China goes to market to fund its warships
GOVERNMENT-backed China Shipbuilding Industry plans to raise up to $1.4bn through a private share sale to buy assets used for building warships, the first time Beijing is tapping the capital market to fund its military expansion.
The move comes as China creates its own military-industrial complex, with the private sector seen taking a key role, as the country gains a new sense of military assertiveness and deals with a growing budget to develop modern equipment including aircraft carriers and drones.
China, whose military spending is now second only to the US, has unveiled a double-digit increase in military budget for this year, with spending on the People’s Liberation Army set to rise 10.7% to 740.6-billion yuan (R1.2-trillion).
“The thinking of those high-ranking officials is changing,” Wang Hexu, a Shanghai-based analyst at Hwabao Securities, said yesterday. “Military asset securitisation, or tapping capital markets for military expansion, will be the future trend and the funding scale will also become bigger and bigger. Now aviation and weaponry may also be the next sectors for asset securitisation.”
China Shipbuilding Industry said it planned to raise as much as 8.48billion yuan by selling up to 2.2-billion shares to as many as 10 selected local investors. The investors include two sibling companies, Wuchang Shipbuilding and Dalian Shipbuilding, which are key are builders of warships. The company, a key supplier to the People’s Liberation Army, said it was the first time China was going to the capital market to fund the buildup of its core military.
“The deal will expand the financing channels for China’s military defence,” China Shipbuilding said in a statement posted on the Shanghai Stock Exchange’s website. “It would also herald an overall securitisation of China’s military assets.” Beijing last year issued new guidelines aimed at encouraging private investment in a defence sector traditionally sheltered from competition and public scrutiny. Such investment would bode well for Chinese military-focused shipbuilders compared with commercial shipbuilders such as Rongsheng Heavy Industries, which fell to a first-half loss and has requested financial help from the government.
China was expected to build one or more aircraft carriers over the next five to 10 years, with each carrier fleet costing about $20bn, China Shipbuilding said.
“China Shipbuilding Industry has been rumoured to be one of those that’s going to either build, or fit out the new domestically manufactured aircraft carrier,” said Gary Li, a Beijing-based senior maritime analyst at consulting firm IHS. “Some of the companies that are going to be the main buyers of the shares are keen on a stake in the new carrier project.
“It’s a big task and the Chinese shipbuilding industry is going to need as many investors as it can get.”
Shanghai-listed shares of China Shipbuilding, which had been suspended since May pending the announcement of the deal, jumped more than 10% yesterday morning. It has a market value of $10.8bn.
Military-related products account for 8.3% of China Shipbuilding’s income, according to Hwabao Securities.