With the recovery of the shipbuilding industry and the continuous growth of hand-held orders, China Shipbuilding Industry Corporation (CSIC) has also joined the ranks of capacity expansion.
On July 27, China Heavy Industry announced a series of related party transaction announcements related to asset acquisition, optimizing the layout of production capacity through a transaction of more than 5 billion yuan through "two buys and one sale", and accelerating the transformation of its shipbuilding and repair business to high-end, green and intelligent.
4.04 billion yuan! CSSC Tianjin plans to purchase the assets of Hong Kong Shipbuilding Heavy Industry
According to the announcement, in order to actively implement the high-quality development strategy, optimize the allocation of production resources and production capacity layout of ship building and repair in the Bohai Rim region, and improve the production and construction capacity of high-end ships, China Shipbuilding (Tianjin) Shipbuilding Co., Ltd., a wholly-owned subsidiary of Dalian Shipbuilding Industry Group Co., Ltd., a wholly-owned subsidiary of China Heavy Industry Co., Ltd., intends to purchase part of the assets of the Lingang plant of Tianjin Xingang Shipbuilding Industry Co., Ltd. with its own funds of about 4.04 billion yuan, mainly fixed assets and intangible assets, including 7 cases of land and 1 case of sea area. There were 318 buildings and structures, 6,068 sets of machinery and equipment, 16 vehicles, and 1,151 electronic equipment, with a total net book value of about 3.8 billion yuan.
The above-mentioned assets to be acquired are important production resources for shipbuilding, including one 500,000-ton and 300,000-ton large dry dock, equipped with two gantry cranes, and a joint plant, a sectional plant, a four-spray and eight-painting painting plant, as well as shoreline resources such as an 817-meter outfitting wharf, an 858-meter ship repair wharf and a 300-meter estuary wharf. The transaction constitutes a connected transaction, and the transaction price is based on the appraised value.
On July 25, 2024, the fourth meeting of the sixth board of directors of China Heavy Industry Co., Ltd. deliberated and approved the "Proposal on the Acquisition of Assets and Related Party Transactions of Tianjin Xingang Shipbuilding Heavy Industry Co., Ltd. by its Subsidiary CSSC Tianjin". On the same day, CSSC Tianjin and Hong Kong Shipbuilding Industry Co., Ltd. signed the Asset Transfer Agreement.
The counterparty of this transaction, Hong Kong Shipbuilding Industry Co., Ltd., is a holding subsidiary of China Shipbuilding Industry Corporation (77.86%), the controlling shareholder of China Heavy Industry, which was established in 2000. The planning and construction of the existing facilities of the port shipbuilding industry began in 2008, and from 2010 to 2017, related assets were put into use one after another, and core production resources such as land use rights were acquired through transfer in 2016. Prior to this transaction, CSSC Tianjin had partially leased the use of the subject matter of the transaction, including 22 housing buildings, 20 structures, 3,378 machinery and equipment, 16 vehicles, 6 land, and 1 sea area use right, and the asset lease period is until the end of December 2024.
China Heavy Industry pointed out that the purpose of this transaction is to make overall use of the Bohai Rim region's shipbuilding and repair resources, further optimize the layout of Dalian shipbuilding and repair production capacity, effectively increase the core production capacity of CSSC Tianjin Shipbuilding, meet the transformation of CSSC Tianjin to high value-added ship types, and comprehensively improve efficiency and benefits. At present, CSSC Tianjin is full of hand-held orders, and the production plan has been scheduled until 2028. After the acquisition of the above-mentioned important production resources for shipbuilding, CSSC Tianjin will continue to carry out transformation and upgrading capacity building on the basis of these assets, build a modern shipyard that can meet the needs of batch construction of high value-added ships, and effectively ensure the smooth delivery of its hand-held orders and the future market demand of the main ship type. It is estimated that after the completion of this transaction, the annual production capacity of CSSC Tianjin Shipbuilding will increase by 2.4 million deadweight tons. In addition, after the completion of this transaction, CSSC Tianjin will no longer need to lease the relevant assets of the company, reducing the related party transactions between the company and the company.
