Struggling China Rongsheng Looks to Oil

By MarEx 2014-10-30 09:22:00

China Rongsheng, the country's largest private shipbuilder, has secured a cash lifeline that could be worth up to HK$3.23 billion dollars and is looking to change its name to reflect its shift into oil exploration.

Shares in heavily indebted Rongsheng, which were suspended on Aug. 29 after the company said it was in the process of restructuring, surged almost 17 percent higher after trading resumed on Thursday. They reversed gains, and were down 3.7 pct by 0217 GMT.

Rongsheng said late on Wednesday it would issue warrants worth HK$510 million to a Cayman Islands-incorporated investment firm wholly owned by private equity investor Wang Ping, which would entitle subscribers to buy up to 1.7 billion new shares at HK$1.60 each.

This would raise about HK$3.23 billion for Rongsheng, it said. A warrant entitles the holder to buy stock from the issuer at a specific price within a time frame.

The price of the new shares is at a 17.65 percent premium to Rongsheng's closing price of HK$1.36 per share on Aug. 28, when it last previously traded. It said the subscription shares represent 19.36 percent of the firm's issued share capital.

Rongsheng, which builds Brazilian miner's Vale mega-iron ore carriers, came close to insolvency last year before clinching an agreement with banks to extend its loans until end-2015.

As one of the Jiangsu region's largest employers, the firm has received copious support from the government, which is currently helping Rongsheng with its restructuring.

Rongsheng also said it had signed a debt agreement with a syndicate of domestic banks in Anhui province that would extend its debt payments to the end of 2015.

The firm, which bought a 60 percent stake in an oil exploration company in Kyrgyzstan, also said it was proposing to change its name to China Huarong Energy Company to reflect its expansion into the energy service sector to counter the slump in the shipbuilding industry.

The company, which on Oct. 17 posted a net loss of 3.36 billion yuan ($549.6 million) for the first nine months of the year, said four out of five new oil wells in its Kyrgyzstan project have received satisfactory results in oil production.

Rongsheng has been one of the most prolific casualties of the global shipping slump. The industry is still trying to shake off a glut of ships ordered before the crisis which has sunk freight rates and caused many shipbuilding orders to be delayed or cancelled. ($1 = 7.7552 Hong Kong dollar) ($1 = 6.1136 Chinese yuan)

Copyright Reuters 2014.