HONG KONG Trading in shares of China Rongsheng Heavy Industries Group Holdings Ltd (1101.HK), China's largest private shipbuilder, was suspended on Thursday in the wake of media reports that said it had laid off 8,000 workers in recent months.
The company, suffering from a downturn in the global shipping industry as well as China's own economic slowdown, said it had sought the suspension pending clarification of the news articles, according to a filing to the Hong Kong stock exchange.
No further details were available and China Rongsheng declined to comment, but analysts said the company's balance sheet was under pressure. On Wednesday, its shares closed down 10 percent at HK$1.06.
China's shipbuilding sector has struggled and consolidated since a major shipping market slump in 2008 that saw shipping orders shrivel.
Local media reports said a large number of small to mid-sized shipping firms went bankrupt during the past year due to major overcapacity in Chinese shipyards and the economic slump.
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 meanwhile dropped to a seven-year low in 2012.
"The problem is that their order-books are now running down, creating massive over-capacity," said Singapore-based Vincent Fernando, an analyst with Religare Capital.
"Moreover, Rongsheng has been suffering due to a major receivables past due problem, thus liquidity is a major concern. I think they are being forced to slash their workforce due to the extreme circumstances the company finds itself in."
The Wall Street Journal said the job cuts at China Rongsheng represented some 40 percent of the firm's workforce. The cuts sparked protests by workers earlier this week, according to media reports.
A company executive told The Wall Street Journal the layoffs were not a sign of financial distress but the result of a restructuring aimed at making more specialized vessels used in the offshore oil-and-gas industry.
China Rongsheng is a major supplier of bulk carriers that ship iron ore from producer nations such as Brazil to China. Brazil's Vale (VALE5.SA) is one of its customers.
"We expect a continuing deterioration in the balance sheet given weak overall demand growth for bulk vessels, Rongsheng's core product," Barclays analyst Jon Windham said in a report.
China's economic downturn is shaping up to be the worst in at least 14 years, with growth possibly missing Beijing's 7.5 percent target this year.
And an unprecedented cash crunch in China's financial markets last month, which saw interest rates briefly spike to record highs, may further drag on the economy.
According to its December 2012 annual report, issued on March 26, China Rongsheng's cash and cash equivalents fell to 2.1 billion yuan ($342.53 million) 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.
In the annual report, the company said it had "significant" cash outflows since some customers had sought to delay the delivery of new vessels.
Indeed, 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 up to 136 days from 73 days.
"Short term debt is seven times cash resources. That to me is a liquidity red flag. Industry conditions are terrible, freight rates have been low for the past 2-3 years and ship owners are behind on payments," said a Hong Kong based analyst who declined to be identified as he is not authorized to speak to media.
China Rongsheng is the country's largest private shipbuilder by accumulated order books. It is based in eastern Jiangsu province, near Shanghai, and went public in Hong Kong in 2010.
It posted a net loss of 572.6 million yuan ($92 million) in 2012, its worst-ever, despite receiving government subsidies of 1.27 billion yuan.
WILL GOVERNMENT HELP?
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 shipping industry downturn cut new ship orders for Chinese builders by about half last year.
Underscoring China's employment challenge, growth in the country's vast factory sector slowed to multi-month lows in June on faltering new orders.
The official purchasing managers' index (PMI) showed a sub-index measuring employment dropped slightly to 48.7 in June from 48.8 in May. A HSBC survey showed factories shed jobs last month at the quickest pace since August.
China's Sany Heavy Industry (600031.SS) laid off more than 10,000 people in the first half of 2012, although China's overall job market has been fairly robust so far, explaining in part Beijing's ease with the country's slowing economic growth.
($1 = 6.1308 Chinese yuan)
(Additional reporting by Keith Wallis and Xiaoyi Shao; Writing by James Pomfret, Editing by Raju Gopalakrishnan)