China Rongsheng profit dives as new ship orders dry up
HONG KONG (Reuters) - China Rongsheng Heavy Industries Group (1101.HK), the country's largest private shipbuilder, posted its sharpest fall in half-year profit - down 82 percent - on a dearth of new orders, putting further pressure on its stretched balance sheet.
In a stubbornly downbeat global economy, the shipping industry has suffered widespread losses, with many small and medium sized Chinese builders close to bankruptcy as bankers cool on a sector struggling with a glut of vessels ordered during the boom times.
Rongsheng warned on Tuesday that economic uncertainties such as the euro zone debt crisis would continue to weigh on the global shipping market.
"The shipbuilding industry is expected to continue its consolidation and to experience further restructuring with the elimination of low-end surplus capacities," it said in its results statement.
Listed in November 2010, Rongsheng has also been hit by an insider dealing scandal involving a firm owned by its chairman Zhang Zhirong ahead of CNOOC's (0883.HK) $15.1 billion bid for Canadian oil firm Nexen Inc NXY.TO.
Cash-strapped Rongsheng, which posted its sharp profit decline even after a government subsidy of 670 million yuan ($105.4 million), said last week it was looking to exit a 2.15 billion yuan ($338 million) bid for Chinese diesel engine maker Anhui Quanchai Engine Co (600218.SS) due to the weak global economic conditions.
"That will help lower its capital expenditure, but the crux is whether banks are still willing to lend," said Winnie Guo, an analyst at CCB International.
Rongsheng's market value has shrunk by more than 86 percent to HK$7.8 billion since its initial public offering at HK$8 per share. The stock ended down 1.8 percent on Tuesday at HK$1.11.
January-June net profit slumped to 215.78 million yuan ($33.9 million) from 1.22 billion yuan a year ago, which included about 800 million yuan in government subsidies, after it failed to log any major new orders.
The company said it won orders for just two new vessels with a total contract value of $55.6 million. In the first half of last year it won orders for 24 vessels worth $1.08 billion.
Building very large ore carriers (VLOCs), the world's biggest commodity transporters, for Brazilian mining giant Vale (VALE5.SA) (6210.HK), Rongsheng ranked third in the world last year in new ship building orders as measured by deadweight tonnes.
Rongsheng has delivered three of the 12 VLOCs ordered by Vale, and one to Oman Shipping Co, which has also ordered four VLOCs which will be contracted out to Vale. Rongsheng expects all 16 VLOCs to be delivered by the end of 2013.
Rongsheng's gearing - the ratio of its total debt against total debt plus equity - surged 2.6 percentage points to 64.4 percent at end-June from a year ago - the highest among listed Chinese rivals such as Yangzhijiang Shipbuilding (Holdings) Ltd YZJ.SI, COSCO Corp (Singapore) Ltd (COSC.SI) and Guangzhou Shipyard International Co Ltd (600685.SS) (0317.HK), analysts said.
Yangzijiang Shipbuilding said earlier this month it cancelled 8 new vessel contracts in April-June as customers failed to pay. Its net profit fell 9 percent.
($1 = 6.3594 Chinese yuan)
(Reporting by Alison Leung; Editing by Ian Geoghegan)
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