Cold winter in China's shipping industry: more than 20 shipyards went bankrupt due to capital chain breaks

On September 9, 2016, the BalticDry Index reported 804 points. This is the index that has been smashing at 1,000 points for three consecutive years. This figure means that global shipping is still in its worst period, which means that world trade still remains. In a period of unsatisfactory.
On August 31, Hanjin Group, the largest shipping company in South Korea, filed for bankruptcy, exposing the crisis of the global shipping industry chain to the people. The Chinese shipbuilding industry, which is an important part of this industrial chain, has not been spared.
The rise and fall of private enterprises has witnessed such a long dark cycle. The four major shipbuilding and private enterprises in Jiangsu Province, which used to be in the limelight, are not as beautiful as they used to be. After the asset reorganization, Rongsheng Heavy Industry delivered a serious loss transcript in the first half of this year. The current shipbuilding business is still in a state of complete suspension. In addition to Rongsheng, the reduction of employees, bond default, bankruptcy and liquidation are Performed in several other companies.
The mood of SMEs is equally anxious. Liu Wenzhong, general manager of Ningbo Xinle Shipbuilding Co., Ltd. told the Economic Observer that in the first half of this year, there were quite a few companies that did not receive any orders. Before the market picks up, they only wait quietly.
An employee of a state-owned shipbuilding enterprise told the Economic Observer: "The shipbuilding is a typical capital-intensive enterprise. Once a large enterprise encounters a bad environment and is not well managed, it is prone to a debt crisis and then collapses. In 2016, not only privately Corporate capital turnover is difficult, and state-owned enterprises are also very tight."
The lack of money has indeed become a life-and-death disaster for shipbuilding companies. Since last year, there have been more than 20 shipbuilding companies going bankrupt due to capital cuts. Many industry insiders believe that this situation is likely to continue to ferment.
Wang Jiansheng, general manager of the Yangtze River Shipping Group, told the Economic Observer: "The shipbuilding industry will not have a fundamental improvement in three years. The global economy is sluggish, geopolitical issues are intensifying, trade protection is on the rise, trade volume growth is decreasing, capacity is over, shipping is The recovery will not see hope for the time being, and the recovery of the shipbuilding industry will be lagging behind the shipping recovery for at least 18 months."

The fate of the four major private enterprises
In the economic belt of the lower reaches of the Yangtze River, Rongsheng Heavy Industry, the Pacific Ocean, the Yangtze River, and the New Era are four resounding names. As the four major shipbuilding enterprises in the shipbuilding province of Jiangsu, they were once infinitely beautiful. But now, it is another fate to meet them.
Rongsheng is no longer called Rongsheng. A few years ago, Rongsheng was on the verge of bankruptcy due to the rapid changes in the shipbuilding market. On April 22, 2015, this production base was located in Ruoyi, Jiangsu Province. After the acquisition of the overseas oilfield project, it reappeared under the name of “Hua Rong Energy”. In the capital market.
From the latest “mid-period transcripts” in the first half of 2016, the prospects of this company are still not optimistic. On August 31, Huarong Energy announced that the company's revenue was -3.47 billion yuan, with a loss of 1.96 billion yuan. The loss was caused by the cancellation of the shipbuilding contract and the decrease in ship sales revenue. At present, Huarong Energy's total assets are 23.44 billion yuan and total liabilities are 31.12 billion yuan. In order to solve the debt problem, on March 8 this year, Huarong Energy announced that it plans to issue 14.1 billion shares to 22 creditor banks and issue 3 billion shares to 1,000 supplier creditors, totaling 17.1 billion shares to offset the debt of 17.1 billion yuan. . If the debt-to-equity swap is completed, Huarong Energy’s largest creditor, Bank of China, will become its largest shareholder.
