Sinotrans mulls logistics merger with Yangtze

HONG KONG (Reuters) - Sinotrans, the Chinese conglomerate partnered with DHL DHL.UL, is considering merging with the country's top river-shipping operator to create a national logistics giant, sending shares in its main listed arm up 6 percent on Wednesday.

Sinotrans Ltd (0598.HK: Quote, Profile, Research, Stock Buzz), a joint venture partner of Deutsche Post's (DPWGn.DE: Quote, Profile, Research, Stock Buzz) DHL and Korean Air (003490.KS: Quote, Profile, Research, Stock Buzz), said its controlling shareholder of the same name was thinking of merging with the China Yangtze Transportation (Group) Corp.

If it goes ahead, the move would create a sprawling transport corporation operating everything from marine, oil and river shipping to express delivery, freight forwarding and warehousing, as Beijing spurs consolidation of a large but fragmented sector.

Analysts believe the deal will open opportunities for Sinotrans' listed units -- Sinotrans Ltd and Sinotrans Shipping Ltd (0368.HK: Quote, Profile, Research, Stock Buzz) -- to buy assets from their state parent in future, though it will not have an immediate impact on listed firms.

"The merger, if it materializes, will be positive to Sinotrans Ltd," said Osbert Tang, an analyst at ABN Amro Asia, in Shanghai.

After merging with Yangtze Transportation, which had total assets of 41.2 billion yuan ($5.8 billion) in 2007, Sinotrans would become the nation's largest shipping and logistics conglomerate after the marine-oriented COSCO group.

Sinotrans and Yangtze Transportation, which controls two mainland Chinese-listed firms -- Nanjing Tanker (600087.SS: Quote, Profile, Research, Stock Buzz) and Changjiang Phoenix 000520.SZ -- will form a group named the China Logistics Group to hold the interests of both parties, media reports said this week.

INTERNAL SHUFFLE

Analysts expect a group consolidation and restructuring will take two to three years to complete, after which the merged group's now-scattered assets would be brought under the umbrella of the China Logistics group.

The freight forwarding, shipping agency, warehousing and logistics assets are highly likely to be acquired by Sinotrans Ltd in future because the listed firm now focuses on logistics, Tang said.

Sinotrans Shipping, Sinotrans' shipping arm, is expected to get bulk cargo shipping and shipbuilding assets after the merger, other analysts said.

"This would enhance Sinotrans' business portfolio, reduce competition and improve customer appeal, as well as drive earnings in the long term," Tang said.

Shares in Sinotrans Ltd hit a session high of HK$2.14 before easing slightly to HK$2.09, up 5.6 percent before the lunch break. Sister firm Sinotrans Shipping gained 2.8 percent to

HK$4.02.

Both stocks outperformed a 1.87 percent gain on the index .HSCE for Chinese companies listed in Hong Kong.

(US$1=6.891 Yuan)