China Cosco Drops on Loss Forecast, Restriction: Hong Kong Mover

China Cosco Holdings Co., the nation’s biggest shipping company, dropped the most in more than two months after saying it faces trading restrictions on its China shares amid a forecast for a “significant” loss in 2012.

The company’s Hong Kong-traded stock dropped 5.1 percent, the most since Nov. 8, to close at HK$4.08. The city’s benchmark Hang Seng Index rose 0.4 percent.

The company may get a “special treatment” designation and investors should be aware of risks, China Cosco said in a filing to Shanghai stock exchange on Jan. 25, without specifying the amount of the loss. The Tianjin, China-based company posted a net loss of 4.87 billion yuan ($782 million) in the first half of 2012 and a loss of 10.5 billion yuan in 2011.

China Cosco is expected to have a 6.5 billion yuan net loss for 2012, based on the average of eight analysts’ estimates compiled by Bloomberg. The shipping company is contending with higher fuel costs and slumping freight rates because of worldwide overcapacity. The Baltic-Dry Index, a measure of global commodity-shipping rates, slumped to a 25-year low last year, prompting Korea line Corp. and Sanko Steamship Co. of Japan to seek court protection.

Rising Debt

“We see little reason to be positive in the shares,” Barclays Plc analysts Jon Windham and Esme Pau wrote in a note dated Jan. 27. “The declining equity base and rising debt burden will need to be addressed in 2013.”

The analysts maintained an underweight rating on the Hong Kong-traded stock with a target price of HK$3.32.

China Cosco’s Shanghai-traded shares rose 0.5 percent to close at 4.34 yuan as the city’s benchmark Shanghai Stock Exchange Composite Index jumped 2.4 percent today.

The daily trading limit for companies with a “special treatment” designation will be cut to 5 percent from 10 percent, according to rules posted by the Shanghai Stock Exchange. Companies that post annual losses for two consecutive years get that designation.

If China Cosco posts another loss this year, the company’s A-shares may run the risk of being suspended from trading in Shanghai and also face the possibility of getting delisted, according to Citigroup Inc. analyst Vivian Tao. A rescue by the parent company or the government is “highly likely” to help avoid a delisting, Tao wrote in a note to clients today.

China Shipping Container Lines Co., the container shipping unit of China’s second-largest shipping company, said earlier this month that it expected to make a profit in 2012, compared with a net loss a year earlier. China Shipping fell 2.5 percent to HK$2.37 in Hong Kong trading.

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