China Rongsheng Reports Negative Revenue as Newbuild Orders Canceled

File photo of the Rongsheng Heavy Industries shipyard in Nantong, Jiangsu province December 4, 2013. (c) REUTERS/Aly Song

By Kyunghee Park

(Bloomberg) — China Rongsheng Heavy Industries Group Holdings Ltd., the shipyard that has become symbolic of a credit glut gone wrong, said a spate of canceled orders led to negative sales for the year and warned again that it could go out of business.

The company’s net loss, its third straight, narrowed to 7.75 billion yuan, from 8.69 billion yuan a year earlier. Net sales — including canceled orders where money had to be returned to customers and past revenues written down — fell 3.8 billion yuan ($612 million) into the red last year, compared with a positive 1.3 billion yuan in 2013.

“This is the worst situation any shipbuilder can be in,” said Park Moo Hyun, an analyst at Hana Daetoo Securities Co. in Seoul. “This shows that they don’t have the manpower to operate. It can only get worse from here.”

Rongsheng has been searching for funds after the global economic slowdown and massive overcapacity had what it called a “profound impact” on the shipping industry last year. The company is in talks to sell its shipbuilding and offshore engineering businesses and focus more on energy, and reiterated a warning that it might be forced out of business if those efforts don’t succeed.

“Operation of the group has been minimal owing to the shortage of funds to complete its existing shipbuilding orders on schedule,” Rongsheng said in the statement. If the company fails to sell assets and raise funds, “it might not be able to continue to operate as a going concern and adjustments would have to be made to write down the carrying value of assets.”

Rongsheng shares were down 2.9 percent to HK$0.67 as of 2:21 p.m. in Hong Kong trading, poised for their lowest close on record.

China’s private shipbuilders are facing stiff competition from state-owned yards that have government backing and easier access to funds. China has lost its title as the world’s biggest shipbuilding nation, and so far this year is No. 3 after South Korea and Japan, according to JPMorgan Chase & Co.

Rongsheng has sought help, including from the government, after it trimmed its workforce and ran up debt amid a global downturn in orders. The company said March 5 it wouldn’t proceed with a proposed warrant sale after Kingwin Victory Investment Ltd. owner Wang Ping — who had pledged to invest as much as HK$3.2 billion — was detained in February, people with knowledge of the matter said in early March.

© 2015 Bloomberg News

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