OREANDA-NEWS. November 27, 2014. China VLCC, a joint venture between China Merchants Group and Sinotrans & CSC Group, represents Beijing's latest ambition to secure its energy supply chain.

The company, incorporated in Hong Kong in September with USD1.1 billion in issued share capital, will operate about 40 very large crude carriers - supertankers each measuring more than 300 metres long and able to carry 2 million barrels of crude.

"China is increasingly reliant on imported crude. Such vast demand calls for the establishment of a national carrier specialising in oil shipping to ensure supply chain security," China VLCC chairman Su Xingang told the South China Morning Post.

The world's second-largest net oil importer, China's dependence on foreign crude has grown steadily, from 56.4 per cent of the country's total crude demand in 2011 to a projected 59.4 per cent next year, data from the International Energy Agency shows.

China will import 6.3 million barrels a day next year to fuel the world's second-largest economic engine, the agency forecasts.

Su, who is also the vice-chairman of China Merchants, said China VLCC was able to fulfil one-third of the mainland's crude imports.

The tie-up is another arranged marriage by the central government, bringing together fleets from arguably one of the best and worst performers in the international energy shipping market.

With the biggest supply glut in a quarter century, oil tankers were the hardest hit sector in the shipping market when the global financial crisis struck.

The fall in demand and freight rates saw global giants in the sector, such as Denmark's Torm, Norway's Frontline and the US-based General Maritime and Overseas Shipholding Group, forced to restructure their operations or file for bankruptcy protection.

By contrast, China Merchants Energy Shipping - the Shanghai-listed, Hong Kong-based offshoot of the China Merchants Group - has largely withstood the slump since 2009, suffering only one year in which its books sank into the red.

Nanjing Tanker, meanwhile, the oil shipping arm of Sinotrans & CSC, is the biggest yet victim in China of the global shipping downturn.

The company was delisted from the Shanghai Stock Exchange in June after reporting four consecutive annual losses, the first state-owned firm deprived of a listing status.

China Merchants Energy Shipping, which holds a 51 per cent controlling stake in China VLCC, is pooling 19 supertankers - including 10 on order - into the joint venture.

Another 19 vessels from Nanjing Tanker are expected to be injected soon, including two being built.

Of that total, 10 are mortgaged to several consortiums of foreign and Chinese banks. These include BNP Paribas, Credit Agricole, Societe Generale, Royal Bank of Scotland and Bank of China, under syndicated loan agreements signed to finance vessel construction orders placed before the financial crisis.

Nanjing Tanker, which is undergoing a court-administered reorganisation, will play no role in the joint venture.

The remaining 49 per cent stake in China VLCC is directly held by Nanjing Tanker's parent company, Sinotrans & CSC.

"The vessel injection is expected to complete around year-end," Su said. "For the next one to two years, China VLCC will focus on fleet integration, instead of further expansion."

With 26 vessels in operation, China VLCC will immediately become the world's sixth-largest crude tanker operator. When the 12 vessels are delivered between now and 2017, the firm will rise to the world's top three, according to Jiang Ming, Haitong Securities transport analyst.

Jiang said Chinese-owned fleets carried about 40 per cent of total crude imports.

Nanjing Tanker, which will be left with smaller tankers carrying petroleum products and chemicals, is in talks to pare debt with domestic creditors, led by Bank of China.

"After reorganisation, Nanjing Tanker will strive to achieve two consecutive annual profits and seek relisting in 2017," Sinotrans & CSC chairman Zhao Huxiang told the Post.