China COSCO Extends Losses, Down 7% After Profit Warning


Shares of China COSCO Holdings fell more than 7 percent in Hong Kong after the shipping conglomerate warned it would post a second straight year of losses in 2012 due to low freight rates and a weak dry bulk market.

COSCO, which posted a net loss of 10.4 billion yuan ($1.7 billion) for 2011, expects to record a significant net loss for 2012 and faces delisting of its Shanghai-traded A shares if it does not turn around, it said in a statement on Friday.

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On Monday, its stock lost as much as 7.2 percent to HK$3.99 in mid-morning trade, set to log its biggest daily fall since May 14 when it closed down 7.8 percent. The stock was underperforming the broad Hang Seng Index's rise.

Under China's securities regulations, companies that report two consecutive years of losses get placed in the "special treatment" category, which limits the daily trading movement of their shares to 5 percent from the regular 10 percent.

A third straight year of losses could result in a suspension of trading or delisting.

CLSA forecasts the company to post a net loss of 7.8 billion yuan in 2012 and 2.4 billion yuan loss in 2013, though analysts said it could turn profitable again if it restructured its business, which will help it avoid a delisting.

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COSCO, controlled by state-owned China Ocean Shipping (Group) Company, and the Chinese government are now reviewing options to restructure the company's business to help it turn profitable again, analysts said.

"We value its fleet at over $6 billion by marking the assets to secondhand prices, so selling and leasing back a portion would give enough gains to cover 2013 losses," said Nathan Snyder, an analyst at CLSA.

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The global shipping market remains challenging in 2013 amid a lingering supply glut and weak demand, which have wounded China COSCO and other international shipping firms in the past two years, analysts said.

COSCO operates both container and bulk shipping and controls COSCO Pacific, a container lessor and port operator.