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State-owned China Shipbuilding to make second attempt to privatize

State-run China Shipbuilding Corp (中船), the nation's largest shipbuilder, plans to hold a second round of bidding to sell a majority of its shares, with the aim of completing its privatization by the end of the year.

"We are confident that the auction will draw enough bidders," Fan Kuang-nan (范光男), president of China Shipbuilding, said in a phone interview yesterday.

To complete its privatization, China Shipbuilding had planned to release 66 percent of its shares, worth NT$5 billion (US$154 million), by the end of last year. However, its first auction, held in October last year, drew only one bidder -- Taiwan Maritime Transport Ltd (台灣海陸).

A major reason for the failure was NT$7 billion in severance pay costs, which has now been covered by the government, Fan said.

Another obstacle was a restriction barring the transfer of shares within five years of purchase, which has been relaxed, he said.

As the government has now funded the severance pay costs, lawmakers expressed concern that private companies would reap the benefits. They said the administration should have state-controlled companies invest in China Shipbuilding to increase government holdings, according to a report in the Chinese-language Commercial Times.

As a result, the Ministry of Economic Affairs plans to push China Steel Corp (中鋼) and Yangming Marine Transport Corp (陽明海運) to jointly bid for the China Shipbuilding stake, the report said, citing Wu Kuo-tong (吳國棟), vice chairman of the ministry's State-owned Enterprise Commission.

China Steel and Yangming Marine, as well as MPH of the US, British Aerospace, Mitsubishi of Japan, Hyundai Group of South Korea and Evergreen Marine Corp (長榮海運), had previously expressed an interest in acquiring a stake in China Shipbuilding, but did not submit tenders in the first round of bidding.

Fan said that he had not heard of the plan from the commission, but welcomed any interested firms, both local and foreign, to participate in the bidding.

A China Steel official, who spoke on condition of anonymity, said the company would not rule out joining the bid, as China Shipbuilding has core-competence in the industry.

Through the deal China Steel would also be able to consolidate a partnership with China Shipbuilding, which is the largest buyer of its steel boards, procuring an average of 200,000 tonnes each year, he said.

"I think this would be a good deal, but we still need to decide whether or not to make the investment after all the terms and conditions are outlined," he said.

A public relations official at Yangming Marine said the firm was still evaluating a share purchase.

"No concrete decision, either on the investment or an alliance with China Steel, has been made so far," she said. She also requested that she not be named.

China Shipbuilding reported sales of NT$19.3 billion last year and earnings of NT$711 million, exceeding the NT$320 million target the government set, Fan said.

Revenues may drop to NT$18.4 billion this year, as the company has focused on making military vessels, he said.

China Shipbuilding's current orders would keep it busy until the second quarter of 2009, Fan said.
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