S. Korea: Ailing shipbuilders won’t be merged – report


The S. Korea government plans to drop its forceful measures to push ailing local shipbuilders to merge with each other as mergers or additional cash outlays to Hyundai Heavy Industries (HHI), Samsung Heavy Industries (SHI) and Daewoo Shipbuilding and Marine Engineering (DSME) are unlikely to boost their bottom line.

“Pressuring shipbuilders to merge with each other or pumping them with more cash won’t help the three shipbuilders,” a government official said during an industry forum, Friday.

The official, who asked not to be identified as he was not authorized to officially speak to the media, said Seoul recently scrapped a plan to forge a “big deal” between the three shipbuilders.

Financial assistance and extension of debt payment will be offered as part of the government’s strategy to encourage the shipbuilders to find their own way to recovery.

An official at SHI said the Samsung Group’s shipbuilding unit has no plans to acquire stakes in Daewoo Shipbuilding, though he said SHI was notified by the government to implement a contingency plan to keep the shipbuilder from complete fallout.

“Considering the snowballing debts of the shipbuilders, there are no private companies with enough financial resources to carry out such mergers in Korea,” he said.

According to the financial statements of the three shipbuilders, DSME had a debt ratio of 4,266 percent last year.

SHI’s debt ratio was 306 percent with the total outstanding debt of 13.3 trillion won by last year, while HHI also suffered the debt ratio of 221 percent with a 34.2 trillion won debt.

Creditors of DSME, led by the state-owned Korea Development Bank (KDB), decided to inject 4.2 trillion to secure the company’s liquidity, 2 trillion won for recapitalization and provide a $50 billion advance pay bond, last October.

“DSME’s debt ratio is expected to be submerged as lower as SHI and HHI’s level once the injection is completed,” an official

Another positive factor for the three shipbuilders to avoid major merger is that their net incomes turned into profit in the first quarter this year.

HHI and SHI, which suffered over 1 trillion won net losses last year, turned into profit in the first quarter this year ― 244.5 billion and 15.9 billion won in net profit, respectively.

DSME also suffered 3.3 trillion won of net losses last year but turned into profit with 31.4 billion won in net income while it marked 26.3 billion won operating losses in the same period.

A DSME official said that the company’s operating profit is expected to be turnaround next quarter if the recession fades away.

However, critics still remain as experts claim that current level of the restructuring through the governmental injection isn’t just good enough.

“They are just in a survival mode, on the inhaler, waiting for storm to go away,” an industry expert said. “The recession may prevail longer than they expect. And the government cannot help them forever. In order to compete with Chinese shipbuilders in the global market, they should focus on what they can do better through merging. ”

Another criticism about the restructuring through the government-run bank, some private analysts claim, the bank is heavily burdened by the restructuring and is not morally responsible for reforming the troubled shipbuilders.

Also, the Bank of Korea recently refused the government’s suggestion to print more banknotes to support the KDB’s restructuring operation.

Due to the ever-worsened downturn, the three shipbuilders have received only nine orders in the first quarter of the year. Especially, DSME and Samsung Heavy Industries reportedly failed to clinch any new orders in the period.

In order to help DSME get back on track, KDB pushed the company to execute massive layoffs, and the company promised to cut 2,000 jobs, or 15.4 percent of its workforce of 13,000 by 2018, as part of a self-rescue plan it submitted to its creditors.

Hyundai and Samsung Heavy Industries are also expected to layoff some 10,000 workers by the end of this year.

Source: Korea Times



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