The Straits Times / The Business Times News on Cosco

Cosco S'pore restructures to become marine services

COSCO Corporation (Singapore), the local bulk-shipping and ship-repair arm of China's largest shipping group, is likely to undergo restructuring in the coming months with the aim of becoming a pure marine services company, according to Kim Eng Securities.

The restructuring will involve an asset swap with its parent in the coming months as the company makes the final transition to a pure shipyard business, Kim Eng said in a research report yesterday.

Cosco (S) recently sold four of its ageing bulk carriers back to its parent, China Ocean Shipping Group (Cosco Group), which follows moves last year for a dramatic increase in its stake in China-based shipyards.

The report notes that the company's remaining 12 bulkers have an estimated $486.5 million market value. Kim Eng believes they will also be sold back to the company's parent.

With over 300 bulk carriers in the Cosco Group's fleet of nearly 785 vessels, 'a reorganisation of the bulk carrier fleet within the overall group clearly makes strategic sense', the report says.

Currently Cosco (S) holds a 51 per cent stake in the Cosco Shipyard Group (CSG) - China's largest shipyard group - which owns and operates seven Chinese shipyards.

SembCorp Marine holds a 30 per cent stake in CSG after recently buying up parent Temasek Holdings' 5 per cent share.

A further 19 per cent is held by various subsidiaries of the Cosco Group, with Kim Eng saying it believes Cosco (S) will consolidate its CSG shareholding to 70 per cent by acquiring this outstanding 19 per cent.

While Cosco (S) acquired its initial stake for about $120 million, Kim Eng estimates it would be able to obtain the remaining 19 per cent for around $70 million - a 56 per cent premium over the original price.

'Cosco's advantage is that it is able to leverage on their relationship with SembCorp Marine to expand their service offerings and capabilities in the offshore oil and gas sector, while SembCorp Marine, in turn, benefits from Cosco's low cost structure,' Kim Eng says.

With their substantially lower labour costs, increasing technical expertise and proximity to the busiest trade lanes in the world, shipyards in China have booming business.

Their owners have recently begun eyeing the voracious demand for offshore oil and gas vessels and rigs.

With the planned expansion, UBS Investment Research estimated last year that annual CSG revenue will rise to as high as $1.2 billion by 2008.

Cosco Corp recently reported record earnings and turnover for 2005.

Its net profit more than tripled to $207.14 million for the year ended Dec 31 from $64.99 million in 2004, while turnover rose sevenfold to $873.11 million from $116.35 million as a result of the shipyard purchase.

Net income in the three months to March 31 rose 46 per cent to $37.6 million while sales increased 63 per cent to a record $267.6 million.