Shipbuilder China Rongsheng branches into oil exploration with Kyrgyzstan buy

Shipbuilder China Rongsheng Heavy Industries has snapped up a majority interest in a company searching for oil in Kyrgyzstan, marking a move into oil exploration amid headwinds in its core shipbuilding business.

China's largest private shipbuilder, which expects to post a significantly higher first-half loss when it reports results next week, has suffered from a drastic slump in orders amid a global shipping downturn. It also diversified into building drilling rigs, used in oil exploration, in 2013.

Rongsheng said on Thursday it had, through a subsidiary, bought a 60 percent share in New Continental Oil & Gas Co. Ltd for HK$ 2.184 billion ($281.82 million). New Continental, together with Kyrgyzstan's national oil company, operates four oilfields in the country.

In the announcement, which came after Hong Kong markets shut, Rongsheng said it will finance the deal by issuing 1.4 billion shares at a premium of 12.23 percent to its Thursday closing share price of HK$ 1.39 per share.

"Given the relatively adverse market conditions for shipbuilding industry for the time being, the acquisition can assist the group in diversifying operations and broadening its source of revenue," Rongsheng said in the statement.

"The company expects to realise a dramatic increase of oil output through upgrade and consolidation of the existing exploration technology and thereby to generate steady operating cash flows," it said.

The oilfields, in the Central Asian country of Kyrgyzstan that borders China, sit adjacent to the Fergana Valley where Rongsheng said a recent third-party reserve survey had found abundant oil and gas resources. The geological reserve of crude oil in such oilfields amounted to 276 million tons in aggregate, the firm said.

Rongsheng last year appealed to the government for financial help. In March it agreed with banks to extend loans and other financing. (1 US dollar = 7.7496 Hong Kong dollar)

(reuters.com  Edited by Topco)