China Merchants poised to ink up to 10 VLCCs at home

The orders represent business that has been long in the making, with the tankers split equally between two yards in Dalian and Shanghai.

State-owned shipbuilding groups China Shipbuilding Industry Corp (CSIC) and China State Shipbuilding Corp (CSSC) are set to secure a raft of VLCC-newbuilding orders from China Merchants Energy Shipping (CMES).

Sources say the Shanghai-listed tanker and bulker player is finalising contracts with CSIC’s Dalian Shipbuilding Industry Corp (DSIC) and CSSC’s Shanghai Waigaoqiao Shipbuilding (CSSC) for three vessels and two options each.

A source familiar with both groups tells TradeWinds that CMES started newbuildings discussions with the yards last summer.

“CMES has been looking to bump up its VLCC fleet for a long time,” he said. “There was already talk two years ago that it intended to order up to 10 ships but it has not made any moves until now.”

In September 2011, TradeWinds reported that CMES was planning to boost its tanker fleet from 6.4 million dwt to 10 million dwt, including VLCCs. It planned to finance newbuildings through a shares sale to three state-owned entities — Sinopec Group, China Life Insurance and Sinochem Corp.

Sinopec and Sinochem are said to be CMES’s second and fourth-largest shareholders and also its biggest clients. Both have long-term contracts of affreighment (COAs) in place with the company to transport crude oil to China.

CMES managed to raise CNY 2.89bn ($464m) last March from a rights issue of 858 million shares in which Sinopec subscribed for 491 million, raising its stake to 19.32% from 9.85%. Of the remaining shares, China Life and and Sinochem subscribed for 214 million and 153 million, respectively.

Market players say CMES is paying around $85m each for the VLCCs, which are slated for delivery from the end of 2014 and in 2015.

CMES’s website lists 13 owned VLCCs, of which four were built in the early 1990s and two in 2004 and 2005. The company also owns one suezmax and six aframaxes.