Orient Overseas (International) Limited has told investors that no bid has been made to take over its container unit, OOCL, as speculation that the carrier is for sale continues to drive vigorous trading of the parent company’s stocks.
In a filing to the Hong Kong Exchange, OOIL said: “The company has noted certain recent media reports which mentioned that there may be a potential bid for the company’s subsidiary, Orient Overseas Container Line (OOCL) by other shipping companies.
“The company wishes to clarify that the company and OOCL is not aware of, nor is it involved in any bid relating to the company or to OOCL.”
The statement urged shareholders and potential investors to exercise caution when dealing in OOIL shares, a call that fell on deaf ears if the trading activity is anything to go by. There appeared to be a huge sell off in stocks in the hours following the announcement, but the share price remains more than 20 percent up on the price at the beginning of the month.
Most of the speculation by analysts is that OOCL’s partners in the Ocean Alliance, to be launched in April, are the most likely suitors – Cosco Shipping, CMA CGM, and Evergreen. All three carriers have either declined to comment or said they have no knowledge of any bid to acquire OOCL.
Container shipping went through a huge wave of consolidation in 2016 and most observers believe the lack of profitability in the industry will drive still further mergers and acquisitions this year. With capacity well in excess of demand, freight rates are low and will remain so, and bunker prices are rising, forcing shipping lines to seek greater economies of scale through M&As.
The prevailing wisdom among analysts is that carriers need to have a capacity of at least 1 million TEU to be competitive, and need to operate ultra large container ships. OOCL has a capacity of around half that, but it has six 20,000 TEU ships on order that are scheduled for delivery this year.
The enterprise value of OOIL has been estimated at $4.8 billion, a price that Drewry said would limit the number of potential buyers, although the analyst said considering its undervalued stock, high case reserves and an improving container market, the selling price could be even higher.
Another container line that is the same size as OOCL is the Taiwan carrier Yang Ming, which this week saw Drewry Financial Research Services labelling it as the “next Hanjin”, pointing to the line’s high debt and an absence of any restructuring.
But Yang Ming chairman Bronson Hsieh said smaller companies did not automatically need to be merged, something that was not an option for Yang Ming that is 30 percent owned by the Taiwan government.
Drewry’s report has startled shippers, who have been on edge since Hanjin Shipping collapsed on Aug. 31 last year. When asked for his thoughts on Yang Ming being labelled the next Hanjin, the supply chain director of a major Asia-Europe shipper said, “What! Are you trying to give me a heart attack.”
While the shipper does not have containers booked directly with Yang Ming, he used other carriers in the CKYHE Alliance, and has learned from the bitter Hanjin experience what happens when one alliance partner goes under.
“No one could see Hanjin coming. My containers were booked with other carriers but I still had many on Hanjin ships and getting them off arrested ships and out of terminals was a nightmare, and a very expensive one. I really wouldn’t like to go through that again,” he said.