Existential Crisis
Sungdong Shipbuilding & Marine Engineering and Daewoo Shipbuilding & Marine Engineering were revived by emergency rescue funds from creditors in the second half of this year, but now STX Offshore & Shipbuilding Co. needs hundreds of billions of won.
According to shipbuilding industry sources on Nov. 15, STX Shipbuilding CEO Lee Byung-Mo recently sent a message to its employees, saying, “If we operate our company the way it is without special countermeasures, we will be short of funds worth hundreds of billions of won in the next three years. The company will face a crisis at the end of this year and collapse in the first half of 2016.” Heo expects to suffer severe financial difficulties, since the company still couldn’t make profits even after STX Shipbuilding used up 4.5 trillion won (US$3.86 billion) of funds received from its creditors in 2013.
In July 2013, the company signed a self-depending agreement with creditors and received 3.68 trillion won (US$3.16 billion) of operating funds, 460 billion won (US$394.51 million) of compensation for damages, and 360 billion won (US$308.75 million) of payment guarantees for STX Dairen. However, its losses increased while building ships for a contract that was received at a low price before 2013, as well as penalties to be paid to ship owners due to delays caused by low labor productivity. As a result, STX Shipbuilding failed to get out of the red, as the company posted 313.7 billion won (US$269.04 million) and 26.5 billion won (US$22.73 million) in operating losses last year and the first half of this year, respectively. In particular, the company will begin the construction of ships, which are expected to cause tens of billions won of losses, next year. Also, it desperately needs the help of creditors once again due to low advances received from the low number of new orders.
Korea Development Bank (KDB), which will announce the result of an inspection of STX Shipbuilding at the end of this month, is thrown into confusion, as it needs to inject massive funds again in two years to keep the company afloat, let alone management normalization. If the bank stops funding and forces the company to file for receivership, it will waste 4.5 trillion won (US$3.86 billion) of funds provided earlier. Also, it is worried that ship owners will ask the company to return the advance payments received.
Regarding this, STX Shipbuilding announced a plan to reduce its production capacity, such as facilities and labor force, by 25 percent next year and maximize productivity by simplifying its products to a mid-size oil tanker, which is the strength of the company, including its LR1 tankers. The company is seriously considering pulling out of the special ship business, such as offshore plants and warships.