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Singamas sells five companies to Cosco Shipping for US$565 million

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Shipping container maker Singamas Container Holdings (HKEX:716) has announced that it will sell five of its subsidiary companies to Cosco Shipping Financial Holdings for RMB 3.8 billion. That’s about US$565 million; all further monetary figures are in US dollars. Proceeds from the sale will be used to pay down debt and fund a new future focused on making highly specialized containers.

The funds realized, approximately $528 million, will be used to repay $300 million of bank loans; to issue a special dividend of $100 million and $128 million will be used for general corporate and working capital purposes. Singamas Hong Kong envisages that it will take a $15 million loss on the sale.

Chinese companies sold

The companies being sold are Qidong Singamas, Qingdao Pacific, Qidong Pacific, Ningbo Pacific and Singamas Container (Shanghai).

All five companies were established in China and, with the exception of Qidong Pacific, are wholly owned by Singamas Hong Kong. Qidong Pacific is a subsidiary-of-a-subsidiary and is owned by Qingdao Pacific.

Qidong Singamas, Qingdao Pacific and Ningbo Pacific all make dry, specialized and reefer boxes. Singamas Shanghai provides container manufacturing technical and development services. Qidong Pacific offers container terminal services at its 1.3 million square foot (124,000 square meters) facility, adjacent to, and immediately to the north of, the city of Shanghai. It has a storage capacity of 41,070 twenty-foot equivalent units (TEU)  and variety of stackers and cranes.

The five companies together generated $1.1 billion in 2018, a 34.63 percent increase on the 2017 figure of $814 million. Together they generated a net profit after tax of $23.6 million, a decrease of 39.66 percent on the 2017 amount of $39.15 million. At the end of December 2018, the combined net asset value of the five companies was about $541.2 million. The price paid by Cosco represents a premium of about 4.4 percent over the net asset value of the five companies, Singamas Hong Kong said in a statement.

Reasons for sale

Singamas Hong Kong provided a detailed explanation of the reasons for the disposal of the five companies. Simply put, Singamas Hong Kong is attempting to restructure its business focus. It wants to provide logistics services along with the manufacture, research, development and sale of specialized containers.

Although dry freight boxes are being used in ocean shipping, Singamas Hong Kong explains, new types of freight that require specialized containers have emerged. These new containers are attracting higher volumes and prices, the group stated. Specialized containers can also be used in a variety of different industries such as construction, transport, storage and agriculture.

“These specialized containers require more comprehensive design, process manufacturing and maintenance for the cabinet of the containers, which means that they have a higher value. The shift of focus towards specialized containers will help achieve the Company’s aims for profitability through high unit price, high added value, and high gross margin (with the gross margin of certain customized containers being up to 20 percent)… in light of the increasing demand for personalized and customized high value-added specialized containers, the Group believes this segment will be the key growth driver in the future,” the company stated.

Specialized containers already offered by Singamas Hong Kong include collapsible flat rack boxes, open top containers and bitutainers (heated boxes for the transport of bitumen, emulsions and heavy fuel oils) among others. The group is also considering the development of specialized containers for a variety of purposes including fish farming, housing, storage and power generators.

“Although the disposal will be at the cost of market share in the dry freight container segment, the Company believes it represents a good opportunity for the Group to optimize resources in order to offer more tailor-made design and production,” Singamas Hong Kong said in a statement.

Singamas: recent financials

Singamas Hong Kong generated revenues of $1.81 billion in 2018, which was a 22 percent increase on the 2017 figure of $1.48 billion. Profit attributable to the owners of the company stood at $72.25 million in 2018, up 74 percent on the 2017 amount of $41.45 million. The company attributed its results to “satisfactory container demand.” The company produced 835,920 TEU in 2018, up 13.2 percent from 2017. The average selling price of a twenty-foot box in 2018 was $2,157, which was up by $55 owing to an increase in the cost of materials.

Dry freight containers accounted for 79.5 percent of the company’s revenues and specialized boxes accounted for 14.5 percent. In March 2019, chairman Teo Siong Seng said that Singamas would dedicate more resources to bolster the group’s research and development capabilities.

Cosco Shipping Financial Holdings is the investment and financial arm of Cosco Shipping, a Chinese shipping group focused on international ocean shipping, the import and export of goods, international freight agency and other related businesses.