Cosco vulnerable to order-book cancellations as Euro crisis worsens

47 bulk carriers in its orderbook maybe susceptible to cancellations, says OCBC.

Here's from OCBC Investment Reseach analyst Chia Jiunyang:

With Yangzijiang experiencing its first order cancellation (for two bulk carriers by a Greek customer), we now fear a similar deterioration of COSCO Corp (COSCO)’s order-book.

First, its orderbook contained 47 bulk carriers, which may be susceptible to cancellations should the operating conditions for bulk shippers worsen.

The Baltic Dry Index is at a 25-year low and a quick recovery is unlikely.

Secondly, many of its customers are based in Europe (and may therefore rely on Eurozone banks for financing). This makes COSCO vulnerable to macro-economic risks from the region.

Thirdly, it has a high concentration risk arising from Sevan Drilling’s order of two rigs worth about US$1b.

As Sevan Drilling uses innovative cylindrical designs for its rigs, there may not be a ready secondary market for such rigs.