HONG KONG, July 5: China Rongsheng Heavy Industries Group, China’s largest private shipbuilder, appealed for financial help from the Chinese government and big shareholders on Friday after cutting its workforce and delaying payments to suppliers.
The company’s distress underscores the pressure on China’s shipbuilding industry, which has suffered from overcapacity and shrinking orders amid a global shipping downturn. New ship orders for Chinese builders fell by about half last year.
China Rongsheng said it was expecting a net loss for the six months that ended June 30 from a year earlier, according to a filing to the Hong Kong stock exchange. It gave no figures.
But it reported a net loss of 572.6 million yuan ($93.47 million) in 2012, its worst-ever, despite getting government subsidies of 1.27 billion yuan in that year, its latest annual report shows.
The company’s shares were down more than 14 percent in Hong Kong, at a record low. Shares in the company, which listed in 2010, were suspended on Thursday following media reports it had laid off 8,000 workers. The broader Hang Seng Index was up 1.4 percent.
‘Obviously it’s bad with the fact that you have a profit warning and there is a request to ease financial pressure through the government,’ said Nathan Snyder, a transport analyst at CLSA. ‘Every shipbuilder is in a similar position at the moment in China.’
In its filing, China Rongsheng said some workers had been made redundant, although it gave no numbers or timeframe for the losses. The Wall Street Journal said this week there had been 8,000 job cuts in recent months, representing about 40 percent of China Rongsheng’s workforce.
The company is a major supplier of bulk carriers that ship iron ore from producer nations such as Brazil to China. Brazil’s Vale is one of its customers. China Rongsheng has said it won only two shipbuilding orders worth $55.6 million last year when its target was $1.8 billion worth of contracts.
CASH FLOW STRAIN
China Rongsheng was coping with tightened cash flow by delaying payments to suppliers and workers, the filing said. It denied claims suppliers had towed away machinery from its Nantong production base in eastern Jiangsu province, near Shanghai.
The company said it was in talks with banks and other financial institutions to renew existing credit lines.
According to its December 2012 annual report, issued on March 26, China Rongsheng’s cash and cash equivalents fell to 2.1 billion yuan from 6.3 billion yuan a year ago.
It had borrowings of 16.26 billion yuan that were due in less than a year, said the report, the latest financial statistics available on the company’s website. Total borrowings were 25.1 billion yuan as of the end of 2012.
‘The group is also actively seeking financial support from the government and the substantial shareholders of the company, and increasing its efforts in negotiations with its customers to maximise the collection of receivables,’ it said in the filing.
One shareholder, founder and former chairman Zhang Zhirong, gave an interest-free 200 million yuan loan on Wednesday, the company said.
A note from Macquarie Equities research said the company’s statement highlighted the ‘severity’ of its liquidity problems. The loan from Zhang was a surprise, it said, showing how badly the company needed cash.
Receivables pending for more than six months rose to 83 percent from 21 percent a year ago, the annual report said. The industry slowdown was also taking its toll on sales, with inventory turnover at 136 days, up from 73 days.
CONFIDENCE
‘Rongsheng will need to address the problems immediately to reassure the market,’ said Martin Rowe, managing director of Clarkson Asia Limited, a global shipping services provider.
‘Over the longer term, they should be able to write the debt down to a manageable level. So the debt per se is less an issue. It’s more about the problem of confidence in the market.’
The Chinese government has been trying to support the domestic shipping industry since the 2008 financial crisis, and local media reports said this week Beijing was considering policies to revive the shipbuilding business.
The holding orders of Chinese shipyards dropped 23 percent in the first five months of this year compared with a year earlier, according to the China Association of the National Shipbuilding Industry. New orders dropped to a seven-year low in 2012.
While the Chinese shipbuilding industry was facing ‘unprecedented challenges’, the company’s board was confident China Rongsheng’s management could ease pressure on working capital in the near future and maintain normal operations, the filing said.
Some analysts expect the sector to face more turbulence in the coming months. A recent uptick in the Baltic Freight index, the shipping industry benchmark, has failed to lift the company’s stock price.
($1=6.1258 yuan)
(AGENCIES)
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