Singapore-listed shipbuilder Yangzijiang Shipbuilding Holdings (Yangzijiang) has set its sight on possible merger and acquisition (M&A) activities for Chinese shipyard Rongsheng Heavy Industries (RSHI).
Yangzijiang told IHS Maritime that it has been approached by the Chinese government to acquire stakes in RSHI but maintained that the talk is still in its preliminary stage.
“As of now, Yangzijiang will only consider RSHI for acquisition but we are taking a cautious approach on this and the deal may or may not go through at all,” said Ren Yuanlin, executive chairman of Yangzijiang, highlighting that the company has not made any decision on the proposed M&A activity.
In hindsight, he thinks that the proposed acquisition will be good for Yangzijiang in terms of expanded capacity and assets, as well as the existing value-added offshore shipbuilding capabilities that RSHI possesses.
“In the long run, China will still need to produce vessels and machinery related to the offshore industry. RSHI has such capabilities and it will be beneficial to whomever acquires it,” added Ren.
Ren predicted that in three years’ time, the number of active shipyards in China would be decimated to around 30 firms as shipping firms enter a period of consolidation. During this period, Yangzijiang aims to focus on its core shipbuilding business and pledges to exit its existing involvement in the property business in one or two years.
Meanwhile, Yangzijiang suffered a net profit drop of 12% year on year (y/y) to CNY706.8 million (USD113.9 million) in the first quarter ended 31 March 2015.
The decline was prompted by the lower earnings, which fell 14% y/y to CNY3.04 billion in the first quarter of 2015. Yangzijiang cited in its filing to Singapore Exchange that the lower earnings were attributed to the overall bearish shipbuilding market.
Despite the weak market sentiment, Yangzijiang has been rated the top shipbuilder in China as of the end of February 2015 and possesses a healthy financial cash flow.
Ren attributed the healthy financial cash flow of the company to four main factors such as Yangzijiang’s relative low financial cost of borrowing funds from Chinese banks and its efficiency in shipbuilding projects management and cost-effective ship designs.
Moreover, Yangzijiang possesses a good track record in completing ship construction on schedule, thus it did not have to pay any penalty fees to shipowners.
Lastly, the company did not construct vessels on speculation basis and maintain a careful cost control during the construction phrase to remain profitable.