Goldman Sachs Group Inc and other overseas funds are close to finalising a deal to buy a minority stake in Chinese shipbuilder Rongsheng Heavy Industries Group for about US$600 million, sources familiar with the situation said yesterday.
'Rongsheng wants to bring in strategic investors before its initial public offering (IPO) of shares. Goldman and some other foreign funds have expressed an interest in it,' said one of the sources, who declined to be identified.
Another source confirmed that the Wall Street bank was among the potential investors of Rongsheng, which is based in the eastern port city of Nantong, near Shanghai, and that an agreement had been reached on price, although the final documents had yet to be signed.
In April, privately held Rongsheng's president Chen Qiang said that his company may sell a 20 to 25 per cent stake to foreign investors prior to an overseas IPO as early as 2009.
The sources said, however, that the stake sale to Goldman and the others would result in the IPO being put forward to 2008.
The share sale is intended to help fund the Chinese shipbuilder's rapid expansion amid a shipping industry boom, the first source said.
'The deal is close to being finished and Goldman is also expected to sponsor Rongsheng's IPO next year,' said the second source, adding that Rongsheng was considering the Hong Kong stock market as one option for its IPO.
Goldman Sachs could not be immediately reached for comment. Rongsheng's Mr Chen also could not be immediately reached for comment.
Rongsheng, which aims eventually to compete with much bigger state-owned rivals such as Guangzhou Shipyard International Co, is joining many of its peers in seeking to tap the capital markets to fund rapid expansion, which has been fuelled by China's booming global trade.
Yesterday, a senior official of state-owned China Shipbuilding Industrial Corp told the official Shanghai Securities News that it was considering a domestic IPO that may help it to raise six billion yuan (S$1.17 billion) to seven billion yuan next year.
'You get more orders (for shipbuilding), so you need more money to support your business expansion,' said the second source. 'That's what almost every Chinese shipbuilder is doing,' he said. 'If you fail to fund your fast expansion, then you will be acquired by someone who is faster and bigger than you.'
After receiving new investments from Goldman and others, Rongsheng will seek financial advice from Goldman for its IPO plan in details, the sources said.
While expanding its product profile into crude oil tankers and container ships, Rongsheng is exploring opportunities in the maritime engineering sector to help offset a possible downturn in the cyclical industry, which may level off in the next few years.
Rongsheng was also in talks with several potential clients in the offshore engineering sector, including the country's dominant offshore oil developer CNOOC Ltd, and hopes to land big-ticket orders soon, Mr Chen said in April.
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