However, it is not so easy to make a smooth progress in the debt-to-equity swap plan. Recently, an employee inside Huarong Energy disclosed to the Economic Observer: "The debt-to-equity swap plan has not yet completed. At present, the top management and related creditors have been communicating. It should be said that this is definitely difficult." Huarong Energy employees said: "At present, the shipyard has been completely shut down, and the employees are only four or five hundred people. The demotion and salary reduction is still going on, and it is likely that there will be a wave of layoffs. The company has not yet laid off the layoffs and subsidies. With the issuance in place, this year’s salary has just been sent to March, and the longest salary is up to six months."
In stark contrast to the four or five hundred people, the number of employees in Rongsheng during the heyday was close to 50,000. The layoffs have not only been staged in Rongsheng. Since last year, Yangzijiang Shipbuilding Group, the largest and most private private ship in Jiangsu Province, has been continuously reducing its staff. Now the number of employees has been reduced by about 6,000. By the end of this year, Subtract 2,000 people again.
Compared to Rongsheng, the days of Yangzijiang seem to be better. On August 10, Yangzijiang announced that the company's net profit for the first half of this year was 860 million yuan. However, the situation may not be as good as expected. A person familiar with the company told the Economic Observer: "The dilemma of the industry, all enterprises can not hide, the Yangtze River and the new era are also facing the same troubles." The industry said: "Now, whether it is a dry bulk carrier, a tanker, a marine vessel or a chemical tanker, there is a surplus. Which market segment has a gap, all enterprises are grabbing orders, and the relationship between supply and demand has been seriously imbalanced."
However, compared with the Pacific shipbuilding that was liquidated in bankruptcy, the layoffs of Yangzijiang are already lucky. Pacific Shipbuilding is part of the Chunhe Group. On August 19th, Chunhe Group Co., Ltd. issued the "Announcement on the Bankruptcy Liquidation of Nantong Pacific Ocean Engineering Co., Ltd.", saying that Nantong Pacific was brought to the court for bankruptcy liquidation due to continued losses. Due to the overall decline of the industry, loss of overseas investment, bank lending and other reasons, the company's cash flow is exhausted and there is a danger of breaking.
Prior to this, debt defaults have occurred. On May 14 last year, Chunhe Group issued the first phase of short-term financing bonds for 15 springs and CP001, amounting to 400 million yuan. According to the agreement, the principal and interest will be redeemed on May 15 this year, but on May 16 this year, Chunhe The group issued a notice saying that 15 Chun and CP001 could not be repaid on time, and the bonds amounting to 400 million yuan in this period were officially breached.

Falling Baltic Index
After the delivery of the last bulk carrier order in 2013, Ningbo Xinle Shipbuilding Co. decided to completely abandon the dry bulk carrier business for ten years, focusing on small natural liquefied gas carriers.
This is a typical small and medium-sized shipbuilding enterprise. Liu Wenzhong, the general manager, told the Economic Observer that because of the serious overcapacity, the low technical threshold and the high degree of homogenization, dry bulk carriers have no profit at all. Even worse, there are no orders at all. "There are about 30 shipping companies in Ningbo. The scale of Xinle belongs to the front. In the first half of this year, the orders for the two ships were completed. Many shipyards did not have an order this year." Liu Wenzhong said.
Ten years ago, the shipbuilding industry seemed to be still in sight. Liu Wenzhong recalled that in the best market in 2006 and 2007, the shipyard’s orders were too busy. “Before the new ship was delivered, it was able to get 80% of the boat, but now it is 20%, and many shipyards even reduced the advance payment to less than 10%.”
On September 9, 2016, the Baltic Dry Index (BDI) was quoted at 804 points.
The Baltic Index is a comprehensive index of the freight rates of several traditional dry bulk carriers in the world, which are based on their respective importance and proportion in the shipping market. It directly reflects the prosperity of global shipping and reflects An authoritative index of international trade. If the index shows a significant rise, it shows that the economic situation of the countries is good and the international trade is hot.
