Cosco Shipping

Asset sales offer Cosco one method to avoid delisting

Property disposals could help loss-making shipper meet exchange rules, analysts say

PUBLISHED : Thursday, 01 August, 2013, 12:00am
UPDATED : Thursday, 01 August, 2013, 5:07am

China's largest bulk shipper, China Cosco Holdings, may sell some of its US$1.6 billion in property assets to avoid a delisting after it flagged a first-half loss, weighed down by a global shipping industry slump.

The state-controlled company has posted losses for two consecutive years, and a third year would trigger delisting from the Shanghai stock exchange.

Cosco announced in March that it was selling its logistics unit to try to return to profitability, yet on Monday it said it expects to post a first-half loss. The loss will likely be 70 to 85 per cent smaller than a year earlier, but that may not be enough to ensure a profitable year.

Analysts said the company may need to sell more assets, most likely its office buildings, to stay in the black this year. "It's fairly difficult for the company to have a full-year turnaround with just earnings from its core businesses, so continuous disposal of its assets is the way to go," UOB Kay Hian analyst Lawrence Li said.

Cosco's properties were valued at about 10 billion yuan (HK$12.5 billion) last year, according to Barclays analyst Jon Windham.

The company declined to comment on whether it planned to offload property assets.

The Chinese shipping industry has long suffered from overcapacity and shrinking orders amid a global shipping downturn. China's largest private shipbuilder, China Rongsheng Heavy Industries, became the latest casualty last month when it sought financial help from Beijing.

Companies across the sector have been selling off assets under liquidity pressure as banks have tightened lending to the troubled industry.

"Getting rid of loss-making businesses, getting rid of non-core competency businesses, as well as selling those that can generate good profit relative to bookholding value - we have seen quite a few examples," said Timothy Ross, head of Asia-Pacific transport research at Credit Suisse.

China Shipping Container Lines sold a fifth of its container fleet to raise cash last year, while Danish oil and shipping group AP Moeller-Maersk sold some of its handysize tankers to release capital for future investments.

CMA CGM, the world's third-largest container shipper, sold a majority stake in its terminal business in January to boost finances.

"These guys (shipping companies) have gone through very tough years in five out of the past six years, which has put a lot of pressure on their [profit and loss] and balance sheets," Ross said.

Cosco Group, parent of Cosco Holdings, last month replaced its chairman Wei Jiafu, a prominent figure in the shipping industry who was known as Captain Wei.

Shares in China Cosco Holdings have fallen 14.5 per cent this year, compared with a 3.1 per cent drop in the Hang Seng Index.