How China Aerospace will turn struggling Honghua’s fortune around

Honghua is banking on its new state-owned giant shareholder to bail it out of losses through clinching new orders from Chinese oil giants and financial support from Chinese banks

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Honghua, which has been in the red, is confident that its state-owned shareholder will be to give the company a new lease of life and open doors in the domestic Chinese market, which had previously shunned private sector suppliers. Photo: AFP

Published: 7:22pm, 14 Jun 2017Updated: 10:59pm, 14 Jun 2017

For smaller and floundering Honghua Group, its strategy to return to profit was simple: secure the backing of a state-owned giant.

Now that it is integrated into the folds of China Aerospace Science and Industry Corp (CASIC) – one of the nation’s two main state-owned aerospace and defence equipment makers, Honghua, China’s largest onshore oil rigs exporter, says it is confident its fortunes will be turned.

For starters, the previously privately-held company would be able to secure orders from the state oil and gas producers which had shunned private sector suppliers in the last few years amid Beijing’s anti-corruption drive.

“Honghua has good products and technology which have been exported overseas for years, but in the domestic market it has been limited by the state oil giants’ tendency of internal procurement and avoidance of doing deals with the private sector during the anti-corruption drive,” said Chen Yajun, Honghua’s newly-minted chairman after the company’s shareholders’ meeting on Wednesday.

Beijing’s anti-graft campaign over the past four years has put dozens of Chinese oil sector senior executives under probe or arrests, and saw the giants keep equipment and services procurement largely in-house.

Honghua chairman says the prime market segment discussed with oil giants centred on equipment and services for extraction of natural gas from shale rock formations. Photo: Jonathan Wong

“Strategic cooperation agreements signed early this year by CASIC with China National Petroleum Corp and China Petrochemical Corp will help re-open doors for business in the domestic market,” he said.