Why Yangzijiang is hurriedly junking stakes in associate firms

Its scrapping saga also led to giving up on rig building.

Since July 2016, Yangzijiang Shipbuilding has been disposing its stakes in several of its associate companies as it seeks to focus on businesses that actually earn for the group.

OCBC sees Yangzijiang’s recent moves as a way of streamlining business. It said the management of the shipbuilder had previously mentioned its desire to leave the real estate industry after its earlier foray into this area.

“The group announced in July that it dumped its real estate development assets, 50% equity interest in Jiangsu Huaxi Yangzi Real Estate Co, JHYRE, for RMB8.1m. After this disposal, Yangzijiang has no business exposure in the real estate sector,” OCBC said.

The company also scrapped its entire 20% interest in Jiangsu Hailan Marine Systems Technology, which deals with integrated marine electrical systems. The total consideration for this is RMB29.5m while NAV of the assets to be disposed of is just 0.13% of YZJ’s total NAV. 

PPL Holdings Pte Ltd, a joint venture company in which Yangzijiang holds 45% effective equity interest, and E-Interface Holdings, wholly owned subsidiary of PPL Holdings, also recently sold their 15% interest in PPL Shipyard Pte Ltd to Sembcorp Marine, which owns the balance 85% of PPL Shipyard. As the aggregate consideration for the disposal is around $155 million, the consideration attributable to Yangzijiang is about $70 million. 

The group intends to use the net proceeds as part of its working capital.

“It is also no surprise that the group is giving up on rig building for now, given the poor industry outlook and the fact that its only newbuild jack-up rig is still idle in the Taicang yard after repeated delivery deferrals,” OCBC revealed.