23 February 2019
Orient Overseas Container Line, controlled by the family of former Hong Kong Chief Executive Tung Chee-hwa, is set to pass into the hands of a Chinese state-owned shipping giant. Photo: Bloomberg
Orient Overseas Container Line, controlled by the family of former Hong Kong Chief Executive Tung Chee-hwa, is set to pass into the hands of a Chinese state-owned shipping giant. Photo: Bloomberg

Cosco takeover of Orient Overseas fits a pattern

Ending weeks of speculation about a mega shipping industry deal, China’s Cosco Shipping Holdings announced on Sunday that it has reached a HK$49.2 billion (US$6.3 billion) agreement to acquire Hong Kong-based Orient Overseas International.

Under the plan, the Chinese state-owned shipping giant, along with partner Shanghai International Port (Group), will secure 68.7 percent stake in the world’s seventh biggest container shipping firm.

The takeover, which will catapult Cosco to the third position, from fourth, in the global shipping industry, underscores Beijing’s lofty ambitions on the world trade front.

In Hong Kong, however, the deal has caused concern among the public, as they realize that another celebrated local firm is passing into the hands of a mainland Chinese entity.

There are suspicions that Beijing pushed for the takeover of the Hong Kong company for economic as well as political reasons. 

Underlying such concerns is the fact that Cosco is acquiring the container shipping line from the family of former Hong Kong Chief Executive Tung Chee-hwa.

While the Tung family had enough economic incentive to cash out of a business that is facing a challenging global industry environment, some people wonder if political pressure from Beijing may have played a part in the sale.

A Wall Street Journal report hinted at such possibility.

“The Tungs did not want to sell,” the paper cited a source as saying. “But there was a lot of political pressure from Beijing to make it happen and at the end they gave in with a fair price at hand.”

The Tung family, which founded Orient Overseas in 1969, certainly got a good deal as Cosco is paying HK$78.67 per share, a 31 percent premium to Orient Overseas’ Friday closing share price.

Still, one can guess it wouldn’t have been an easy decision for the Tungs to relinquish control of their family jewel.  

The Cosco-Orient Overseas deal does seem to carry political overtones, given the close ties between Tung and Beijing authorities. 

Tung was handpicked by the Communist Party as Hong Kong’s first chief executive after the city returned to Chinese rule in 1997.

Although he failed to complete a second term and stepped down from the top post in 2005, he was made a state leader and appointed deputy chairman of China’s top political advisory body.

Amid that role, Tung has been serving as a go-between for Beijing, helping Chinese authorities connect with various overseas political and business elites. Tung also played an important role as a kingmaker to send Leung Chun-ying and Carrie Lam to Hong Kong’s top post in the past five years.

Now, the 80-year-old is getting a big reward from Beijing via Cosco, some observers say, pointing to Tung’s blind loyalty to the Communist rulers and ardent advocacy of the “one country” principle.

The Orient Overseas sale certainly appears to be a political transaction between the Tung family and Beijing authorities. 

While cross-border mergers and acquisitions deals have been quite common in recent years, the latest deal involving two shipping firms has many dimensions.   

On the face of it, it reflects the Tung family’s lack of confidence over the prospects of the global shipping industry. If they were confident about their business, the Tungs might have opted to retain some stake or form a partnership with Cosco, rather than sell down all the shares.

Minority shareholders will, however, be happy as Orient Overseas’ share price has surged as there had been rumors for many weeks about a potential sale. 

While one can only speculate as to what led the Tungs to let go of their family crown, there is no doubt that the outcome is in entirely in Beijing’s interests. 

As the deal will push Cosco into the No. 3 position in the global shipping industry, putting it only behind Denmark’s Maersk and Switzerland-based Mediterranean Shipping Co., China can expand its trade further and further its global economic ambitions.  

Added container shipping capacity will enable Cosco to serve more routes and help push Beijing’s so-called Belt and Road trade initiative.

But for Hong Kong, the deal is a bit unsettling as it would result in one more prominent local firm passing into Chinese control.

Chinese enterprises have been on an acquisition spree in Hong Kong in the recent past, grabbing storied names in businesses such as media, securities brokerages and others.

Mainland property developers won many land auctions by making aggressive bids, extending their reach in Hong Kong.

All these initiatives could be part of Beijing’s game plan to gain greater economic leverage over Hong Kong and keep the city firmly under its thumb.

It seems there is little that Hong Kong people can do except keep a wary eye.    

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EJ Insight writer

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