Update | Honghua shares tumble after being folded into China Aerospace

Honghua Group, one of the world’s largest assemblers of onshore oil and gas drilling rigs, has been folded into state-owned China Aerospace Science & Industry Corp (CASIC), in a restructuring of the unprofitable and debt-ridden rig maker amid the global slump in oil prices.

Shares of Honghua tumbled 15.5 per cent Tuesday to 82 HK cents, after the announcement of the restructuring, as the price of the new stock were issued at a discount of 20.6 per cent to Monday’s closing price.

Honghua intends to use half of the net proceeds for repayment of its debts and the rest to bolster its general working capital, the company said.

“The directors believe the subscriptions will strengthen the group’s cash position, widen its shareholder base and will not result in additional interest expenses,” according to its statement.

Shenzhen-based CASIC is a technology firm directly owned by China’s central government, operating six publicly traded companies with more than 120,000 employees, according to its website. It’s a Honghua customer of electrical drives that supply mechanical energy for motion control.