COSCO subsisting on bank loans after six straight years of negative cash flows

How much longer will this lifeline last?

Six straight years of negative operating cash flows spells trouble for struggling COSCO Corp. A report by OCBC Investment Research cautioned that COSCO has essentially been propped up by bank loans for the past years, but even this lifeline is now at risk.

Three of the group’s six major yards have made it to the Chinese government’s white list, which could translate to greater financial support from local banks.

However, it is unclear if the other yards will also be added to the list.

“If COSCO’s remaining yards are not added, there could be a reduction in bank support for the group,” OCBC analyst Low Pei Han wrote.

COSCO’s high net gearing is a particular cause for concern, especially since the group expects margin pressure from its new shipbuilding projects.

More impairments also loom in the horizon for COSCO, especially with one project undergoing arbitration and another one 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,” Low stated.