Troubled Rongsheng talks funds with Citic

Mainland's No 1 private shipbuilder planning issue of shares to one or a group of investors to raise US$200 million to strengthen capital

PUBLISHED : Tuesday, 26 February, 2013, 12:00am
UPDATED : Tuesday, 26 February, 2013, 5:08am

Rongsheng Heavy Industries, whose founding and controlling shareholder was caught up in an insider trading scandal last year, has entered closed-door talks with the capital-rich state-owned China Citic Group for new investment in the mainland's No 1 private shipbuilder.

People familiar with the matter told the South China Morning Post that Zhang Zhirong, whose family tightly controls Hong Kong-listed Rongsheng, planned to issue new shares in a private placement to one or a group of new investors to raise US$200 million to strengthen the company's financial position.

Zhang has reached out to Chang Zhenming, the chairman of Beijing-based Citic for negotiations on relevant fundraising matters, said the people who declined to be identified as the talks remained private and confidential.

Zhang could not be reached for comment. Citic was not available for comment.

If successful, the deal would be one of the biggest, and apparently the most high-profile, private placement transactions in Hong Kong so far this year.

Besides Rongsheng's talks with Citic, directly led by the State Council, Zhang also held talks with several major global private equity firms including American investment firm KKR, said the people.

Previous talks with KKR did not go further partly because the American investment firm was concerned about the heavy level of debt raised by Rongsheng over the past few years to support its business expansion.

However, Citic might be looking at the deal from a different perspective given its state-owned background, said one of the people.

"If Citic Group is in, it indicates that Rongsheng may someday be turned into a company controlled by the government if Zhang Zhirong is willing to exit at some point," said the person.

"Rongsheng is already the mainland's No1 private shipbuilder.

It is important for the government to own and keep it rather than to let it be in foreign hands from a strategic national security perspective

"It is important for the government to own and keep it rather than to let it be in foreign hands from a strategic national security perspective."

Last year proved to be a troublesome one for Zhang, 43, who eventually agreed to pay US$14 million to settle the insider trading case in the United States in October.

After the settlement, Zhang resigned as chairman of Rongsheng but remained as the biggest single shareholder of a company that is still tightly controlled by Zhang and his father.

Zhang's insider trading case was related to state-owned CNOOC's US$15 billion acquisition of Canada's Nexen, the biggest-ever overseas acquisition by a mainland Chinese company.

The insider trading scandal was discovered and made public by the US Securities and Exchange Commission at a time when CNOOC was seeking regulatory approvals for the deal, shocking investors and politicians in both China and Canada. The US claimed that Zhang profited from illegal trades before CNOOC's announcement that it would buy Nexen.

Earlier this month, CNOOC, China's largest offshore oil producer, completed the acquisition despite Zhang's insider trading case.

According to Forbes magazine, the personal wealth of Zhang, who was born in Jiangsu province but has lived in Shanghai since childhood, was estimated at US$2.6 billion as of March last year, making him one of the richest men in the country.

In addition to Rongsheng, Zhang also controls Hong Kong-listed developer Glorious Property.

Zhang needs new investors, in particular an entity like Citic with a strong government background, to help Rongsheng overcome business challenges and financial difficulties as the global shipbuilding industry suffers a downturn amid a weak economic recovery worldwide, said the sources.

"I think he needs not only money but also someone strong enough to help him boost investors' confidence in his company," said one person.

"In China, of course, more people know the name Citic than foreign investment brands like KKR."