Cosco to settle lease disputes
China Cosco Holdings, the listed offshoot of the mainland's largest shipping company, downplayed a wrangle yesterday with several international shipowners over unpaid or partially made charter payments on dry bulk cargo ships.
Zhang Liang, president of China Cosco, said China Ocean Shipping Group and its subsidiaries had charters in place for more than 400 ships but 'the percentage of disputes was small compared with the overall number of charters'. China Cosco alone had 201 dry bulk ships on charter at the end of June.
'We are working closely with everybody and I'm confident they will be settled,' Zhang said. 'Cosco subsidiaries have reached agreement on 18 charters' but he did not give any details about the number of hire agreements that were still in dispute.
China Cosco Holdings made provisions totaling 1.5 billion yuan (HK$1.82 billion) for onerous contracts in the first six months of this year compared with 374.5 million yuan a year earlier. But the total amount of cash in dispute is unknown because they include charters signed between Cosco's dry bulk cargo subsidiaries that are not part of China Cosco Holdings.
DryShips, a Greek owned shipping company, has already had three Cosco ships arrested to put pressure on the mainland company to settle its chartering rows. DryShips chief executive George Economou has warned of further action, including more ship arrests.
While not directly referring to DryShips or Economou, Zhang said some 'charterers were trying to use the media to make a bigger impact'.
He said charter disputes were a common business problem but the 'reasons behind it were very complicated', without elaborating.
He was speaking yesterday after he announced China Cosco Holdings posted a 2.76 billion yuan net loss in the first six months of this year against a 3.4 billion yuan net profit a year earlier. Revenue dropped 7.8 per cent to 42 billion yuan between January and June, down from 45.57 billion yuan last year.
Brokers and analysts said the problems stemmed from Cosco companies hiring vessels during the dry shipping boom three or four years ago. Charter rates for an 180,000 deadweight tonne Capesize bulk carrier hit US$200,000 per day for a voyage from Brazil to China at the peak in early 2008, but have since crashed to about US$24,000-US$30,000 per day this month.
One analyst said China Cosco had cash reserves of 43.8 billion yuan up to the end of June so money was available to pay the disputed charters. But another analyst pointed out that China Cosco had 75 billion yuan worth of outstanding dry bulk charter contracts, so further significant losses were possible.
He Jiale, China Cosco chief financial officer, confirmed plans for the issue of bonds worth up to US$2 billion that would be listed in Singapore. The bonds would not exceed 10 years and the issue had to be approved at an extraordinary general meeting.
Wei Jiafu also confirmed he would relinquish the position of chief executive at China Ocean Shipping Group later this year although he would remain as chairman. Ma Zehua, currently vice-president at China Shipping (Group), would assume the chief executive's position.