China Cosco, the mainland's biggest shipping company, may raise as much as 27 billion yuan (HK$33.36 billion) selling assets to its parent, said two people familiar with the matter.
China Cosco said this week that it plans to sell Cosco Logistics to state-backed parent company China Ocean Shipping. The unit may be valued at about seven billion yuan, the people said, asking not to be identified. The company is also considering selling other assets to China Ocean to raise as much as an additional 20 billion yuan, the sources said. The final amount China Cosco will seek has not been decided and the plan may change, they said.
Shares in China Cosco fell after the logistics sale was announced, on concern that divesting the profitable unit would undermine earnings over the longer term. Tianjin-based China Cosco faces possible restrictions on its Shanghai-traded shares after warning of a "significant" loss for 2012, amid falling freight rates and rising fuel costs. Gains from asset sales may help China Cosco avoid a third straight annual deficit.
"It's not a good time to sell shipping assets because the value of such assets are difficult to determine right now given the industry environment," said Davin Chunpong Wu, a transport analyst at Credit Suisse. "China Cosco's objective is obviously to return to profit this year."
Calls to the media office of China Ocean, which owns 52 per cent of China Cosco, went unanswered yesterday. China Cosco did not immediately reply to e-mailed questions.
Led by chairman Wei Jiafu, China Cosco plans to sell its logistics unit to the parent, the company said in a March 11 stock exchange filing without disclosing details. The unit recorded an operating profit of 388 million yuan in the first six months of 2012, compared with a 1.3 billion-yuan loss at its main container shipping division and a loss of 3.4 billion yuan from the dry-bulk fleet, according to a company statement.
The shipping company said it will use gains from the logistics unit sale to boost operating results in 2013 and reduce the risk of its stock being suspended from trading in Shanghai. Analysts at Citigroup estimated that the division may fetch 6.4 billion yuan to 9.1 billion yuan, which would result in a gain of as much as 4.6 billion yuan.
China Cosco could also sell assets including its stake in China International Marine Containers, Citigroup said.
China Cosco last had an annual profit in 2010.