(Adds maritime analyst quote, details)
By Yimou Lee and Michael Martina
HONG KONG/BEIJING, Sept 11 State-backed China
Shipbuilding Industry plans to raise up to $1.4
billion 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
United States, has unveiled a double-digit rise in its 2013
military budget, with spending on the People's Liberation Army
set to rise 10.7 percent to 740.6 billion yuan ($119 billion).
"The thinking of those high-ranking officials is changing.
Military asset securitization, or tapping capital markets for
military expansion, will be the future trend and the funding
scale will also become bigger and bigger," said Wang Hexu, a
Shanghai-based analyst at Hwabao Securities.
"Now aviation and weaponry may also be the next sectors for
asset securitization," he said.
China Shipbuilding Industry Co Ltd (CSIC) said it plans to
raise as much as 8.48 billion yuan ($1.4 billion) by selling up
to 2.2 billion shares to as many as 10 selected investors. The
investors include two sibling companies, Wuchang Shipbuilding
and Dalian Shipbuilding, which are key builders of Chinese
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 defense," China Shipbuilding said in a statement posted
on the Shanghai Stock Exchange's website. "It would also herald
an overall securitization 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 like
Rongsheng Heavy Industries Group, which fell to a
first-half loss and has requested financial help from the
China is expected to build one or more aircraft carriers
over the next five to 10 years, with each carrier fleet costing
nearly $20 billion, China Shipbuilding said, citing expert
"CSIC 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 all keen to have a stake in the new carrier
project. Everything from batteries to catapults. It's a big task
and the Chinese shipbuilding industry is going to need as many
stakeholders and 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 percent on Wednesday morning. The company has a
market value of $10.8 billion.
Military-related products account for 8.3 percent of China
Shipbuilding's income, according to Hwabao Securities.
China currently has one aircraft carrier, the Liaoning,
which was refitted from a Russian-made model. Considered by
military experts to be decades behind U.S. technology, it was
originally intended to serve as a floating casino but was turned
to military use in the run-up to a power transition in 2012.
China has been at odds with some of its Southeast Asian
neighbours over conflicting claims to strings of islets in the
resource-rich South China Sea and Beijing now has the firepower
to challenge these rivals.
($1 = 6.1200 Chinese yuan)
(Additional reporting by Samuel Shen and Kazunori Takada in
SHANGHAI; Writing by Anne Marie Roantree; Editing by Chris