Subsidies keep Rongsheng Heavy Industries in black

Fewer orders and higher finance costs slash the mainland shipper's first-half earnings

PUBLISHED : Wednesday, 22 August, 2012, 12:00am
UPDATED : Wednesday, 22 August, 2012, 4:21am

China Rongsheng Heavy Industries, the mainland's largest shipbuilder in terms of order backlog, saw interim net profit for the six months ended June 30 plunge 82.3 per cent to 215.77 million yuan (HK$263.7 million), down from 1.22 billion yuan in the same period last year.

Chief financial officer Sean Wang Shaojian said the shipbuilder received 670 million yuan in government subsidies in the first half of the year. Without this cash, it would have made a net loss.

Wang said the subsidies represented "long-term sustainable income as long as we contribute to the local and domestic economies".

The decline in profitability was also affected by an increase, to 567 million yuan, in finance costs after total short- and long-term borrowing rose to 28.66 billion yuan.

Revenue dropped 37.2 per cent to 5.46 billion yuan, down from 8.7 billion yuan in the first six months of last year.

Chief executive Chen Qiang said: "Our results are more or less in line with what the rest of the industry is achieving right now."

Reflecting the slump in the mainland shipbuilding industry, Rongsheng won orders valued at US$58 million for two Panamax vessels in the first half, against US$1.09 billion worth of contracts secured between January and June last year.

Despite the dearth of orders, Chen said the Jiangsu shipbuilder's order target this year was "not less than the level in 2011", when it secured contracts totalling US$1.81 billion.

The deals in the second half are expected to include contracts for up to four semi-submersible and tender drilling rigs from PrimePoint Oil & Gas, a Singapore-based hydrocarbons exploration company.

PrimePoint chief executive and managing director Idar Iversen said last night that talks were continuing and contracts could be agreed in the next few weeks.

Wang said the shipyard had a backlog of orders worth US$5.9 billion between January and June 2012 compared with US$6.6 billion worth of outstanding ship orders at the end of last year.

Chen said four very large ore carriers (VLOCs) had been delivered since the beginning of this year. These comprised three to Brazilian iron ore miner Vale and the first of four VLOCs to Oman Shipping, which was delivered on Monday.

A further three or four VLOCs would be delivered this year and Chen said all 16 VLOCs ordered by Vale and Oman Shipping would be delivered by the end of next year.

On a failed bid to acquire Shanghai-listed engine maker Anhui Quanchai Engine for 2.15 billion yuan, Chen confirmed that Jiangsu Rongsheng Heavy Industries had withdrawn its application with the China Securities Regulatory Commission for approval to buy the company.