COSCO Pacific Ltd, the container-terminal arm of China's biggest shipping group, agreed to sell its stake in the world's largest shipping-container manufacturer to its parent for US$1.22 billion.

The company will sell COSCO Container Industries Ltd to a unit of China Ocean Shipping Group Co, according to a Hong Kong stock exchange filing. COSCO Container's major asset is its 21.8 percent holding in China International Marine Containers Group Co.

COSCO group Chairman Wei Jiafu is restructuring the assets of his flagship China COSCO Holdings Co to help the company return to profitability as a third straight annual loss may result in its shares being delisted in Shanghai. The deal will help China COSCO book about 1.2 billion yuan (US$196 million) of gains, according to Credit Suisse AG analysts led by Davin Wu.

"We see the deal as slightly positive news," Hong Kong-based Wu wrote in a note. "Although this has resulted in the loss of a profitable asset, COSCO Pacific is compensated by a 16 percent valuation premium."

Shares in COSCO Pacific rose 4.1 percent, the most since November 19, to close at HK$11.24 (US$1.45) in Hong Kong yesterday. China COSCO rose 3.5 percent to HK$3.54, while CIMC was flat. The Hang Seng Index fell 0.54 percent.

China International Marine Containers Group had been planning to sell US dollar-denominated bonds for the first time as recently as a week ago and had hired eight banks to help manage the sale, a person familiar with the matter said on May 15. Those sale plans, via unit China International Marine Containers (Hong Kong) Ltd, have since been delayed, other people said later that week.

"The gain in COSCO's share price after the announcement shows the market recognizes CIMC has been a drag on its performance," said Singapore-based Leong Wai Hoong, who buys investment-grade and high-yield Asian dollar bonds at Nikko Asset Management Co, which managed about US$154 billion as of December 31. "CIMC should be seen as a high-yield credit and should be priced accordingly if it were to try a bond sale again."

Under the terms of the planned bond, a change of control would have taken place if China Merchants Holdings International Co, which indirectly held 25.54 percent of China International Marine Containers Group as of May 3, COSCO Pacific or any other China state-owned-related entities collectively ceased to be the largest beneficial holder of the voting rights of China International Marine Containers Group, according to the draft sale prospectus.