Rongsheng’s second bond issue plan this year may fall through

Shanghai: The heavily indebted shipbuilder Rongsheng Heavy Industries announced plans in March to issue total RMB3.6bn worth of medium term bond in 2012, the first issue of RMB2bn bonds has already been finished. Rongsheng said it planned to issue the rest RMB1.6bn bonds around the second quarter of this year, however, it is still nowhere to be seen by now.

With ship sales plummeting, profits shrinking, its chairman resigning and the share price down 80% since its 2010 listing, Rongsheng is going through a very tough time.

An official from one of Rongsheng’s major loan providing banks said the bank has provided a credit facility of RMB5bn to Rongsheng. Now it has almost reached the limit and Rongsheng has just applied for a new credit with the bank, however the bank is still waiting assess the market situation.

Until the end of September, Rongsheng Heavy Industries’ total liabilities had reached RMB28.93bn.
Barclays wrote in a recent note the meagre profit reported by Rongsheng in the first half of the year was due mainly to a government subsidy: “[China Rongsheng] was able to maintain a set of decent margins and avoided a loss thanks to a subsidy of Rmb 672m from the provincial government. We are not optimistic that [China Rongsheng] will continue to benefit from such large subsidies given the cash-strapped condition of the provincial authorities. The [2012 first half] net margin was 3.9% with the subsidy and -8.3% without.” [28/11/12]

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