China Cosco Posts Worse-Than-Expected Loss on Cargo Price

China Cosco Holdings Co., the nation’s biggest shipping company, reported a wider-than-expected annual loss as dry-bulk rates slumped.

The net loss was 9.56 billion yuan ($1.54 billion), compared with 10.5 billion yuan a year earlier, under international accounting standards, the Tianjin-based company said in a Hong Kong stock exchange filing yesterday. That is wider than the 7.53 billion-yuan average loss of 22 analysts’ estimates compiled by Bloomberg. Sales rose 4.4 percent to 88.3 billion yuan.

Chairman Wei Jiafu is restructuring the company’s assets in a bid to return to profitability as a third straight annual loss may result in shares being delisted in Shanghai. The company has unveiled a plan to sell its logistics unit. It may raise as much as 27 billion yuan selling assets to its parent, said two people with knowledge of the matter this month.

“The outlook remains challenging,” Vivian Tao, an analyst at Citigroup Inc., said in a note to clients today. The logistics unit sale “is far from enough” to turn China Cosco profitable this year and further restructuring can be expected, she said.

China Cosco fell 4.2 percent to HK$3.66 at the close in Hong Kong trading. The city’s benchmark Hang Seng Index fell 0.7 percent.

China Cosco plans to sell Cosco Logistics Co. to state-backed parent company China Ocean Shipping (Group) Co. for 6.74 billion yuan, the company said in a separate statement. The sale will give China Cosco a pretax gain of about 1.96 billion in 2013, the company said.

Rates, Costs

“2012 was a very difficult year for China Cosco,” Wei said in a statement in Shanghai stock exchange, “Low rates, high costs and imbalanced fleet structure” caused the loss, he said.

The company’s main business units include container and dry-bulk shipping, logistics and port terminal operations.

China Cosco last had an annual profit in 2010. According to Shanghai stock exchange rules, companies that post two straight annual losses can be subject to a “special treatment” designation that cuts the daily trading limit for gains or losses to 5 percent from 10 percent. A third consecutive annual loss may result in shares being delisted.

Logistics Proceeds

The shipping company said yesterday that gains from the logistics unit sale will boost earnings and reduce the risk of its stock being suspended from trading in Shanghai.

China Cosco’s logistics unit made 595 million yuan operating profit last year. Its terminal operations had a 679 million yuan operating profit.

The Drewry Hong Kong-Los Angeles 40-foot container rate benchmark jumped 21 percent to $2,213 through last year, according to data compiled by Bloomberg. After climbing to its highest so far this year in February, the benchmark declined to $2,217 in the week started March 19, the data show.

Carriers are expected to raise the rates by $400 on containers going from Asia to the U.S. west coast and by $600 to all other destinations effective April 1, according to Bloomberg Industries.

The dry-bulk vessels had a 7.8 billion yuan of operating loss in 2012 as expansion in the global fleet outpaced China’s demand for coal and iron-ore shipments. Cosco’s commodities-shipping business had a 14.3 percent decline in traffic to 1.13 trillion ton-nautical miles last year. The company’s fleet fell to 332 dry-bulk ships, compared with 374 at the end of 2011, according to the statement yesterday.

The company this month said this isn’t a good time to sell the dry-bulk unit because of the current weak market.

Dry Bulk

The Baltic Dry Index, a benchmark for commodity-shipping rates, fell 0.4 percent to 931 points in London on March 26. It slumped to a 25-year low last year.

China Cosco’s container shipping sales rose 17 percent to 48.4 billion yuan as volume gained 16 percent to 8.02 million boxes and rates improved. Shipping companies including A.P. Moeller-Maersk A/S’s container-shipping line, the world’s biggest, have started raising rates to offset higher fuel costs and recover from industrywide losses in 2011 because of a vessel glut.

Still, China Cosco’s container shipping unit posted 1.5 billion yuan operating loss for 2012.

Cosco Pacific Ltd., the container terminal unit of the company, posted a 12 percent drop in profit last year as a smaller gain from its stake in a container maker outweighed cargo volume growth.

China Cosco didn’t propose to pay any dividend.