Parents infusing funds worth 4.6b yuan in New Century
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China Shenhua Energy Co Ltd, the nation's largest coal producer, and China Shipping Development Co Ltd will jointly invest 4.6 billion yuan over the next four years in a shipping venture.
China Shipping Development, a listed subsidiary of China Shipping Group, the second biggest sea-cargo group in China, will contribute 2.25 billion yuan to the Zhuhai-based New Century Shipping Co Ltd, and China Shenhua will make up the remaining 2.35 billion yuan.
"We expect cooperation with China Shipping Development will optimize our integrated operations over mines, electricity, roads, ports and shipping, and serve to not only satisfy rising demand for transportation, but also help cut operational costs," said China Shenhua.
China Shipping Development asserted New Century Shipping's business will provide handsome returns. "We see the financial feasibility of the program, and wish to invest in its bright future."
New Century Shipping was founded in 2001 as a 50-50 joint venture between the two companies, with business mainly focused on coastal shipping of coal specifically for China Shenhua. In 2009 it reported revenue of 414 million yuan and a net profit of more than 59 million yuan.
After the first investment of around 417 million yuan this year, China Shenhua will increase its holdings in the joint venture to 51 percent, while China Shipping will hold the remaining 49 percent.
Zhang Hongbao, a shipping analyst with CITIC Securities, said a reliable source of coal from China Shenhua would benefit China Shipping Development's performance with a fixed revenue stream.
"It is a move formulated to consolidate strategic cooperation with China Shenhua. China Shipping Development will get guaranteed revenue, and China Shenhua will enjoy discounted prices and stable transportation. What's more, extreme weather this year is making the shipping of coal a very prosperous sector, worthwhile for both sides," he said.
As the largest coal producer, China Shenhua shipped 159 million tons of coal in 2009, and power plants under its flag generated 1.51 billion kWh of electricity.
According to data from the National Coal Association, 2010 coal demand is likely to rise 4 to 6 percent year-on-year to some 3.36 billion tons, and production will increase by nearly 300 million tons.
"Bulk cargo will lead the shipping sector out of the global recession. Coal shipping occupies approximately 25 percent of bulk cargo volume. It is definitely the most important and prosperous bulk cargo sector, and thus a very significant part of the whole industry," said Wu Yunying, an analyst with Changjiang Securities.
China Shipping Development said yesterday it expects 2009 profits to fall more than 50 percent from a year earlier, because of insufficient demand, excess freight capacity and lower prices.
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