Rongsheng Chairman and Largest Shareholder Resigns

VLOC under construction at China Rongsheng Heavy Industries. Photo: China Rongsheng

SHANGHAI–A Chinese shipbuilding magnate stepped down as chairman of two companies, weeks after an investment firm he controls paid US$14.2 million to settle U.S. insider-trading allegations.

Analysts welcomed the resignation by Zhang Zhirong, a founder of China Rongsheng Heavy Industries Group Holdings Ltd. (CGVYY, 1101.HK), saying the insider-trading case had put a cloud over the shipbuilding company.

“Obviously the chairman had some issues, mainly the insider-trading allegations,” Barclays analyst Jon Windham said, referring to allegations made this summer by the U.S. Securities and Exchange Commission against Well Advantage Ltd. “He’s an embarrassment to China Inc.”

Mr. Zhang, 43 years old, couldn’t be reached for comment Monday.

A China Rongsheng spokesman said Mr. Zhang resigned for personal reasons but declined to comment further. He was succeeded by Chen Qiang, the company’s chief executive.

Mr. Zhang also stepped down as chairman of Glorious Property Holdings Ltd., a midsize real-estate developer based in Shanghai and listed in Hong Kong.

The SEC in July alleged that Well Advantage had stockpiled shares of Canadian energy company Nexen Inc. (NXY, NXY.T) based on confidential information ahead of an announcement that China’s Cnooc Ltd. (CEO, 0883.HK) would strike a deal to acquire Nexen for US$15.1 billion. Well Advantage, which is listed in Hong Kong, settled the case last month without admitting wrongdoing. The SEC didn’t accuse Mr. Zhang of wrongdoing.

China Rongsheng had enjoyed close ties with Cnooc. The companies in 2010 entered into an agreement in which the shipbuilder would construct high-end, offshore vessels for oil exploration. The agreement was a bid to help China Rongsheng reduce its reliance on building cargo vessels with lower value added.

Analysts had worried that the Well Advantage insider-trading case would strain ties between China Rongsheng and Cnooc. It wasn’t clear whether relations would improve now that Mr. Zhang has stepped down as China Rongsheng’s chairman.

Mr. Zhang is the largest shareholder of the shipbuilder, holding nearly 48% of the company, according to its latest disclosure to the Hong Kong Stock Exchange.

His successor, Mr. Chen, will have to contend with industry overcapacity that has battered Chinese shipbuilders by depressing vessel prices. Analysts have estimated that as much as half of China’s shipbuilding capacity isn’t needed and that between 30% to 50% of shipbuilders could fail in the next two years.

China Rongsheng’s first-half net fell 82% to 215.8 million yuan (US$34.6 million).

China Rongsheng faces challenges despite winning a contract in 2008 to build 12 massive ships designed to carry iron ore for Brazilian mining company Vale SA (VALE, VALE3BR). Four of the ships, known as Valemaxes, have been completed, with a fifth due for delivery next month. Each vessel costs around US$120 million. But Beijing has barred Valemax ships from docking at Chinese ports, putting future orders in doubt.

“We continue to be cautious on the medium-term prospects for China Rongsheng, given the overall collapse in bulk-vessel ordering and pricing, which we expect to continue in 2013,” Barclay’s Mr. Windham wrote in a research note last month.

China Rongsheng in August cited euro-zone debt woes and other economic issues for pulling out of a deal to acquire 55% of Anhui Quanchai Engine Co. (600218.SH), a Chinese diesel-engine maker with a market value of 2.55 billion yuan. The deal was part of China Rongsheng’s strategy to diversify into other heavy-industry sectors.

China Rongsheng’s shares closed unchanged at 1.50 Hong Kong dollars (19 U.S. cents) on Monday, before Mr. Zhang’s resignation was announced. The closing price was 81% lower than the company’s initial-public-offering price in 2010.

By Colum Murphy and Joanne Chiu. (c) 2012 Dow Jones & Company, Inc.

–Esther Fung contributed to this article.