Spinning off the financial investment arm of Yangzijiang Shipbuilding (YZJS) is one of the best things Ren Yuanlin believes he has done for shareholders. The shipbuilder’s share price has gone up more than threefold, giving it a market value in excess of $10 billion, since Yangzijiang Financial Holding (YFH) made its own trading debut in April 2022.
Before that, many investors had reservations about YZJS being involved in both shipbuilding and financial services. Among their concerns was its exposure to the financial sector in China, where it faced the risk of being saddled with bad loans as its business included lending to Chinese companies and sole proprietors.
That’s water under the bridge now. Even shares of YFH have gained a new following. The stock has been clocking a series of new 52-week highs this year. The Edge Singapore flagged in early February that YFH was undervalued as it was trading at even less than its net cash per share despite being profitable and paying out 40% of its earnings as dividends (Issue 1174: Is it YZJ Financial’s turn to shine after YZJ Shipbuilding’s bull run?)
Having tasted success from the spin-off, Ren, who founded YZJS and is executive chairman and CEO of YFH, is hopeful he can do it again. This time around, he sees potential for YFH to carve out a part of its business to float it on an exchange, possibly in Singapore.
“Yangzijiang Financial’s maritime investment business has high growth potential. The profitability of this segment may be even greater if it’s a standalone,” Ren tells The Edge Singapore.
The global maritime industry is on a huge decarbonisation drive, with the UN-backed International Maritime Organisation and the European Union pushing ship owners to remodel their fleets and rely more on technology to reduce emissions. This, in turn, is fuelling demand for alternative sources of funding for ship upgrades and newbuilds.
YFH’s maritime-related investments, including vessels, finance leases, loan services and ship chartering, amounted to $497 million as at end-2024, accounting for 12% of its total assets under management (AUM) of $4.2 billion. That proportion was only 4% a year earlier.
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As for its cash management business, which makes up the lion’s share of its AUM at 43%, Ren says he’s open to working with suitable partners to pool their assets together with an eye on a spin-off.
Nothing has been firmed up yet as plans are still at an early stage, according to Ren. The idea is timely, nonetheless, in light of the Monetary Authority of Singapore’s (MAS) push to revive the local equities market.
The task force set up by the central bank to jumpstart the stock market unveiled its first set of measures on Feb 21. These include a $5 billion fund for money managers to actively invest in Singapore stocks and various tax incentives to attract companies to list here. “Of course, I am keen (on what MAS is doing),” says Ren. “We just have to see the level of support from the Singapore government.”
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Scaling down in China
YFH’s interest in further deepening its roots in Singapore is in line with its ongoing efforts to derisk from China, where it first started its investment business. Back then, when the business was still part of YZJS, it offered loans to small businesses and individual proprietors. Collateral, mainly in the form of real estate, was usually required before any loan was disbursed.
The downturn in China’s property market left the company with a bunch of non-performing loans, prompting it to set its sights on Singapore, where it eventually listed in 2022.
YFH’s current business model is about pursuing capital appreciation and dividend income, as well as fees from managing third-party investment funds and providing wealth management services.
Singapore now accounts for 54%, or $2.3 billion, of YFH’s AUM in terms of geographical allocation, with China responsible for the remaining 46%. Less than a third of its AUM was in Singapore in 2023.
YFH’s debt investments in China are still substantial, though, making up 62% of its $1.9 billion AUM there. Interest income from debt investments in China more than halved to $124 million last year from $259 million in 2023.
On the flip side, both interest income from cash management operations and non-interest income increased last year. This enabled YFH to boost its 2024 earnings to nearly $304 million from $201 million for the previous year.
“China’s economy is not doing well, but we have derisked over the years and are now an international company. Our fortunes are far less dependent on the Chinese economy,” says Ren.
That, he says, is why he is not particularly concerned about the uptick in YFH’s non-performing loan ratio to 46.9% at end-2024 from 42.8% in the previous year. “We own the plots of land that were pledged to us as collateral for our loans. We can sell the land.”
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He says YFH’s interest and dividend income from China will continue to fall as the company seeks to build up investment income from Singapore and the maritime sector.
“I believe Yangzijiang Financial will continue to be a fast-growing business. We are no longer a traditional finance company giving loans to businesses. We are now an asset management company focused on the maritime industry, a space we know very well.”
Going green
Even the prospect of a huge supply of newbuild ships entering the global maritime market over the next few years is no cause for concern for Ren. Most of these vessels are currently under construction in China, the world’s largest shipbuilder.
“Many shipowners made a lot of money over the years and placed orders for more vessels. Shipyards aggressively expanded their production capacity to take on these orders, many of which are due for delivery by 2028,” he says. “We foresaw this problem.”
The problem with many of these upcoming newbuilds is that they do not fully meet strict environmental regulations on carbon emissions, he lets on. The way he sees it, demand for so-called green ships will remain resilient because of these regulations.
YFH is raising a US$600 million ($802 million) fund to invest in so-called green vessels. Some US$450 million has already been used to buy dozens of such vessels for deployment worldwide. It now has 66 vessels, ranging from tankers and gas carriers to container ships and dry-bulk carriers, in its investment portfolio.
Private credit is another area YFH is looking to be more actively involved in. It has partnered with Heliconia Capital, a unit of Temasek Holdings, to set up a fund of up to $150 million to invest in promising small and medium enterprises in Singapore and Vietnam. The fund co-invests with other funds managed by Heliconia. YFH also has a collaboration with Tahan Capital Management, a Singapore-based boutique fund manager, to invest in private credit assets in Asia.
If YFH plays its cards right, “shareholders will not be denied the same kind of returns that shareholders of Yangzijiang Shipbuilding have enjoyed over the years,” Ren says. Shares of YZJS doubled in value, while YFH’s shares rose 28% last year.
“We expect improving macroeconomic conditions, both in China and abroad, to support a stronger investment landscape for Yangzijiang Financial, and therefore its AUM growth outside China, as well as its non-performing loan recoveries,” says Andrea Chong, an analyst with CGS International Securities. She has an “add” rating and raised her target price on the stock from 42 cents to 66 cents.