It is understood that the port shipbuilding industry is located in Tianjin Lingang Economic Zone, covering an area of 3.6 square kilometers, with a wharf and coastline of 4 kilometers, an annual shipbuilding capacity of 2 million tons, and a ship repair capacity of 220 ships. It has 500,000-ton and 300,000-ton shipyards, 800-ton gantry cranes and large-scale workshops, which is the largest shipbuilding and repair base in North China and a first-class shipbuilding and repair base at home and abroad.
Due to a number of reasons such as market downturn and operation management, in 2016, the company was included in the SASAC listed and supervised by the extremely poor enterprises, and in 2019, the company became insolvent and faced bankruptcy. Before 2020, Dalian Shipbuilding was ordered to take over the port shipbuilding industry. Among them, the shipbuilding business of Port Shipbuilding Heavy Industry is managed by Dalian Shipbuilding, and the ship repair business is assigned to Shandong Shipbuilding Heavy Industry.
In order to revitalize the assets of Hong Kong Shipbuilding Heavy Industry, Dalian Shipbuilding invested in the establishment of China Shipbuilding (Tianjin) Shipbuilding Co., Ltd. in 2021. After the suspension of work and production of Hong Kong Shipbuilding Heavy Industry in October 2021, CSSC Tianjin held an unveiling ceremony and groundbreaking ceremony for the first ship on November 25 of the same year.
According to the "14th Five-Year Plan" of Dalian Shipbuilding, CSSC Tianjin will take the three mainstream ship types of bulk carriers, container ships and oil tankers as the product development direction, and aims to become an important large container ship, oil cargo ship, ro-ro ship and other large-scale civil ship construction base in the north of the mainland.
Clarkson's data shows that CSSC Tianjin currently holds a total of 29 6.27 million dwt orders, including 13 ultra-large crude oil tankers (VLCC) and 2 115,000dwt LR2 product tankers, 12 new Panamamax container ships and 2 Kamsarmaxmax bulk carriers, and its VLCC hand-held orders rank first among all monohull shipyards in the world, significantly ahead of New Era Shipbuilding (8 ships) and Dalian COSCO Shipping Kawasaki (6 ships).
1.04 billion yuan! Wuchang Shipbuilding acquired 100% equity of Wuchuan Hangrong
At the same time, in order to optimize and adjust the layout of capacity, realize the transformation and upgrading of the final assembly construction, increase production capacity to meet the needs of production and operation, and fill in the shortcomings of production capacity, Wuchang Shipbuilding Heavy Industry Group Co., Ltd., a wholly-owned subsidiary of China Heavy Industry, intends to purchase 100% of the shares of Wuhan Wuchuan Hangrong Heavy Industry Equipment Co., Ltd. held by Wuhan Wuchuan Hangrong Heavy Industry Equipment Co., Ltd. with its own funds of 1.04 billion yuan. The transaction constitutes a connected transaction, and the transaction price is based on the appraised value.
On July 25, 2024, the fourth meeting of the sixth board of directors of China Heavy Industry Co., Ltd. deliberated and passed the "Proposal on Wuchang Shipbuilding's Acquisition of 100% Equity of Wuhan Wuchuan Hangrong Heavy Industry Equipment Co., Ltd. and Related Party Transactions". On the same day, Wuchang Shipbuilding and Wuchuan Hangrong signed the "Equity Acquisition Agreement".
The counterparty of this transaction, Wuchuan Investment, is a wholly-owned subsidiary of China Shipbuilding Industry Corporation, the controlling shareholder of China Heavy Industry Co., Ltd.; Wuchuan Investment directly holds a 2.13% stake in China Heavy Industries.
