Sinotrans Shipping Ltd, China's third largest dry bulk shipper, plans to invest $3.5 billion to more than double its capacity over five years, its chairman said on Sunday, ahead of the launch of the firm's Hong Kong share offer.
Sinotrans, which aims to raise up to $1.47 billion in an initial public offering that kicks off on Monday, has ordered 13 new ships with a total 848,000 deadweight tonnes (dwt) to add to its 34 vessels. But its ambitions are much bigger, Zhao Huxiang told reporters, with the firm targeting 5-7 million dwt of capacity by 2013 from 2.2 million now, amid a global shortage of ships and soaring freight rates. "Because of the demand and supply conflict, I am still optimistic to the outlook of industry," Zhao said. A key gauge of freight prices, the Baltic Dry Index has risen more than 140 percent this year and hit a record high on Oct. 29 because of port congestion and China's unabated demand for energy and raw materials to fuel its galloping economic growth. Sinotrans, which owned 26 dry bulk carriers, three single-hulled Very Large Crude Carriers (VLCC) and five small container vessels as of June, should see a jump in revenue as it signs new lease contracts with clients. About 60 percent of the firm's contracts for dry bulk vessels will expire in 2008, and 28 percent expired this year, Zhao said, without giving any details of the terms of the new leases.
The company, which is the key vessel-owning subsidiary of state-owned Sinotrans Group, is expected to increase its net profit by 15 percent to US$137 million in 2007, before more than doubling the figure to US$298.5 million in 2008, according to the IPO's sponsors, UBS and BOC International.
But shipping is a cyclical business, and UBS said in pre-deal report that an economic slowdown in the United States or China would be negative for dry bulk shipping demand and could hit freight rates and vessel values.
The company is offering 1.4 billion shares, or 35 percent of its enlarged share capital, with a price range of HK$7.18-HK$8.18 each. Its trading debut is scheduled for Nov. 23, under the symbol "368".
The indicative price range represents a price-to-earnings multiple of 26.9 to 30.6 times the syndicate earnings forecast for 2007 or 12.3 to 14 times the 2008 earnings forecast.
Sinotrans' main competitor is COSCO, which is buying its parent's dry-bulk shipping fleet for $4.6 billion, making it the world's biggest transporter of resources.
Other peers include, China Shipping Development and Pacific Basin Shipping Ltd., which trade at 18 times and 11 times prospective earnings respectively.
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