02 March 2017
French container line group is best positioned among the major carriers for a much-speculated purchase of Hong Kong line
CMA CGM is the most likely buyer for OOCL if and when the Hong Kong-based line’s owners decide to sell – a subject of much speculation in recent days – according to Drewry Financial Research Services.
The analyst called the French line the “perfect suitor” for OOCL, while OOCL’s parent company OOIL was described the “perfect bride-to-be”.
OOIL’s stock has been soaring in recent week on rumours that it will be the next likely acquisition as the liner industry continues to consolidate. The speculation has mounted since Maersk Line announced it would acquire Hamburg Süd.
Hamburg Süd’s shareholders turned down an offer from CMA CGM in favour of one from Maersk.
Alphaliner suggested earlier this month that Cosco Shipping and Evergreen were the most likely potential buyers, favouring Cosco because of the close ties between Beijing and the Tung family, the majority shareholders of OOCL parent company OOIL. Alphaliner observed that some Chinese bankers in Beijing said it was hard to imagine that the central government would allow a foreign company to acquire OOCL.
Drewry believes CMA CGM and Cosco would be the most likely contenders, but put CMA CGM in pole position.
“CMA CGM is best positioned among major carriers to be a perfect suitor for OOIL,” said Drewry. “We believe that the group, despite the extremely high leverage, is in a position to bid for OOIL if more asset sales follow, while its liquidity position is significantly improved and we expect cash flow generation to pick up following freight rates improvement.”
“In such event, debt repayment can be partially supported by funds from operations and the group can then spend cash to make a bid for OOIL. In favour of the bid scenario is the consistently maintained healthy gearing by OOIL and its good liquidity position that could boost metrics on a combined entity structure.”
According to Drewry, despite recording a loss in 1H16, OOIL remains one of the most financially sound carriers in the container shipping sector, and boasts a trade mix which will see it benefit from the sustained growth in intra-Asia trade and recovery of the long-haul Transpacific trade.
However, in a market where size is critical, OOCL’s lack of scale has become an issue. “This is not only because higher efficiency, bigger ships as well as economies of scale are necessary to shore up competitiveness and earnings, but also because it becomes easier for container shipping lines that grow inorganically to exploit precious cost synergies,” said Drewry.
This could see its attractiveness to investors fall over time and prompt stakeholders to welcome a deal now. Drewry also noted that OOIL Chairman CC Tung, who holds a 68% stake in the firm, had previously not ruled out making a deal with another line.
According to Drewry, CMA CGM is in a better position to acquire the company than any of OOCL’s current G6 partners – NOL, Hapag-Lloyd, HMM, NYK and MOL – which do not fit the bill “due to reasons ranging from stressed financial health, recent acquisitions and ongoing mergers, among others”.
By contrast, members of the Ocean Alliance, which is due to start operations in April and includes OOCL, are much better placed. “We believe both CMA CGM and Coscon Shipping are capable of bidding for OOIL but we are more inclined to believe that CMA CGM is in a better position to acquire OOIL, if it were to be sold or merged,” said Drewry.
“CMA CGM could select any one of the three options including merger, reverse merger or outright purchase of OOIL, but the most likely outcome in our view is a merger, with OOIL shareholders to be given shares in the new combined entity. OOIL's acquisition could also provide CMA CGM with a listing on the HK bourse and fulfil its long standing ambition to be a listed company.“
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