Founded on November 18, 2022, Wuchuan Hangrong's main assets include fixed assets and intangible assets, including office buildings, workshops, land, machinery and equipment, etc., and there are no other liability items except for sporadic taxes payable; The main business is real estate and production equipment leasing business, and all the operating income comes from real estate and production equipment leasing income. In order to ensure normal production and operation, Wuchang Shipbuilding currently leases land, workshops and other assets of Wuchuan Hangrong for use.
According to the announcement, in 2023, the total financing assets of Wuchuan Navigation will be about 940 million yuan, the total liabilities will be 2.6966 million yuan, the operating income will be 29.6857 million yuan, and the net profit will be -4.8382 million yuan. In the first five months of this year, the operating income of Wuchuan Aviation Finance was 15.7905 million yuan, and the net profit was 2.0665 million yuan.
China Heavy Industry said that Wuchang Shipbuilding is currently holding orders scheduled to 2028, and the production tasks are full, and through the acquisition of Wuchang Shipbuilding Aviation Finance, it can effectively make up for the shortcomings of Wuchang Shipbuilding's high-tech products and high-end ship segmented construction capacity. After the completion of the transaction, Wuchang shipbuilding land and other production facilities will be effectively expanded, and all related industries will be concentrated in the Shuangliu plant to achieve intensive and coordinated development, which can improve asset utilization and production efficiency, and realize the transformation and upgrading of ship assembly and construction, which will have a positive impact on the company's operating results. In addition, after the completion of this transaction, Wuchang Shipbuilding will reduce the leasing of related assets of Wuchuan Aviation Finance and reduce the related party transactions between the company and Wuchuan Aviation Finance.
After the completion of this transaction, Wuchuan Hangrong will become a wholly-owned subsidiary of Wuchang Shipbuilding and be included in the consolidated financial statements of China Heavy Industries.
It is understood that Wuchang Shipbuilding is a large-scale modern shipbuilding enterprise under China Shipbuilding Group, which was founded on June 6, 1934, formerly known as Wuchang Machinery Factory; During the "First Five-Year Plan" period, it was included in the 156 national key construction projects and renamed Wuchang Shipyard; In 2009, the company system reform was completed; In 2014, Wuchang Shipbuilding Industry Group Co., Ltd. was established.
In 2020, due to the needs of urban construction and its own development, Wuchang Shipbuilding will relocate from Wuchang, Wuhan to Wuhan Xinzhou, taking root in Shuangliu New Home and striving to start a new journey of high-quality development. Wuchang Shipbuilding Shuangliu Plant covers an area of about 4,200 acres, with a coastline of 2,800 meters, and has 2 outdoor slipways and 4 indoor slipways; 3 wharves have been built, with a total of 11 berths, to meet the requirements of ship construction below 30,000 tons, with an annual production capacity of 18 civilian ships and 120,000 tons of bridge steel structures.
Wuchang Shipbuilding is an important national construction base for marine engineering special ships and official ships, a production and construction base for small and medium-sized petrochemical ships and feeder container ships, a world-class bridge and heavy equipment manufacturing base, a key military enterprise in mainland China and a large-scale modern enterprise with shipbuilding as the main body. Over the years, Wuchang Shipbuilding has always adhered to the primary responsibility of strengthening the army, carried out limited related diversified operations, deeply cultivated the international and domestic markets with the three major industries of defense, ship and sea, and application, and promoted the sustainable and high-quality development of the enterprise.
As an important supplier of marine engineering equipment in mainland China, Wuchang Shipbuilding has practiced the corporate mission of "building sophisticated equipment for national defense and creating material wealth for the society" with actual achievements, and has accumulated rich achievements in the R&D and manufacturing of official ships, scientific research ships, engineering ships, petrochemical ships, regional container ships, cruise ships, and special auxiliary ships. In recent years, Wuchang Shipbuilding has conformed to the new trend of green, low-carbon and intelligent shipping development, fully grasped the market opportunities, deeply cultivated the petrochemical ship market, and concentrated on the delivery of 19700DWT, 14620DWT and 7200DWT series stainless steel chemical tankers, and the "Wuchuan" brand has gradually formed in the chemical tanker market.
