Cosco Singapore says exploring ways to support shipbuilding business, shares jump

A woman is reflected in a glass showcase as she walks past a scale replica of a COSCO cargo ship at the company's headquarters in Beijing.
A woman is reflected in a glass showcase as she walks past a scale replica of a COSCO cargo ship at the company's headquarters in Beijing.PHOTO: REUTERS

SINGAPORE (BLOOMBERG) - Mainboard-listed Cosco Corp (Singapore) Ltd, the shipbuilding arm of China Ocean Shipping Group, is exploring options to support its business as a slump in commodities trading and oil prices leads to sluggish demand for new vessels.

Cosco Singapore's subsidiary China Shipyard Group Co is considering expanding its funding sources and optimizing its asset structure, the company said in a statement on Wednesday (Dec 23), without providing further details. The statement came in response to questions from the Singapore exchange as the stock rose for a sixth straight day.

The shipyard expects to report a "significant net loss" in the fourth quarter as a 39 per cent decline in bulk shipping rates has hit demand for new ships and led some customers to cancel existing orders, Cosco Singapore said this month. Customers are asking shipbuilders to defer delivery of offshore drilling rigs amid a slump in oil prices, undermining their earnings.

Cosco Singapore climbed as much as 10 per cent to 48 Singapore cents, its highest intraday price since July 7. They were trading up 9.2 per cent at 47.5 cents at 10:45 am.

The stock had fallen 16 per cent this year, in line with the decline of the Straits Times Index.

Shares of Cosco Singapore resumed trading on Dec 14 after being suspended for four months pending an announcement relating to asset reorganization at its Chinese state-controlled parent.

China's State-owned Assets Supervision and Administration Commission announced approval Dec 11 for the reorganization of China Ocean Shipping Group and China Shipping Group. The move is part of government efforts to shrink industries plagued by overcapacity while creating globally competitive businesses.

The government's plan would create four listed entities, each focusing on one aspect of the shipping business: containers, financing, terminals, and oil and gas, according to China's official Xinhua News Agency.

Cosco Singapore said in November that a client canceled an order for a bulk carrier, which was due to be delivered in the second quarter of 2016. The company also agreed to defer delivery of a drilling unit to Sevan Drilling Ltd by six months to April 2016.

The Singapore company posted a loss of S$86.1 million in the first nine months of the year, compared with profit of S$34.1 million a year earlier. Sales dropped 16 per cent to S$2.79 billion. Its cash and cash equivalents totaled S$1.5 billion at the end of September, falling from S$1.8 billion a year earlier.