China Rongsheng upbeat despite cash concerns
The mainland's largest private shipyard posts underlying six-month loss of 1.3 billion yuan amid a severe debt crisis and survival worries
The severe cash position at China Rongsheng Heavy Industries has raised doubts about whether the mainland's largest private shipyard can continue to operate despite the raising of 1.4 billion yuan (HK$1.76 billion) in convertible bonds earlier this month.
The money raised was just a fraction of its total borrowings of 25 billion yuan as at June 30 - of which 15 billion yuan will be due for repayment next June, according to the company's latest filing to the Hong Kong stock exchange.
The shipbuilder posted an underlying loss of 1.3 billion yuan in the first six months of the year, excluding a revaluation gain on its assets. This compares to a profit of 243 million yuan a year ago. It had net cash and cash equivalent of 870 million yuan as of June 30.
The gloomy situation facing the entire shipping trade this year is not helping as the company has secured orders for only two new dry bulk carriers totalling 360,000 deadweight tonnes and another order for a marine engine over the period.
While chief financial officer Sean Wang said the company is confident of meeting its financial obligations through loan refinancing and other means, a number of uncertainties may cast into doubt the group's ability to continue as a going concern.
These include requests by ship buyers to postpone delivery of new vessels amid slowing trade and oversupply, which in turn led to slower collection of debt for Rongsheng.
Meanwhile, capital expenditure of 1.31 billion yuan last year to develop its offshore engineering sector, including the development of gas carriers and high-end products such as drilling vessels and offshore platforms, will further strain the company's cash position.
These investments promised to create new growth momentum for the company as they were among the highlighted sectors for government support.
Company chairman Chen Qiang said there would be no more large capital expenditure looking ahead because Rongsheng had already had made the bulk of its investments in research and manpower.
"Our offshore engineering business will begin generating profit for the company next year," he said. The company has received one international order of a tender barge so far.
Chen said the shipyard had not actively pursued new orders because ship prices were at a historic low. Any contracts committed to now could incur losses for the company.
The company still has 86 vessels on its order books with a value of US$4.6 billion - the highest among other mainland shipyards. All are due to be delivered by 2016.
China Rongsheng's share price closed 5.88 per cent lower at 96 HK cents yesterday.