Sept. 4 (Bloomberg) -- China Cosco Holdings Co. surged in Hong Kong trading after agreeing to buy the world's largest fleet of dry-bulk ships for 34.6 billion yuan ($4.6 billion) in cash and stock to tap rising imports of iron ore, coal and grain.

The shipping line will buy 412 vessels from its parent China Ocean Shipping (Group) Co., it said in a Hong Kong stock exchange statement today. It will issue 864.3 million Shanghai- listed shares, valued at 16 billion yuan, to its parent and pay the remainder in cash, part-funded by a share sale.

China Cosco, Asia's largest container-shipping line, wants to add dry-bulk vessels as China's surging imports of raw materials have caused rates to double during the past year. Other Chinese state-owned companies including SAIC Motor Corp. and China Network Communications Group Corp. have also sold assets to listed units to tap the country's booming stock market.

For China Cosco, ``this is a substantial change in their asset mix and a very large earnings enhancement for them,'' said Geoffrey Cheng, an analyst at Daiwa Institute of Research.

China Cosco, based in Tianjin, eastern China, gained 2.8 percent to HK$19.56 at the close of trading in Hong Kong, after gaining as much as 18 percent. The shares, which have more than quadrupled this year, were suspended for the morning session.

Its Shanghai-listed stock jumped by the 10 percent daily limit to 23.87 yuan on its first day of trading since being suspended on July 26. The benchmark CSI 300 Index has more than doubled this year.

New Shares

China Cosco will sell as many as 432.7 million new Shanghai-listed shares to as many as 10 institutional investors, it said, without identifying the potential buyers. The share sale, which needs government approval, would be worth 9.39 billion yuan, based on the July 25 closing price.

China Ocean Shipping will buy its Shanghai shares at 18.49 yuan each, or 15 percent less than the July 25 closing price. China Cosco will also borrow money and use internal resources to pay for the vessels.

China Cosco also raised 15.1 billion yuan in a Shanghai share sale in June to buy ships and a stake in a logistic company from its parent.

The dry-bulk ships have a combined capacity of 32.02 million deadweight tons, China Cosco said. The vessels are either owned by units being bought by China Cosco or are on long-term charters. The units also have another 46 vessels on order, according to the statement.

Construction Boom

China has increased iron-ore imports to fuel a construction boom ahead of the 2008 Beijing Olympics. Congestion at Newcastle, Australia, the world's busiest coal-export port, has also created a shortage of ships as vessels have to wait off the coast for as long as three weeks.

``The dry-bulk market will remain strong for the remainder of this year and into next year,'' said Jack Xu, an analyst at SinoPac Securities. ``Shipyards are pretty busy right now and their order books are full, so we don't expect any significant increase in capacity at least for this year.''

Dry-bulk trade will rise 5 percent a year from 2007 to 2010 with demand from China and India likely to continue to drive the need for iron ore and coal, Credit Suisse Group said in an August report. Vessel deliveries will only increase significantly in the second half of 2009, the report added.

The Baltic Dry Index, a measure of chartering rates for different sized vessels, gained 1.1 percent yesterday to a record 7,783.

Shanghai Automotive Co. became China's largest carmaker after receiving 19.1 billion yuan of assets from its SAIC Motor including stakes in ventures with General Motors Corp. and Volkswagen AG last year. China Netcom Group Corp. bought 12.8 billion yuan of telecom networks from its parent in 2005.

To contact the reporter on this story: Chan Sue Ling in Singapore at slchan@bloomberg.net; Theresa Tang in Hong Kong at ttang3@bloomberg.net

Last Updated: September 4, 2007 04:53 EDT