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China COSCO CEO Cheerless After Posting First-Half Net Loss of $766.9 Million

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August 30, 2012

shutterstock money vortex black hole decline finance

HONG KONG–The head of shipping giant China Cosco Holdings Co. (601919.SH) on Thursday cast a downbeat light on the shipping industry, saying the current downturn in the shipping market could last another three years if negative factors such as the European debt crisis and oversupply of shipping capacity remain unresolved.

Industry-wide woes and Cosco’s own ill-timed expansion have damaged the Chinese shipping conglomerate’s profitability. On Wednesday, the company posted a first-half net loss of 4.87 billion yuan ($766.9 million) — up from a net loss of CNY2.76 billion a year earlier and its biggest first-half net loss since it listed on the Hong Kong bourse in 2005.

The main drag on the group’s profitability –its dry-bulk shipping unit, which operates one of the world’s top three fleets by size –posted a CNY3.4 billion segment loss in the first half. Its revenue contribution fell more than 30% to CNY8.3 billion from a year earlier, due to lower shipping volume and reduced freight rates.

Meanwhile, China Cosco’s container unit, the world’s fourth-largest operator of container ships by capacity, incurred a first-half loss of CNY1.3 billion — wider than a loss of CNY947 million a year earlier — in spite of a joint effort by global liners to raise freight rates on long hauls.

Chairman Wei Jiafu blamed the weak earnings performance on the collapse of the dry-bulk shipping market as well as lower demand for international trade, because of the European debt crisis and the global economic downturn.

Mr. Wei said he expects a prolonged downturn — dating from the fourth quarter of 2008, when the global economic crisis sent international trade volumes and freight rates for commodities plunging — to continue.

“The shipping industry had enjoyed an up-cycle between 2002 and 2008 before the outbreak of the financial crisis,” Mr. Wei said. “This time around I’m afraid the current downturn will last a similar duration,” indicating the shipping industry could remain in difficulties for three more years.

He added that China Cosco has prepared to weather the storm in the industry.

The weak earnings performance leaves China Cosco at risk of being put on watch by the Shanghai bourse. If it reports an annual loss this year, following last year’s loss of CNY10.5 billion, it would be put on the Shanghai Stock Exchange’s “special treatment” list; that could limit daily trade movement of its stock to 5%, from the standard 10%.

If losses extend into a third year, the company would be automatically delisted.

Asked whether China Cosco would consider asset sales or restructuring to turn around its weak performance, President Jiang Lijun said the company is evaluating various options, including possible asset sales and restructuring to avoid being put on watch by the bourse.

“We don’t want to see that–the A-share listing being put on watch by the regulator — no one wants to see that happen,” Mr. Jiang said. But he added that it was “premature to disclose the details at this stage.”

– Joanne Chiu, (c) 2012 Dow Jones & Company

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