Guangzhou Shipyard International, an integrated shipbuilding company that is listed both in Hong Kong and Shanghai, is considering a private placement of new H-shares and a possible acquisition of a shipbuilder that is majority-owned by its parent, China State Shipbuilding Corp (CSSC).
The placement may raise up to Rmb2.5 billion ($403 million), although the plan is for CSSC to subscribe to at least Rmb2 billion of that, it said in a filing to the Hong Kong stock exchange late Monday night.
The company’s share price fell 17.8% to HK$5.87 yesterday when the stock resumed trading after being suspended for more than a month. The Hang Seng Index inched up 0.2% yesterday, but has shed nearly 15% since Guangzhou Shipyard was halted on May 13 pending a “possible notifiable transaction”.
The company said in a statement on May 10 that it was planning to carry out a “material transaction” and, as there were still uncertainties related to this matter, trading in its shares would be suspended from May 13.
The sale of new H-shares will be carried out through a private placement to a maximum of 10 institutional investors, including CSSC and its subsidiaries, according to the filing. Excluding the Rmb2 billion portion that will be taken up by the parent company, the deal size targeted at other investors will be capped at about $81 million. CSSC and its subsidiaries will be subject to a lock-up of 36 months.
The company will hold a second board meeting to consider whether it will proceed with the placement and the acquisition, and will issue a further announcement once the terms have been finalised, it said.
If it gets the green light, the subscription price will be between 90% and 110% of the weighted average closing price of its H-shares for the last 20 trading days before the announcement of the terms after the second board meeting. The price will be also subject to market conditions and negotiations between the company and the subscribers, it added.
Guangzhou Shipyard plans to use as much as Rmb1 billion of the net proceeds towards the acquisition of Longxue Shipbuilding. It may buy 60% of the shipbuilder from CSSC, it says, and may also acquire the remaining 40% from Baosteel and China Shipping, depending on the outcome of commercial negotiations. Baosteel owns 30% of Longxue, while China Shipping owns 10%.
The remaining proceeds will be used as general working capital.
Guangzhou Shipyard is one of the top 50 manufacturing enterprises in Guangdong province and the biggest player in the handy-size tanker segment in China, according to its latest annual report.
Since its listing in 1993, the company has developed from mainly building bulk carriers to building high-performance multi-purpose ships, oil tankers, roll-on-roll-off ships and ferries, and semi-submerged vessels.
Last year was extremely difficult for shipbuilding enterprises, the company says, as the global shipbuilding market was weary, the main shipbuilding indices declined comprehensively and competition was stiff. In 2012, the company’s group operating income fell 22.6% from a year earlier to Rmb6.4 billion, and the net profit attributable to shareholders fell 98% to Rmb10.3 million.
Longxue is the biggest builder of modern large vessels in South China, according to the filing. It has two large docks with a capacity of 500,000 tonnes, four berths, four gantry crane vessels with a capacity of 600 tonnes and other advance production facilities with an annual shipbuilding capacity of 3.5 million deadweight tonnage, it says. Its major products include large ore carriers, large oil tankers and bulk carriers.
CCB International is acting as a financial adviser to Guangzhou Shipyard with regard to the acquisition and the proposed placement.