Outlook for Cosco crumbles amid complicated restructuring deal

On top of dwindling orders, weak cash position.

Things are heading south quickly for Cosco Corp Singapore (Cosco) as analysts’ outlook grow more bearish over the business’ leveraged position, problematic cash flow, and complicated restructuring efforts.

According to a report by OCBC, new orders have dwindled for the group. The past few years have seen Cosco executing its order book with cost overruns as it struggles to scale the offshore learning curve.

Coupled with continued bank borrowings, this has landed Cosco in a significantly leveraged position just as the industry is slammed by a downturn.

Further, Cosco has reported negative operating cash flow each year for the past seven years—Cosco has essentially been propped up by bank loans. From a net cash position in FY09, the business’ net gearing has picked up to 3.9x as at end 1Q16. OCBC posits that operations are still ongoing likely due to the fact that Cosco is a part of a larger state-owned entity.

In addition, it was announced last month that China’s State-owned Assets Supervision and Administration Commission of the State Council (SASAC) had transferred its entire interest in China Ocean Shipping Singapore (Cosco’s controlling shareholder) to China Cosco Shipping Corporation at nil consideration.

OCBC reports that the transaction has been regarded as “one of the most complicated restructuring efforts in the history of China’s capital markets.”

OCBC also notes that though asset injections and transferals could impact Cosco, it will take some time before the outlook for the business becomes more clear.