Asset sale plan as China Cosco sets course to stay on bourse
The listed flagship of Cosco Group is planning to sell the family silver to its parent to avoid being scratched from the Shanghai Stock Exchange.
The woes continue for China Cosco Holdings. For two years the Chinese flagship carrier has posted losses, dragged down by blind expansion and slowing mainland growth.
This week China Cosco announced that the losses have continued in the first half and it expects the loss to be “70 to 85 percent smaller” than in the same period last year. For the full 2012, China Cosco came home with a cargo of red ink worth around US$1.5 billion.
A few carriers will manage to make a profit from their cargo business this year, but China Cosco won’t be among them. Its reckless expansion in the good times pushed the orderbook way out. Deliveries poured in, forward freight agreements were made and life was a profitable wonderland.
Then, like it always does sooner or later, the market turned, rates plummeted, and the company still had to pay for leases on a third of its dry bulk fleet. Profitability drained away quickly and after two years of losses someone had to get the boot. So long Captain Wei Jiafu, chairman of parent group Cosco.
To avoid the unpalatable – and probably unacceptable – loss of face a delisting would bring, disposing of its property holdings is option number one. The interesting thing is that it will sell the property to itself, or rather, to its parent. That will keep the assets in the company as well as allowing China Cosco to avoid being delisted.
China Cosco has already sold its logistics arm to its parent for a pre tax “profit” of US$300 million.
But just like asking your dad to bail you out, there will eventually be a limit, even in the money’s-no-object world of state-owned enterprises. Last year China Cosco’s losses reached close on US$1.5 billion following an even more dismal 2011, and its parent’s patience wore out.
With Wei gone, stemming the tide of losses has now fallen to former group president Ma Zehua, and unless he can somehow conjure up a buoyant shipping market he will be fresh out of luck.
Because what China Cosco Holdings needs now is also what the rest of the bulk and container shipping business needs – growing consumer demand in the major economies. That will drive up containerised exports from China and increase the mainland’s importing of raw materials to support the accompanying rise in manufacturing.
The growing demand is definitely going to happen, just not this year. Which means China Cosco will not be able to ship its way out of trouble before the Shanghai Exchange axeman rides in to herald a not-so-happy new year for the carrier.No doubt the company’s minions are busily shining up the silver to ensure that ugly scenario doesn’t happen.