Cash injection eases shipbuilder's financial woes

The shipyard of China Rongsheng Heavy Industries Group Holdings Ltd in Rugao, Jiangsu province. The company will generate HK$2.55 billion ($326.4 million) in a share sale in the next six months and HK$3.23 billion thereafter. [Provided to China Daily]

China Rongsheng Heavy Industries Group Holdings Ltd, the private-sector shipbuilder that had sought financial assistance, has secured cash for restructuring and announced changing the company's name as it shifts focus to energy.

The country's second-largest private vessel maker has been given a HK$3.23 billion ($417 million) cash injection, the company said in Hong Kong Stock Exchange filings.

A firm owned by private-equity investor Wang Ping will pay HK$510 million for warrants with an exercise price of HK$1.60 a share, cut to HK$1.20 if used within six months.

Rongsheng's shares fell as much as 10 percent after surging 17 percent when trading began again on Thursday after a two-month halt.

The HK$1.60 subscription price is an 18 percent premium over the closing price of HK$1.36 on Aug 28, the last day of trading before the suspension started.

The company's struggles illustrate the difficulties shipbuilders face in competing with State-owned yards that have government backing and easier access to financing.

Shifting its focus to oil will need a lot more funds, which Rongsheng already struggled to get as a shipbuilder, said Francis Lun, chief executive officer of Geo Securities Ltd.

"They are already having funding problems. Their gamble has backfired. Some people might be concerned they might need a lot of funding in future because oil exploration is a very capital-intensive business," said Hong Kong-based Lun.

Rongsheng is looking to restructure by June as it seeks investment at its Jiangsu shipyard.

The company had sought help from the government to benefit from a rebound in China's shipbuilding industry after cutting its workforce and running up huge debts amid a global downturn in orders.

It plans to use money from the share sale on capital expenditure, working capital and existing or new energy projects, Rongsheng said.

It will generate HK$2.55 billion in a share sale in the next six months and HK$3.23 billion thereafter, it said.

In September the Jiangsu shipyard unit was listed among 51 shipbuilding facilities in China deemed worthy of policy support as the industry grapples with overcapacity.

Rongsheng said it has now received the results of an appraisal by an independent assessor, which will be used as the basis for the restructuring in which it also plans to change its name to China Huarong Energy Co to more accurately reflect its expansion and new business scope.