Shipping firm hopes 4b yuan profit will build investor interest as listing nears China Cosco Holdings intends to pay at least 25 per cent of an expected four billion yuan in net profit this year to shareholders as dividends, according to a preliminary listing document distributed to potential investors yesterday. The company, to list in Hong Kong on June 30, is projecting a net profit of at least 4.14 billion yuan for this fiscal year, a marginal 0.28 per cent decline from the 4.15 billion yuan earned last year. Management will be hoping the dividend policy and a doubling of the retail tranche yesterday - to 10 per cent of the offer - will be enough to spur investor interest despite a heavy debt burden and a significant portion of operating costs denominated in yuan. Analysts feel the injection of an effective majority of Cosco Pacific - the listed terminal operator of China Ocean Shipping Group (Cosco) - may provide welcome earnings stability to counter the volatile container shipping cycle. However, there is rising concern about the listing vehicle's debt with pressure mounting on interest rates. China Cosco had gross debt of about 17.84 billion yuan at the end of last year, of which 14.58 billion yuan - or 82 per cent - carries interest at floating rates, according to the listing document. 'Any rise in interest rates would be negative for China Cosco due to higher interest expenses,' said Daiwa Institute of Research analyst Geoffrey Cheng in a recent report. Cosco will hold 63.5 per cent of China Cosco after the offering, or 60 per cent if the 15 per cent over-allotment is fully exercised. Mr Cheng, who projected earnings of 4.42 billion yuan this year - beating company estimates - also found China Cosco to be vulnerable to growing external pressure for an appreciation of the yuan; about 15 per cent of the firm's revenue and 20 per cent of its anticipated costs are yuan denominated. China Cosco, which is active in container shipping, terminals and leasing, is looking to raise up to $12.9 billion by selling 2.24 billion shares at $4.25 to $5.75 each. While most analysts see the diversity of China Cosco's operating divisions as an asset its competitors lack, the company warns it could lead to some conflicts. 'As the controlling shareholder of [China Cosco], Cosco may take actions or be able to influence [China Cosco] to take actions that may conflict with the best interest of its other shareholders,' the document warned yesterday. Assuming a mid-range offer price, the company expects to reap net proceeds of $9.73 billion, of which $4.23 billion will be used to expand its fleet or buy into other shipping companies. It will also use $4.23 billion to repay loans due by the end of this year at the latest.