South Korea's major shipbuilders recorded a massive combined operating loss of around 5 trillion won in the second quarter this year.
The country’s top three shipbuilders -- Hyundai Heavy Industries (HHI), Samsung Heavy Industries (SHI), and Daewoo Shipbuilding & Marine Engineering (DSME) -- all posted worse-than-expected losses in the second quarter largely due to high shipbuilding costs, deliveries of low-priced ships, and poor offshore plant businesses.
Their combined operating and net losses reached 4.75 trillion won (US$4.08 billion) and 3.78 trillion won (US$3.24 billion), respectively, during the April-June period, hitting record high losses, according to the data compiled by the three shipbuilders on July 29.
Of the three, the DSME posted the biggest operating loss at a record high of 3.31 trillion won (US$2.84 bill4ion). Earlier the company had said it would book a massive loss estimated at some 2 trillion won on its balance sheet, largely stemming from the construction of offshore facilities. The company also posted a net loss of 2.39 trillion won (US$2.05 billion), while it turned over 1.65 trillion won (US$1.42 billion) sales in the quarter. The DSME explained that the losses were increased more due to unexpected costs resulting from contracts to build specialized vessels like the Songa Rig, a semi-submerged drilling ship, where neither the builder nor the contractor had previous experience.
Such a huge loss is likely to drive the DSME to suffer once again from rumors that it would be sold off by the Korea Development Bank, the major creditor of the debt-stricken company.
SHI also posted operating losses of 1.15 trillion won (US$987 million) in the same quarter, as opposed to its operating profits of 262 billion won (US$225 million) a year earlier. The shipbuilder posted a net loss of 1.15 trillion won and saw its sales plunge 53.7 percent to 1.44 trillion won (US$1.24 billion) in the quarter. SHI has said it may reflect the accumulated loss from its offshore facilities deals into its second quarter performance.
HHI fared better relatively, but still could not avoid posting negative figures. The company posted net and operating losses of 242.4 billion won (US$208.0 million) and 171 billion won (US$147 million) in the second quarter, respectively. Sales stood at less than 12 trillion won (US$10 billion), down 2.3 percent from the previous quarter. The company attributed the losses to its putting aside massive reserves against potential losses stemming from the delayed construction of low-priced ships and offshore facilities.
Actually, the performance outlooks of these three companies have continuously deteriorated since last year, when local shipbuilders were hit by massive losses due to soaring shipbuilding costs and losses from offshore plant construction. In particular, HHI, the world’s largest shipbuilder, swung to a net loss of 2.20 trillion won (US$1.89 billion) last year from the previous year’s net profits of 146.3 billion won (US$125.5 million). The company also recorded its biggest operating losses ever of 3.25 trillion won (US$2.79 billion) in 2014, while it gained operating profits of 802 billion won (US$688 million) a year earlier.
To make it worse, the Greek debt crisis is now adding to these gloomy performance forecasts, as Greece is the number one customer for South Korean shipbuilders. According to data compiled by the Korea Investors Service, a local rating agency, South Korean shipbuilders have obtained orders from Greece to build 85 ships valued at US$10.2 billion.