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China Cosco Resumes Ship Payment After Disputes, Owners Say

China Cosco Resumes Ship Payments After Disputes, Owners Say
Tianjin, China-based Cosco said last week that it had reached agreements covering 18 different ships, which were predominately hired in long-term deals agreed to before a plunge in rates. Photographer: Tomohiro Ohsumi/Bloomberg

China Cosco Holdings Co., the state-controlled sea-cargo group that had ships seized in fee disputes, has resumed charter payments to DryShips Inc. and Jinhui Shipping & Transportation Ltd., the shipowners said.

DryShips is receiving payments from Cosco for three vessels that were previously subject to arbitration, Ziad Nakhleh, chief financial officer of the Athens-based company, said yesterday. Jinhui has also received money it was owed, Vice President Raymond Ching said by phone yesterday. Neither elaborated on how much was handed over.

Tianjin, China-based Cosco said last week that it had reached agreements covering 18 different ships, which were predominately hired in long-term deals agreed to before a plunge in rates. The company may have failed to win lower fees because its size and state backing may have made shipowners less willing to compromise, said Barclays Capital analyst Jon Windham.

“It isn’t the biggest, strongest player that gets out of these contracts,” he said. “It’s the smaller, weaker players because they have a credible threat of bankruptcy,” which could leave shipowners getting nothing, Windham said.

Korea Line Corp., for instance, walked away from a charter deal with Hellenic Carriers Ltd. earlier this year as it entered court receivership. It won a reduction in rates in February 2009.

‘Normal’ Operations

A Cosco spokesman declined to comment when contacted by phone today. He declined to be identified, citing company policy. Cosco has previously said that disputes over ships are a part of “normal” operations.

The shipping line fell 0.5 percent to HK$4.36 at the 4 p.m. close of trading in Hong Kong. The benchmark Hang Seng Index advanced 0.3 percent.

Jinhui suffered delays in receiving payments on ships it leased to Cosco for as long as five years, according to Ching. The deals were signed in 2007 and 2008 at better rates than the current market, he said, declining to provide further details. Jinhui fell 2 percent to 12.5 kroner as of 10:53 a.m. in Oslo today.

DryShips “has no further issues with counterparties,” Nakhleh said. The company’s Chief Executive Officer George Economou, who seized at least one Cosco ship, told the Financial Times last week that he may seize more. Economou had leased about 18 vessels to Cosco through DryShips and private companies in deals worth about $500 million, according to the newspaper.

Cosco Losses

China Cosco posted a first-half loss of 2.76 billion yuan ($433 million) after a collapse in rates for carrying commodities and containers. The company had at least three vessels arrested in the past two months as shipowners sought overdue payments, according to court filings in the U.S. and Singapore.

In the Singapore case, Cosco had agreed to pay $87,000 a day to use a capesize vessel. That compares with current rates of $19,610 a day for a single voyage charter, according to data from the Baltic Exchange, a London-based provider of shipping freight rate assessments.

The Cosco rates disputes is “credit negative” for the dry-bulk shipping industry, Moody’s Investor Service said in an e-mailed report Aug. 29. The move may enable Cosco to win lower payments and it could also prompt other Chinese lines to try similar steps, it said.

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