Rongsheng takes financial medicine to aid recovery

The massive turnaround is an eye-opener, but more for the openness and candour of management in decision making than the actual figures themselves. At a media briefing this week, cfo and executive director Sean Wang told reporters that the move was aimed at cleaning up the company’s balance sheet and putting it on a fresh footing to get itself back on track.

Wang also revealed that its fledgling offshore business had been devastated by the credit crunch that Rongsheng experienced last year. “We made some major inroads into the offshore sector in 2012 and 2013,” he said, adding that it had secured orders for both offshore supply vessels and rigs. However these were cancelled when it ran into credit issues. Wang said some of these order losses included up to three platform supply vessels last year and a good order for a rig from an established European publicly listed company.

“This shows there is no doubt about our technical capability,” he said. Once the company stabilises itself and regains the confidence of the banks, orders will resume quickly, he believed although there are currently no orders for the offshore segment.

In line with this, strong support from the local community enabled the group in March to enter the Jiangsu Rongsheng Heavy Industries Debt Optimization Framework Agreement with over 10 Chinese financial institutions in the Jiangsu province, where it is based. This extends the group’s repayment and renewal terms of credit facilities to the end of 2015, essentially giving it breathing room to get its business back on track.

Other help is coming in the form of RMB3bn in loans from substantial shareholder Zhang Zhi Rong for working capital as well as a series of bond issuances to strategic investors. The first of these convertible bonds raised HKD1bn ($129m) in January and another similar issuance is expected in April, raising another HKD1bn.

On the cost side, Rongsheng has scaled down operations and optimized work flows, cutting staff levels by a third to 4,000 from 6,000 previously, although this does not include subcontracted staff from suppliers. Senior management is also taking a pay cut, with some 84 executives taking pay cuts of between 30% to 50%, and executive directors such as Wang himself taking a 50% cut.

Looking ahead, things are looking up, Wang said. Order downpayments have risen to an average of 20% to 40% and even up to 50% which eases Rongsheng’s cash burden tremendously, and more importantly goes over the threshold to apply for bank financing, he noted.

Rongsheng also wisely adopted a defensive sales strategy over the period of its stress, and avoided extremely low price orders, unlike some of its peers. Despite this, it still managed to secure orders for 23 vessels worth a total of $7.3bn. The order book now stands at 94 vessels and runs till 2016.