Trade, not politics: Orient Overseas defends Cosco takeover
Hong Kong-based Orient Overseas Container Line blamed industry competition rather than political pressure on its decision to sell the half-century-old family business to a state-owned Chinese peer.
The $6.3 billion takeover by Cosco Shipping Holdings in July sparked speculation that the Tung family was under Chinese pressure to sell OOCL to help the state-owned company become the world’s third-largest container liner.
“It was solely a commercial decision,” said Alan Tung Lieh-sing, chief financial officer at Orient Overseas International, the listed parent of OOCL, on Monday. While denying any involvement of Chinese officials in the deal, Tung stressed the move was based on “very careful consideration” and would put both companies on a “good trajectory.”
Following a wave of industry consolidation, the number of mid-sized container liners like OOCL has fallen to three from 10 in the past three years, he said, adding that the capital base required to compete with large players has increased substantially.
“Looking forward five years [and] 10 years, I think this is the best and most appropriate option for shareholders and stakeholders, including colleagues, customers, vendors and creditors,” said Tung, nephew of company Chairman Tung Chee-chen.
The Tung family’s decision to sell came just weeks before the container liner reported a turnaround in first-half earnings, driven by a moderate recovery in an industry plagued by weak global trade and vessel oversupply.
OOIL posted a net profit of $53.6 million in the six months ended June, compared with a loss of $56.7 million from a year ago, buoyed by property investment and a $27.7 revaluation gain from Wall Street Plaza, a skyscraper it owns in New York.
First-half turnover was up 13% to reach $2.9 billion as the revenue per TEU (20-foot equivalent unit) rose 7%, helped by a rebound in freight rates that had fallen in 2016 to below levels reached in the aftermath of the global financial crisis. “This recovery in 2017 is certainly very welcome [to] the industry. We see positive signs but certainly we are far away from a full flow recovery,” said Tung.
OOIL shares have been hovering at around their six-year high since the deal was announced, ending Monday’s session flat at HK$72.2 following the announcement of company earnings.
Andrew Lee, an analyst at Jefferies, predicts better earnings prospect for OOIL. “We expect container shipping earnings to continue improving sequentially driven by higher freight rates from improving industry fundamentals as newbuilding vessel deliveries peak in 2017,” Lee wrote in reaction to the results on Monday.