Published January 10, 2009

Cosco hit by loss of 2 ship orders

By JAMIE LEE

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CHINA-BASED shipbuilder Cosco Corporation (Singapore) said yesterday that an Asian shipowner has cancelled two orders, confirming speculation that dragged Cosco's shares down as much as 11 per cent in the day.

Cosco did not name the customer, but wire reports have identified it as India's Great Eastern Shipping Co.

Shares of actively-traded Cosco plummeted as much as 10.5 cents to 84.4 cents, and ended at 87.5 cents, still 7.5 cents or 7.9 per cent down. This followed news from Mumbai-listed Great Eastern Shipping on Thursday that it had terminated orders of two Supramax bulk carriers, placed in 2007 with a Chinese company. It did not identity the company.

Almost 50 million Cosco shares changed hands yesterday as the stock took a hit amid speculation that it was the company in question. Then came a late-afternoon report by Dow Jones that cited a Great Eastern Shipping Co spokesman as saying the company had cancelled two of four orders it placed with Cosco two years ago.

In a regulatory filing to the Singapore Exchange after the market closed, Cosco said its unit Cosco Zhoushan Shipyard had entered into an agreement to build four bulk carriers in 2007 and that orders for two of the vessels would be cancelled. It did not reveal the contract value.

'Construction in respect of the two cancelled orders has not commenced,' said Cosco, which added that its unit had received compensation but did not say how much.

A Cosco spokesman would not confirm that Great Eastern Shipping Co is the company that cancelled the orders.

Cosco said that the delivery dates for the two remaining vessels will be pushed back, one from Feb 15, 2010 to Sept 15, 2010 and and the other from July 31, 2010 to Jan 17, 2011.

It said the cancellations and variations are not expected to have a significant impact on its net tangible assets or earnings per share for the year ended Dec 31, 2008.

Each contract lost is likely to be valued at about US$35 million-US$40 million, said an oil-and-gas sector analyst. The cancellation has not come as a surprise, said the analyst, adding that cancellations in general are expected to be as high as 20 per cent.

Cosco had warned earlier that it will post a lower group profit for the year ended Dec 31, 2008, compared with the previous year, due to doubtful debts and higher costs. It registered a net profit of $336.6 million for FY 2007, up 64 per cent from FY2 006.

Cosco's full-year results will be released on Feb 23.