China Rongsheng Heavy Industries Group Holdings Ltd. (1101), the shipyard seeking financial assistance from the government, surged the most in more than nine months after it agreed to issue convertible bonds to raise capital.
The company aims to raise a net HK$1.38 billion ($178 million) from selling the bonds to Action Phoenix Ltd., it said in a statement to the Hong Kong stock exchange yesterday. The bonds maturing in 2016 have a coupon of 7 percent, and an initial conversion price is HK$1 a share, about 22 percent more than yesterday’s closing price, the Shanghai-based company said.
The country’s largest shipyard outside state control said July 5 it was seeking help from the government after a plunge in orders forced it to reduce production and “restructure” its workforce. Chinese shipmakers are struggling as a global vessel glut makes orders more difficult to win and pushes down prices.
“Rongsheng is desperate for cash as there are signs that its balance sheet is really stretched,” said Lawrence Li, a Shanghai-based analyst at UOB-Kay Hian Holdings Ltd. (UOBK) “The much-needed money will help ease pressure, but this is far from enough.”
Rongsheng had a total of 28.8 billion yuan ($4.7 billion) of debts as at the end of last year, according to data compiled by Bloomberg. That included 19.34 billion yuan of short-term debt.
The sale represents “an opportunity to enlarge and diversify the shareholder base of the company, to improve the liquidity position,” Rongsheng said.
Should all the bonds be converted, Action Phoenix will own 16.67 percent of the enlarged share capital, it said.
The order book at China’s shipbuilders fell 23 percent at the end of May from a year earlier, according to China Association of the National Shipbuilding Industry data. Yards have cut down-payment requirements, with some slashing their rates to as little as 2 percent of contract value compared with 60 percent during the shipbuilding boom, according to UOB-Kay Hian Holdings.
Action Phoenix is a member of VMS Investment Group, which is mainly engaged in proprietary investments, asset management, securities brokerage and corporate finance advisory services, according to the exchange filing.
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