Hyundai Heavy, South Korean Shipyards Plan Debt Sales

Hyundai Heavy Industries Co. and two other South Korean shipyards may borrow about 3 trillion won ($2 billion), tapping the debt market for the first time in seven years to replenish capital as orders dry up, analysts said. Hyundai Heavy, the world’s biggest shipyard, Samsung Heavy Industries Co., and Daewoo Shipbuilding & Marine Engineering Co., which together meet more than a fifth of the global orders, may sell debt as early as this month, said analysts, including Cho In Karp at Good Morning Shinhan Securities Co. in Seoul. Daewoo will seek investor responses next week to determine the size and time of a corporate bond sale, spokesman Ahn Wook Hyeon said in an interview today, without giving more details.
“There’s interest for debt sold by companies that have high credit ratings and little risk of default,” said Park Se Girl, a fund manager who oversees the equivalent of $1.4 billion in securities at Meritz Asset Management Co. in Seoul.
Shipyards in South Korea, the world’s largest shipbuilding nation, have had orders slashed since September as dwindling global trade slashed cargo rates and demand for new vessels. Cash and cash equivalent at Hyundai Heavy dropped 41 percent to 2.34 trillion won at the end of December from the previous quarter.
“The cash levels have dropped since the fourth quarter because while they haven’t received any fresh cash from new orders, they have spent money on expansion and material purchases to meet existing orders,” Cho said. “They are also trying to maintain a certain level of cash.”
Hyundai Heavy rose 0.5 percent to 191,000 won at the close of trading in Seoul. Samsung Heavy fell 1.2 percent to 24,700 won and Daewoo Shipbuilding slipped 3 percent to 19,250 won.
Posco Debt
Other South Korean companies are also considering debt sales while tackling declining demand. Posco, Asia’s third-largest steelmaker, said in an e-mail today it hired five banks to arrange meetings with investors that may lead to a bond sale.
Samsung Heavy’s cash resources fell 38 percent to 2.09 trillion won, while liquidity at Daewoo Shipbuilding was 50 percent lower at 1.02 trillion won.
The global financial crisis has made it difficult for shipowners to finance new vessels or even pay for the ones ordered, causing five years of record orders to come to a halt at the South Korean shipyards. Typically, shipowners pay for new ships in five installments, with the first paid after signing the contract. The rest is paid as construction progresses.
Daewoo Shipbuilding, the world’s third-largest shipbuilder, hasn’t sold any bonds since creditors swapped debt for equity in December 2000 to rescue the company from near collapse. Samsung Heavy last raised funds selling debt in 2002.
Hyundai Heavy declined to comment today on any debt sale plan in an e-mailed response to queries. Samsung Heavy spokesman Yoon Jong Deuk didn’t give a statement.
More Funds
Samsung Heavy won orders worth $2.12 billion in December and January to build two drill ships and a floating liquefied natural gas production and storage unit. While the shipyard’s cash reserves have also depleted, it has more funds at its disposal than rivals because of the orders, said Song Sang Hoon, an analyst at Kyobo Securities Co. in Seoul.
Hyundai Heavy plans to spend 1.43 trillion won this year to build a new yard in Kunsan, South Korea and purchase shipbuilding equipment. Daewoo Shipbuilding will spend about 500 billion won to add a 900-ton crane and its fourth floating dock.
A total of 153.6 million deadweight tons were ordered last year worldwide, 43 percent less than in 2007, Clarkson Plc, the world’s largest shipbroker, said in its monthly report. In January, 0.4 million tons were ordered, a 97 percent decline from the same month a year earlier, London-based Clarkson said.
Hyundai Heavy, Samsung Heavy and Daewoo Shipbuilding had 124.9 million deadweight tons of ships on their orderbooks at the end of January, according to Clarkson.