COSCO's $170 million bulk purchase of ships

2014-06-15 09:00

On the evening of June 13, COSCO SHIPPING announced that its subsidiary, Prosperity Investment 2011 Limited, as the buyer, signed a shipbuilding agreement on June 13 with China Shipbuilding Huangpu Wenchong Shipbuilding Co., Ltd. and China Shipbuilding Industry Trading Co., Ltd. as joint sellers. The agreement stipulates that China Shipbuilding Huangpu Wenchong Shipbuilding Co., Ltd. will build, launch, equip, and deliver four 64,000-ton handysize bulk carriers to Prosperity Investment 2011 Limited, at an agreed price of US\$28.28 million per vessel.
　　Simultaneously, Prosperity Investment 2011 Limited, as the buyer, signed a shipbuilding agreement on June 13 with Jiangnan Shipyard (Group) Co., Ltd. and China Shipbuilding Industry Trading Co., Ltd. as joint sellers. The agreement stipulates that Jiangnan Shipyard will build, launch, equip, and deliver two 78,000-ton Panamax vessels to Prosperity Investment 2011 Limited, at an agreed price of US\$31.25 million per vessel.
　　In summary, the total agreed price for the four bulk carriers is US\$113.12 million, and the total agreed price for the two Panamax vessels is US\$62.50 million. COSCO SHIPPING stated that signing these shipbuilding agreements through its subsidiary aims to optimize the company's bulk carrier fleet structure and enhance the overall competitiveness of its fleet.
　　Some analysts believe that because the BDI index has approached its historical low, dry bulk shipping companies are facing huge losses. The downside risk of the BDI is not significant, and with the recovery of shipping demand, the BDI may stop falling and rebound. COSCO SHIPPING's procurement of vessels at this stage indicates a recovery in the shipping industry. "COSCO SHIPPING's stock price may rise with the BDI. COSCO SHIPPING operates the largest dry bulk carrier fleet, and its valuation is highly correlated with the BDI. Since the beginning of 2013, the correlation coefficient has been as high as 0.78. Once the BDI stops falling and rebounds, it will drive up COSCO SHIPPING's valuation."

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