Jiangsu Rongsheng Heavy Industries Group Co.
Another once-leading privately-owned yard China Huarong Energy Company, previously and better known as China Rongsheng Heavy Industries, continues to struggle with debts and ongoing talks with its creditors. The shipbuilder with huge yard facilities is now literally a ‘ghost yard’, where operations have ceased as funds dried up.
Jiangsu Rongsheng Heavy Industries Group Co. used to employ more than 30,000 people in the eastern city of Rugao. Once China’s largest shipbuilder, by 2015 Rongsheng was on the verge of bankruptcy. Orders had dried up and banks are refusing credit. Questions have been raised about the shipyard’s business practices, including allegations of padded order books. And Rongsheng was apparently behind on repaying some of the 20.4 billion yuan in combined debt owed to 14 banks, three trusts and three leasing firms.
Rongsheng is on the ropes now that it had completed a multi-year order for so-called Valemax ships for the Brazilian iron ore mining giant Companhia Vale do Rio Doce. The last of these 16 bulk carriers, the Ore Ningbo, was delivered in January 2015. With a carrying capacity of up to 400,000 tons, Valemaxes are the world’s largest ore carriers. Vale hired Rongsheng to build the ships starting in 2008, and has tolerated the shipyard’s slow pace: The Ore Ningbo was delivered three years late. Rongsheng employees said the Ore Ningbo may have been the shipyard’s last product because no new ship orders are expected and all contracts for unfinished ships have either been canceled or are in jeopardy.
Founder and former chairman Zhang Zhirong started the company in 2005 with money made when he worked as a property developer in the 1990s. The new shipyard stunned the industry by clinching major vessel orders from the start, even at a time when most of the world’s shipyards were slumping. Rongsheng’s success attracted investors and banks to the company’s side, fueling its expansion.
The shipyard, a sprawling facility spread across one-third of Changqingsha Island in the middle of the Yangtze River, suffered from a lack of capacity and management problems. As a result, the company had trouble meeting its contract obligations, including delivery timetables. Rongsheng’s problems were tied to difficulties with delivering ships. Many of Rongsheng’s order cancellations were due to its own delivery delays.
After the global financial crisis of 2008, many ship owners could no longer afford paying in advance for new vessels. So builders such as Rongsheng started arranging up-front financing with Chinese banks that got projects off the ground.
Rongsheng built ships with a combined capacity of 8 million tons in 2010 and was preparing to begin filling US$ 3 billion in new orders the following year. But the company’s 2011 orders wound up totaling only US$ 1.8 billion. That same year, Rongsheng’s customers canceled contracts for 23 new vessels.
In 2012, Rongsheng received orders for only two ships. Layoffs ensued, with some 20,000 workers getting the axe. The company closed the year with a net loss of 573 million yuan, down from a 1.7 billion yuan net profit in 2011 and despite 1.27 billion yuan in government subsidies. The bleeding worsened in 2013, with 8.7 billion yuan in reported losses. Despite a recovery of the Chinese shipbuilding industry in 2014, Rongsheng saw no relief, as its clients canceled orders for 59 vessels that year.
Roxen Shipping, a company controlled by Chinese businessman Guan Xiong, reportedly stepped in to rescue some US$ 2 billion worth of ship contracts that were canceled by Rongsheng’s other customers. Without these orders, Rongsheng never would have maintained its status as the No. 1 shipbuilder in China from 2009 to 2013.
Rongsheng’s capital crunch worsened since February 2014, when the China Development Bank (CDB) demanded more collateral after the company failed to make a scheduled payment on a 710 million yuan loan. When Rongsheng refused, the CDB called the loan. Other banks that issued loans to the shipbuilder had taken similar steps.
Rongsheng’s weak financial position was highlighted by a third-quarter 2014 financial report in which the company posted a net loss of 2.4 billion yuan. It also reported 31.3 billion yuan in liabilities, including 7.6 billion yuan worth of outstanding short-term debt. It would cost at least 5 billion yuan to restart operations at Rongsheng’s facility, plus they have a huge amount of debt. Buying Rongsheng would not be a good deal.
|
NEWSLETTER
|
| Join the GlobalSecurity.org mailing list |
|
|
|
