Floating Rumors
With a restructuring whirlwind hitting the Korean shipbuilding industry, various restructuring scenarios are flying around, fueling confusion in the industry. According to creditors and the shipbuilding industry on Nov. 22, the government originally pushed forward with coupling-style restructuring, through which small and mid-sized shipbuilders will be entrusted to big shipbuilders.
Daewoo Shipbuilding and Marine Engineering (DSME) was already entrusted with Daehan Shipbuilding. Hyundai Heavy Industries took in Samsho Heavy Industries, and later took it over. So, a rumor is going around that Samsung Heavy Industries will be given control of Seongdong Shipbuilding and Marine Engineering, while STX Offshore & Shipbuilding will be entrusted to the DSME.
But the three large shipbuilders could not take care of such small and mid-sized shipbuilders, since a slump in the shipbuilding industry and losses in their marine plant business resulted in the worst-ever business performance.
Fortunately, Samsung Heavy Industries took charge of the management of Seongdong Shipbuilding and Marine Engineering in September, but losses of over 4 trillion won debarred the DSME from looking out for STX Offshore & Shipbuilding. In addition, word was passing around that the government demanded that Hyundai Heavy Industries be responsible for looking after STX Offshore & Shipbuilding in October, even though the Ministry of Industry, Trade and Resources officially denied it.
Integration was one of many plans afoot. The integration plan is to lessen production volume and make organizations slim by merging small and mid-sized shipbuilders under voluntary agreements or court receivership. Scenarios were written about the merger between STX Offshore & Shipbuilding and Seongdong Shipbuilding and Marine Engineering, and a marriage between Seongdong Shipbuilding and Marine Engineering and SPP Shipbuilding. But a dominant view was that this scenario was highly unlikely, since creditors and companies are widely apart in terms of interests.
“The orders small and mid-sized shipbuilders receive are mostly bulk carriers. Chinese shipyards are more competitive than Korean shipyards in the bulk carrier market,” said a representative in the shipbuilding industry. “The expansion of their sizes through mergers can hardly produce synergies.”
With coupling-style restructuring and integration plans in doubt, it has become highly likely that shipyards will be restructured through extreme measures such as sell-offs or court receivership. At the moment, SPP Shipbuilding is in a sell-off process while steps are being taken to let Shina SB go bankrupt.
Under these circumstances, the hottest topic is how the government will restructure STX Offshore & Shipbuilding. STX Offshore & Shipbuilding now has no chance of being entrusted or integrated, and its main creditor bank, the Korea Development Bank, is working on due diligence on the troubled shipbuilder.
Even though the results of the due diligence work will determine the fate of STX Offshore & Shipbuilding, it is said that a possibility of court receivership is high. This is because, although the shipbuilder has received upwards of 4 trillion won in financial aid from creditors, cumulative losses put the company into a capital impairment state and made it incapable of overcoming its difficulties.
At the moment, there are various versions of scenarios about STX Offshore & Shipbuilding restructuring. But nearly all representatives in the industry agree that the scenarios all lack credibility.