BEIJING • China's biggest shipping reform failed to enthuse investors as two major companies lost more than US$850 million (S$1.2 billion) in total market value after the government proposed combining its two key ocean liner groups.
China Shipping Container Lines Co and China Cosco Holdings Co led the declines with drops of as much as 30 per cent, the most on an intraday basis in more than 10 years.
The shares had been halted from trading since August pending an announcement by their parent companies.
The state-owned Assets Supervision and Administration Commission announced the approval last Friday for the reorganisation of China Ocean Shipping Group and China Shipping Group, extending efforts to shrink industries plagued by overcapacity while creating globally competitive businesses.
The plan comes as other shipping companies explore mergers and acquisitions amid a slump in global freight rates.
"China shipping stocks have been suspended for more than four months, so part of today's slide has to be the shares catching up with the broader market" decline, said Mr Castor Pang, head of research at Core Pacific Yamaichi International Hong Kong.
"The entire reorganisation plan, while intended to help consolidate operations, is very complicated and unwieldy. It won't be a year or two before effects are fully seen and understood."
Hong Kong's benchmark Hang Seng Index fell 13 per cent during the four months trading of shares of China Ocean Shipping Group and China Shipping Group companies was halted in the city.
The Shanghai Composite Index dropped 8.3 per cent in the period. China Shipping Container lost as much as 30 per cent, the biggest intraday loss since June 2004, and traded at HK$2.19 as of 11.53am in Hong Kong. China Cosco declined as much as 28 per cent.
The stock declines wiped out as much as HK$3.41 billion (S$620 million) and HK$3.54 billion respectively.
The companies' shares remain suspended from trading in Shanghai pending a review of the restructuring by the stock exchange there.
Cosco Corp Singapore dropped as much as 19 per cent to 30.5 cents, the lowest intraday price since February 2004, after resuming trading yesterday.
The company expects a significant loss in the fourth quarter as some offshore contracts are deferred or potentially cancelled, Cosco Singapore said last week.
Its shares also had been halted since August.
The proposed combination of the two Chinese groups comes days after CMA CGM, the world's third-biggest container shipping company, offered to buy Neptune Orient Lines for $3.38 billion.
The Chinese combination would have a 7.7 per cent share of the container market, overtaking Hapag-Lloyd for fourth place, behind CMA CGM, according to Alphaliner.