HONG KONG — China Cosco Holdings reported a first-quarter loss of $166 million just hours after being forced to make its second unusual trading announcement of the month as rumors that the carrier would be merged with China Shipping Container Lines continued to galvanize the market.
The carrier’s loss-making quarter was still a 45 percent improvement on the loss reported during the same period last year, and it came even as shares soared by more than 20 percent in the past three days, triggering the need for an explanation by the container unit of the mainland’s largest shipping line.
China’s state media reported on April 16 that Beijing was planning to consolidate several of its state-owned giants that would include the merger of China Cosco, CSCL, Sinotrans and China Merchants Group. This lit a rocket under the share price and forced the first denial from China Cosco. The rumours resurfaced today and elicited the second response to the stock exchanges, which as far as denials go appeared strangely open ended.
“Up to now, neither the company’s controlling shareholder nor the company has received any information, in written or oral form, related to the above rumor from any government departments. Neither the company’s controlling shareholder nor the company has expressed any such intention to any departments or enterprises,” China Cosco told Hong Kong and Shanghai shareholders.
For the first quarter that ended on March 31, the container volume handled by China Cosco’s fleet of 183 vessels reached 2.34 million TEUs, a healthy increase of 12.8 percent year-over-year. The group’s fleet had a total capacity of 891,496 TEUs with 10 orders for container ships with a total capacity of 117,960 TEUs.
China government subsidies for scrapping 22 old and inefficient vessels saw the carrier gain $9 million during the first quarter, although the disassembly and decommissioning of the vessels saw the carrier shouldering a non-operating expense of $55 million.
Total throughput of the group’s container terminal business was 16.47 TEUs, an increase of 6.6 percent compared to the same quarter of last year. The Bohai Rim terminals handled the largest share of the group’s throughput, although they posted relatively flat growth of 1.1 percent in the first quarter year-over-year. Operating revenue grew 4.4 percent to $2.3 billion.
The group’s Pearl River Delta terminals handled 4.4 million TEUs in the first three months of the year, a solid increase of 12.7 percent year-over-year, while 2.5 million boxes flowed through the Yangtze River ports, an increase of 4.2 percent over the same period last year.
China Cosco has remained removed from the frantic mega-vessel ordering trend but is reportedly planning to order at least 10 ships of 19,000 TEUs at a cost of $1.4 billion. It is the lead member of the CKYHE Alliance that includes “K” Line, Yang Ming, Hyundai and Evergreen, which ordered 11 of the mega-vessels earlier this year.
The ships will all have to be deployed on the Asia-Europe trade.
The carrier’s loss-making quarter was still a 45 percent improvement on the loss reported during the same period last year, and it came even as shares soared by more than 20 percent in the past three days, triggering the need for an explanation by the container unit of the mainland’s largest shipping line.
China’s state media reported on April 16 that Beijing was planning to consolidate several of its state-owned giants that would include the merger of China Cosco, CSCL, Sinotrans and China Merchants Group. This lit a rocket under the share price and forced the first denial from China Cosco. The rumours resurfaced today and elicited the second response to the stock exchanges, which as far as denials go appeared strangely open ended.
“Up to now, neither the company’s controlling shareholder nor the company has received any information, in written or oral form, related to the above rumor from any government departments. Neither the company’s controlling shareholder nor the company has expressed any such intention to any departments or enterprises,” China Cosco told Hong Kong and Shanghai shareholders.
For the first quarter that ended on March 31, the container volume handled by China Cosco’s fleet of 183 vessels reached 2.34 million TEUs, a healthy increase of 12.8 percent year-over-year. The group’s fleet had a total capacity of 891,496 TEUs with 10 orders for container ships with a total capacity of 117,960 TEUs.
China government subsidies for scrapping 22 old and inefficient vessels saw the carrier gain $9 million during the first quarter, although the disassembly and decommissioning of the vessels saw the carrier shouldering a non-operating expense of $55 million.
Total throughput of the group’s container terminal business was 16.47 TEUs, an increase of 6.6 percent compared to the same quarter of last year. The Bohai Rim terminals handled the largest share of the group’s throughput, although they posted relatively flat growth of 1.1 percent in the first quarter year-over-year. Operating revenue grew 4.4 percent to $2.3 billion.
The group’s Pearl River Delta terminals handled 4.4 million TEUs in the first three months of the year, a solid increase of 12.7 percent year-over-year, while 2.5 million boxes flowed through the Yangtze River ports, an increase of 4.2 percent over the same period last year.
China Cosco has remained removed from the frantic mega-vessel ordering trend but is reportedly planning to order at least 10 ships of 19,000 TEUs at a cost of $1.4 billion. It is the lead member of the CKYHE Alliance that includes “K” Line, Yang Ming, Hyundai and Evergreen, which ordered 11 of the mega-vessels earlier this year.
The ships will all have to be deployed on the Asia-Europe trade.
New rumours are floating, but a COSCO/ CSCL marriage remains a “remote option”
With container freight rates still heading south and costs pared to the bone, it is no surprise that ocean carrier merger rumours are back in the news and consolidation options back on the agenda for frustrated shareholders.
Indeed, the profitable first-quarter carrier results that have been posted so far should perhaps contain an outlook health warning: the fundamentals in Q2 are significantly worse now than in the first three months.
For example, spot rates between Asia and North Europe are around 70% lower than at the start of the year – and, in case you haven’t noticed, the low bunker fuel prices that underpinned improved results in the past six months have started to creep back up again.
Alphaliner has this week had another look at a carrier merger story that just will not lie down: that between China’s two state-owned megacarriers, COSCO and CSCL.
Both carriers have avoided the embarrassment of a stock market delisting only by selling their “family silver” – assets to prop up their balance sheets – and have been assisted by what Alphaliner describes as “an effective bailout” of significant ship scrapping state subsidies.
Moreover, in what (if the freight rate declines are not reversed) could end up being the best quarter of trading in the year for ocean carriers, CSCL managed to produce a Q1 net profit of $41m, while the COSCO shipping business, which also includes bulk, suffered a net loss of $167m.
Nonetheless, it seems that investors have taken April stock market denials from COSCO and CSCL that they have no intention to merge with a pinch of salt, given that their respective shares have surged in price on the prospects of substantial cost saving synergies between the two.
But Alphaliner notes that, despite the increased merger hype, previous attempts to forge a closer partnership between COSCO and CSCL have all “ended in naught”, adding that despite political pressure from Beijing neither carrier showed any inclination to push for a consolidation.
The recent central government push in China to consolidate state-owned conglomerates, and the respective lip service statements from COSCO and CSCL after Beijing’s ‘One Belt, One Road’ collaboration across the oceans of the so-called Maritime Silk Road, seems to have spurred a revival of merger gossip. Alphaliner, however, concludes that a potential consolidation “remains a remote option”.
Indeed, the loose ‘strategic co-operation framework agreement’ signed by COSCO and CSCL in February 2014 came to nothing of real substance, other than for a closer relationship for domestic services, and “failed to bring the two carriers any closer” said the transport consultant.
This management distancing was in evidence when CSCL agreed to form the Ocean Three alliance with CMA CGM and UASC, rather than join its compatriot within the CKYHE vessel-sharing group.
“Any moves to consolidate the container shipping activities of COSCO and CSCL would first need to start with untangling the complex web of public and private shareholding,” added Alphaliner.