* 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 (Reuters) - 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 global downturn.
“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.
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 energy sources.
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 of contracts.
$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