SINGAPORE (Feb 27): DBS Group is advising Cosco Corp investors to “hold” on to their shares for more clarity on the proposed buyout of the shipyard from its parents.
As part of its restructuring efforts, parent Cosco Group has announced its intention to acquire Cosco’s 51% interest in Cosco Shipyard Group (CSG) and its direct stakes in Cosco Nantong and Cosco Dalian although details have yet to be finalised.
But what is quite sure is Cosco will be left with a small ship repair facility in Singapore and its dry bulk fleet after the disposal.
In a Monday report, analyst Ho Pei Hwa says, “We believe that its shipping fleet may also eventually be consolidated by the parent’s shipping arm. We believe Cosco’s parent may have other plans for Cosco, i.e. injection of a new business, given that it intends to keep Cosco’s listed status and is not privatising it.”
Meanwhile, Cosco’s operating environment remains challenging. In 4Q16, Cosco reported another massive impairment which brings total impairment to an eye-popping $1 billion in two years, wiping out 75% of NTA since the end of 2014.
The shrinking book value and growing debt have also pushed net gearing to an alarmingly high level of 18x, adds Ho.
As at end Dec, its gross order book stood at US$6.4 billion ($9 billion), including US$1.3 billion worth of contracts for modules of drillships and FPSOs for Brazilian clients.
But the shipbuilding contracts in its order book are of low value while its offshore segment faces a steep learning curve with its diversified product range, says Ho.
Making things worse, its O&G customers are delaying rig deliveries in view of the lacklustre chartering market and there could potentially be more cancellations given the prolonged downturn.
As at 4.08pm, shares of Cosco are up 4 cents at 32 cents.