According to Clarkson's data, up to now, Wuchang Shipbuilding has a total of 40 hand-held orders, including 21 chemical tankers, 7 offshore ships, 5 general cargo ships, 3 container ships, 3 ro-ro ships and 1 other ship, and the delivery schedule is scheduled until 2028. At present, in the field of chemical tanker construction of 10,000 dwt and above, Wuchang Shipbuilding has a total of 19 orders, ranking third in the world, second only to Yangzhou Jinling (34 ships) and Wuhu Shipyard (33 ships).
114 million yuan! Dalian Shipbuilding transferred 100% equity of Bochuan Heavy Industry
In addition to the purchase of assets, China Heavy Industries is also optimizing the layout of production capacity for asset transfer. According to the announcement, in order to serve the national strategy, further optimize the layout of ship building and repair production capacity, and accelerate the high-end, green and intelligent transformation of ship building and repair, 100% of the equity of Bohai Shipbuilding Heavy Industry Co., Ltd. held by Dalian Shipbuilding Co., Ltd. was transferred to China Shipbuilding Group Bohai Shipbuilding Co., Ltd., an affiliated shareholder of the company, at a price of about 114 million yuan.
The transaction is implemented through the following steps: In the first step, Bochuan Heavy Industry Co., Ltd. will transfer its liabilities to Dalian Shipbuilding to Dalian Shipbuilding in the same amount as of December 31, 2023 as the base date (removable assets highly related to civil ship construction business such as cranes and floating docks, with an audited book value of 254 million yuan) to Dalian Shipbuilding free of charge. In the second step, after the transfer is completed, Dalian Shipbuilding will transfer 100% of the equity agreement held by Bohai Shipbuilding Industry to Bohai Shipbuilding.
On July 25, 2024, the fourth meeting of the sixth board of directors of China Heavy Industry Co., Ltd. deliberated and approved the "Proposal on the Transfer of 100% Equity of Bohai Shipbuilding Heavy Industry Co., Ltd. by Dalian Shipbuilding and Related Party Transactions". On the same day, Dalian Shipbuilding and Bohai Shipbuilding signed the "Equity Transfer Agreement".
The counterparty of this transaction, Bohai Shipbuilding, is a wholly-owned subsidiary of China State Shipbuilding Corporation, the indirect controlling shareholder of China Heavy Industry. Bohai Shipbuilding directly holds a 2.24% stake in China Heavy Industries. This transaction constitutes a connected transaction.
According to the announcement, since 2016, Bochuan Heavy Industry has lost money for 8 consecutive years due to a significant decline in revenue scale, with a cumulative loss of 3.475 billion yuan, which has adversely affected the operating performance of China Heavy Industry. The main reasons for the loss are as follows: First, from 2014 to 2020, affected by the deep-seated international financial crisis, the global economic growth slowed down, the new ship market continued to be sluggish, the volume and transaction price continued to decline, the shipbuilding industry was at a cyclical low, the capacity utilization rate continued to be at a low level, and the shipbuilding industry generally suffered industry losses. Since 2015, the international ship market demand structure has undergone major changes, the demand for bulk carriers has declined rapidly, and the new orders received by Bochuan Heavy Industry have been significantly insufficient, resulting in continuous large losses since 2016.
As of April 30, 2024, Dalian Shipbuilding's non-operating claims against Bochuan Heavy Industry Co., Ltd. amounted to approximately RMB1.643 billion. Bohai Shipbuilding agreed and agreed in the transfer agreement to ensure that the non-operating debts of Bohai Shipbuilding Heavy Industry to Dalian Shipbuilding will be fully repaid in cash before the completion of the implementation of this transaction (that is, before the completion of the industrial and commercial change registration of the target company). As of the signing date of the equity transfer agreement, the balance of the guarantee provided by Dalian Shipbuilding to Bochuan Heavy Industry Co., Ltd. is 470 million yuan, which will be fully released before the completion of the implementation of this transaction.
