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Christine Chan

Beijing yesterday announced a management shake-up at China Ocean Shipping (Group) (Cosco) and said it would allow the company to operate independently of the Ministry of Communications.

 The move, part of the central government's intensifying drive to separate government from business, looks set to have ramifications throughout the red-chip sector.

 The Ministry of Communications' other flagship arm, China Merchants Holdings, is expected to undergo a similar restructuring.

 Cosco, the mainland's biggest shipping company, controls locally listed Cosco Pacific and Cosco International Holdings, while China Merchants controls red chip China Merchants Holdings (International).

 Cosco president Chen Zhongbiao is promoted to group chairman, taking over the position traditionally held by the communications minister.

 The announcement was made yesterday morning by Communications Minister Huang Zhendong and Vice-Minister Hong Shanxiang at Cosco's Beijing head office.

 Zhang Dachun, president of Cosco (Hong Kong) Group, the firm's Hong Kong unit, relayed the message upon his return from Beijing yesterday.

 Rumours spread in Hong Kong this week of management changes.

 'This is a significant reform in Cosco's history,' Mr Zhang said.

 The ministers also appointed Cosco's party secretary Gong Shangzhu as vice-chairman; Tianjin unit managing director Wei Jiafu to Mr Chen's position as president; and promoted Wang Yunmao from vice-party secretary to party secretary.

 Despite the move to separate politics and business, the positions of party secretary and a deputy to represent the party at the company are being retained.

 The severing of links with the ministry would be phased, with the government retaining macro-control of the companies, Mr Zhang said. Cosco will have its own board and a supervisory board.

 Mr Zhang said Cosco's business direction would remain intact. Lack of support from the ministry would not affect its business, he said.

 'I always tell bankers not to make lending decisions based upon the strength of our backers,' Mr Zhang said.

 'You have to judge from our debt level, ability to pay, the sector's profitability, and the management strength,' he said.

 'You should believe in our ability to compete [even without the ministry's support].'  Up to now, foreign investors have bought into red chips partly because of their close links with their ultimate mainland parents: government ministries and provinces.

 Mr Zhang also sought to clarify the group's ability to service debt, saying the Bank of China had agreed to give it a credit line of US$3 billion.

 'We haven't spent a cent,' he said.

 Cosco had assets worth 110 billion yuan, of which HK$40 billion belonged to the Hong Kong arm, he said.

 The debt to asset ratio of Cosco (Hong Kong) is 60.93 per cent. Mr Zhang said he was confident that the company's US$200 million commercial paper programme - whose book closing date was extended from yesterday to next week - could be completed, after the announcement of the management changes.

 Mr Zhang said his role as executive vice-chairman and president of Cosco (Hong Kong) would continue despite rumours over his removal.

 'Cosco head office and ministry leaders have given their due recognition in the four years of my tenure in Hong Kong,' he said, seeking to quell rumours he would be forced to take the blame for investment failures at the Hong Kong unit.

  He conceded Cosco had made book losses from its investment in Liu Chong Hing, but said they would be offset by other investments in property, ports and terminals.



Cosco shake-up snaps red chip link to ministry