Cosco saves its Shanghai spot
It seems China’s largest shipping company, China Cosco, has managed to avoid being delisted from the Shanghai Stock Exchange.
China Cosco said in a filing to the exchange yesterday that it has swung back into the black after two years of crippling losses, although it gave no figures. The latest numbers available show a January to September loss of US$330 million.
Three consecutive annual losses would have triggered Cosco’s delisting from the Shanghai bourse, an unthinkable scenario for the mainland’s top shipping company. China Cosco managed to lose US$3.3 billion in 2011 and 2012 as freight rates slumped, demand fell and disastrous charter deals pulled the plug on its balance sheet.
Remaining listed may have saved the carrier some embarrassment, but before investors get too excited they should remember that the reason China Cosco turned a profit – if indeed it did – has more to do with a 2013 fire sale of assets than improving its business.
The company sold its logistics business, Cosco Logistics Co, for a pre-tax gain of US$319 million in March, and two months later sold its 21.8 percent stake in China International Marine Containers for US$470 million pre-tax.
However, the short-term gains may place the company in a weaker position once business improves. Sales of containers plunged at CIMC, the world’s biggest box maker, but with the steady scrapping of old and battered boxes and weak replenishment over the past two years, even a small increase in container shipping could lead to a sharp rise in demand. This will be helped by the trend towards deploying larger ships.
But then the subsidiary sales were to its state-owned parent, China Ocean Shipping (Group) Co, and who knows what really goes on in the murky world of mainland SOEs. Maybe CIMC will be sold back if business gets better.
In any event, China Cosco appears to have avoided being chucked out of the Shanghai exchange. With that distraction now out of the way the carrier needs to concentrate on improving its executive management, which is not helped by having Beijing’s anti-corruption people sniffing around the offices.
Former chief Capt Wei Jiafu retired under a cloud last year and vice-president Xu Minje resigned late last year while being “investigated by the relevant authorities”.
China Cosco is facing what every other shipping company in the industry is facing – overcapacity in the bulk and container sectors, weak demand and even weaker freight rates. Addressing this disastrous situation will require strong and stable leadership, and time will tell whether China Cosco is capable of providing it.