Russian merger creates shipping giant

Two major Russian shipping firms have merged to create one of the largest tanker companies in the world, with 113 vessels including 97 tankers.

Russia’s largest shipping company Sovkomflot will merge with the number two player on the domestic market, Novoship.
Approved by the country’s economy and transportation ministries this week, it'll create one of the largest tanker companies in the world.
Both Sovkomflot and Novoship are state-owned companies specializing in shipping crude and oil products, and their merger creates a monopoly on oil and gas shipping in Russia.
Under the merger plan the state’s 51% stake in Novoship will be transferred to the authorized capital of Sovkomflot.
A merged company with over 4 BLN dollars in assets could appear by the summer.
“The combined company, if you are talking about it what it currently is, would be in the top ten companies global tank operators, among such names as Teekay Shipping Company, Frontline Ltd., Mitsui O.S.K. Lines. But Sovkomflot already has another 1 MLN dead tons of vessels on order. So, in a couple of years, I would say, this company will be in the top five,” comments Anastasia Vecherko, analyst of the Troika Dialogue Group, Moscow.
Other players on the domestic market will face tougher competition – especially privately owned PRISCO that also specializes in crude oil transport.
Analysts say the new state-owned shipper, with deadweight of around 8 MLN tons, could threaten PRISCO’s future orders.
“PRISCO is a private company which mostly has long-term contracts with Sakhalin project 50% of which, as you may know, is currently owned by Gazprom. So if Novoship and Sovkomflot are united, this will also be mostly a state-owned company so I would say that Sakhalin project, which PRISCO currently counts for, in a long term would obviously be under certain pressure,” adds Anastasia Vecherko.
The move will restrict the transportation alternatives for independent energy producers.
The Russian government already has a monopoly on pipeline transportation through Transneft, and controls the rail alternative through the state-owned Russian Railway Company.
The merger approval came alongside the creation of the united shipbuilding corporation that will consolidate all government assets in the construction sector.
“This merge was subject to some kind of rules, as we can say. They are supposed to put most of their new orders in Russia so the new vessels that are going to be built for the merged company are going to be built in Russia and obviously are going to be placed within the new United Shipbuilding Corporation,” says Anastasia Vecherko.
Analysts say the new shipping giant will above all have a need for large tankers and ships for liquefied natural gas. Market watchers, however, doubt whether the Russian shipbuilding industry can produce these vessels as quickly as they’re needed.