China’s Private Sector Shipyards Hammered in 2013

A view of the Rongsheng Heavy Industries shipyard is seen in Nantong, Jiangsu province December 4, 2013. (c) REUTERS/Aly Song

Private-sector shipyards such as Rongsheng Heavy Industries and China Ocean Shipbuilding Industry Group Ltd report another very tough year of losses in 2013 with both yards taking drastic measures to remain in business.

For Rongsheng, year-on-year revenue dropped catastrophically by 83.1 percent to RMB 1.352 billion (USD $218 million) resulting in losses of about RMB 8.7 billion (USD $1.4 billion). This is by far the worst result the company has reported since going public in 2007.

Rongsheng’s Chairman and CEO, Mr. Chen Qiang commented today on the results:

“In 2013, the unfavorable operating environment for ship owners persisted amid the unsatisfying performance of the global shipping market in spite of the tepid recovery from 2012. As a result, ship owners requested shipyards to postpone the delivery of new vessels. Delays in constructions and deliveries of the Company’s orders on hand in the core shipbuilding segment led to payment collection difficulties, resulting in a significant decline of our revenue. In addition, the results of the Period were directly dented by the increase in the provision for receivables due to collection difficulties and provision for impairments of property, plant and equipment and intangible assets.”

Rongsheng adds that tough measures are being taken by company executives in order to help stem the losses including 30 to 50 percent pay cuts by over 80 company executives. In addition, the company has reached out to 10 of their Chinese lenders as part of a “Debt Optimization Framework Agreement” to “extend the repayment and renewal terms of credit facilities.”

Their lenders include the ExIm Bank of China, China Minsheng Bank, and the Bank of China.

Rongsheng’s total order book as of the end of last year consisted of 94 vessels, representing a total volume of approximately 12.1 million DWT with a total contract value of approximately USD $4.59 billion. All the vessels in our order book are scheduled to be delivered within the period from 2014 to 2016 as stated in the contracts. In 2013, they delivered 9 vessels, amounting to 2.3 million dwt including 5 VLOCs. The remaining 4 VLOCs are scheduled to be delivered in 2014.

It was a similar story at China Ocean Shipbuilding Industry Group which reported 73.74 percent lower revenues year-on-year to HK$491.14 million (USD $63.3 million).

In an exchange statement, the company attributes the loss to “plummeting orders and soaring debts” and the fact that the yard was unable to utilize it’s full production capability due to the shipbuilding downturn.

For the year, the company recorded a net loss of HK$337.44 million (USD $43.5 million).

“The conditions of the industry were very challenging but it seems to reach its trough,” commented China Ocean Shipbuilding’s Chairman CHAU On Ta Yuen. “The new orders were increasing and the new building prices were slightly increased since late 2013.”

Yuen notes that new measures by the Chinese government are being taken to promote upgrading of shipyards and mergers.

At the end of 2013, China Ocean Shipbuilding had orders for five heavy lift vessels and in January gained new contracts to build four multi-purposes vessels with the potential for more.

Meanwhile, the company appears to be mortgaging the financial welfare of their employees by failing to pay into the social security fund and the employee housing fund resulting in HK$31,091,000 and HK$5,491,000 of outstanding liabilities, respectively.

The company is currently in talks with their lenders and the local government to come up with a solution to improve their financial position.