Patriotic and business sense in shipping dealEditorial | 10 Jul 2017
Following weeks of heavy speculation, Orient Overseas (International) Ltd - controlled by the family of former chief executive Tung Chee-hwa - confirmed it is being sold to the mainland's biggest shipping conglomerate, China Ocean Shipping (Group) Co.
As the deal is worth more than HK$49 billion, Tung's family, which owns a 69 percent stake, stands to pocket some HK$33.8 billion.
Negotiations relating to the sale had been hotly rumored for awhile. That the announcement was delayed until after the 20th anniversary ceremony of Hong Kong's handover may have been deliberate.
Had the deal been announced prior to President Xi Jinping's visit to the SAR, or before Chief Executive Carrie Lam Cheng Yuet-ngor's first major speech at the Legislative Council last week, the news would have certainly diverted certain attention away from Xi and Lam.
The timing must have resulted from careful consideration, given that Tung is a veteran businessman as well as politician active in the country's upper echelons.
There had been a number of rumors that the Tung family had sought to sell the shipping company, but these were denied.
But the sale went through this time after COSCO agreed to, according to the official announcement, acquire all the shares of Orient Overseas for HK$78.67 a share in cash -- 31 percent more than Orient Overseas' last closing stock price.
That's also arguably a "patriotic" act on the part of Oriental Overseas. As a company associated with Tung, the SAR's first chief executive and vice- chairman of the Chinese People's Political Consultative Conference, it would certainly look awkward if the firm fell into the hands of a foreign competitor rather than a mainlander.
The acquisition of Orient Overseas, which owns the Orient Overseas Container Line, was the logical result Beijing policymakers wanted to see.
Container shipping is a massive industry, responsible for moving US$1 trillion (HK$7.8 trillion) worth of goods globally a year. But it is also one of the most difficult links of the transport sector, with individual players struggling to remain profitable during the downward economic cycle.
Last year, both Orient Overseas and COSCO posted losses.
The industry was shaken by the bankruptcy of South Korea's Hanjin Shipping last August, which started a wave of consolidation of carriers.
The merger of COSCO and Orient Overseas is part of the consolidation occurring in the industry.
Following the merger, COSCO will become the world's third largest container liner, after Maersk of Denmark, and Swiss-owned Mediterranean Shipping, to improve the economy of scale and enhance its competitiveness in the global market.
That COSCO is willing to pay a handsome price premium for Tung's family business may also signal its confidence in the market.
If the isolationism pursued by US President Donald Trump doesn't facilitate global trade, Beijing's "Belt and Road" policy will become more attractive.
COSCO is casting a vote of confidence in the policy.