Bank loans are the only thing keeping loss-making COSCO afloat

Its operating cash flow has been negative for 6 years.

COSCO’s business is floundering like a drowning man at sea, and bank loans have been its only lifeline for the past six years.

According to OCBC, COSCO has been seeing negative operating cash flow each year for six consecutive years.

“The business has essentially been propped up by bank loans. The group’s net gearing has also increased to 1.8x as at end 2Q15, compared to 1.6x in 1Q15 and 1.2x in 2Q14. Though COSCO’s gross order book stood at US$8.1b as at end 2Q15, operating margins are likely to fall as the group executes projects that were secured at low contract values,” OCBC said.

OCBC also warned that COSCO is at risk of more order cancellations as the industry downturn intensifies.

“With a project undergoing arbitration (DP3 Deepwater Drillship) and others at risk of cancellation, there could be more provisions or impairments ahead for the group. This is in addition to execution hiccups that may occur as COSCO scales the offshore learning curve,” OCBC said.

COSCO reported a net loss of $4.8m in the second quarter, compared a net profit of $14.3m in the same quarter last year.