Yangzijiang allays concerns over micro-lending biz
Lending activities not affected by corporate failures in Wenzhou city, it says
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Lending activities not affected by corporate failures in Wenzhou city, it says
By LYNETTE KHOO
18 October 2011
Yangzijiang Shipbuilding has shed more light on its micro-lending business, reassuring investors that its lending activities have not been affected by the string of corporate failures in Wenzhou city in China.
In its announcement yesterday to address investors’ concerns about its lending exposure, Yangzijiang also said the group is confident of posting a growth of at least 30 per cent in net profit attributable to shareholders in the upcoming release of nine-month financial results.
The disclosures followed a BT commentary last Friday calling for greater clarity in Yangzijiang’s micro-lending business amid fears that the informal lending market in China has burst.
Yangzijiang said yesterday that there may be concerns among investors over the group’s exposure to informal lending in China. The board of directors would like to ‘reassure the investment community that the group is not affected and does not foresee potential negative impact on its financial performance and position’.
The group stressed that its investments in micro-financing are minimal, accounting for less than 3 per cent of the group’s net tangible assets as at June 30.
Yangzijiang invested a combined 247.5 million yuan (S$50.5 million) for a 51 per cent stake in Jiangsu Runyuan Rural Microfinance Co and a 31.5 per cent stake in Wuxi Runyuan Technology Microfinance Co.
Jiangsu Runyuan provides micro-credit to rural enterprises and individuals in Jingjiang city while Wuxi Runyuan targets small and mid-sized technology firms in Wuxi city. Both cities are in Jiangsu province.
The loans are mostly repayable within a year, backed by collateral and bearing interest rates well within the Chinese banking system’s authorised bands, Yangzijiang said.
The group has made provisions for its investments in the micro-lending business to cushion against any unforeseeable losses. But there are ‘no indications that these provisions will be utilised as both Jiangsu Runyuan and Wuxi Runyuan are profitable to-date and their operations remain healthy’, it added.
Yangzijiang has also invested some 10 billion yuan in held-to-maturity products, which are offered by banks and trust companies to finance Chinese corporates. These fixed-rate instruments account for about 33.7 per cent of Yangzijiang’s total assets as at June 30.
The group reiterated that there is ‘sound risk management structure in place’ and that it has not suffered any default on these financial investments since 2008. All its held-to-maturity assets are secured by unencumbered collateral at a coverage ratio of no less than 2 times.
But analysts note that investors’ perception of risks with these financial investments have weighed down Yangzijiang shares.
The counter has slumped 49.5 per cent year-to-date to 96.5 cents, compared to a three-year high of $2.09 in January.
Some analysts remain unmoved by reassurances from the group, with DMG & Partners Securities cutting its rating on Yangzijiang from ‘buy’ to ‘neutral’ in view of the negative perception about informal lending in China.
Calling Yangzijiang a ‘banker in sailor’s suit’, CIMB analyst Lim Siew Khee maintained an ‘underperform’ call on the stock yesterday.
‘We believe Yangzijiang should focus on its core shipbuilding expertise,’ she said. Ms Lim noted that the interest income from held-to-maturity assets accounted for 35 per cent of the group’s second-quarter net profit - a level that ‘dilutes the quality of its core shipbuilding earnings’.
One other local analyst, however, is more supportive of Yangzijiang’s cash management activities. Cash-rich shipbuilders are better-positioned to clinch larger orders due to the huge working capital required, she said.