Shipbuilders in serious limbo

Samsung Heavy Industries’ recent announcement about its unfavorable 2018 forecast signals that the nation’s shipyards are about to face another daunting year.

Ailing shipyards such as Daewoo Shipbuilding & Marine Engineering and Sungdong are also showing signs of crisis that will force them to find new sustainable owners. Otherwise, they will have to go out of business.

According to Samsung Heavy last Wednesday, it forecasts an operating loss of 490 billion won ($449 million) for this year and 240 billion won next year amid declining demand for its new vessels and offshore energy projects.

As a countermeasure, the company plans to raise 1.5 trillion won in the sale of new shares to prevent possible liquidity problems.

“Samsung Heavy failed to reach its 2017 sales target by a wide margin, and expects just $4.6 billion in new orders next year, roughly half the annual volume that it took before the downturn began,” it said in a regulatory filing, adding it does not foresee a sales turnaround until 2019.

Industry observers say it was “unprecedented” for a shipbuilder to preemptively forecast an operating loss. Samsung Heavy is likely to carry out a reshuffling of management during the upcoming shareholders’ meeting scheduled for Jan. 26.

Such ill omens also hang over the nation’s other shipyards.

According to a study released by the Economic Reform Research Institute, Korea’s four shipbuilders were found to have become insolvent as their debt ratios have reached critical points. Of them, Daewoo Shipbuilding & Marine Engineering (DSME) is also likely to fail to pay its debt of interest next year.

DSME promised with its creditors to implement 2.77 trillion won in a self-rescuing plan this year, and has so far managed to reach 2.48 trillion won, or 90 percent of the plan.

In order to successfully complete its total self-rescuing plan worth of 5.9 trillion won by 2020, however, DSME is likely to face another tough year next year.

The ailing shipbuilder sold its two office buildings in Seoul for 205.2 billion won earlier this year. Its affiliate firms, including DSEC and Wellive, were also sold.

Separate from its sell off, DSME carried out a massive layoff firing 3,300 employees.

Another creditor managing shipbuilder Sungdong Shipbuilding & Marine Engineering, once one of the world’s top 10 shipyards, also stands on the brink of liquidation.

The company’s accountants announced in their report last month that its creditors will get more money from liquidating the ailing shipbuilder rather than keeping it going.

The shipbuilder was found to be worth 700 billion won if liquidated while worth only 200 billion won if it stays in business.
Source: The Korea Times