Loss-making Kaichuang seeks profit with international M&A, new vessels

Patient bankers will be required at one of China’s leading fishing firms, which has been spending rapidly on expansion despite reporting sharp losses for the first quarter of the year. 

In early July, Shanghai Kaichuang Marine International Co. Ltd. purchased a majority stake in Canadian seafood processing firm French Creek Seafood Ltd. for its USD 5.5 million (EUR 4.7 million). But Kaichuang meanwhile had losses of CNY 22.6 million (USD 3.4 million, EUR 2.9 million) on revenue of CNY 371.8 million (USD 56.2 million, EUR 47.9 million) for the first three months of 2018. 

The company’s potential saving grace, however, is a relatively low gearing for a company in its sector: Kaichuang reported debts of CNY 317.25 million (USD 48 million, EUR 40.8 million) against assets of CNY 1.81 billion (USD 273.6 million, EUR 233 million) for the first quarter. It’s not clear if that figure includes borrowing to finance the purchase of three new tuna seiner vessels which it bought earlier in July 2018 from a Fujian shipyard through its Marshall Islands-based subsidiary.

A Kaichuang subsidiary, Fan Tai Fishing (Marshall Islands) Co. has spent USD 20.5 million (EUR 17.5 million) on each of three new vessels built by the Ma Wei shipbuilding firm in southeasterly Fujian Province. The new vessels, according to Kaichuang, will "increase scale and profitability" at the firm. 

A state-controlled entity with a listed arm, Kaichuang catches and markets mackerel and tuna as well as squid and krill, with significant fleets operating in international waters. Chinese long-distance fishing firms like Kaichuang are however reliant on fuel subsidies from government to ensure their profitability, hence Kaichuang’s move to acquire overseas assets with access to high-margin species. 

The company’s strategy is to “internationalize, bring products back to China and pay more attention to international mergers and acquisitions” according to Pu Shao Hua, the chairman of the Shanghai Fisheries Group, which owns Shanghai Kaichuang Fisheries. Pu made those comments after Kaichuang bought Hijos de Carlos, the firm behind the well-known “Albo” brand, in 2016. The purchase of the leading Spanish processor Hijos de Carlos trumps European Union “trade barriers,” which have locked Chinese seafood out of its market, Pu added at the time. 

Kaichuang sells tuna and horse mackerel in China under its Longmen brand name.