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

China Rongsheng Heavy Industries, thenation’s second-biggest shipbuilder, said domestic economicgrowth and government support will boost profit.

“The future of shipbuilding is upbeat as the globaleconomy is recovering stably,” Chief Executive Officer ChenQiang said in Hong Kong today via a video conference. “Theoverall development of China’s economy has brought the industrya 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 initialpublic offering this year. The shipbuilder intends to use the proceeds for projects including a fourth drydock, as a reboundin world trade following last year’s global recession revivesdemand for ships.

“There are strong investor interests,” said David Suen, aHong Kong-based managing director at JPMorgan Chase & Co.’sequity capital markets. “The shipping industry is rebounding.New orders and delayed orders are resuming.” The bank is one ofthe arrangers for the sale.

Best Investment Corp, China National Offshore Oil Corp.,China Life Insurance (Group) Co., China Southern Fund ManagementCo., Atlantis Investment Management Ltd., Bondic InternationalHoldings Ltd. and Chow Tai Fok Nominee Ltd. have agreed to buy acombined $285 million of Rongsheng shares, according to theprospectus.

The stock will start trading on Nov. 19, it said in astatement.

Capacity Concern

Global ship deliveries in the past quarter may bringovercapacity which, combined with signs economic recovery in theU.S. and Europe might weaken, could damp cargo volumes and ratesthis quarter, analysts said.

Rongsheng is “confident” of raising profit levels andmargins by boosting production capacity and implementingtechnology improvements and cost controls, Chief FinancialOfficer Sean Wang said at the same conference.

The company forecasts net profit of at least 1.61 billionyuan ($242 million) this year, and will receive a total of 830million 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 totalearnings, Wang said. The company is in talks with banks oncurrency hedging, he said.

Orders as of Sept 30 included 84 vessels of a combined 15.1million deadweight tons, a press release said. Its orders forso-called very large ore carriers of more than 300,000deadweight tons accounted for about a quarter of global orders.

Rongsheng said it plans to use a quarter of the IPO fundsfor shipbuilding and offshore engineering and another quarter torepay about HK$2.9 billion ($374 million) of borrowings.