Shandong Port Integration into Provincial Port Group

On the evening of August 22, Qingdao Port International Co., Ltd. disclosed that Qingdao SASAC transferred 100% of its controlling shareholder Qingdao Port Group to Shandong Port Group Co., Ltd. (hereinafter referred to as Shandong Port Group). This means that Qingdao Port Group will be changed into a wholly owned subsidiary of Shandong Port Group. After the implementation of this free transfer, the controlling shareholder of Qingdao Port is still Qingdao Port Group, and the actual controller of the company will be changed from Qingdao SASASAC to Shandong SAC. Qingdao Port is not the only port in Shandong Port Group.

According to Qingdao Daily, on the same day, equity transfer agreements of Qingdao Port, Yantai Port, Rizhao Port and Bohai Bay Port Group were signed in Qingdao. After signing the contract, these four port groups will become the wholly-owned subsidiaries of Shandong Port Group. Shandong Province is a major coastal port province with seven coastal ports: Qingdao, Yantai, Rizhao, Weihai, Weifang, Dongying and Binzhou.

According to the report of Qilu One Point, in 2018, Shandong coastal ports completed 1.61 billion tons of cargo throughput, ranking second in the country, metal ore, liquid bulk cargo and foreign trade throughput ranked first in the country, and container throughput ranked third in the country. The throughput of Qingdao Port and Rizhao and Yantai Port are more than 500 million tons and 400 million tons respectively, ranking among the top 10 ports in China.

According to the work plan of port integration in Shandong Province, it is divided into three steps. The first step is to integrate Dongying Port, Weifang Port and Binzhou Port to form Bohai Bay Port Group by Shandong High Speed Group; the second step is to integrate Weihai Port with Qingdao Port as a platform to form the structure of four groups: Qingdao Port, Rizhao Port, Yantai Port and Bohai Bay Port; and the third step is to establish Shandong Port Group. In March of last year, Bohai Bay Port Group of Shandong Province, which is controlled by Shandong High Speed Group, was formally established and began to integrate Binzhou Port, Dongying Port and Weifang Port.

On July 9 this year, Qingdao Port and Weihai Port announced their merger. Weihai Port 100% equity is transferred to Qingdao Port Group free of charge. On August 6, Shandong Port Group was formally established in Qingdao, which was designated as the main body of investment, financing and market operation for coordinating the construction of major transportation infrastructure such as ports in the whole province and promoting the integrated development of ports. The integration scheme shows that Shandong Port Group is directly managed by the provincial Party Committee and the provincial government, and is supervised by the provincial SASASAC. Each city and major enterprise only has the right of share dividend and does not participate in port management. According to the integration plan, the above arrangement clarifies the relationship between ownership and management rights of the provincial port group and relevant parties, clarifies the responsibilities of government supervision, facilitates centralized and unified leadership and efficient decision-making of the main body of operation, facilitates the integration of the group from top to bottom, and forms a competitive advantage. However, the integration of Qingdao Port by Shandong Port Group still has variables. On the evening of August 22, Qingdao Port also issued a public announcement that the transfer of 100% equity of Qingdao Port Group to Shandong Port Group was suspected of violating relevant prior commitments and relevant business rules, and there was significant uncertainty about whether it could be implemented.

In 2014, Qingdao Port was listed on the Hong Kong Stock Exchange; on January 21 this year, it listed on the main board of Shanghai Stock Exchange, forming a dual-listed structure of A-share and Hong Kong-share companies. Before the listing of A-share in Qingdao Port, as its controlling shareholder, Qingdao Port Group had made a commitment that within three years after the listing of A-share in Qingdao Port, it would not transfer or repurchase the domestic-owned shares held before the issuance.

Therefore, Qingdao Port said that Shandong Port Group had to apply to the China Securities Regulatory Commission for a comprehensive offer for exemption of A-share shares in Qingdao Port. Whether it could get exemption was uncertain.