China Merchants takes major stake in Dalian port operator

China Merchants takes major stake in Dalian port operator


China Merchants will acquire a 21.05 percent stake in Dalian Port Co., making it the second-largest shareholder of the northeast China port operator, as the country continues to restructure its state-owned sector.

China Merchants Holdings (International) will purchase 1.2 billion shares of the port operator for $557 million ($0.47 per share), representing 26.67 percent of its existing share capital and 21.05 percent of share capital after enlargement with the issue of the new shares.

Dalian Port Co. is traded on the main board of the Hong Kong Exchange and the Shanghai Stock Exchange and was the first port company to be listed on both bourses.

The move is part of efforts by the central government to improve the competitiveness of state-owned enterprises, support the revitalization of the economy in the northeast and help drive the development of a planned China-Japan-South Korea Free Trade Zone.

“CMHI’s investment in Dalian Port…enables the formation of a mutually complementary cooperation in terms of sharing of resources and operational capability. CMHI can further enhance the domestic port network, while simultaneously helping to facilitate the business growth and efficiency improvement of Dalian Port through its advanced management capabilities,” said CMHI Chairman Li Jianhong.

The deal includes a say for CMHI in the appointment of directors and management at the port.

Dalian Port Co. booked revenues of $1.74 billion in 2014, a rise of 23.3 percent on the previous year, and a profit of $99 million, up 14.4 percent on the previous year.

Hui Kai, chairman of Dalian Port Co., said going forward the company would continue to deepen its strategic cooperation with CMHI in order to develop its business and increase profitability.

“Issuing new H shares will provide necessary financial support on the strategic development of Dalian Port. Through private placing, Dalian Port expects to introduce strategic investors with significant influence on development, to optimize the ownership structure, strengthen sustainable development and expand the business.”

Dalian handled 10.13 million TEUs in 2014, making it the seventh-busiest container terminal in China. The port handled 8.8 million TEUs in the first 11 months of 2015. In October and November, monthly throughput fell by 33 percent and 37 percent respectively on a year-over-year basis.

Dalian did not feature in the 2014 list of top 10 Asia ports in the port productivity rankings of JOC.com. Its two Bohai Rim neighbors — Tianjin and Qingdao — were ranked first and second on the list.

The port operates a 450,000-ton crude oil terminal, the largest of its kind in the world, and a 400,000-ton iron ore terminal. Its automobile terminal handles 100 percent of foreign-traded vehicles in northeast China.

Historically known as Manchuria, the northeastern region of China consists of the three provinces of Jilin, Heilongjiang and Liaoning.  Due to its abundant coal reserves, the region, which is separated from North Korea by the Yalu river, was one of the earliest regions in China to industrialize. However, its heavy industry-based economy has stagnated in recent years and the government has struggled with efforts to revitalize it. Major industries include steel production, petroleum refining, shipbuilding and aircraft and automotive manufacturing.

At the end of December, China approved the merger of Sinotrans & CSC with CMHI in a move aimed at increasing competitiveness through synergies and scale in an environment of slowing global trade and as China extends its presence in overseas markets.

Contact Turloch Mooney at turloch.mooney@ihs.com and follow him on Twitter: @TurlochMooney.