China Rongsheng Heavy Industries is in serious financial trouble
China Ronsheng Heavy Industries, the biggest Chinese-based shipbuilder outside the State’s control, represents everything that is good and bad in that country.
Rhongsheng was founded in 2005 and floated in November 2010 for a valuation of US$7.2b on the back of winning an enormous order from Vale to build twelve iron-ore carrier vessels, each 360 metres long, 65 metres wide, 30.4 metres deep, and with a dead weight of 400,000 tonnes.
The company’s ambitious founder and major shareholder, Zhang Zhi Rong, had the global shipbuilding leaders, Hyundai Heavy Industries and Daewoo Shipbuilding & Marine, in his sights.
The past eighteen months, however, have been a disaster for Rhongsheng.
The 2012 revenue declined by 50 per cent, year-on-year, to US$1.3b and the deterioration has continued with the order book declining in May 2013, by 23 percent, year-on-year.
At 31 December 2012 net debt stood at US$3.2b and contingent liabilities were US$1.5b. This compares with Shareholders’ Funds of US$2.2b.
Of the US$0.6b of net trade receivables, 83 per cent – or US$0.5b – exceeds 180 days, and 40 percent of this (US$0.2b) exceeds 360 days.
Talk about providing attractive financing to the customer base!
After posting a warning to readers on our blog dated 27 August 2012, Rhonsheng is now in serious financial trouble.
Chief Executive Officer of Montgomery Investment Management, David Buckland has over 30 years of industry experience. David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
gavin.wright.9
:
Heard the ABC 585am radio station pick up on this today. Late to the party but poignant all the same.
Tim S
:
Analysing any (non-SOE) company in China, trade receivables needs to be your starting point these days. As the last month has shown liquidity is very tight and the pronouncements of the new government do not suggest any further stimulus at this point.
Its also ínteresting to note that Zhang Zhi Rong is also the founder and major shareholder of one of the major listed real estate companies – Glorious Properties. From a developed nation perspective, it is astonishing to see the rate at individuals can create such significant enterprises in such short periods of time. Credit expansion and massive economic growth has obviously allowed such growth to occur.
As both credit expansion and growth slow, there will be many business models that will be exposed.
Lloyd Evans
:
I think they need to change the name of the company to – Rongsheng Bank.
very favourable terms indeed, I could only imagine what there stock days are.
I wonder if Oaktree Capital will come knocking.
Christian Walsh
:
Perhaps it was never really a serious business venture in it’s own rite. Pretending like anything that is largish in China to be independent/private now a government run operation.
This one being – make the ships at any cost to get the ore and coal cheaper in the long run.
Nothing substantial is privately owned in China.
Nothing.
If something starts small and becomes big, communist connected characters find a way to make it theirs, one way or another.
That’s China.