It is generally believed that the Baltic Index of 2000 is the profit and loss line of shipping companies. After falling below 2000 points, it is difficult for shipping companies to make profits. When Liu Wenzhong’s shipbuilding company’s orders were too busy ten years ago, the index was as high as 10,000 points. Since 2011, the Baltic index has turned sharply. On February 2, 2012, the Baltic Index reported 651 points, creating a new low for the Baltic index since the new century. On February 18, 2015, the Baltic index fell to 509 points. On January 5, 2016, it fell to 468 points again, setting a new record low. In fact, in the past five years or so, in addition to the 2011 and 2012 few months, the Baltic index was higher than 2000 points, and the rest of the time was below 2000 points.
In the second quarter of 2016, the world's largest shipping giant Maersk was bleak, with an average tariff of 24%, falling to a historical low, with a loss of $151 million.
On August 31, Hanjin Group, Korea's largest and the world's seventh largest shipping company, filed for bankruptcy in South Korea and the United States. This incident has affected more than 50% of the world's cargo owners and freight forwarding companies, becoming the largest bankruptcy case in the history of the global shipping industry. Peter Sander, chief analyst of the Baltic International Shipping Association (BIMCO), previously analyzed: "We will probably encounter the most bleak period since 1980."
Forecasts from China are also not optimistic. On January 5, 2016, the China International Shipping Research Center released by the Shanghai International Shipping Research Center reported that China’s shipping confidence index was 51.44 points, which has been in a recession for four and a half years; Chinese shipping companies, port companies and shipping service companies The prosperity index values ​​are in a sluggish range, the overall business situation is deteriorating, and the industry has entered a period of deep adjustment. According to the report, the wave of bankruptcy and reorganization in 2016 will be launched immediately. Among them, the operating pressure of Chinese shipping companies will continue to increase in the first quarter, and dry bulk shipping companies may become the trigger of bankruptcy.
As a ship-to-ship industry that relies on the lips and teeth, it is difficult to be independent. According to the data provided by the online platform VesselsValue, of the 290 new ships that were originally planned to be delivered in the first quarter of 2016, 121 were postponed and 24 were withdrawn. In the first quarter of 2016, the number of new ships in the global shipbuilding was signed, the deadweight and the revised The total tonnage fell by 78.4%, 59.6%, and 70.3% respectively over the previous year. The orders of the world's three largest shipbuilding countries, China, Japan, and Korea, fell by 32.6%, 95.2%, and 93.9, respectively, in revised gross tonnage. %. "The global economy is sluggish, geopolitical issues are intensifying, trade protection is on the rise, trade volume growth is decreasing, and shipping is poor. How can the shipbuilding industry be better in this situation? What's more, the shipping capacity is now oversupplied and the demand for new ships is limited. In the interview, Wang Jiansheng, general manager of Yangzijiang Shipbuilding Group, made such a summary to the Economic Observer.
Trade is indeed biased towards weakness. According to the latest data from the WTO, the global trade volume grew slowly by 2.7% in 2015, which will be the fifth consecutive year of global trade growth rate of less than 3%. As export prices fell by 15%, the volume of trade in goods (in US dollars) fell by 13%, the lowest since 2009.
The WTO report believes that China's economic slowdown, low European growth rate and the decline of emerging powers such as Brazil and Russia are the foundation of the global economic weakness. The difference between trade volume and trade volume is affected by two factors: the sharp fall in raw material prices and the fluctuations in exchange rates over the same period. From June 2014 to December 2015, oil prices fell by 64% and metals fell by 35%.

Where is the emergency money?
The troubles of the shipyard are not just the lack of orders.
Liu Wenzhong told the Economic Observer that on the one hand, the order was not received, and on the other hand, he did not dare to pick up the order. "The cost of a ship is very high, and it costs tens of millions of yuan. At present, the shipowner's prepaid rate is low, the bank is difficult to borrow, and there is no money to make a ship. Moreover, the shipping is sluggish, the shipowner abandons the ship (order The phenomenon of shipowners withdrawing during production is also easy to happen. At present, the main financing channel for private ship companies is the bank's loans, but now they can't lend money. Small businesses have no orders and can only choose to suspend." Liu Wenzhong expects that In this way, a large number of companies will die.
