China Cosco Holdings, the largest bulk vessel operator in the world, is seeking to cap losses beyond this year by transferring its charter obligations to its parent company, a research report by Macquarie said yesterday. Under a profit guarantee given to China Cosco by parent Cosco Group, the carrier's losses on its dry-bulk business will be capped at 11 billion yuan (HK$12.48 billion). That guarantee was given when China Cosco acquired more than 400 dry-bulk vessels from the parent in 2007. It may allow China Cosco to ride out the current downturn in the shipping of dry-bulk commodities such as coal, iron ore and grain. If China Cosco can also offload its charter obligations, its position will be further strengthened. Between 2007 and this year, China Cosco was guaranteed a profit of 23 billion yuan on the business, and further losses would be absorbed by the parent, Macquarie indicated. 'This seems to imply that China Cosco would be responsible for losses after 2009,' Macquarie said. 'Many of the charter contracts could be considered permanently impaired, forcing ... provision for future losses in 2008 or this year.' The charter obligations, which involve renting vessels from other shipowners, were signed by the parent before acquisition of the ships by China Cosco in 2007 and when prices were substantially higher. The analyst estimated as much as 50 per cent of the bulk charter payments are due this year, while many contracts have four to 10 years remaining. The profit to date from the bulk division is 34 billion yuan, which implies China Cosco could not lose more than 11 billion yuan in light of the guarantee. 'Many of the high-cost bulk charters would meet the definition of onerous contracts (under Hong Kong accounting standards),' the report said. 'It means China Cosco should take provisions against all likely future losses in its 2008 and 2009 results.' Shares in China Cosco dropped 6.01 per cent yesterday to HK$4.69.