China Shipbuilding Sector Set to Contract, Yangzijiang Says

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Yangzijiang Shipbuilding Holdings Ltd., China’s biggest privately owned shipyard, expects the country’s shipbuilding industry to shrink significantly in the next three years, reversing almost a decade of boom.

In three years time, there may be only 30 “active” shipyards in China, from more than 100 now, Chairman Ren Yuanlin said Thursday in a news briefing in Singapore, where the company’s stock is traded.

“There will be mergers and acquisitions as well as closures as the shipbuilding industry undergoes restructuring,” Ren said. The shipping sector doesn’t look “optimistic” at the moment, he said.

Orders at Chinese shipyards, the world’s third-largest, have fallen 77 percent in the first quarter from a year earlier. Builders have sought support from the government as excess vessel capacity drives down shipping rates and prompts some shipowners to cancel contracts. China Huarong Energy Co., once the nation’s largest private yard, ran into financial difficulties in the past two years amid a slump in contracts and competition with state-owned vessel builders.

Yangzijiang is reviewing a proposal made by China Development Bank, Bank of China and others to buy a stake in the shipbuilding and offshore engineering businesses that Huarong, previously called China Rongsheng Heavy Industries Group Holdings Co., is selling, Ren said.

Asset Sale

Shares of Yangzijiang rose as much as 1.7 percent to S$1.47 in Singapore. The stock has climbed nearly 22 percent this year, compared with a 3.4 percent increase in the benchmark Straits Times Index.

Ren said the proposal the company received on Huarong’s assets lacked details, and the company needs time to assess it. A decision will be made by June, he said.

Huarong said in March that it’s talking with a Chinese company that’s listed domestically to sell the businesses. It has been searching for funds after the global economic slowdown and massive overcapacity had what it called a “profound impact” on the shipping industry last year. The company is shifting its focus to energy, as reflected in its name change.

If Yangzijiang decides to buy a stake, it may raise part of the funds in the Singapore stock market, and also could tap Hong Kong, Ren said, without elaborating.

Yangzjiang has told the creditors and other parties that it would consider investing only if the businesses Huarong is selling are “clean” of debt, Ren said.

“We will study the proposal very carefully before we make our decision,” he said.

Low Activities

China’s shipbuilding industry is undergoing a restructuring as global orders for vessels have slumped. The government last year identified 51 shipyards, including Yangzijiang, deemed worthy of policy support.

Utilization of shipbuilding facilities in China has fallen to 60 percent this year, which is “substantially” lower than the global average and the optimal level for the industry, Yangzijiang said. In 2010, the rate was 75 percent.

Yangzijiang won $370 million of orders in the first quarter, down from $1.07 billion a year ago. Its orderbook stood at $4.6 billion at the end of March, with deliveries stretching until the end of 2016. The company is in talks with foreign customers to build four liquefied petroleum gas carriers, Ren said, without naming the customers.

Earlier Thursday, Yangzijiang reported first-quarter net income of 707 million yuan ($114 million) on revenue of 3.04 billion yuan, down from 799.2 million yuan income and 3.55 billion yuan revenue a year earlier.

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