Shipbuilders’ market cap sinks on lack of orders

South Korean shipbuilders’ market value tumbled this year due to decreased orders, data showed Tuesday, raising concerns of a vicious cycle where they are forced to take undervalued orders to fill in for losses, only to exacerbate their fiscal troubles.

The average share prices of four leading shipbuilders — Hyundai Heavy Industries Co., Samsung Heavy Industries Co., Daewoo Shipbuilding & Marine Engineering Co. and Hyundai Mipo Dockyard Co. — fell 35.9 percent as of Monday from the beginning of the year, according to the data by the bourse operator Korea Exchange.

During the period, the combined market value of their shares fell by about 15 trillion won (US$14.4 billion) to 23.32 trillion won.

Of the four shipbuilders, world’s No. 1 Hyundai Heavy Industries suffered the largest drop, erasing 44.4 percent to 141,000 won.

In line with the down trend, foreign investors dumped their shares. According to the data by market researcher FnGuide, foreigners sold a net 674.5 billion won worth of shares of Samsung Heavy Industries, placing the shipbuilder on the top of the list of foreign investors’ net selling.

Market watchers say the bigger worry is that these shipbuilders may have to settle with undervalued orders next year as they struggle against a fall in orders, decreased earnings, ratings cuts and a rise in borrowing costs.

“South Korean shipbuilders may cut ship prices in a bid to gain more orders if a fall in new orders continues even in the first half of next year,” a report by Morgan Stanley said. “It will be the worst scenario for local shipbuilders as it will hurt their profitability.”

New orders won by local shipbuilders fell 32 percent to $20.9 billion so far this year compared to the same period a year ago, according to the data by global market researcher Clarkson Research Service.

The decline was steeper than the 9 percent for Chinese shipbuilders and 29 percent for those in Japan. New orders globally fell 19 percent.

In addition, the credit ratings of shipbuilders were revised down on a huge net loss and a down trend in profits and cash flow. On Friday, Korea Ratings Corp., a leading local credit appraiser, lowered the long-term credit rating for Hyundai Heavy Industries by one notch from its second-highest investment grade AA+ to AA with a stable outlook.

Conditions have been worsening for Hyundai Heavy, whose unionized workers are moving to go on strike, a would-be first in 20 years, over a pay dispute. The 18,000-member union will vote until Friday to decide whether to go ahead with the strike.
Source: Yonhap