China Cosco Reaches Agreements on 18 Ships After Disputes Over Payments
China Cosco Holdings Co., the state- controlled sea-cargo group that had ships seized in payment disputes, said it reached agreements with shipowners covering 18 vessels.
“The disputes have been appropriately handled,” General Manager Zhang Liang told reporters in Hong Kong today. He declined to comment on the terms of the accords or on whether talks were under way about any other contracts.
The company also expects to avoid being suspended from the Baltic Exchange, Zhang said. The disputes centered on ships China Cosco, the nation’s biggest shipping line, had hired on long-term deals before a plunge in rates. The collapse also caused the Tianjin, China-based company to slump to a first-half loss of 2.76 billion yuan ($432 million).
The company was likely “playing tough” to cut costs, Johnson Leung, head of regional transport at Jefferies Group Inc. in Hong Kong, said before the deals were announced. “I don’t think there’s a liquidity issue.”
China Cosco was operating 201 chartered commodity ships as of June 30, according to its earnings statement. That’s 21 fewer than at the end of last year. The shipping line was also operating 234 self-owned dry-bulk vessels at the end of June, along with 153 container vessels.
The shipping line, Asia’s largest operator of container vessels, had cash and cash equivalents of 43.8 billion yuan, down from 46.7 billion yuan six months earlier.
The shipping line’s net gearing of 0.15 is a “safe financial position,” UOB-Kay Hian Holdings Ltd. analyst Lawrence Li said in a note today.
At least three China Cosco vessels were arrested in Singapore and the U.S. by shipowners seeking overdue payments. Members of the Baltic Exchange also “raised concerns” about the issue, Jeremy Penn, chief executive of the world’s largest shipping bourse, said this week.
In the Singapore case, China Cosco was paying $87,000 a day for a capesize vessel, or about eight times market rates this year, based on court filings. The ship detained in the dispute was released on Aug. 4, according to the city-state’s court.
DryShips Inc. Chief Executive Officer George Economou, who had at least one Cosco ship seized, told the Financial Times earlier this week that he may try to arrest more. Economou has about 18 vessels on charter to Cosco through New York-listed DryShips and closely held companies in deals worth about $500 million, the newspaper said.
The shipping line’s Chairman and Chief Executive Officer Wei Jiafu also said that his role at the company wouldn’t be affected by a management shake-up at its state-owned parent. Wei became chairman of China Ocean Shipping (Group) Co. this week as the company formed its first board. He was previously president.
“I will focus on studying strategic development, keeping the direction of group’s development and be the decision maker for important issues,” he said. Ma Zehua, who joined Cosco Group this week as general manager, will be responsible for day-to-day operations, Wei said.
China Cosco’s dry-bulk business had a first-half operating loss of 2.68 billion yuan, while its container-ship operations lost 946.9 million yuan. The logistics, container-terminal and container-leasing operations all made profits.
First-half sales from moving commodities tumbled 27 percent, 10 times the pace of decline in volumes, while average container rates fell 14 percent as an expanding global fleet boosted competition. The two units also both had 27 percent increases in fuel costs, mainly because of higher prices.
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