AVIC International has taken its first steps in exiting shipbuilding amid Beijing’s continued efforts to promote consolidation among state-owned enterprises.
In an exchange filing, the Hong Kong-listed company said it agreed to sell its 69.8% stake in insolvent yard AVIC Weihai to China Merchants Offshore Engineering Investment for ¥620m ($92.1m).
As part of the deal, the China Merchants affiliate will repay the debt that AVIC Weihai owes AVIC International while providing ¥1.66bn guarantee to the Shandong-based yard.
'Tremendous pressure'
Due to the impact of the stagnant shipping market environment, Weihai Shipyard continued to suffer loss and its equity interests of shareholders became net liabilities by the end of 2018, which brought tremendous pressure on operation to the group,” according to AVIC International, a subsidiary of Aviation Industry Corp of China.
AVIC Weihai, which focuses on construction of ropaxes and cargo carriers from handy up to post-panamax, recorded after-tax losses of ¥471m in 2018 and ¥187m in 2017.
Net liabilities of the yard amounted to ¥1.09bn as of 31 December 2018.
“Due to its weak performance, Weihai Shipyard has lost its external financing ability and has to rely on the loans from the shareholders to sustain,” AVIC International said.
“The group invested an extensive amount of financial resources in Weihai Shipyard, which objectively limited the investment of resources in other businesses of the Group.”
“The shipping market environment will not recover in short term and Weihai Shipyard will still face severe operation situation.
Loan reassurance
“The Weihai Shipyard disposal can timely recover the Weihai Shipyard shareholder’s loan and the guarantee provided by the group, and effectively reduce financial risks.”
Last year, TradeWinds reported that AVIC International was discussing the sale of its shipbuilding business to China Merchants Group as China’s State-owned Assets Supervision and Administration Commission pushed for mergers between state-owned companies.
The market focus will likely shift to when AVIC International will conclude its sale of AVIC Dingheng, a niche yard that concentrates on small tankers under 20,000-dwt, thus completing its full divestment from shipbuilding.
Separately, AVIC International announced it agreed to sell the 22.4% stake it owns in property manager AVIC Sunda to China Merchants Shekou Industrial Zone Holdings for ¥1.33bn.
“[AVIC Sunda] mainly engages in the business of property management and service which does not tally with the main business of the group," AVIC International said. "The board considers that the AVIC Sunda disposal is in line with the group’s strategic target of [focusing on main business] in recent years.”