Lack of money has become the most difficult problem at the moment. If there is no money, the company will fall.
Wang Jiansheng told the Economic Observer: "The financial industry is not optimistic about shipbuilding. In order to ensure the safety of its own funds, it will no longer invest in shipbuilding. SMEs have a serious shortage of liquidity and cannot maintain normal production and operation. The debt they owe cannot be repaid. There may be a need to resolve debt through restructuring or bankruptcy, and there is no other way to go, especially for private companies."
A project manager of the Jiangsu Branch of CSIC Group expressed concern about state-owned enterprises: “Compared with private enterprises, state-owned enterprises are now in relatively good condition. But next year, creditor banks’ loans and loans may increase. The state-owned enterprise personnel revealed that at present, compared with the hunger for the private enterprises, the bank’s support for state-owned enterprises makes these private individuals very envious. The loans of private enterprises are very difficult. Even if they can lend, the interest rates are very high.
For state-owned enterprises, there is financial support from banks, and the payment terms for shipowners can be more favorable, and prices can be lower, thus achieving a competitive advantage.
According to statistics, in 2015, China Shipyard signed a new single 542 ships, of which the two major state-owned shipbuilding groups (China Shipbuilding Industry Corporation and China Shipbuilding Industry Corporation) had 142 orders, accounting for 26%. By the end of July 2016, the Chinese shipyard had signed a new single 104 ships, and the two major groups had signed 41 new ones, increasing the number of ships to 39%. These do not include state-owned shipping companies such as COSCO Shipyard, China Shipping Industry, China Merchants Heavy Industry, and Changhang Heavy Industry. In fact, in addition to a few private ship companies such as the Yangtze River Shipping Industry, most of the new signings this year have been taken over by state-owned shipping companies. "The current situation is that there is fierce competition between state-owned enterprises and private enterprises. There is also a market game between the brother companies affiliated to the same state-owned enterprises. "The cost of the ship is high, and a shipyard is just a few ships a year. The list, if not received, means that the survival of the shipyard will be problematic. The market is not good, everyone wants to receive the order, but has to fight the price and fight the prepayment conditions. The above-mentioned CSIC heavy industry person told the Economic Observer.
At the moment, the debt default is continuing. After the Chunhe Group’s debt default in May this year, Wuhan Guoyu Logistics Industry Group Co., Ltd. was in financial crisis. On the evening of September 9, the company announced that it disagreed with the proposal of the second holder meeting of the company's 2015 first-phase short-term financing bill (referred to as “15 Guoyu Logistics CP001”) to require the issuer to immediately repay the principal and interest of the due debt. Guoyu Logistics said that the company's current liquidity is seriously lacking, and short-term products are not able to pay. At present, the company is also communicating with Shanghai Pudong Development Bank, China CITIC Bank and Hua Xia Bank in order to obtain bank support and finally achieve the goal of comprehensive debt restructuring.
Only last year, more than 20 large and medium-sized shipping companies declared bankruptcy. From June 2014 to the end of 2015, many shipyards including STX Dalian Shipbuilding, Dongfang Heavy Industry, Zhuangji Shipbuilding, Zhenghe Shipbuilding, Mingde Heavy Industry, Wuzhou Ship, Haotian Ship, etc., successively filed for bankruptcy reorganization or declared bankruptcy.
Liu Wenzhong believes that the shipbuilding market will not be better until at least 2020. In the next four years, there will definitely be many enterprises, especially private enterprises that cannot support it.
Wang Jiansheng holds a similar view: "There will be no fundamental improvement in three years. The recovery of shipping will not see hope for the time being, and the recovery of the shipbuilding industry will be lagging behind the shipping recovery for at least 18 months."

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