China Rongsheng ghost town reflects shipbuilder's struggle to survive

Reuters

By Adam Jourdan and Keith Wallis

RUGAO, China/SINGAPORE, Dec 6 (Reuters) - Deserted flats andboarded-up shops in the Yangtze river town of Changqingcun serveas a blunt reminder of the area's reliance on China RongshengHeavy Industries Group, the country's biggest privateshipbuilder.

Like Rongsheng's shipyards, the area is struggling tosurvive.

The shipbuilder this week predicted a substantial annualloss, just months after appealing to the government forfinancial help as it reeled from industry overcapacity andshrinking orders. Rongsheng lost an annualrecord 572.6 million yuan ($92 million) last year, and lost 1.3billion 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 aninvestment-heavy model, with companies reliant on governmentcash injections, some analysts say Rongsheng is too big forChina to let fail.

As ship orders and funding have dried up, the firm hasdelayed deliveries and now faces legal disputes, shipping andlegal sources said. The company - whose market value has slumpedmore than 90 percent to around $1 billion since its Hong Konglisting in late 2010 - is in talks with bankers to restructureits debt.

Local media reported in July that Rongsheng had laid off asmany as 8,000 workers as demand slowed. Three years ago, thecompany had about 20,000 staff and contract employees. Thisweek, the shipbuilder said an unspecified number of workers hadbeen made redundant this year.

GHOST TOWN

The local community, on the outskirts of the eastern Chinesecity of Nantong, has mirrored Rongsheng's fall.

A purpose-built town near the shipyard's main gate, withthousands of flats, supermarkets and restaurants, is largelydeserted. Nine of every 10 shops are boarded up; the policestation and hospital are locked.

"In this area we're only really selling to workers from theshipyard. If they're not here who do we sell to?" said one ofthe few remaining shopkeepers, surnamed Sui, playing a videogameat his work-wear store. "I know people with salaries held backand they can't pay for things. I can't continue if things staythe same."

In the shadow of the shipyard gate, workers told Reuters thefacility was still operating but morale was low, activity wasslowing with the lack of new orders and some payments to workershad been delayed.

"Without new orders it's hard to see how operations cancontinue," said one worker wearing oil-spattered overalls and aRongsheng hardhat, adding he was still waiting to be paid forSeptember. He didn't want to give his name as he feared he couldlose his job.

The uncertainty isn't only at the yard.

"Morale in the office is quite low, since we don't know whatis the plan," said a Rongsheng executive, who declined to benamed as he is not authorised to speak to the media. "We havebeen getting orders but can't seem to get construction loansfrom banks to build these projects."

A company spokesman said the shipyard had no confirmed neworders 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 has secured 50, according to shipbroker data. Singapore-listedYangzijiang Shipbuilding has won more than $1 billionin new orders and is moving into offshore jack-up rigconstruction, noted Jon Windham, head industrials analyst atBarclays in Hong Kong.

Some Rongsheng customers say the company is behind schedulein delivering ships.

Frontline, a shipping company controlled by Norwegianbusiness tycoon John Fredriksen, ordered two oil tankers fromRongsheng in 2010 for delivery earlier this year. It now expectsto receive both of them in 2014, Frontline CEO Jens MartinJensen told Reuters.

Greek shipowner DryShips Inc has also questionedwhether other large tankers on order will be delivered. DryShipssaid Rongsheng is building 43 percent of the Suezmax vessels -tankers up to 200,000 deadweight tonnes - in the current globalorder book. That's equivalent to 23 ships, according toRongsheng 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 bedelivered." DryShips has four dry cargo vessels on order at theChinese firm.

Rongsheng declined to comment on the Dryships order, citingclient confidentiality. "For other orders on hand, our deliveryplan is still ongoing," a spokesman said.

At least two law firms in Shanghai and Singapore are actingfor shipowners seeking compensation from Rongsheng for late orcancelled orders. "I'm now dealing with several cases againstRongsheng," said Lawrence Chen, senior partner at law firmWintell & Co in Shanghai.

RISING DEBT

Billionaire Zhang Zhirong, who founded Rongsheng in 2005 andis the shipyard's biggest shareholder, last month announcedplans to privatise Hong Kong-listed Glorious Property Holdings in a HK$4.57 billion ($589.45 million) deal - a moveanalysts said could raise money to plug Rongsheng's debts.

The shipbuilder's net debt to equity, a measure ofindebtedness, climbed to 134 percent in January-June from 119percent in 2012 and 85 percent in 2011. Talks with its bankingsyndicate are ongoing, with no indication when a deal could bestruck, a person at one of the banks told Reuters this week.

Meanwhile, Rongsheng's shipyard woes have already pushedmany people away from nearby centres, and others said they wouldhave to go if things don't pick up. Some said they hoped thelocal government might step in with financial support.

The Rugao government did not respond to requests for commenton whether it would lend financial or other support toRongsheng. Annual reports show Rongsheng has received statesubsidies in the past three years.

"We have no further elaboration on government assistance andbank 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 nametags to show for what was a bustling community before China'seconomic growth began to slow and credit tightened at a timewhen global shipping, too, turned down.

In a local lottery shop, workers sat around smoking as theywaited to see if their luck was in.

"The lottery has become increasingly popular," said a girlworking the till. "I'm not sure why really, but perhaps peopleare hoping they can win something here."

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