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Looking to: China Rongsheng Heavy Industries

Looking to: China Rongsheng Heavy Industries

We have written about China Rongsheng Heavy Industries, one of the largest shipbuilders in the world, on several occasions. (See our posts from August 2012, and July 2013).

Rongsheng has been added to the growing list of Chinese companies effectively in default. With their results out for the year ending December 2013, we find it interesting that the company’s auditors, PricewaterhouseCoopers, have finally issued a report citing “multiple uncertainties relating to going concern”.

Rongsheng reported a horrendous year – revenue was down 84 per cent to RMB1.3b (US$0.2b), which produced a loss of RMB8.7b (US$1.4b). Net debt stood at RMB22.8b (US$3.66b), which compares with equity of RMB6.2b (US$1.0b). Current liabilities exceeded current assets by RMB6.68b (US$1.07b) and the company’s ten banks have extended repayment and renewal terms on its debt, known as the “debt optimisation framework agreement”.

The company’s founder, Zhang Zhirong, has provided an unsecured interest-free loan of RMB3.0b (US$0.45b) for working capital purposes.

Industry improvement is unlikely to lift Rongsheng out of its financial mess and offshore investors, whom have acquired HK$2.4b (US$0.3b) of convertible bonds in August 2013 and January 2014, will be looking closely at the security of their paper.

Also worth a look is this timeline of defaults and near-defaults on bonds issued by Chinese companies.

1704_chinese timeline

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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.

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2 Comments

  1. One must always apply due diligence when deciding to invest in any endeavour. China will have many stories like this as it grows and awakens from its economic slumber. It’s power to consume will gain a greater appetite and i believe we still have yet to see it even shift into a stable gear. Once it finds it’s pace, it will be an absolute powerhouse.
    We tend to think in a short time frame in theses matters but China has a long way to go in this story of growth, there will be many distracting stories and there will be many events that will rock the economy. A long term view must be kept. It’s eventual returns on the economy must be considered.
    As for companies going under or bankrupt, well China isn’t the only country with those problems. We only have to look at our own backyard and see the list of Resource companies chewing through cash and inevitable demise.

  2. carlos.cobelas.1
    :

    yes but isn’t the Chinese government awash with cash ( over 1 Trillion ),
    so they will simply throw money at these companies rather than let them go under ?

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