* Full-year net loss balloons to $1.4 billion
* Chinese banks to extend loan facilities to 2015
* Analysts question banks' support as company struggles
* Cutting management pay by up to 50 pct
* Shares initially fell, then closed up 2.5 pct
(Recasts, adds quotes)
By Yimou Lee and Umesh Desai
HONG KONG, March 31 China Rongsheng Heavy
Industries Group has agreed with banks to extend loans
and other financing worth 10 billion yuan ($1.6 billion) to
2015, in a signal that the country's biggest private shipbuilder
may be too big to be allowed to fail.
Analysts questioned why banks would be willing to support
the shipbuilder, which many had predicted could be the biggest
casualty of a shipping industry battered by overcapacity in a
"No matter how much time you give them to repay debt, is
there an underlying business which is worth anything here?" Jon
Windham, an analyst at Barclays, told Reuters. "It's a bit like
a bank run. Even a rumour of insolvency can make a bank
insolvent, a self-fulfilling prophecy."
Chief Financial Officer Sean Wang said Rongsheng had "formed
a consortium of onshore banks and signed a framework agreement
with them to optimise and rearrange some of the bank loans."
"As a result, most of the onshore borrowings will be
extended to end-2015," he said on an earnings call with analysts
on Monday. The banks include Bank of China, The
Export-Import Bank of China and China Minsheng Bank.
Rongsheng said its full-year loss last year ballooned to
8.68 billion yuan ($1.4 billion) from a 572.6 million yuan net
loss in 2012. The company blamed a slump in new ship orders,
which were less than half its target, but it said it believed a
shipbuilding recession was over. Revenue dropped to 1.34 billion
yuan from 7.96 billion yuan a year earlier.
Rongsheng had asked the government for financial help last
July and warned in December of a substantial full-year loss.
Headquartered in both Shanghai and Hong Kong, Rongsheng said
it had 127 million yuan ($20.4 million) of loans overdue that
have not been renewed or repaid. Total borrowings and finance
lease liabilities are 22.41 billion yuan ($3.61 billion), with
13.7 billion yuan of that due within 12 months.
The company also hopes to get an injection of up to 3
billion yuan from Zhang Zhirong, its billionaire founder and
biggest shareholder who has been selling other assets to salvage
the business. It also plans to issue a convertible bond
amounting to HK$1 billion in April, scheduled for repayment in
October 2016. That would follow a similar convertible bond it
issued in January, due for repayment in July 2016.
NEW ENERGY FOCUS
Allowing Rongsheng more time to repay its debts has puzzled
analysts and industry experts given the highly leveraged
company's dwindling cash balance and short-term debt burden.
"I'm not sure what's driving banks to extend loans. The
company has high gearing, little cash and high short-term debt.
We need to know exactly what is the banks' strategy behind this
extension," said another analyst, who didn't want to be named as
he is not authorised to speak to the media.
The company's auditor, PricewaterhouseCoopers, declined to
comment further on its report that Rongsheng's "material
uncertainties ... may cast significant doubt about the group's
ability to continue as a going concern."
Rongsheng, which builds mining giant Vale's large
ore carriers, said it plans to focus more on large liquefied
natural gas (LNG) carriers to meet increasing demand for new
Shares in the company closed up 2.5 percent, after dropping
more than 5 percent to a 14-week low in early Hong Kong trading.
The benchmark Hang Seng Index rose 0.4 percent.
Rongsheng's market value has slumped more than 90 percent to
just above $1 billion since its Hong Kong listing in late 2010.
Rongsheng said it is cutting senior and middle management
pay by 30-50 percent. Analysts said it was not uncommon for
companies in China to pare back management salaries when times
are tough. As of end-December, Rongsheng had 4,738 employees,
down 28 percent from a year earlier. Three years ago, the
company employed about 20,000 staff and contractors.
The company said it won orders last year to build 23 vessels
worth $726 million, well below its target of $1.8 billion worth
($1 = 6.2122 Chinese Yuan)
(Additional reporting by Donny Kwok in HONG KONG and Sally
Huang in Beijing; Writing by Anne Marie Roantree and Kazunori
Takada; Editing by Ian Geoghegan)