By Staff reporter Wen Xiu

Different regulations in domestic and overseas markets put COSCO Singapore in difficulty, said president of the company.

COSCO Corp (Singapore) has for the first time responded to the recent queries concerned that the company's equity incentive plan violates China's regulations, saying the company is facing different requirements from domestic and overseas markets.

"As one of the largest state-owned companies listed in Singapore,” said Ji Haisheng, president and vice-chairman of board of the company, “COSCO Corp must follow the regulations in Singapore."

COSCO Corp (Singapore) is a ship building and repair subsidiary of China's largest shipping group COSCO, which is under the direct supervision of State-owned Assets Supervision and Administration Commission (SASAC). COSCO Corp (Singapore) has listed in Singapore since 1993. The company's practice of granting equity options to senior managers were found in contradiction with the requirements issued by the SASAC.

To enhance supervision of China's overseas listed state-owned enterprise (SOE), the SASAC issued two regulations in January 2006. They tightened the control over the equity incentive plan of those companies. In October the next year, the administration again deemed to further regulate SOE's practices in granting equity options to senior managers. China's major overseas listed SOEs suspended plans of granting and exercising equity options.

However, SASAC's intention had little impact on the actions of COSCO Corp (Singapore). From February 2007 to March 2008, the company continued to grant equity options following its equity incentive plan originally set into motion in 2002. In 2007, Ji Haisheng sold 945,000 shares and transferred 500,000 shares of his holdings to his family members in February 2008.

On March 23, COSCO Corp (Singapore) again offered 21 million stock options at SGD 2.95 per share. Ji Haisheng gained 900,000 shares under the scheme.

Caijing learned that by the end of 2007, COSCO Corp (Singapore) has offered its directors equity options totalling 39 million shares.

Contradictions with SASAC regulations in details of the equity incentive operations also exist in COSCO Corp (Singapore)'s equity incentive plan.

An official from SASAC told Caijing that the case of COSCO Corp (Singapore) reflects the lack of supervision for many overseas listed SOEs. "Every state-owned enterprise should operate in line with relative regulations,” said the official. “Any violation should be corrected."

Ji Haisheng told Caijing that the company's equity incentive plan was approved by shareholders meeting in 2002. According to law in Singapore, shareholders meeting is the highest authority in a company, therefore, the company must practice as what the shareholders meeting approved before any revision is made.

"COSCO Corp (Singapore) is a listing company in Singapore,” told Ji Haisheng, “and the SASAC is only one of the shareholders, not the 100 percent controlling shareholder."

Ji Haisheng claimed that COSCO Corp (Singapore)'s practice of equity incentive plan is in line with the company's development and the local rules in Singapore, "there are 50 blue-chip companies in Singapore exchange, some of them have equity incentives amounting to 10 million Singapore dollars, but we only have around 1 million Singapore dollars, one tenth of others."

COSCO Corp (Singapore) has seen a robust growth in the past five years. Its gross profit surged from SGD 13 million in 2003 to SGD 497 million in 2007, with ROE rate of 42 percent.

However, a recent contract cancellation incident raised concern on the company's business perspective. On April 10th, COSCO Corp (Singapore) announced it canceled a 202 million US dollar order to build a semi-submersible oil rig hull because Red Flag A.S. of Norway didn't pay a deposit for the construction to proceed.

Although the company also announced a new contract worth 292 million US dollars, the company hasn't received initial payments for 20 percent of its existing shipbuilding contracts, raising the possibility of more cancellations

Later that day, COSCO Corp (Singapore) plunged 15 percent, the biggest drop in almost seven years.