- China Cosco Shipping’s tanker and gas unit, CSET, plans to raise Yuan 8bn ($1.1bn) including 11 new vessels.
- The issuance has sparked equity dilution concerns among small shareholders.
- The stock market reacted negatively, with CSET’s Shanghai and Hong Kong shares dropping by 3.5% and 4.5%, respectively.
China Cosco Shipping’s tanker and gas shipping division, CSET, is preparing to raise Yuan 8bn ($1.1bn) through a new share issuance aimed at supporting its fleet expansion strategy. Despite concerns over shareholder equity dilution, the move is positioned to enhance CSET’s competitiveness in the global oil and gas shipping market, reports Lloyd’s List.
Fleet Expansion Plans
The funds will be used to finance newbuilding orders for 11 vessels placed over the past two years.
These include six very large crude oil carriers (VLCCs), two LNG carriers, and three Aframax crude oil tankers.
Major construction contracts have been awarded to Dalian Shipbuilding and Cosco Shipping Heavy Industry.
Market Dynamics and Strategic Positioning
CSET highlighted a shift in crude shipping routes, with increasing transportation distances driving demand for tankers.
The company plans to strengthen its market presence through strategic alliances with major oil firms and domestic independent refineries.
Equity Dilution Concerns
CSET’s decision to issue up to 1.4bn Shanghai-listed shares, with 50% subscribed by its parent company, raised concerns about equity dilution.
Goldman Sachs estimates suggest that if the placement price is set at Yuan 9.9 per share (80% of the recent average price), the dilution of earnings per share (EPS) and dividends per share (DPS) would be 14%, with a 3% increase in intrinsic value.
At the minimum price of Yuan 7.2 per share, dilution would rise to 19%, decreasing the portfolio’s intrinsic value by 3%.
Dividend History and Profit Growth
Despite its cash-rich position, CSET opted for equity financing, unsettling some investors.
The company distributed cash dividends of Yuan 716m in 2022, Yuan 1.7bn in 2023, and Yuan 1.1bn in the first three quarters of 2024, with high payout ratios.
It also reported a 17.2% increase in 2024 net profits, reaching nearly Yuan 4bn.
Market Reaction
CSET’s share prices fell 3.5% in Shanghai and 4.5% in Hong Kong following the announcement.
It reflects shareholder concerns over dilution.
Strategic Shipbuilding Investments
The six VLCCs worth Yuan 5.7bn, ordered by subsidiary Hainan Energy Investment, are under construction at Dalian Shipbuilding.
The two LNG carriers, valued at Yuan 3.4bn, were also ordered from Dalian Shipbuilding, while the three Aframax crude oil tankers worth Yuan 1.7bn are being built by Cosco Shipping Heavy Industry in Yangzhou.
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Source: Lloyd’s List