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Restructuring in Full Swing to Save Beleaguered Shipping, Shipbuilding Companies
Desperate Fight for Survival
Restructuring in Full Swing to Save Beleaguered Shipping, Shipbuilding Companies
  • By Michael Herh
  • March 14, 2016, 06:00
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Restructuring is in full swing in the Korean shipping and shipbuilding industries.
Restructuring is in full swing in the Korean shipping and shipbuilding industries.

 

Korean shipping and shipbuilding companies, which have been struggling in their slumps, are set to secure liquidity and downsize to get their management back on track.

According to the shipping industry on March 13, Hanjin Shipping will announce their self-help measures in March. This year, the company will see its borrowings of 1.5 trillion won including those from banks, corporate bonds and ship finance reach their maturity this year. Out of the amount, the shipping company has to secure 800 billion won on its own.  

To do that, Hanjin Shipping asked Samil Samil PriceWaterhouseCoopers for consulting even at the beginning of this year. In addition, the company is allegedly planning to turn in its self-help plan to the Korea Development Bank. The plan will call for securing an additional 500 billion won for five years (100 billion won per year) by selling off its building in London including its Hanjin trademark and Gwangyang Terminal and pruning cost such as shutting down old ships and slashing labor cost. With the addition of its issuance of perpetual bonds acquired by Korean Air, the size of additional self-help plan is estimated at 1.2 trillion won. 

Hanjin Shipping raised 2.35 trillion won by selling off its bulk ship business among others in 2013. But the shipping company has been failing to break free from its liquidity crisis. Its debt ratio swelled to 840 percent of the end of last year. But the issuance of perpetual bonds lowered the ratio to 640 percent.  

Hyundai Merchant Marine (HMM) for which Hyundai Group chairwoman Hyun Jung-eun took money out of her pocket has been doing everything in its power to reach better ship lease terms with five foreign ship owners. Creditors said that they will be able to allow a capital decrease and a debt-for-equity swap only if HMM’s ship lease fees of two trillion won a year is lowered. If realized, the debt-for-equity swap can turn 900 billion won, about the half of the shipping company’s debts, into capital, reducing the current debt ratio of 1700 percent to below 400 percent. 

In addition, six companies submitted letters of intent (LOIs) to take over Hyundai Securities from the Hyundai Group owning HMM. “After the main bidding on March 24, we will quickly select the preferred bidder and sold off the stock brokerage company within the end of June.   

Downsizing holds the key to the survival of STX Shipbuilding in a process to becoming a specialized small and mid-sized shipbuilder. Last year, STX Shipbuilding came up with a plan to reduce the number of dockyards at Jinhae Shipyard to two from five and operate facilities to build 50,000-to 70.000 ton-class tankers and an LNG supply terminal only in consideration of competitiveness. At the same time, the plan called for transforming Goseong Shipyard into a subcontracting factory for big domestic shipbuilders in 2017. STX Shipbuilding had laid off its employees by 860 until October last year and will prune the workforce by roughly 930 this year. 

Daewoo Shipbuilding & Marine Engineering (DSME) suffered the highest-ever operating loss of 5.5 trillion won last year. The company downsized its size to post about 12 trillion won in sales which can realize the best efficiency down from 16 trillion won. Its workforce will be cut off to about 30,000 from current 45,000. 

Hyundai Heavy Industries has recorded losses for nine quarters in a row, fueling a rumor that HHI will sell off Hyundai Oil Bank, a blue-chip company. But the rumor was denied through a public announcement. “If market situations become friendly, we may consider listing Hyundai Oil Bank. But up to the present, nothing has been decided,” said a representative from HHI.   

Hanjin Heavy Industries, which had received a bailout fund of 130 billion won last year, applied for a self-regulatory agreement earlier this year. The company has a plan to secure an additional 338 billion won by selling ships, land on Yuldo in South Jeolla Province, its building in Manila, the Philippines. Currently, due diligence is being conducted on these assets.