Shipbuilder prepares for big shake-up

Two subsidiaries of China State Shipbuilding Corp, the primary contractor for China's naval force, halted stock trading on the Shanghai Stock Exchange on Wednesday as their parent company prepares a major asset reorganization, the group said on its website.

The announcement said that whether the reforms take place would be decided in the next 10 trading days.

CSSC Holdings Ltd and CSSC Offshore and Marine Engineering Co Ltd both acted upon the notices from their parent company about the potential asset reform by suspending their stock trading.

The CSSC group is the parent of three listed companies. CSSC Science and Technology Co Ltd didn't respond to the notice.

Dong Liwan, a shipbuilding industry professor at Shanghai Maritime University, said China's shipyards have been keen to shift their core business to maritime engineering and other fast-growing businesses such as new materials, mechanical and electrical equipment, because apart from higher profits, there is also less competition as not many shipbuilders are able to produce these sophisticated products.

"The halt of trading has also aroused investor speculation that CSSC and CSIC (China Shipbuilding Industry Corporation) may merge sooner or later, as both of them are deepening mixed-ownership reform," said Dong.

CSSC is one of the biggest naval suppliers in China with the defense sector being its major focus while it branches out into different areas including ship maintenance, ocean engineering, power equipment, information and control and modern services. It is also proficient in building offshore engineering equipment used in defense, shipping cargo and scientific expeditions.

Last year, the group was listed in the Fortune 500 with an annual revenue of $301.9 billion.

According to a report by investment bank China International Capital Co Ltd, mixed-ownership reform is very likely to occur in the shipbuilding industry this year.

"The central government pledged to deepen SOE reform in this year's annual government work report as a means of improving profitability and operation efficiency," said Bao Zhangjing, director of the Beijing-based China Shipbuilding Industry Research Center.

China Shipping Industry Co Ltd, a subsidiary and a listed company of CSIC, another contractor for the country's navy, has also stopped its stock trading on the Shanghai Stock Exchange since the end of May. The company has been progressively working on major asset restructuring ever since.