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Shares of China Rongsheng Heavy Industries Group plunged on Monday following a profit warning and news that a separate company owned by its billionaire chairman was under investigation in the US for alleged insider trading.
The Chinese shipbuilder’s stock fell 18 per cent in Hong Kong after the US Securities and Exchange Commission on Friday filed a complaint against Well Advantage, a privately held company controlled by Zhang Zhirong.
The securities regulator alleges that Hong Kong-based Well Advantage, and other unnamed traders, bought shares of Canadian oil group Nexen based on inside information just days before it agreed to a $15bn takeover by China’s Cnooc.
Rongsheng shares were trading at a record low of HK$1.15 Monday afternoon in Hong Kong, leaving the company with a market capitalisation of just US$1bn. The shares are down 75 per cent from a year ago.
Rongsheng said the SEC investigation involved the “private affairs” of Mr Zhang, a non-executive director of Rongsheng, and that daily operations would not be affected. The SEC does not allege any wrongdoing by Mr Zhang, but notes companies he owns have a close relationship with Cnooc.
However, analysts said the investigation would hurt Rongsheng’s reputation by association, and was an added blow just as Chinese shipyards were bearing the brunt of a severe downturn in shipping industry.
“The SEC news appeared to be a major mover of the stock, since the share price of Glorious Property, another company headed by Mr Zhang, also fell around 15 per cent,” said Jon Windham, analyst at Barclays Capital.
Rongsheng on Monday also warned investors that interim net profit would probably fall significantly from the Rmb1.2bn (US$188m) registered in the first half of 2011, blaming a slump in orders for and prices of ships.
Barclays Capital analysts are forecasting a 24.8 per cent fall in net profit for the first six months of this year.
“The industry is going through a severe depression at the moment with an excess supply of vessels,” said Janet Lewis, an analyst at Macquarie Capital Securities. “Chinese shipbuilders focus on dry bulk, oil tankers and container ships – vessels traditionally worst hit by the decline in global trade – and there is need for a consolidation of the country’s shipyard sector.”
In June, South Korean shipyards recaptured the world’s top spot in terms of market share two years after losing the crown to China. They have proven to be more resilient to the downturn by specialising in offshore vessels and liquefied natural gas carriers, for which demand remains strong.
Mr Windham said Rongsheng’s outlook was further constrained by China’s refusal to grant access to Valemax vessels. Rongsheng is one of only a handful of shipyards in the world with the technical ability to build the bulk carriers, the world’s largest, at 360 metres long.
Vale, the Brazilian miner, has ordered 16 such vessels from Rongsheng but last week said it had made no progress in its efforts to secure docking rights in China, where regulators have blocked Valemax ships citing safety concerns.