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The $6.3bn COSCO takeover of Orient Overseas International Lines (OOIL) and its container line arm, OOCL, could be stymied at the eleventh hour by a perceived threat to US national security interests.
COSCO Shipping, set to acquire 90.1% of the shares in Hong Kong-based OOIL, said it was “on track” to complete the deal by 30 June.
However, vice-chairman Huang Xiaowen said COSCO was still answering questions from the Committee on Foreign Investment in the US (CFIUS) related to “assets OOCL owns in America”.
According to a report by Alphaliner, the main issue is OOCL’s Pier E/Pier F Long Beach Container Terminal, which would pass to the Chinese in the deal. The state-owned Chinese group already has controlling interests at two other terminals in the Los Angeles-Long Beach San Pedro Bay port complex.
The consultant advised that CFIUS recently gained new powers giving the president the authority to stop a foreign deal that ‘threatens to impair the national security’. It has “blocked a number of deals in the last 12 months, primarily involving Chinese buyers”.
Alphaliner said “anxiety over worsening Sino-US trade ties and the Trump administration’s efforts to curtail Chinese investments in the US have dampened investors’ enthusiasm for OOIL’s proposed takeover by COSCO”.
It notes that OOIL’s shares are now trading at a 12% discount on COSCO’s offer price, “with investors increasingly concerned that the deal could be blocked by US regulators”.
The terms stipulate the transaction must be completed by 30 June, or OOIL will receive a break fee of $253m. However, according to Alphaliner, the fee could be waived if the transaction does not meet the requirements of the CFIUS.
The other rumoured bidder for OOIL, CMA CGM, could then re-enter the fray, French ownership appearing more palatable. However, it is unlikely that CMA CGM would be prepared to match the price offered by COSCO, at the time regarded by analysts as at the “top end” of valuations of the OOIL business.
Anti-competition authorities in the US and EU have already approved the COSCO deal, but there is no green light so far from Chinese regulator MOFCOM – although nobody is expecting any objections.
COSCO said last week it was expecting “further growth in demand due to the continued global recovery” and played down the impact from the increased trade tensions between the US and China over tit-for-tat import tariff hikes. It recorded a net profit of $264m for 2017, reversing a loss of $1.1bn in the previous year.
The balance of the OOIL shares are due to be acquired by compatriot container terminal operator, Shanghai International Port Group (SIPG).