Rongsheng shares frozen on Hong Kong exchange
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Rongsheng Heavy Industries Group Holdings Ltd's shares have been suspended on the Hong Kong Stock Exchange after a media report said that the company cut 8,000 jobs in recent months.
The Jiangsu-based company - China's largest private shipyard - has been hit by a slowdown in the global shipping industry as well as sluggish domestic demand for new ships.
The company said that trading of its shares and all structured products related to it was suspended pending clarification of "news articles and possible inside information", according to a filing with the exchange.
The company's shares dropped 10 percent on Wednesday after it told the Wall Street Journal that some of its contract workers had engaged in "disruptive" activities and had surrounded the entrance of its factory in Jiangsu province.
The company had 38,000 workers, including employees and contract workers, during its booming years in 2010 and 2011.
And despite the global downturn, it managed to complete projects worth 3.9 million deadweight tons in 2012. Brazil and Greece accounted for more than half of the company's 2012 revenue.
The majority of China's shipyards have seen a slump in orders as a glut of vessels and slowing economic growth hit demand.
Rather than building cheap bulk carriers, many Chinese shipbuilders are keen to upgrade their product focus from shipbuilding to offshore engineering products, such as offshore drilling rigs, wind turbine installation vessels and offshore pipe-laying vessels.
Last year, Rongsheng Offshore & Marine was established in Singapore to seek new market growth points. Its business segments include shipbuilding, offshore engineering, marine engine building and engineering machinery.
However, Meng Lingru, an industrial analyst with Shanxi Securities, said that the product upgrade might not help the company that much as weak market demand is the fundamental reason behind the job losses.
The company posted a loss of 572.6 million yuan ($93 million) last year, after three consecutive years of profits, and it had short-term debt of 19.3 billion yuan as of the end of 2012. It also laid off 3,000 employees last year, as it aims to return to profit this year.
"Due to the low pre-payment rates and delayed deliveries, many shipbuilding companies in Shanghai, Nantong and Zhoushan are experiencing a shortage of capital. Banks are not willing to lend to shipbuilding companies because they're fully aware of how sluggish the business is. Shipbuilding is listed as a high-risk industry by banks," Meng said.
Rongsheng received orders to build a total of 16 Valemax vessels from Brazilian miner Vale SA and Oman Shipping Co and delivered 10 in April.
The sluggish shipping market has not only been affected by the debt crisis in the eurozone, but also by the excess capacity of the global shipping industry.
A Moody's Investors Service outlook report released in June said that the serious problem of the excess capacity in the next 18 months will continue to lower international shipping prices.
Declining US crude oil imports and lackluster commodity demand in Europe will also lead to a slowdown of maritime shipments, with dry bulk ships and crude oil tankers bearing the brunt first, which indicates that Chinese shipbuilders will see disappointing market conditions.
"In 2011, the market was so-so, but 2012 was bad and the situation this year is cruel," said Li Aidong, president of Daoda Heavy Industry Group, an 8,000-worker shipyard in Jiangsu.
"Chinese shipyards of all sizes have been hit hard in the past two years, and they often lack the technology and bank loans needed to produce the sophisticated vessels sought in many new orders," Li said.
