly produce large amphibious assault ships. China has embarked on a massive shipbuilding campaign, producing more civilian and military ships in 2019 alone than the United States produced during the four years of World War II.
China's shipbuilding industry
In the first half of 2024, China's shipbuilding industry led the world in three important indicators.
According to the data released by the Ministry of Industry and Information Technology, in the first half of the year, the completion volume of China's shipbuilding industry was 25.02 million deadweight tons, an increase of 18.4 percent over the previous year; the volume of new orders was 54.22 million deadweight tons, an increase of 43.9 percent over the previous year; as of the end of June, the volume of orders in hand was 171.55 million deadweight tons, an increase of 38.6 percent over the previous year. According to the China Shipbuilding Group's Economic Research Center forecast, the orderbook of new ships is expected to exceed 100 million dwt in 2024.
In this context, the performance of China Shipbuilding and China Heavy Industry doubled in the first half of 2024.
During this period, China Shipbuilding achieved an operating income of RMB36.017 billion, an increase of 17.99% over the previous year, including RMB34.446 billion in shipbuilding, repair and offshore engineering, an increase of 22.39% over the previous year; net income of RMB1.412 billion from attributable net income, an increase of 155.31% over the previous year.
China National Heavy Industry Corporation (CNHIC) achieved operating income of RMB 22.102 billion, an increase of 31.05% over the previous year, and net income of RMB 532 million, an increase of 177.13% over the previous year.
China State Shipbuilding Corporation
According to the official website, the China State Shipbuilding Corporation (CSSC) is a major state-owned mega-enterprise, restructured and jointly established by the former China Shipbuilding Industry Corporation (CSSC) and the former China Shipbuilding Heavy Industry Corporation (CSIC) in accordance with the decisions of the Central Party Committee and the approval of the State Council on Oct. 14, 2019, with 86 scientific research institutes, business units and listed companies, totaling 1006.616 billion yuan in assets and 200,000 employees. With total assets of RMB 1006.616 billion and 205. 000 employees, it has the largest shipbuilding and ship repair base in China and the most comprehensive research and development capability of ships and auxiliary products, and is capable of designing and building ships and offshore equipment in line with the specifications of the global classification society and meeting the requirements of the international general technical standards and safety conventions, and is the leading force for China's shipbuilding equipment construction, the driving force for the development of the global shipbuilding industry and the supporting force for building a strong maritime nation. It is the largest shipbuilding group in the world.
Approved by the State Council's State-owned Assets Supervision and Administration Commission, CSIC is a joint-stock company established by China Shipbuilding Industry Corporation, Anshan Iron and Steel Corporation and China Aerospace Science and Technology Corporation as promoters, registered with the State Administration for Industry and Commerce (SAIC) on March 18, 2008, with the approval of the China Securities Regulatory Commission. Based on the approval of China Securities Regulatory Commission, the company issued 1.995 billion shares to the public in December 2009 through public offering and was listed on the Shanghai Stock Exchange on December 16, 2009.
China Shipbuilding is the core military and civilian products of the listed companies of China Shipbuilding Group Corporation, the integration of China Shipbuilding Group's large-scale shipbuilding and ship repair, mechanical and electrical equipment, marine engineering and other activities, with a complete industrial chain of the shipbuilding industry. The company has four subsidiaries-Jiangnan Shipbuilding (Group) Company Limited, Shanghai Waigaoqiao Shipbuilding Co. Ltd. At the end of the reporting period, the total registered capital (registered capital) of the Company is 4,472,428,758 shares (yuan), the Company's controlling shareholder-China State Shipbuilding Corporation and its concerted action hold 50.42% of the Company's capital.
After the completion of this reorganization, CSSC will become the world's No. 1 flagship listed company in the shipbuilding industry, leading the world in terms of scale of business, scale of operating income, and number of ongoing ship orders.
China National Heavy Industry Corporation
China National Heavy Industry Corporation (CNHIC) is a joint stock limited company approved by the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) and established by China Shipbuilding Industry Corporation (CSIC), Anshan Iron and Steel Corporation (AISCO) and China Aerospace Science and Technology Corporation (CASC) as the initiators. According to the approval of China Securities Regulatory Commission, the company issued 1.995 billion shares to the public in December 2009 by way of public offering, and on December 16, 2009, the company was listed on the Shanghai Stock Exchange.
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