COSCO Shipping Energy Transportation, the tanker and gas shipping unit of China Cosco Shipping, is to issue up to Yuan8bn ($1.1bn) in new shares to fund its fleet expansion.

The company will issue up to 1.4bn Shanghai-listed shares to not more than 35 institutional investors, of which its parent company Cosco Shipping has conditionally agreed to subscribe for 50% of the total issued shares, according to its stock market release.

The funds will used for newbuilding orders for 11 vessels placed over the past two years, including six very large crude oil carrier, two LNG carriers and three aframax crude oil tankers.

CSET said the issuance would help bolster its competitive edge in the international oil and gas shipping market, alongside strategic alliances formed with major oil companies and domestic independent refineries.

“The crude shipping routes across the world are undergoing remodelling; the shipment distances are extended, and the tanker transportation demands are growing accordingly,” the statement said.

The stock market reacted negatively to CSET’s move, with concerns that the company’s decision to issue new shares despite having ample cash flow would dilute the equity of small shareholders.

The company distributed cash dividends of Yuan716m in 2022, Yuan1.7bn in 2023, Yuan1.1bn in the first three quarters of 2024, with dividend payout ratios of 49.11%, 49.84%, and 30.73%, respectively.

It expected last year’s total net profits to increase 17.2% from 2023 to reach nearly Yuan4bn.

In a report, Goldman Sachs assumed that if the placement price was set at Yuan9.9 per share, representing 80% of the average price over the past 20 trading days, the estimated dilution to the group’s earnings per share and dividends per share  would be 14%, while the intrinsic value per share of the portfolio would increase by 3%.

If the placement price was set at the minimum of Yuan7.2, matching the group’s latest audited book value, the dilution would rise to 19%, and the portfolio’s intrinsic value per share would decrease by 3%.

CSET’s Shanghai-and Hong Kong listed share prices fell 3.5% and 4.5%, respectively on Monday.

The six VLCCs, with a total value of Yuan5.7bn, were ordered by its wholly-owned subsidiary, Hainan Energy Investment, last November and constructed by Dalian Shipbuilding. The two LNG carriers, with value of Yuan3.4bn ordered by Shanghai COSCO Shipping in September 2024, will also be built by Dalian Shipbuilding.

The three aframax crude oil tankers valued Yuan1.7bn were ordered in December, 2023, and are under construction by Cosco Shipping Heavy Industry (Yangzhou).