The Shanghai Stock Exchange has given the two companies three days to respond to detailed questionnaires about their potential deal, which would create the fourth largest ocean carrier worldwide.
China COSCO Holdings Company Limited and China Shipping Container Lines Co. Ltd. say they have received inquiries from the Shanghai Stock Exchange seeking additional information on their plans to restructure and merge.
In an English language filings on the Hong Kong Stock Exchange, COSCO and CSCL said the Shanghai Stock Exchange sent them letters on Tuesday asking for further explanation and disclosure of their plans.
The exchange has set a tight deadline, asking for written replies and relevant disclosure from the companies before Dec. 25, and is also asking the companies to provide information from their financial advisors, accountants and lawyers.
Noting that the integration of the two companies will significantly increase COSCO’s capacity, especially on very large containerships, the Shanghai Exchange asked COSCO to “supplement disclosures regarding impacts of the restructuring on the future profitability of the Company from the aspect of post-restructuring revenue (bargaining power), cost (fuel cost, marine insurance, handling charges, branch fees and etc.) and the market competitiveness of major routes.”
Since the merger plan calls for the port and terminal businesses of China Shipping Group to be integrated into that of COSCO’s terminal operator arm COSCO Pacific, the exchange is asking the company to “supplement disclosures regarding the changes in profitability of the terminal business after the restructuring and the impacts on the overall profitability of the listed companies from the aspect of the location distribution of ports owned by the Company, synergies between cargo and terminal business as well as the return on investment in ports after the completion of the restructuring.”
The exchange noted that under the proposed merger CSCL “will shift into a platform for diversified leasing businesses which integrates the segments of ship leasing, container leasing and other non-shipping finance leasing.”
“Up until now, the Company does not have any relevant experience in managing this kind of assets,” it said. “So the Company is required to make additional explanations on (1) whether there are risks in integrating the segments of ship leasing, container leasing and non-shipping finance leasing and how these integrated businesses can have synergetic effect; (2) the specific plans that the Company has made for the shift in terms of organization and management as well as talents selection and appointment.”
The exchange also asked CSCL to “state the risks that may be arising from the heavy reliance upon China COSCO in ship leasing and container leasing business.”
In total, there are eight queries to CSCL and six to COSCO outlined in the documents.
The demand by the stock exchange for rapid disclosure of information is interesting given the two companies were allowed to suspend trading in their stocks from Aug. 10 to Dec.14 while negotiations took place.
In October, China Daily newspaper ran an article from the official state-run Xinhua news agency that said the Shanghai Stock Exchange had “strengthened requirements on information disclosure to curb speculation, asking listed firms to be specific about announcements that could affect stock prices.”
Companies were being required to “make detailed disclosures about risks and avoid overly positive statements about new share offerings, strategic agreements and name changes.”
“Such announcements tend to draw speculation and could be misleading to investors when company disclosures focus too much on positive effects, without due reminder about risks,” the article said.
COSCO, China Shipping asked for details on merger plan
