[310113.EN.SEA] Cosco Faces De-listing Risk After Warning Of 'Significant' 2012 Loss

CHINA Cosco Holdings, the flagship of the Cosco group, is warning of a "significant net loss" for 2012 on the back of excess shipping capacity globally, soft freight rates and high bunker costs.

China Cosco posted a loss CNY4.87 billion (US$781.8 million) in the first half of 2012, after losing CNY10.45 billion in 2011.

The Shanghai Exchange has procedures for companies making two straight annual losses. It caps share movements at a five per cent up and down in daily trading, which affects share liquidity, plus an ST sign is stuck on its stock code.

Trading will also be suspended if net annual losses continue for a third year, and if the losses carry on for a fourth year, the company would be officially de-listed, reported London's Containerisation International.

The reporting of a significant annual net loss by the company to be dual-listed in Hong Kong and Shanghai means it will receive a de-listing risk warning, also known as "special treatment" in Shanghai. The company is due to announce its annual results on March 28.

Cosco said in a statement to the Hong Kong stock exchange, the anticipated loss "is primarily due to the imbalance between supply and demand in the international shipping market. Although the freight rates in the container shipping market had rebounded moderately in 2012, the overall rate for the year was unsatisfactory.

"In addition, the dry bulk shipping market remained weak. The average Baltic Exchange Dry Index (BDI) for the year of 2012 was 920 points, a drop of 40.6 per cent compared to the average of 1549 points in 2011, while fuel and other related costs remained high," said the stock exchange filing.

"That mindset also partly explains China Shipping Container Line's year-end rush to sell and lease back 28 per cent of its boxes to garner one-off gains to avoid a red bottom line. CSCL, also dual-listed in the two exchanges, made an annual loss in 2011," the report said.

To avoid special treatment, China Cosco is expected to sell loss-making assets to its parent group, which is wholly owned by the State Council, or obtain a regulatory exemption from authorities.

"Our base case, though, is that China Cosco would most likely get a waiver from the exchange to avoid a de-listing," Barclays analyst Jon Windham said in a research note.

Source : HKSG, 30.01.13.