Yangzijiang Shipbuilding (Holdings)

[weijian]

Behappy posted quite a few good articles about China in another post which is reflective of China's plight imo. I am in the camp that China is indeed in a very bad debt bubble and am curious to see how much haircuts banks/financial lenders will have to take.

Basically, a lot of corporate debts in China are as good as gone due to overcapacity in steel/coal/shipbuilding/unsold properties and many companies are unable to repay the principal. Some province govt have resorted to forcing the lenders to take haircuts. With YZJ having so much financial assets, it is important for us to relook into its type of investments. For YZJ, impairment of financial assets is a definite scenario.

So far what I have seen, SOEs are been called to do "National Service" (China style) and bail out the chosen private investors. They are mainly WMC products that went belly, either issued, guaranteed or brokered by SOE banks. These banks are the main ones taking the hit, but they have deep pockets (high savings rate) and PBOC always ready behind to print more to repay their yuan-denominated debt.

YZJ is an alpha stock in the shipbuilding industry. But it isn't, outside the shipbuilding industry. If there is extra cash, conservatively it should be returned to the shareholders (especially if you are the major one, who will benefit) or a lateral expansion into parallel industries within the reach of your competitive edge.

Of course, when times were good, it looked smart and all of us (me included) praise Chairman Ren for his ingenuity to achieve a high ROE for everyone.