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Share reform for State company

By Mao Lijun (China Daily)
Updated: 2007-07-06 08:10

A major restructuring project is under way in Hudong Heavy Machinery, said sources. The goal is to make Hudong, whose share prices are already the highest in China, into an even bigger State-controlled heavyweight in the capital market.

Hudong is China's biggest manufacturer of diesel engines for ships and a publicly listed subsidiary of China State Shipbuilding Corporation (CSSC).

CSSC, not a publicly listed company, is reportedly ready to acquire Hudong's 330 million shares to become its majority shareholder. Hudong will change its name to China State Shipbuilding Corp after that happens.

One of China's two State-owned industry groups building both civilian and naval ships, CSSC will pay for 300 million shares by assets and another 30 million shares by cash. The acquisition will be worth 9.9 billion yuan.

At the same time, CITIC Group, a financial services major, will pay 1.2 billion yuan for about a 6 percent stake in Hudong. Four other institutional investors - China Life Insurance, Baosteel Group, Social Security Fund and China National Offshore Oil Corp - will pay a total of 600 million yuan for about 3 percent, the sources said.

After the restructuring, Hudong, in its new avatar as China State Shipbuilding Corp, is likely to seek listing in Hong Kong, said the sources.

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H udong is expected to use its new funds to buy shipyards in China and invest in new technologies "so as to build larger and more sophisticated ships", a Beijing-based analyst said.

All institutional investors will pay only 30 yuan per share. Hudong's share price on the Shanghai Stock Exchange now hovers around 135 yuan.

But the China Securities Regulatory Commission will impose a three-year lock-in period on the investors, rather than a one-year lock-in period as proposed by Hudong in January.

Hudong's share performance has stunned the market in the last 12 months, skyrocketing from 22 yuan on June 30, 2006 to 138 yuan on June 30, 2007, an increase of 526 percent. This was partly boosted by China's ambition to overtake South Korea and Japan as the world's strongest shipbuilder.

In 2006, South Korea, Japan and China held 35 percent, 25 percent and 19 percent respectively of the world shipbuilding market. Hudong controls 60 percent of China's market of ship engines and exports to some 20 countries, including Germany and the UK.