After a six-month remission the market is once again abuzz with talk that Cosco Shipping is out to swallow up Hong Kong’s iconic liner company Orient Overseas Container Line, reportedly for around US$4bn.
In January this year, it was the Wall Street Journal that broke the story, allegedly offered to it by an insider that Cosco was near to closing a deal with OOCL. Back then it was thought that CMA CGM and even Evergreen were also vying for position to grab the line that currently owns the largest containership in the world.
After a protracted period of silence that benefitted OOCL’s share price no end, rising by as much as 30% at one point, denials were duly made to the Hong Kong Stock Exchange and peace returned to the market.
The latest story from WSJ is almost identical to that which it ran in January – reliable insider – convinced the deal is about to be struck. The difference on this occasion was a quick rebuttal by both Cosco and Orient Overseas International Limited (parent company of OOCL) and a small uptick in OOCL’ stock price compared with the bull run witnessed six months ago. Today OOCL shares were selling for HK$52.75.
Should we be convinced? There is the matter of shares in Cosco Shipping Holdings having been suspended since 17 May after the company announced it was “proposing to plan for certain material matters”. The stock remains suspended today even after a deal was struck to purchase a 51% controlling stake in the Spanish port company Noatum.
Shipping Analyst Drewry Financial Research Services, which offered much encouragement to a CMA CGM/OOCL marriage at the beginning of the year have been also as enthusiastic this time around.
“Cosco will get a prized asset and a very well-run container carrier for a modest price just when the industry fortunes are looking up for a sustained recovery,” the analyst said.
“In an increasingly competitive, commoditised and top heavy industry, we believe it is a matter of time and price before the owners of OOIL decide to cash out in an upswing. As the industry is witnessing a strong upturn and valuations have risen materially, both the time and price is right, in our view,” DFRS added. DFRS did however drop its January suggestion that “lack of scale would be OOCL’s “nemesis”.
Other analysts, with which this writer agrees, suggest that OOCL has no urgent case to throw in the towel now as shipping fortunes look brighter than they have for nearly a decade. OOCL is in a stronger position since it joined the Ocean Alliance along with Cosco, CMA CGM and Evergreen on April 1 and begun taking on the first of six 20,000 teu+ vessels in May.
It must be admitted that there is an element of sentiment too. It would be sad to see the disappearance of Hong Kong’s most famous shipping line just as the territory is beginning to take seriously its role as a premier maritime hub.