China Rongsheng sweats on rescue package
Nation's biggest privately owned shipbuilder makes a forlorn plea for aid from government and creditors amid a crippling downturn
China Rongsheng Heavy Industries' cry for help from the government and creditors to get it through a sharp downturn for shipbuilders is likely to fall on deaf ears, industry experts say.
The mainland's largest privately owned vessel maker has seen its shares sink in value as mounting debts and falling orders forced it to seek a rescue package and slash its workforce. The company's actions resulted in a protest that sealed off the entrance to its main plant and led to the suspension of trading in its shares on Thursday.
"The shipbuilding industry is like a falling knife and the worst is yet to come," said Wang Xuefeng, a professor at Shanghai Maritime University. "It will be some time before the shipyards can see a ray of hope."
A severe vessel glut that resulted in a sharp fall in orders has been plaguing the shipyards in China, the world's largest shipbuilding country. The China Association of National Shipbuilding Industry predicts a third of the nation's 1,600 shipyards would be closed in five years.
Rongsheng was saddled with short-term debts of 19.3 billion yuan (HK$24.2 billion) at the end of last year when it posted an annual loss of 572.6 million yuan.
Beijing's determination to tighten monetary policy became the straw that "broke the camel's back" as banks refused to extend new loans to Rongsheng while forcing it to pay back the debts overdue, according to an industry official close to the private shipbuilder.
"Banks are not ignorant of the industry's gloomy outlook," the source said. "Neither the central government nor the local authorities were willing to help the troubled shipyards out, particularly privately owned ones."
The orders Chinese shipbuilders received in this year's first five months dropped 23 per cent from a year earlier, the shipbuilders' association said.
Shares in Rongsheng, which has its major production facility in Rugao, Jiangsu province, plummeted 16 per cent to 89 HK cents yesterday after Thursday's trading break.
The company said in a statement yesterday that the chaos at the entrance had been resolved and the workers had left.
Rongsheng said it was in talks with several banks for a rescue package to ease the capital strain and ensure smooth production, adding that it was also seeking support from the government and major shareholders for bailout money.
With the mainland leadership adamant on deleveraging an economy facing increasing financial risks, a capital crunch occurred in the banking system last month and spread to manufacturing sectors. Shipbuilders became key victims of the monetary tightening.
Industry officials said strikes by idled workers at yards in Nantong, Jiangsu, one of the nation's major shipbuilding bases, had become more common in the past two years.
Mainland shipbuilders aggressively expanded their production in the past decade on the assumption that soaring trade volumes would sustain huge demand for vessels. They have grappled with a vessel glut since the global financial crisis in 2008.
Rongsheng's major shareholder and co-founder Zhang Zhirong agreed to offer an interest-free 200 million yuan loan to the company, it said in the statement.