Bochuan Heavy Industry Co., Ltd. has three raised funds investment projects, namely "Bochuan Heavy Industry Ship and Marine Engineering Module Supporting Center Construction Project", "Bochuan Heavy Industry Ship and Marine Engineering R&D and Manufacturing Capacity Improvement Project", "AP1000 Nuclear Power Main Pipeline and Other Technical Transformation Projects", the three fund-raising projects involved in the raised funds have been basically invested, the main assets involved have reached the predetermined usable state, and have formed the corresponding R&D and production capacity. Due to the transfer of 100% equity of Bohai Shipbuilding Heavy Industry, all the above three fund-raising projects will be transferred to Bohai Shipbuilding together with the equity of the target company according to the existing status (including the balance of funds in the special account for raising funds).
It is understood that Bohai Shipbuilding Industry Co., Ltd. is a large-scale modern enterprise integrating shipbuilding, ship repair, marine engineering, large-scale steel structure processing, metallurgical equipment and large-scale hydropower equipment manufacturing, and a national-level major technical equipment localization research and development base. Its predecessor was Liaoning Bohai Shipyard, which was founded in 1954 and was once known as "the first shipyard in New China".
Bochuan has been active in the bulk carrier and oil tanker construction market, and has delivered four 400,000-ton VLOCs and more than 10 VLCCs to Vale. However, since 2018, Bochuan Heavy Industry has not undertaken any merchant shipping orders. In 2021, Bo Shipbuilding Heavy Industry delivered the last 210,000 dwt Newcastlemax bulk carriers in the hand-held order, the 318,000 dt VLCC AL SIDDEEQ of Kuwait Oil Tankers Corporation (KOTC), and the 325,000 dt VLOC "Nansha Rongguang" built for the whole package of Hong Kong Shipbuilding Industry (now CSSC Tianjin).
Since 2022, Bochuan Heavy Industry has delivered the second phase of the "Genghai No. 1" marine ranching complex, the largest deep-sea equipment comprehensive test ship "Beidiao 996" in China, and the "Dasheng No. 1" offshore mobile test platform built for 716. Clarkson's data shows that there are no ships under construction in the current order of Bochuan Heavy Industry.
China Heavy Industry said that the transfer of 100% equity of Bochuan Heavy Industry Co., Ltd. by Dalian Shipbuilding is mainly to serve the national strategy, further optimize the layout of ship building and repair production capacity, accelerate the high-end, green and intelligent transformation of ship building and repair, and achieve high-quality development. Bochuan Heavy Industry has been losing money for many years, with a cumulative loss of more than 3.4 billion yuan since 2016, which has seriously dragged down the company's operating performance. This transfer can effectively terminate the adverse impact of Bochuan Heavy Industry's continuous losses on the company. After the completion of this transaction, Bochuan Heavy Industry will no longer be included in the company's consolidated financial statements. It is expected that this transaction will have a positive impact on the company's performance in 2024, and it is preliminarily estimated that the company will receive an equity transfer income of about 306 million yuan in 2024.
Previously, China Heavy Industry released a performance forecast for the first half of 2024, and it is expected to achieve a net profit attributable to shareholders of listed companies of 500 million yuan to 580 million yuan in the first half of the year, a year-on-year increase of 160.25% to 201.89%. China Heavy Industry pointed out that during the reporting period, the company continued to strengthen the management of production plans and the compliance of key cycles, focused on improving production efficiency, and made every effort to ensure production and delivery, with a year-on-year increase in the number of products delivered and a year-on-year increase in operating income; At the same time, the company continued to strengthen lean management, highlight value creation, strengthen cost control, gross profit level increased year-on-year, and the operating performance in the first half of the year increased year-on-year.