Shipbuilding: COSCO Warns of Struggle if Credit Tightens

COSCO Corp (Singapore) , part of one of China's largest shipbuilding groups, warned that its customers could struggle to pay their bills as funding costs rise, after posting sales on credit at their highest level in 11 years.
 

The Singapore-listed subsidiary of Chinese state-owned maritime conglomerate China Ocean Shipping (Group) Company said trade and other receivables -- sales for which the company has not received cash payment -- rose more than 60 percent so far this year to S$4.7 billion ($3.7 billion).
 

Reporting an almost 70 percent jump in third-quarter profit on Monday, the company said higher receivables reflected a rise in construction contracts in its marine engineering segment.
 

But the company said tougher credit conditions would hurt. "The availability and cost of credit may tighten, particularly with the unwinding of monetary policy stimulus, which may adversely affect the ability of customers to meet their financial obligations," the company said. Analysts agreed.
"The high receivables may have something to do with some customers delaying payment," said Yeak Chee Keong, an analyst at brokerage Maybank Kim Eng.

China's huge shipbuilding industry has been aggressively moving into building rigs and vessels for offshore oil and gas activities, as the market for the traditional ships remains in the doldrums due to persistent oversupply. Some Chinese shipyards, including COSCO's, have improved their track record on offshore construction, but the market for those assets is facing growing pressure, not least from a slump in oil prices that threatens to curb interest in offshore exploration and production.

COSCO Corp said its order book stood at $8.9 billion at the end of September, versus $7.8 billion at the end of 2013. It reported a net profit of S$7.1 million on revenue of S$1.2 billion for the quarter, lifted by shipyard and dry bulk shipping turnover. Profitability, however, was lower than analysts had expected. Its quarterly gross margin stood at under 5 percent. "They have been treading on the bottom margin for a while and you wonder when they will scale up," said Yeak. He had expected the company's gross margin for the year to reach 9 percent.

(Reporting by Rujun Shen; Additional reporting by Tripti Kalro in BANGALORE; Editing by Clara Ferreira Marques)