China Shipbuilding Jumps on $1.4 Billion Share Sale for Warships

China Shipbuilding Industry Co., a merchant-vessel maker and parts supplier to the country’s navy, surged by the daily limit in Shanghai after saying it plans a share sale to raise about 8.48 billion yuan ($1.4 billion).

China Shipbuilding will offer as many as 2.2 billion shares in a private placement for at least 3.84 yuan each, it said in a statement yesterday. The money will be used to buy assets from affiliates for designing and building battleships and submarines, the Beijing-based company said.

The shipbuilder said it expects to benefit from the rising demand for naval products as China’s purchase of marine civil-enforcement vessels will reach as much as 50 billion yuan in the coming years. The nation will boost defense spending 10.7 percent this year as the government modernizes its military amid a push for greater maritime influence in Asia.

“There is still a big gap in China’s maritime defense capabilities compared with other naval powers, especially in the area of aircraft carrier battle groups,” China Shipbuilding said in the statement.

Shares of China Shipbuilding surged 10 percent to 4.91 yuan in Shanghai today. Trading in the stock had been halted since May 17. The benchmark Shanghai Stock Exchange Composite Index rose as much as 0.9 percent.

Related Companies

The shares will be sold to related companies including Dalian Shipbuilding Industry Co. and Wuchang Shipbuilding Industry Co., securities and trust companies, insurance institutional investors and qualified foreign institutional investors, according to the statement. Dalian and Wuchang will sell the military assets to the listed company.

“The private placement will make a precedent to bring the country’s important and core military assets to the capital market,” China Shipbuilding said. “It would also herald an overall securitization of the nation’s military assets.”

The company’s parent, China Shipbuilding Industry Corp., is one of the two biggest state-owned shipbuilders in the country. The other one is China State Shipbuilding Corp.

China Shipbuilding participated in the construction of the nation’s first aircraft carrier, built using the hull of an unfinished Soviet-era ship and named the Liaoning, which was commissioned September last year.

“In the next five to 10 years, China is very likely to further construct one or many more locally made aircraft carriers as well as their accompanying battle groups,” China Shipbuilding said.

China Rongsheng Heavy Industries Group Holdings Ltd., the country’s largest shipyard outside state control, is seeking government assistance after a slump in vessel orders. It’s pursuing alternative sources of funding after burning through cash and posting a second straight loss.

China in August issued a three-year plan to urge financial institutions to support its shipbuilding industry one month after Rongsheng sought government financial support. A third of the country’s shipyards may shut down in about five years amid a global vessel glut, Wang Jinlian, secretary general of the China Association of the National Shipbuilding Industry, said in a July 4 interview.

— With assistance by Daryl Loo, and Jasmine Wang

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