Government’s Ultimatum
The South Korean government warned Hyundai Merchant Marine and Hanjin Shipping that court receivership will follow if they fail to reach an agreement with regard to charterage by mid-May. In addition, the government called for the shipbuilders including Daewoo Shipbuilding & Marine Engineering (DSME) to adopt intensive self-help measures such as additional manpower reduction.
The government held a meeting in Seoul on April 26, presided over by Financial Services Commission (FSC) chairman Lim Jong-ryong, to discuss how to restructure the shipbuilding and shipping industries.
At present, the shipbuilding industry of South Korea is in a dire situation with new shipbuilding contracts becoming harder and harder to find due to a decline in oil prices and a decrease in seaborne trade. According to the FSC, South Korean shipbuilders won contracts worth US$10 billion in total last year but the figure has been close to zero this year. Things are even worse in the shipping industry. South Korean shipping companies’ long-term and high-charter rate contracts are leading to significant losses with international freight charges having fallen by more than 25% in 2016 alone.
Under the circumstances, the government told DSME, Hyundai Heavy Industries and Samsung Heavy Industries to come up with more self-rescue plans than previously planned. In response, DSME is planning to dismiss 2,300 additional employees while conducting stress tests until the end of May before setting up a contingency plan. The government is calling for similar measures to be adopted by smaller shipbuilders such as STX Offshore & Shipbuilding and Sungdong Shipbuilding & Marine Engineering, too. It is going to minimize the creditors’ losses by court receivership if necessary.
When it comes to the shipping industry, in the meantime, the government and creditors are going to provide new funds for business recovery, reduce shipping operators’ interest payments and help them build new ships by means of ship funds and the like. However, the government’s stance is that such assistance is available only when they meet the requirements including charter rate reduction and debenture holders’ debt adjustment. “The shipping companies have to send the final proposal regarding charter rate negotiations to ship owners and creditors within this month and the negotiations should be completed before mid-May,” the FSC chairman explained.
At the meeting, the FSC also decided to come up with a series of measures so as to cope with a massive layoff that is expected to follow the restructuring of the sectors. Specifically, the measures are predicted to include government aids for the maintenance of employment and unemployment benefits. The former is available for 180 days, 43,000 won a day, and the latter is provided for up to 240 days, 43,416 won per day.