Yangzijiang to form 2 offshore engineering ventures
Shipbuilder could have new yard in Shanghai by 2012, analyst says
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Shipbuilder could have new yard in Shanghai by 2012, analyst says
By KENNETH LIM
13 December 2011
Yangzijiang Shipbuilding Holdings took another step yesterday towards diversifying into offshore building, but it will need more help to execute its plan, analysts said.
Mainboard-listed Yangzijiang, a builder of container and dry bulk ships, said that it would invest US$205 million in two joint ventures with Qatar Investment Corp to build offshore vessels and platforms.
‘The partner that they’re going in with is actually a sovereign fund, so it’s less a technical partnership, although maybe they can bring jobs,’ said Jason Saw, an analyst at DMG & Partners. ‘But they don’t really have that expertise yet to do this kind of business.’
Yangzijiang and Qatar Investment Corp will take equal stakes in a US$110 million entity called YZJ Offshore Engineering, which will be based in Singapore and will carry out administrative and front-end engineering and design work.
The Singapore joint venture will then invest US$100 million for a 40 per cent shareholding in YZJ Offshore Engineering (China) Co, while Yangzijiang itself will take the remaining 60 per cent of the China business for US$150 million. The China partnership will do the actual construction of future projects.
Analysts said that cash-rich Yangzijiang should be able to fund the investments internally.
Yangzijiang’s common stock gained a cent, or 1.1 per cent, yesterday to close at 93.5 cents.
A number of analysts said that they were maintaining their recommendations and targets for the stock because the impact of the deal was seen to be longer term. A poll of four researchers showed a mean price target of $1.26.
‘We understand that Yangzijiang has found a piece of land near Shanghai for construction of offshore equipment, with yard construction expected to begin in 2012 and construction of offshore equipment to begin in 2014,’ Credit Suisse analyst Gerald Wong wrote in a note.
The company’s initial earnings from the new project will probably start out slow as well, said Maybank Kim Eng analyst Eric Ong.
The market’s assumption at the moment is that Qatar Investment Corp will help to funnel projects to the joint ventures. But how Yangzijiang can complete those projects given its lack of experience in the new industry remains to be seen.
Yangzijiang had earlier teamed up with a vehicle of Qatari sovereign fund Qatari Diar Real Estate Investment Co to try to buy a stake in rigbuilder PPL Shipyard, but that deal is now entangled in the courts following resistance by Sembcorp Marine.
‘I believe the management is on continuous lookout for partners, but the problem is it’s also difficult to get a credible partner,’ said Mr Saw.
Yangzijiang management could not be reached for comment.
The move is part of Yangzijiang’s plan to reduce its reliance on container and dry bulk shipbuilds. Management has expressed a desire to derive 20 per cent of core earnings from offshore contracts by 2014.
‘In general, I would say the outlook for offshore is still healthier compared to what they’re doing now . . . that one is coming into oversupply issues,’ Mr Ong said.
With the joint ventures, Yangzijiang’s diversification plans are taking a concrete step forward, said analyst Lee Yue Jer of AmFraser.
‘YZJ’s share price has taken a beating in recent months partly due to uncertainty over YZJ’s future growth sources,’ Mr Lee said. ‘This deal sheds some light on future plans.’