China Merchant Heavy Industry (CMHI) has shown serious interest in taking over the offshore engineering and fabrication assets of Dalian Shipbuilding Industry Offshore Company (DSIC Offshore) after a court in Dalian ruled that the local yard should proceed with bankruptcy re-organisation in February this year.

Sources said that asset managing law firms Fangda Partners and Baker Tilly China, which have been appointed by a local court in Dalian, have picked three potential buyers to restructure the DSIC Offshore assets.

Of the three candidates — CMHI, Dalian Shipbuilding Industry Corporation (DSIC) and an unnamed asset management company in Shenyang city — CMHI has emerged as a strong competitor, although DSIC Offshore parent DSIC is considered a logical buyer, sources said.

CMHI is one of the most enterprising offshore yards in China with facilities in Shenzhen, Guangdong province, and Haimen, Jiangsu province. It has emerged as China's largest yard to build jack-up rigs, though it recently expanded its business to cover floating production, storage and offloading vessels.

The company is already in advanced talks with China’s semi-submersible rig specialist CIMC Raffles about the possibility of merging to become China’s largest offshore fabrication conglomerate.

The proposed consolidation has won strong support from the local governments in Shenzhen and Yantai, where the two companies are located. The post-merger entity is understood to be likely to be named China Offshore Engineering Group.

CMHI’s recent attempt to acquire DSIC Offshore would strengthen the would-be China Offshore Engineering Group’s capacity, with four fabrication bases located in the country’s south, east and north-east.

Sources said that a successful bid for DSIC Offshore assets will eventually come from the player that can provide an asset restructuring solution that is acceptable to DSIC Offshore and its parent.

DSIC Offshore, which is considered to be China’s major offshore yard, specialises in engineering, procurement and construction of jack-up rigs. The yard, with total assets worth 16.74 billion yuan ($2.5 billion) was hit hard during the market downturn, creating huge liabilities.

The 795.5 million yuan ($156 million) debt it owes to Dalian Shenghua Vessel Engineering saw a local court in Dalian declare it bankrupt in February. DSIC Offshore is a joint venture established in 2006 between DSIC with a 51% stake and an overseas-registered company believed to be owned by Jutal Offshore Oil Services based in Shenzhen.

The yard has a backlog of more than a dozen abandoned drilling rigs, including 12 jack-ups, eight of which were ordered by London-based rig giant Seadrill.

The financial woes have already had an impact on DSIC employees, with some key managers said to have left to join competitors.

Weekly

CMHI looking to step in for DSIC Offshore assets