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Carnival Corp. joint venture plans multi-ship domestic cruise brand for China

Carnival calls joint venture with China State Shipbuilding Corp. and China Investment Corp. a significant step forward
In a major move for China's cruise development, Carnival Corp. & plc confirmed its plan to launch a multi-ship domestic brand with joint venture partners China State Shipbuilding Corp. and China Investment Corp. The 25-year deal is estimated to involve a $4bn capital investment in the first 10 years but ultimately could entail billions more.

The news broke Tuesday during a London signing ceremony in the presence of Chinese President Xi Jinping, who is on a state visit, and UK Prime Minister David Cameron.

Carnival Corp. ceo Arnold Donald and Chinese partners Dong Qiang, chairman of CSSC, and Ding Xuedong, chairman of CIC, attended, along with Carnival's Alan Buckelew, global chief operations officer, who is based in Shanghai.

Carnival Corp. and CSSC, the largest shipbuilder in China, plan to purchase and operate cruise ships as part of what is expected to be the first multi-ship fleet sailing for a domestic Chinese cruise brand. Potential plans could include the purchase of both new and existing cruise ships to homeport in China.

The deal has been one year in the making. Carnival holds a 40% stake while the Chinese partners together have 60%. Carnival will operate the ships.

A timeline for when operations might start has not been agreed. Buckelew said the second phase of the joint venture, which involves CSSC and Fincantieri, is still to be finalized.

'We are planning, with Fincantieri and CSSC, to form a partnership that will build world-class ships,' Buckelew said.

Meanwhile, he noted the joint venture announced today is considering 'seeding the new brand with existing tonnage while we wait for newbuilds to be delivered.'

The next step involves market research to determine what type of medium to large ships would suit Chinese travelers. As to where the vessels might be flagged, Dingle identified the UK as a likely candidate, adding that the fleet created for the venture would probably benefit from the UK tonnage tax structure.

CIC, one of the world's largest sovereign wealth funds with over $740bn in assets under management, will serve as a significant investor in the joint venture. CIC's involvement as a strategic partner reinforces China's commitment to developing a strong domestic cruise presence and growing demand for cruising as a key driver of the expanding tourism market—a top priority for longer term economic development in China.

This joint venture is a 'significant step forward for the cruise industry in China and a tremendous opportunity for us to work together with CSSC and CIC to grow awareness, interest and demand for cruise vacations amongst domestic Chinese travelers,' Buckelew said.

Goldman, Sachs served as financial adviser to Carnival Corp. in the transaction.

Carnival's involvement in a domestic brand had been expected as part of earlier agreements with CSSC, Fincantieri and China Merchants Group aimed at accelerating cruise growth in the country. These agreements also cover the possibility of supporting port and infrastructure development.

Carnival's partnering on a domestic brand follows Royal Caribbean Cruises Ltd.'s joint venture with China's Ctrip on SkySea Cruises, which began sailing in May with Golden Era (ex Celebrity Century).

And the news comes on the heels of Carnival's announcement in China last week that Carnival Cruise Line and AIDA Cruises will join Costa Cruises and Princess Cruises in China in 2017, furthering the company's multi-brand strategy.