COSCO says it won’t seek bailout

China COSCO Holdings Co, which runs the world's largest bulk fleet, denied rumors that it was requesting hefty subsidies from the government, media reports said Wednesday, after the State-owned company forecast a second straight year of losses in 2012, which may put its Shanghai-listed shares under special treatment (ST).

"Our management has never thought about living on government rescue," Guo Huawei, secretary of the board at China COSCO, was quoted by the Shanghai-based National Business Daily on Wednesday as saying at a press conference in Beijing. "We will focus on structural adjustment of bulk shipping to turn around in the future."

The industry giant said in a filing to the Shanghai Stock Exchange (SSE) on Friday that a delisting risk warning, or ST mark, may be imposed on its A shares as the company's 2012 financial report is expected to record a huge loss for a second consecutive year. China COSCO registered a net loss of 10.4 billion yuan ($1.74 billion) in 2011.

According to SSE rules, if COSCO again posts a loss this year, its A shares will be suspended from trading, with the possibility of being delisted.

"It will be quite hard for the company to turn a profit given the continuing glut of shipping capacity in both domestic and global markets," said Zhou Dequan, deputy director of the Shanghai International Shipping Institute's Shipping Market Analysis Department.

"So far, the only favorable development that can be expected is that many of the expensive five-year vessel leases China COSCO signed in early 2008 will expire this year."

The shipping giant got trapped in these long-term, high-rate vessel leases - big contributors to its continuous losses - during the 2008 boom when the Baltic Dry Index (BDI), a gauge for measuring shipping costs of bulk commodities, recorded its historic high of 11,793 points. Since then, the financial crisis has driven the BDI down significantly, and it fluctuated between 600 and 1,200 points last year.

According to Liu Zhe, a stock commentator for the China Business News, China COSCO will be able to reach a break-even point only when the BDI is above 1,500 points, much higher than its current level of 792 points as of Tuesday.

Also during Tuesday's meeting, COSCO's Guo confirmed that Wei Jiafu, chairman of the company, did send letters to the State Council asking for government rescue, but he explained that it was on behalf of the China Shipowners' Association that Wei wrote the letters, as he also chairs that organization.

"Offering exclusive policy support to China COSCO would be not only unfair to other players in the shipping market, especially privately owned ones, but also harmful to the company's future development," Zhou noted.

"But it doesn't mean the shipping industry doesn't need any help from the government," he said. "The relevant authorities should lower the taxation levels for Chinese shippers to relieve some of the cost pressure faced by the industry."