COSCO Shipping, Orient Overseas shares leap after $6.3 billion bid

Rodrigo Arangua | AFP | Getty Images

Container ship Cosco Development, registered and sailing under the flag of Hong Kong, is seen near from Panama City on May 2, 2017.

COSCO Shipping‘s and Hong Kong‘s Orient Overseas International‘s (OOIL) shares leapt on Monday after the Chinese shipping giant made a $6.3 billion offer for its smaller rival on Sunday.

Analysts said the pricing of the deal, at a 31.1 percent premium to OOIL’s previous close, was high given the global container shipping industry is only just beginning to emerge from a prolonged slump and underlined COSCO’s global ambitions.

OOIL shares on Monday rose over 20 percent on Monday morning, while COSCO’s Hong Kong-listed shares were up to their highest level in almost two years.

Should the deal go through, COSCO Shipping will become the world’s third-largest container shipping line after Denmark’s Maersk Line and Switzerland’s Mediterranean Shipping Company (MSC).

“This is an expensive acquisition to become the third largest global container line,” Jefferies analyst Andrew Lee said in a note.

Beijing has been outspoken over its desire to strengthen its hold over global shipping, which dovetails with the country’s Belt and Road political initiative that aims to expand and exert control over supply chains from Asia to Europe.

COSCO Shipping is a product of a state-driven merger between China Ocean Shipping (Group) Company and China Shipping Group, previously ranked sixth and seventh largest respectively in terms of the world’s largest container shipping fleets.

The deal would see Beijing take a firmer grip of Hong Kong’s transport hub, even as the city’s once world-leading port loses ground to rival ports on the mainland.