Rongsheng, Planning Hong Kong IPO, Expects Rising Profit on China's Growth

China Rongsheng Heavy Industries, the nation’s second-biggest shipbuilder, said domestic economic growth and government support will boost profit. “The future of shipbuilding is upbeat as the global economy is recovering stably,” Chief Executive Officer Chen Qiang said in Hong Kong today via a video conference. “The overall development of China’s economy has brought the industry a lot of opportunities.”
Rongsheng is seeking to raise as much as $2.3 billion selling 1.75 billion shares at HK$7.30 to HK$10.10 in an initial public offering this year. The shipbuilder intends to use the proceeds for projects including a fourth drydock, as a rebound in world trade following last year’s global recession revives demand for ships.
“There are strong investor interests,” said David Suen, a Hong Kong-based managing director at JPMorgan Chase & Co.’s equity capital markets. “The shipping industry is rebounding. New orders and delayed orders are resuming.” The bank is one of the arrangers for the sale.
Best Investment Corp, China National Offshore Oil Corp., China Life Insurance (Group) Co., China Southern Fund Management Co., Atlantis Investment Management Ltd., Bondic International Holdings Ltd. and Chow Tai Fok Nominee Ltd. have agreed to buy a combined $285 million of Rongsheng shares, according to the prospectus.
The stock will start trading on Nov. 19, it said in a statement.
Capacity Concern
Global ship deliveries in the past quarter may bring overcapacity which, combined with signs economic recovery in the U.S. and Europe might weaken, could damp cargo volumes and rates this quarter, analysts said.
Rongsheng is “confident” of raising profit levels and margins by boosting production capacity and implementing technology improvements and cost controls, Chief Financial Officer Sean Wang said at the same conference.
The company forecasts net profit of at least 1.61 billion yuan ($242 million) this year, and will receive a total of 830 million yuan in 2010 subsidies, according to its prospectus.
Rongsheng expects higher sales in China to boost yuan- denominated revenue, which now accounts for 11 percent of total earnings, Wang said. The company is in talks with banks on currency hedging, he said.
Orders as of Sept 30 included 84 vessels of a combined 15.1 million deadweight tons, a press release said. Its orders for so-called very large ore carriers of more than 300,000 deadweight tons accounted for about a quarter of global orders.
Rongsheng said it plans to use a quarter of the IPO funds for shipbuilding and offshore engineering and another quarter to repay about HK$2.9 billion ($374 million) of borrowings.