China’s Cosco Shipping Holdings Co. is eyeing Singapore’s Pacific International Lines as a potential takeover target as it looks to expand its footprint in developing markets.
Cosco recently bought part of debt-ridden PIL’s container-manufacturing business, and executives at the Chinese carrier believe they could wrap up a deal for the entire business if PIL’s owners decide to sell, people with direct knowledge of the matter said.
The two operators aren’t in formal acquisition talks.
Singapore-based PIL is run by the Teo family and company Chairman Teo Siong Seng is a board member of Cosco’s Hong Kong-listed container-shipping flagship unit. PIL relies on the Chinese operator to charter ships.
PIL, which has a strong presence in Africa and has ships employed in trans-Pacific and north-south trade lanes, is the world’s 10th-biggest container line, according to marine data provider Alphaliner, which earlier reported Cosco’s interest in PIL. PIL’s exposure to African trade fits Beijing’s Belt and Road Initiative to connect Asia and Europe through sea, rail and road networks, which Cosco is spearheading.
The shipping line has been in financial distress for a couple of years. PIL faces $1.08 billion in payments on short-term debt this June and is carrying a total of $3.46 billion in debt, Alphaliner said in a report last week.
Hong Kong-listed Singamas Container Holdings Ltd., which is 41% owned by PIL, early last week agreed to sell a part of its container-box-making business to a unit of Cosco for $565 million, in part to reduce debt. Singamas plans to focus on logistics and manufacturing of specialized container boxes.
“The disposal may not be sufficient to forestall the sale of cash-strapped PIL, widely seen as the next most attractive target in the container shipping market amidst the ongoing consolidation trend,” Alphaliner said.
PIL has repeatedly denied it will sell its shipping unit. Cosco executives said they are busy integrating with Hong Kong boxship major Orient Overseas International Ltd. , which Cosco bought for $6.3 billion last July.
PIL is among the carriers still feeling the aftereffects of a steep downturn in shipping demand in recent years, a decline that led to rapid consolidation among big operators. The world’s top five container lines now control about 64% of global shipping capacity, according to Alphaliner.
“If Teo wants out, it will take a phone call to Beijing. He is close to Cosco’s top management,” one person said. “Teo wants to hold on, but it’s been a tough 12 months.”
PIL manages a fleet of 111 small and medium-size boxships and 20 other cargo vessels worth around $2.3 billion, according to data provider Vessels Value.
PIL reported a $140 million loss in the first half of 2018, according to its most recent earnings report. It also pulled back a planned bond offering in U.S. dollars last year after gaining little interest from investors.
(Source: Wall Street Journal)
Sea News, May 13