Published July 16, 2009

Orders at Cosco worth US$298.7m cancelled

Delivery dates of three other vessels pushed back, says the company

By CHEW XIANG

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ORDERS worth US$298.7 million to build eight bulk carriers have been cancelled and the delivery dates for another three have been put back, Cosco Corp (Singapore) said yesterday.

Cosco says the cancellations and reschedulings are not expected to have a significant impact on net tangible assets or EPS for the year to Dec31.

The vessels - all bulk carriers of 57,000 deadweight tonnes - were ordered in 2006 by two subsidiaries of China Cosco Holdings, which shares the same parent as Cosco Corp. The orders were placed with a subsidiary of Cosco Corp's 51 per cent subsidiary Cosco Shipyard Group.

The contracts are considered interested-party transactions, the company said. The three vessels not cancelled will now be delivered between Aug 15 and Oct 31 this year, instead of between June and December last year.

Shipyards in China, the world's second-biggest shipbuilding nation, saw 152 orders scrapped in the eight months to May and may face more cancellations because of slumping global trade, according to the China Association of Shipbuilding Industry. Ships equivalent to about 4.39 million tonnes have been cancelled since October, the association said.

Cosco Corp has suffered its share of cancellations and delays. Last Friday, it said it has rescheduled the delivery dates of eight other bulk carriers following requests from two European shipowners. In May, one bulk carrier was cancelled and the delivery dates of another two vessels were put back after requests from a European shipowner. In February, delivery dates for three bulk carriers were rescheduled. In January, deliveries of 13 vessels were delayed and two orders were scrapped.

The latest cancellations will see Cosco Corp refund instalments already paid by buyers. In at least two recent cancellation cases, compensation has been paid to Cosco by would-be buyers.

Cosco said the transactions have been reviewed by the audit committee of its board, which found them to be on 'normal commercial terms' and not prejudicial to the company or its minority shareholders.

Cosco said the total value of its interested-party transactions with its parent company and associates totalled $579.8 million as at June 30, excluding the most recently cancelled vessels. The cancellations and reschedulings are not expected to have a significant impact on net tangible assets or earnings per share (EPS) for the year to Dec 31, it said.

In May, Cosco reported an order book of US$7 billion at March 31, with progressive deliveries up to first-half 2012. It posted a net profit of $33.15 million for the three months to March 31, down 60 per cent from the same period last year. Sales were flat at $714.4 million.

Cosco shares jumped eight cents or 7 per cent to $1.22 yesterday on volume of 28.4 million units.