Shipbuilder China Rongsheng in oil and gas move amid widening losses

China Rongsheng Heavy Industries is diversifying into oil and gas exploration via a HK$2.2 billion acquisition in Kyrgyzstan, one week before the embattled shipbuilder is scheduled to report deepening losses from its mainstay shipbuilding business.

The Hong Kong-listed, Jiangsu-based company said in a statement that it had agreed to buy a 60 per cent stake in New Continental Oil & Gas, a company that operates four oilfields in Kyrgyzstan with the country's national oil company.

Rongsheng said the diversification into the energy sector would help it "withstand risks and to alleviate the periodic [volatility of] the shipbuilding business".

"The company expects to realise a dramatic increase of oil output through upgrade and consolidation of the existing exploration technology and thereby to generate steady operating cash flows," it said.

The shipbuilder plans to finance the acquisition via the issue of 1.4 billion shares at HK$1.56 per share, a 12.23 per cent premium over the closing price yesterday. The newly issued shares represent 19.7 per cent of Rongsheng's current share capital and will be allotted to existing shareholders.

The issuance will dilute the stake held by its former chairman Zhang Zhirong to 24.12 per cent from 28.87 per cent, the statement says.