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No spring time rejoicing for Chinese shipbuilding

No spring time rejoicing for Chinese shipbuilding
The spring season in China has just passed, but for Chinese shipyards it has certainly not been a season of rejoicing that is typically associated with spring. With the shipbuilding sector battling through a prolonged recession and the consolidation continuing at an unrelenting pace, many Chinese shipbuilding enterprises, even those that were once doing well, have collapsed.

Taking a look back at the sector’s development over the course of this year, there has already been a handful of relatively sizable Chinese shipyards have found themselves caught up with a trap of debt and payment defaults, as their earnings eroded and operations dwindled.

From January to May this year, five Chinese shipyards have gotten into financial troubles and the list is as below:

1) Jiangsu Eastern Heavy Industries (JEHI), subsidiary of JES International Holdings, filed for restructuring in March;

2) STX Dalian Shipbuilding and its six subsidiaries quit restructuring and were liquidated in March;

3) Judger Group’s subsidiaries Zhejiang Judger Shipbuilding and Wenzhou Yuandong Shipyard filed for restructuring in April;

4) Zhoushan-based Zhejiang Zhenghe Shipbuilding filed for restructuring in May;

5) Jiangsu-based Sainty Marine announced a spate of financial woes in May, including the freezing of its assets and bank accounts, resignation of senior officials, newbuilding cancellations and difficulties in fulfilling some shipbuilding contracts.

To add to the list above, Jiangsu-based Nantong Mingde Heavy Industry entered into restructuring in December 2014, and its biggest debtor Sainty Marine will apply a debt-for-equity rescue deal, which is on the verge of collapsing as Sainty Marine is itself in a financial mess.

And among the companies mentioned above, four of them (JEHI, Zhenghe Shipbuilding, Sainty Marine and Mingde Heavy) are ‘white list’ shipyards, a relatively new Beijing policy that the status would allow them to have priority access to loans from the local banks. But the ‘white list’ status obviously will not help the yards overcome their own financial distress.

There could be more unreported cases involving those bottom-rung and speculative yards shutting down.

And of course there is Jiangsu-based Rongsheng Heavy Industries, once the poster boy of China’s highly successful privately-run shipbuilding enterprises, going through a painful restructuring since last year. Rongsheng is now expected to be bought over by a compatriot yard, Yangzijiang Shipbuilding, another privately-run enterprise.

Yangzijiang’s executive chairman Ren Yuanlin had earlier affirmed that the company is interested to acquire a stake in Rongsheng, provided the terms are favourable. A decision is expected next month. The Jiangsu-based shipbuilder is one of last few privately-owned Chinese shipyards that continue to have a firm footing amid the prolonged industry recession.

For the Chinese yards that have managed to stay profitable during such arduous times it has indeed been no easy feat. Many shipbuilding firms have resorted to accepting a loss on a newbuilding order just to generate revenue and carry on daily operations. Even so, shipyards have to face often harsh payment terms such as negligible downpayment, the risk of contract default by buyers, and difficulty in securing loans.

From June to August, China will go through its long and hot summer months, and heavy rains are expected as well. And for the Chinese yards, they not only have to brace themselves for the uncomfortable weather, but also persisting challenging operating environment.

It could well be another few years before the industry’s consolidation period is completed, meaning more yards will go out of business, and see China emerge to become a stronger shipbuilding nation with fewer yards.