Rongsheng founder blames shipyard’s failure on rapid expansion and government policy

Shanghai: Founder and former chairman of Jiangsu Rongsheng Heavy Industries Group, Zhang Zhirong, has said the shipyard’s failure is down to its hasty expansion and a lack of direction.

Yesterday, trading of the yard’s shares on the Hong Kong Stock Exchange was suspended ahead of an announcement regarding a “substantial disposal”, which many suspect could be a substantial share in Rongsheng’s assets. No further details have yet been released and trading has not resumed.

“When shipbuilding was encouraged [by the government], banks were enthusiastic about lending and making advanced payment guarantees, but they suddenly turned their heads when the policy changed,” Zhang told Caixin in an interview earlier this week.

“We designed our capacity when the industry was being encouraged, so without bank support, we have had to halt construction. We hope that policies will not be so changeable,” he told the Chinese business publication.

The yard is unable take new orders right now because it is unable to secure credit for outsourcing parts. Shipping companies pay only a 5% deposit to validate a contract. Rongsheng will only be revived with banks are willing to issue new credit, Zhang said.

The yard still has five ships on order, according to VesselsValue.com, being four super-capesizes and a panamax bulk carrier. Zhang says the yard is in discussions with its investors to clarify these orders to see which vessels it will be able to build and to renegotiate with buyers on those it can’t finish.

“Some shipping companies do not want to take delivery now. They also do not want to cancel their order. So we have to keep the contracts in order to maintain relationships with these customers,” he explained.

By the end of 2014, Rongsheng had delivered all the vessels that had been under construction.

The Chinese government is coordinating the yard’s restructuring, and creditor banks have formed a syndicate led by the Bank of China. Zhang says Rongsheng needs to win new major investors in order to restore banks’ confidence.

The yard’s rapid growth and increase in orders caused the Chinese shipyard to rack up massive debts, but its unpaid loans to banks have fallen, Zhang says, and now stand at about RMB20.4bn ($3.26bn).

In February, Rongsheng failed to repay RMB11.1m ($1.77m) debt to 15 different creditors due to financially difficulties.

“In the future, we will be selective in cooperating with banks because industries with long cycles have many unpredictable factors and bank support is very important,” Zhang told Caixin.