Yangzijiang Shipbuilding Holdings Ltd., China’s third-largest shipyard outside state control, is basing currency-hedging on the yuan gaining 3 percent a year in expectation the government will prevent rises above that pace.
“Appreciation is inevitable because of China’s trade imbalance, but the rate won’t be as rapid as the Americans and other countries are expecting,” Chairman Ren Yuanlin said yesterday in an interview in Singapore. “Three percent a year is a scenario we can live with.”
The shipyard, which books all of its orders in dollars, is reflecting confidence that China will resist U.S.-led pressure to quicken yuan gains. The Chinese currency has appreciated 2.4 percent since China ended a two-year peg in June. Yuan forwards indicate a 2.9 percent strengthening over the next year.
“China will appreciate the yuan but it will be a slow pace,” said Francis Lun, general manager at Fulbright Securities Ltd. in Hong Kong. “For shipyards, the effect will be less, but still it will hurt profits.”
Yangzijiang, whose main yards are in Jiangsu province, eastern China, eventually plans to hedge 30 percent of its foreign exchange, Ren said.
China will allow the yuan to gain because officials understand it’s in the interest both of domestic growth and global economic stability, U.S. Treasury Secretary Timothy F. Geithner said in an Oct. 23 interview. Chinese officials have countered by promising a gradual increase, saying that a sudden rise would cause social and economic disruption.
Twelve-month non-deliverable yuan forwards weakened 0.5 percent to 6.4775 per dollar yesterday, reflecting bets the currency will strengthen from the spot rate of 6.6627, according to data compiled by Bloomberg.
Yangzijiang is also planning to buy more yards in China as lower vessel prices and overcapacity squeeze margins, Ren said, without naming any potential targets.
“Many of the weaker shipyards remain in denial even though they’re facing cash-flow problems and possible closures,” Ren said. “It’s like a dying person -- the yards are fighting to survive until their last breath.”
Yangzijiang fell 3.6 percent to S$1.89 at the close of trading in Singapore today. It’s gained 56 percent this year. Its Taiwan-listed TDRs dropped 1.9 percent to NT$22.80 compared with an NT$18.80 sale price.
Yangzijiang expects to boost capacity 20 percent next year, helped by acquisitions, Ren said. More than half the company’s capacity is for building container ships, with the rest being for multipurpose and bulk vessels, he said.
The company’s cash reserves rose 23 percent in the nine months ended September to 4.7 billion yuan ($704 million). The shipyard raised NT$3.76 billion ($122 million) in its Taiwan depositary receipts sale.
The shipbuilder has announced three acquisitions this year, taking advantage of government attempts to encourage consolidation in shipbuilding following a 55 percent slump in orders nationwide last year. The company has also expanded into ship-breaking and ship-repair to boost sales.
Yangzijiang’s third-quarter net income rose 32 percent to 730.4 million yuan, the company said in a Singapore Exchange statement yesterday. Ship deliveries doubled to 14 as shipping lines resumed taking new vessels after a slowdown last year during the global recession.
“Appreciation is inevitable because of China’s trade imbalance, but the rate won’t be as rapid as the Americans and other countries are expecting,” Chairman Ren Yuanlin said yesterday in an interview in Singapore. “Three percent a year is a scenario we can live with.”
The shipyard, which books all of its orders in dollars, is reflecting confidence that China will resist U.S.-led pressure to quicken yuan gains. The Chinese currency has appreciated 2.4 percent since China ended a two-year peg in June. Yuan forwards indicate a 2.9 percent strengthening over the next year.
“China will appreciate the yuan but it will be a slow pace,” said Francis Lun, general manager at Fulbright Securities Ltd. in Hong Kong. “For shipyards, the effect will be less, but still it will hurt profits.”
Yangzijiang, whose main yards are in Jiangsu province, eastern China, eventually plans to hedge 30 percent of its foreign exchange, Ren said.
China will allow the yuan to gain because officials understand it’s in the interest both of domestic growth and global economic stability, U.S. Treasury Secretary Timothy F. Geithner said in an Oct. 23 interview. Chinese officials have countered by promising a gradual increase, saying that a sudden rise would cause social and economic disruption.
Twelve-month non-deliverable yuan forwards weakened 0.5 percent to 6.4775 per dollar yesterday, reflecting bets the currency will strengthen from the spot rate of 6.6627, according to data compiled by Bloomberg.
Yangzijiang is also planning to buy more yards in China as lower vessel prices and overcapacity squeeze margins, Ren said, without naming any potential targets.
“Many of the weaker shipyards remain in denial even though they’re facing cash-flow problems and possible closures,” Ren said. “It’s like a dying person -- the yards are fighting to survive until their last breath.”
Yangzijiang fell 3.6 percent to S$1.89 at the close of trading in Singapore today. It’s gained 56 percent this year. Its Taiwan-listed TDRs dropped 1.9 percent to NT$22.80 compared with an NT$18.80 sale price.
Yangzijiang expects to boost capacity 20 percent next year, helped by acquisitions, Ren said. More than half the company’s capacity is for building container ships, with the rest being for multipurpose and bulk vessels, he said.
The company’s cash reserves rose 23 percent in the nine months ended September to 4.7 billion yuan ($704 million). The shipyard raised NT$3.76 billion ($122 million) in its Taiwan depositary receipts sale.
The shipbuilder has announced three acquisitions this year, taking advantage of government attempts to encourage consolidation in shipbuilding following a 55 percent slump in orders nationwide last year. The company has also expanded into ship-breaking and ship-repair to boost sales.
Yangzijiang’s third-quarter net income rose 32 percent to 730.4 million yuan, the company said in a Singapore Exchange statement yesterday. Ship deliveries doubled to 14 as shipping lines resumed taking new vessels after a slowdown last year during the global recession.