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Restructuring of Korea's shipping sector morphs into insolvent deals

CONCERN is mounting that the restructuring of South Korea's shipping industry has been transformed into deals among companies controlled by state-run banks.

After Hyundai Merchant Marine ordered five very large crude oil carriers (VLCCs) for KRW470.3 billion (US$423 million) and two 11,000 TEU vessels for KRW182 billion from Daewoo Shipbuilding & Marine Engineering and Hanjin Heavy Industries, fears have been expressed.

These contracts seemed to have solved some of the Korean shipbuilding and shipping industry's old problems as Korean shipping companies gave jobs to domestic shipyards in the four years since 2013. 

Korea's top three shipbuilders - Hyundai Heavy Industries, Daewoo Shipbuilding & Marine Engineering, Samsung Heavy Industries - have been struggling due to a serious order drought since 2015 and sluggish orders from Korean shipping companies, reported KoreanBusiness.

Korea appears to have built win-win partnerships between shipbuilding and maritime industries. However, it is a common evaluation both within and outside the government that it is actually no more than "two industries sharing a common destiny" which are supported by the money from the state-run Korea Development Bank (KDB). 

Korea Development Bank is the largest shareholder of Hyundai Merchant Marine and Daewoo Shipbuilding and Marine Engineering while Hanjin Heavy Industries has been under joint management by creditors led by the Korea Development Bank since last year. 

Analysts says that HMM decided to buy a ship whose delivery was cancelled from Hanjin Heavy Industries instead of placing a new shipbuilding order.

In the same vein, Daewoo Shipbuilding and Marine Engineering neglected in overseas bidding due to its financial soundness already secured the shipbuilding order before its debt ratio shrank. 

This is the reason why some experts are voicing concern that the industrial restructuring will only lead to extensions of the lives of the insolvent companies thanks to support from the government without a fundamental improvement in their business structures.

Some argue that the KDB, the backbone of restructuring, is neglecting its responsibilities as a government-run bank. 

"It is ironic that the three troublemakers that sponge off of the state-run bank are regarded as a best practice in win-win partnership between shipbuilding and maritime industries," a government official was quoted as saying. 

"The government should keep it mind that if the Hyundai Merchant Marine again suffers a liquidity crisis, the government will have no choice but to inject public funds into the shipping company again even though Korea Ship and Ocean will play its roles as a safety net. Accordingly, the government should thoroughly manage the risks of these three companies."
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