China COSCO Seen Selling Property Assets To Avoid Delisting

(c) REUTERS/Barry Huang

By Yimou Lee

HONG KONG, July 31 (Reuters) – China’s largest bulk shipper, China COSCO Holdings Co Ltd , may sell some of its $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 percent smaller than a year earlier, but that may not be enough to assure a profitable year.

Analysts said the company may need to sell more assets, most likely its office buildings, to stay in the black in 2013.

“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,” said Lawrence Li, an analyst with UOB Kay Hian in Shanghai.

COSCO’s properties were valued at about 10 billion yuan ($1.6 billion) in 2012, 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 Group, became the latest casualty earlier this month when it sought financial help from the Chinese government.

SHEDDING ASSETS TO STAY AFLOAT

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 in Singapore.

In 2012, China Shipping Container Lines sold a fifth of its container fleet to raise cash, while Danish oil and shipping group A.P. Moller-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 as the group emerges from a turbulent three years in a volatile global freight market.

“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 P&Ls and balance sheets,” said Ross.

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

Shares in COSCO Holdings were down 3 percent in afternoon trading on Wednesday and have fallen 14.5 percent so far this year, compared with a 3.1 percent drop in the benchmark Hang Seng Index. (Additional reporting by Rujun Shen and Lee Chyen Yee in Singapore; Editing by Emily Kaiser)

(c) 2013 Thomson Reuters