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 Like Rongsheng's shipyards, the area is struggling to survive.
The shipbuilder this week predicted a substantial annual loss, just
months after appealing to the government for financial help as it
reeled from industry overcapacity and shrinking orders. Rongsheng
lost an annual record 572.6 million yuan ($92 million) last year,
and lost 1.3 billion yuan in the first half of this year.
The company has become a test of China's market reforms.
While Beijing seems intent to promote a shift away from an
investment-heavy model, with companies reliant on government cash
injections, some analysts say Rongsheng is too big for China to let
fail.
As ship orders and funding have dried up, the firm has delayed
deliveries and now faces legal disputes, shipping and legal sources
said. The company — whose market value has slumped more than 90
percent to around $1 billion since its Hong Kong listing in late
2010 — is in talks with bankers to restructure its debt.
Local media reported in July that Rongsheng had laid off as many as
8,000 workers as demand slowed. Three years ago, the company had
about 20,000 staff and contract employees. This week, the
shipbuilder said an unspecified number of workers had been made
redundant this year.
GHOST TOWN
The local community, on the outskirts of the eastern Chinese city of
Nantong, has mirrored Rongsheng's fall.
A purpose-built town near the shipyard's main gate, with thousands
of flats, supermarkets and restaurants, is largely deserted. Nine of
every 10 shops are boarded up; the police station and hospital are
locked.
"In this area we're only really selling to workers from the
shipyard. If they're not here who do we sell to?" said one of the
few remaining shopkeepers, surnamed Sui, playing a videogame at his
work-wear store. "I know people with salaries held back and they
can't pay for things. I can't continue if things stay the same."
In the shadow of the shipyard gate, workers told Reuters the
facility was still operating but morale was low, activity was
slowing with the lack of new orders and some payments to workers had
been delayed.
"Without new orders it's hard to see how operations can continue,"
said one worker wearing oil-spattered overalls and a Rongsheng
hardhat, adding he was still waiting to be paid for September. He
didn't want to give his name as he feared he could lose his job.
The uncertainty isn't only at the yard.
"Morale in the office is quite low, since we don't know what is the
plan," said a Rongsheng executive, who declined to be named as he is
not authorized to speak to the media. "We have been getting orders
but can't seem to get construction loans from banks to build these
projects."
A company spokesman said the shipyard had no confirmed new orders in
the second half of the year.
RIVALS DOING BETTER
While Rongsheng has won just two orders this year, state-backed
rival Shanghai Waigaoqiao Shipbuilding <600648.SS> has secured 50,
according to shipbroker data. Singapore-listed Yangzijiang
Shipbuilding <YAZG.SI> has won more than $1 billion in new orders
and is moving into offshore jack-up rig construction, noted Jon
Windham, head industrials analyst at Barclays in Hong Kong.
Some Rongsheng customers say the company is behind schedule in
delivering ships.
Frontline, a shipping company controlled by Norwegian business
tycoon John Fredriksen, ordered two oil tankers from Rongsheng in
2010 for delivery earlier this year. It now expects to receive both
of them in 2014, Frontline CEO Jens Martin Jensen told Reuters.
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Greek shipowner DryShips Inc <DRYS.O> has also questioned whether
other large tankers on order will be delivered. DryShips said
Rongsheng is building 43 percent of the Suezmax vessels — tankers up
to 200,000 deadweight tons — in the current global order book.
That's equivalent to 23 ships, according to Rongsheng data.
Speaking at a quarterly results briefing last month, DryShips Chief
Financial Officer Ziad Nakhleh said Rongsheng was "a yard that, as
we stated before, is facing difficulties and, as such, we believe
there is a high probability they will not be delivered." DryShips
has four dry cargo vessels on order at the Chinese firm.
Rongsheng declined to comment on the Dryships order, citing client
confidentiality. "For other orders on hand, our delivery plan is
still ongoing," a spokesman said.
At least two law firms in Shanghai and Singapore are acting for
shipowners seeking compensation from Rongsheng for late or cancelled
orders. "I'm now dealing with several cases against Rongsheng," said
Lawrence Chen, senior partner at law firm Wintell & Co in Shanghai.
RISING DEBT
Billionaire Zhang Zhirong, who founded Rongsheng in 2005 and is the
shipyard's biggest shareholder, last month announced plans to
privatize Hong Kong-listed Glorious Property Holdings <0845.HK> in a
HK$4.57 billion ($589.45 million) deal — a move analysts said could
raise money to plug Rongsheng's debts.
The shipbuilder's net debt to equity, a measure of indebtedness,
climbed to 134 percent in January-June from 119 percent in 2012 and
85 percent in 2011. Talks with its banking syndicate are ongoing,
with no indication when a deal could be struck, a person at one of
the banks told Reuters this week.
Meanwhile, Rongsheng's shipyard woes have already pushed many people
away from nearby centers, and others said they would have to go if
things don't pick up. Some said they hoped the local government
might step in with financial support.
The Rugao government did not respond to requests for comment on
whether it would lend financial or other support to Rongsheng.
Annual reports show Rongsheng has received state subsidies in the
past three years.
"We have no further elaboration on government assistance and bank
negotiations," a Rongsheng spokesman said on Friday.
The exodus has left row upon row of deserted apartments, with just a
few old garments strewn on the floor and empty name tags to show for
what was a bustling community before China's economic growth began
to slow and credit tightened at a time when global shipping, too,
turned down.
In a local lottery shop, workers sat around smoking as they waited
to see if their luck was in.
"The lottery has become increasingly popular," said a girl working
the till. "I'm not sure why really, but perhaps people are hoping
they can win something here."
($1 = 7.7529 Hong Kong dollars)
(Editing by
Emily Kaiser and Ian Geoghegan)
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