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China Rongsheng Breaks Into Jack-Up Rig Market with New Order

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March 25, 2013

reuters logoHONG KONG, March 25 (Reuters) – China Rongsheng Heavy Industries Group Holdings Ltd won its first orders to build two jack-up rigs worth more than $360 million in Singapore as it makes further inroads into offshore engineering.

Chinese shipyards, whose new ship orders dropped almost half last year in a shipping slump, are venturing into offshore engineering and taking business away from Singaporean builders.

China Rongsheng secured two contracts to build one CJ46 jack-up rig, to be used as an exploratory drilling platform for oil and natural gas, with an option to construct another one, the company said in a statement.

That will mean China Rongsheng would build four of the jack rigs if the options are fully exercised.

China Rongsheng diversified into offshore engineering last year to counter the market downturn.

Last year, it received an order to build one deepwater tender barge – a flatbottom vessel used to transporting goods – with an option to build three more of the same kind.

“Having jack-up rigs is certainly a step up from building a tender barge. This is a more interesting win because rigs are more sophisticated,” said Vincent Fernando, an analyst at Religare Capital Markets based in Singapore.

However, whether these new orders for the barges and jack-up rigs would translate to profits is still uncertain because China Rongsheng has a steep learning curve in its new ventures and it would take some years before offshore engineering can overtake its traditional shipbuilding business.

China Rongsheng, which warned of a net loss in 2012, now derives most of its sales totalling 5.5 billion yuan ($885.35 million) in the first half of 2012 from shipbuilding.

The Chinese shipbuilder now holds the largest accumulated order books among Chinese builders and is a builder of Vale’s large ore carriers.

“It makes strategic sense to take orders in offshore even the profitability is low because it will give the experience and inroads to them expand offshore in the future,” Fernando added.

Shares of cash-stripped China Rongsheng, which will announce its 2012 results on Tuesday, lost more than 80 percent of their value in the past two years and was up 6 percent so far in 2013. ($1 = 6.2122 Chinese yuan) (Reporting by Alison Leung; Editing by Louise Heavens)

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