Cosco, China Shipping shares see steep decline as market still not sure about merger prospects

Shares in China Shipping Container Lines Co, a subsidiary of China Shipping (Group) Co, crashed 26.37 percent on their first day back on the Hong Kong market on Monday, after a four-month suspension.

The trading resumption came after the State Council approved the merger on Friday of China Ocean Shipping (Group) Co and China Shipping.

Once complete, the marriage is likely to create the world's biggest oil tanker fleet and fourth-largest container line by capacity.

Other shipping stocks suffered a similar tumble on Monday. China Cosco Holdings Co and China Cosco Pacific Ltd, both HK-listed, dropped by 27.94 percent and 17.32 percent, respectively.

The government plans to restructure four operational areas within the merged company, focused individually on shipping terminals, financing, containers, and gas and oil-related operations.

Experts said the notable falls in share prices, however, showed investors still lacked confidence in the combined giant and that the reorganization is likely to require huge effort and resources.

Cosco and China Shipping operate more than 140 separate shipping, port, shipbuilding and finance divisions globally.

"The merger includes seven different stocks listed in Hong Kong and Shanghai, as well as more than 70 large-scale trading assets," said Dong Liwan, a shipping industry professor at the Shanghai Maritime University.

The two Chinese firms manage more than 530 billion yuan ($82 billion) worth in assets and employ some 182,000 employees, according to official statistics.

Even though the new company will be able to control more than 1.3 million twenty-foot equivalent units, or TEU, its shipping capacity would still lag the top three industry players－Denmark's AP Moller Maersk Group, the Swiss Mediterranean Shipping Co and CMA CGM SA of France, that account for 40 percent of global container market share.

"Another factor causing the share falls is the firms' parent companies haven't provided any practical measures on how to improve the businesses that are not profitable in the merger," said Yin Zhen, deputy director of transport planning at the Institute of Comprehensive Transportation at the National Development and Reform Commission.

Yin said the need for consolidation has been the overwhelming theme of the Chinese shipping industry, which has been hit badly by the economic slowdown and weakening global demand, making it ripe for reform.

Under China's long-term strategy to reorganize its SOEs, the country's two biggest railway rolling stock producers－CSR Corp Ltd and CNR Corp Ltd－were merged in March to form CRRC Corp.

Last week, Metallurgical Corporation of China Ltd merged with China Minmetals Corp, the nation's biggest steel and base metals trader, to become its wholly owned subsidiary.