China’s biggest private shipbuilder, China Rongsheng Heavy Industries Group, posted a second straight annual loss as new orders were less than half its target, and is in talks with banks about loan repayments.

Analysts have warned that Rongsheng could be the biggest casualty of a local shipping industry suffering from overcapacity in a global downturn, and as a credit crunch in China raises concerns over defaults.

Rongsheng said it had 127 million yuan ($20.4 million) of loans overdue that have not been renewed or repaid. Total borrowings and finance lease liabilities are 22.41 billion yuan ($3.61 billion), with 13.7 billion of that due within 12 months.

“We have signed a framework agreement with over 10 principal banks to establish a debt optimisation syndicate for the purpose of ensuring our stability of operations and improving our state of liquidity,” the shipbuilder said in a statement. Those banks include Bank of China, The Export-Import Bank of China and China Minsheng Bank.

“It’s hard to say whether banks will support the funding,” said Lawrence Li, an analyst at UOB Kay Kian.

Rongsheng, which has headquarters in both Shanghai and Hong Kong, said it also hoped to get an injection of up to 3 billion yuan from Zhang Zhirong, its billionaire founder and biggest shareholder who has been selling other assets to salvage the business. Chief Financial Officer Sean Wang was due to hold a briefing in Hong Kong from 3:00 p.m. (0600 GMT).


Analysts at Barclays said Rongsheng’s finances could deteriorate if shipowners, worried that their vessels may not be completed, withhold ‘construction progress’ payments. Such a situation, similar to a bank run, already appears to be happening, they said.

China Rongsheng said it believed a shipbuilding recession was over, and it planned to focus more on large liquefied natural gas (LNG) carriers to meet increasing demand for new energy sources.

The company, which builds mining giant Vale’s large ore carriers, asked the government for financial help last July and warned in December of a substantial full-year loss. That net loss for 2013 came in at 8.68 billion yuan ($1.4 billion) compared to the previous year’s loss of 572.6 million yuan.

China Rongsheng shares initially fell more than 5 percent in Hong Kong to a 14-week low, before rallying to gain nearly 6 percent. By the midsession, the stock was up 3.3 percent at HK$1.24. The benchmark Hang Seng Index was up 0.3 percent.

The company’s market value has slumped more than 90 percent to around $1 billion since its Hong Kong listing in late 2010.

Rongsheng said it is cutting senior and middle management pay by 30-50 percent. Analysts said it was not uncommon for companies in China to pare back management salaries when times are tough. As of end-December, Rongsheng had 4,738 employees, down 28 percent from a year earlier. Three years ago, the company employed about 20,000 staff and contractors.

Rongsheng said it would issue a convertible bond amounting to HK$1 billion in April, scheduled for repayment in October 2016. In January, it issued a HK$1 billion convertible bond due for repayment in July 2016.

The company said it won orders last year to build 23 vessels worth $726 million, well below its target of $1.8 billion worth of contracts.

($1 = 6.2122 Chinese Yuan) (Additional reporting by Donny Kwok and Sally Huang in Beijing; Writing by Anne Marie Roantree and Kazunori Takada; Editing by Richard Pullin and Ian Geoghegan)