China’s Rongsheng Overdue on $43 Million in Loans

China Rongsheng Heavy Industries Group Holdings Ltd. (1101), the private Chinese shipbuilder whose woes made it a symbol of the country’s credit binge, remains overdue on 262 million yuan ($43 million) of bank loans after making late payments on its debt last month.

The company was overdue on principal and interest payments on 8.57 billion yuan of bank loans on June 30, according to a Hong Kong stock exchange filing yesterday. In July, the shipbuilder made full interest payments on 8.3 billion yuan of those borrowings, it said in the filing.

Banks haven’t yet taken any action to enforce the loan agreements and demand immediate repayment, Rongsheng said. The company said it has also received preliminary consent from a bank for a waiver on a 609.2 million-yuan loan for which the company is in breach of its covenants.

The Shanghai-based maker of bulk carriers and oil tankers suspended trading in Hong Kong yesterday pending an announcement about a restructuring plan after posting its fourth straight interim loss. Rongsheng yesterday reported a first-half net loss of 3.06 billion yuan, more than twice the loss in the year-earlier period.

China’s second-largest private shipyard has been struggling to capitalize on a recovery in the country’s shipbuilding industry after cutting its workforce and running up huge debts amid a global downturn in orders. Rongsheng’s struggles illustrate the difficulties private shipbuilders face in competing with state-owned yards that have government backing and easier access to financing.

Bond Sales

Rongsheng shares have fallen 28 percent since reaching HK$1.90 on May 15 after the company announced a series of bond sales. The stock was still up 12 percent this year, closing at HK$1.36 on Aug. 28 before the company halted its shares from trading yesterday morning.

Rongsheng’s current liabilities exceeded its assets by about 12.3 billion yuan as of June 30, the company said. It had 393.5 million yuan in cash on June 30 and is due to repay 17.1 billion yuan in debt by next June.

The company raised about HK$4 billion in the first half by issuing bonds that can be converted to stock. That sum included up to HK$1 billion sold in May to a holding company controlled by Shi Yuzhu, the billionaire chairman of New York-listed gaming company Giant Interactive Group Inc., leading to speculation he might be seeking an overhaul.

Ship Orders

The company’s finances have made it difficult to attract new ship orders, which surged 78 percent year on year in China in the six months that ended in June, according to the China Association of the National Shipbuilding Industry. That increase didn’t make up for the industry’s decline in recent years, Rongsheng said in its statement. The company also faced a drop in upfront payments that shipbuilders count on to cover costs.

“Due to the sluggish performance of the global shipping market, coupled with the mandatory implementation of new shipbuilding standards and regulations imposed by the International Maritime Organization, ship owners were reluctant to accept delivery of vessels, resulting in higher vessel delivery risk,” Rongsheng said.

Rongsheng’s sales tumbled 78 percent to 340.6 million yuan in the first half of the year, during which it avoided “low-price orders,” the company said. It secured contracts for six vessels at a total value of $167.4 million. As of the end of June, Rongsheng had 90 vessels on its order book worth about $4.2 billion.

Oil Tankers

Eight shipbuilding contracts were canceled, two of which were sold to another customer, the company said. It delivered three Panamax bulk carriers and two Suezmax crude oil tankers in the period, representing a total volume of 542,000 deadweight tonnage.

The company in the first half refunded installments and paid interest penalties of 1.21 billion yuan to customers who canceled shipbuilding contracts, according to the filing.

Rongsheng said Chinese low-speed marine diesel engine technology lagged the sophistication of its Korean and Japanese rivals, which sold their products at a discount in China.

In a move to diversify its business away from shipbuilding, Rongsheng said Aug. 21 that it plans to issue 1.4 billion shares to fund the acquisition of a 60 percent stake in oil fields in Kyrgyzstan.

To contact the reporters on this story: Clement Tan in Hong Kong at ctan297@bloomberg.net; Joshua Fellman in New York at jfellman@bloomberg.net

To contact the editors responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net Ben Livesey, Stephen West

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